Thursday, May 7, 2009

CSCO F3Q09 Earnings 05/06/09-(Daren Pon)

Cisco Systems Inc. had a rough quarter with, but still managed to beat quarterly earnings expectations. Cisco earnings fell 21%, but still beat analysts with earnings of $0.23 per share, about $0.05 above the consensus estimate. Cisco shares rose $0.43 to $20.04, an increase of 2.2% after-market.

In F3Q09, Cisco increased cash reserves by $2 billion, totaling $33.5 billion. Revenue decreased by 17% year-over-year to $8.2 billion. Gross margins were up 0.10% year-over-year at 55.1% through lower manufacturing costs that helped offset low sales volume and discount pricing.

Moving forward, many companies are still feeling the impact of the recession and are going to hold off on any large-scale improvements to networking infrastructure. This will continue to hurt Cisco until the economy moves further along recovery. Optimistic business lines include Cisco's video conferencing service Telepresence and virtualization technologies. The former uses large televisions and high-speed network connections to simulate face-to-face conference table discussions with users dialing in across the globe, saving travel expenses. Telepresence sales rose 70%. Expansion of such systems would also increase sales of Cisco routers and switches. Virtualization is still a powerful, yet easily implemented cost-cutting tool that allows one computer to act as many.

Cisco is a strong company and I maintain a HOLD on it. Despite some interesting areas of growth, the core business will still continue to suffer. As more opportunities arise within Technology, the opportunity cost of holding Cisco could rise too high.

Monday, May 4, 2009

CHK posts loss of $5.75 billion for Q1 09 - shares down over 7% in extended trading

On Monday, May 4, CHK reports a net loos of $5.75 billion (-9.63 per fully diluted common share) due to a larger than expected impairment charge of $6 billion on oil and natural gas properties. This loss is a result of a 36% decrease in the NYMEX price of natural gas during the quarter. The poor performance of natural gas throughout the quarter was due primarily to slumping industrial demand for the commodity.

In order to counteract the continuing weak demand for natural gas, CHK announced on April, 16 that they will decreas daily production by another $400 mmcf (13%). Chesapeak's proven natural gas and oil reserves were 11.9 tcfe, a decline of 2% from the beginning of the year. The company also cut their capital expenditures by another $500 million. The company is currently documenting an agreement to sell certain Chesapeake-operated long-lived producing assets in South Texas in its fifth volumetric production payment transaction in order to help cover budgeted capex and reduced borrowing under their revolving credit facility.

Despite the current negative enviornemnt surrounding natural gas producers, I remain optimistic about the future of the commodity as an alternative to foreign oil. Prices have not been this low since 2002, and when demand turns around, CHK remains well positioned to capitalize. We maintain a hold on Chesapeake Energy.

Friday, May 1, 2009

Valero Q1 EPS of $0.59, beating street estimates.

Valero posted first quarter net income of $309 million, or $0.59 per share, compared to last year's 1Q net income of $261 million, or $0.48 per share. Management reported that the increase was mainly due to higher refining margins on gasoline and secondary products, such as fuel oil, asphalt, and petroleum coke. They also cited lower refinery operating expense as a contributing factor.

"We reported positive earnings despite weaker demand,” said Bill Klesse, Valero’s Chairman of the Board and Chief Executive Officer. “In fact, our first quarter 2009 earnings per share were 23% higher than the first quarter of 2008, and 64% higher if you exclude last year’s insurance recovery. In all our regions, gasoline margins were unseasonably strong and nearly double the level in the same quarter last year. Diesel and jet fuel margins were also good in the first quarter despite being down from last year’s high levels.

Also worth mentioning is Valero's acquisition of seven ethanol plants previously owned by now bankrupt VeraSun. This further vertically integrates their business, as ethanol is a neccessary additive in many of their products.

Going forward, management acknowledges continued volatility and difficulty in the energy business, but remains committed to finanacial strength and long term viability. Nothing has changed with this stock and in fact it has only become stronger in the past two months. Valero has improved upon many of the competitive advantages that make it so attractive as a refiner, as well as maintained the financial strength to see it through these tough times. Although we are up nearly 20% on Valero, it still remains undervalued and should hit the price target in due time.