Wednesday, August 12, 2009

AAPL: Why Apple Is More Valuable Than Google

Business Week Article:

Wednesday, August 5, 2009

CSCO F4Q09 Earnings 08/05/09-(Daren Pon)

*From Bloomberg

Aug. 5 (Bloomberg) -- Cisco Systems Inc., the largest maker of networking equipment, predicted that revenue will drop for a fourth straight quarter as the recession crimps orders of networking equipment.

Revenue will fall 15 percent to 17 percent in the fiscal first quarter, which ends in October, the company said today. That equates to between about $8.6 billion and $8.8 billion, down from $10.4 billion a year earlier.

Global sales of routers and switches, which account for almost half of Cisco’s sales, will fall about 20 percent this year, according to the research firm Dell’Oro Group. Chief Executive Officer John Chambers aims to revive growth by getting into markets such as video cameras and computer servers.

“It’s disturbing in the fact that you’d like to see them gaining momentum,” said Cisco investor Daniel Morgan, a portfolio manager for Synovus Securities Inc. in Atlanta. “But then you have to take a step back and realize what’s going on in the industry.”

Cisco, based in San Jose, California, fell 74 cents to $21.43 in late trading after giving the forecast. The shares, up 36 percent this year, closed at $22.17 today on the Nasdaq Stock Market.

Profit Margin

The company’s gross margin -- the percentage of sales remaining after production costs -- will be 64 percent this quarter, Cisco said. That compares with 65.3 percent last quarter. Less-profitable consumer products could be taking a toll, said Mark Demos, portfolio manager for Fifth Third Asset Management in Minneapolis.

“The big issue is profitability,” said Demos, who helps manage $19.8 billion in assets. His firm had about 3 million shares of Cisco as of March 31. “They’re saying there could be an issue because of a mix of products.”

Orders began to rebound in the fourth quarter, though it’s too early to tell if the recovery will last, Chambers, 59, said on a conference call.

Sales in the fourth quarter were typical for the season, unlike the previous three quarters, he said. “While it’s too soon to call a recovery, it’s the first positive trend we’ve seen,” Chambers said.

Fourth Quarter

Fourth-quarter net income fell 46 percent to $1.08 billion, or 19 cents a share, from $2.01 billion, or 33 cents, a year earlier, Cisco said today. Excluding costs such as stock compensation, profit was 31 cents. Analysts in a Bloomberg survey had estimated 29 cents on average.

Revenue fell 18 percent to $8.54 billion in the quarter, which ended July 25. Analysts had projected $8.51 billion.

To cope with the slump, Cisco just completed more than $1.5 billion in budget cuts. It eliminated more than 2,000 jobs, curtailed hiring and merged offices. Cisco had $35 billion in cash and equivalents at the end of last quarter, up from $26.2 billion a year earlier.

Investors view Cisco as a technology-industry bellwether because it dominates the market for routers and switches, products that direct the flow of data. Large companies account for most sales of switches, used to run their corporate networks. Phone carriers and Internet-service providers mostly purchase routers, which are costlier.

Economic Bellwether

Cisco’s results also serve as an indicator of the broader economy, said Jason Ader, an analyst with William Blair & Co. in Boston. He expects the shares to perform in line with the market and doesn’t own them.

“Switch sales are typically correlated with economic factors such as employment, new business starts and business expansion,” Ader said.

The U.S. economy shrank 1 percent last quarter, extending the longest recession since World War II. The country has lost 6.5 million jobs since the slump began in December 2007. Economists surveyed by Bloomberg forecast the jobless rate to exceed 10 percent by early 2010.

Cisco set out last year to cut at least $1 billion in annual costs by July. Cisco reduced travel expenses by using its own videoconferencing equipment to avoid business trips.

Tuesday, August 4, 2009

Chesapeake Energy Corporation (Dan Goldfarb)

For the quarter, Chesapeake's Revenue was $1.7 billion, compared with a revenue loss of $455 million a year ago. The company reported second quarter net income of $237 million, or 39 cents per share, compared with a loss of $1.6 billion, or $3.17 per share, one year ago. Excluding one-time costs, Chesapeake saw an adjusted profit of $377 million, or 62 cents per share, down from $479 million, or 89 cents a share, in the same quarter last year. On average, Wall Street analysts expected a lower adjusted profit of 52 cents per share, but on significantly higher revenue of $1.9 billion.

Chesapeake saw production of 223 billion cubic feet of natural gas equivalent (bcfe) for the quarter with an Average Daily Production Increases of 4% over 2009 First Quarter Production and 5% over 2008 Second Quarter Production
(the company’s daily production for the 2009 second quarter averaged 2.453 bcfe, an increase of 86 million cubic feet of natural gas equivalent (mmcfe), or 4%, over the 2.367 bcfe produced per day in the 2009 first quarter and an increase of 125 mmcfe, or 5%, over the 2.328 bcfe produced per day in the 2008 second quarter.) The company is not currently curtailing production, but may do so again later this summer or fall as market conditions dictate.

I feel Chesapeake is currently undervalued and is poised for solid gains for the rest of 2009. As oil prices remain high and the overall economy continues to improve, Chesapeake should see increased overall demand and profit. They have a very successful hedging strategy (resulting in a gain of $597 million in the second quarter) that will combat price fluctuations of natural gas. Management remains confident in their ability to combat poor market conditions if they should arise. Currently, Chesapeake remains a Hold.

Monday, August 3, 2009

VISA (Richie Civello)

Visa Inc (NYSE:V - News) reported better-than-expected quarterly earnings on Wednesday(7/29), as the world's largest credit card network cut expenses and credit-strapped consumers used their debit cards more. Larger than expected cuts in advertising were a major component to the cost cuts.

The company also forecast revenue would grow more than expected in the fourth quarter helped by a recovery in the number of transactions.

Net income rose 73 percent to $729 million, or 97 cents per diluted class A share, for the third quarter ended June 30.

On an adjusted basis, reflecting a normalized tax rate, restructuring and purchase amortizations, quarterly net income rose to $744 million, or 98 cents per diluted class A share. True earnings per share were $0.67 per share; the difference coming from a one-time Brazilian IPO.

Overall revenues were in the expected neighborhood, Payments volume fell 5% but processed transaction volume increased 8% to 10.3 billion.
Our thesis with Visa is still: that increased transactions due to a shift from paper payments to plastic would lead to increased business and the shift from debit to credit card payment during these hard times would be beneficial to Visa.( Debt processing went up 3.6% this quarter, Credit Card payment volume decreased 10.4%). With the economy showing more signs of life Visa looks to still be a hold.

Saturday, August 1, 2009

Waste Management Profits Fall 22%

Waste Management came out with earnings on Thursday. They posted a 22% drop in profits from the prior year. Revenue also fell from $3.49 billion to $2.95 billion. Management attributed the results to lower prices for recycled materials and lower volumes. EPS was .50 a share, while analyst were expecting .52 cents. The results from Q2 did improve from Q1 when EPS was .30 cents a share.