Friday, January 28, 2011

Ford 4Q10 Earnings 1/27/11

Ford Motor reported its best full-year profit in more than a decade, but weaker-than-expected fourth-quarter earnings. Net profit for 2010 totaled $6.6 billion, or $1.66 per share, an increase of $3.8 billion above 2009. However, Ford’s fourth -quarter earnings fell 79% to $190 million. These results include a previously disclosed one time charge of $960 million as part of its balance sheet restructuring. Ford fell short of analyst earnings estimates of $0.48 by 37%, reporting earnings of only $0.30. Ford had beaten expectations for each of the past seven quarters.

4Q earnings also showed Ford Europe’s operating loss of $51 million, compared with a $253 million profit a year earlier. Chief financial officer, Lewis Booth described the surprising results in Europe as “a little bit of a disappointment”. He also said: “We were very clear, though, that we were not going to chase market share.” The European operation is expected to return to profitability this year.

In 2010, Ford paid over $14.5 billion in debt, ending the year with $19.1 billion in debt. Cash revenues totaled $20.5 billion shifting Ford from $8.7 billion in net debt a year ago to net cash of $1.4 billion. Ford plans to continue to reduce the amount of debt they have on their balance sheet through 2011.

Ford shares were hit by the weak earnings, falling by $2.39 or 12.72% to 16.40. Other then the stock plunge the earnings report for Ford was great. Ford showed its ability to grow profits in 2010 and is expecting to continue in 2011. A key concern looking to the future will be whether or not Ford can maintain healthy profit margins.

- Michael Biagi, Junior Analyst

Verizon Communications (VZ)- Earnings Release

Verizon Communications released fourth quarter earnings of $0.54 per share missing analyst expectations of $0.55 per share.

Verizon Wireless has experienced a 7.7% increase in service revenue and a 25.5% increase in its data revenue from 4th Quarter 2009.

Verizon’s Wireline segment added 197,000 Fios internet users and 182,000 Fios TV subscribers in the 4th Quarter of FY 2010.

On January 11th 2010 Verizon Wireless announced that it would begin carrying the iPhone 4 which will be available to Verizon Wireless subscribers in February of 2011. Verizon’s ability to begin distributing the iPhone 4 as one of its premier mobile devices is expected to provide substantial wireless service and data growth. Despite the iPhone’s ability to increase customer and data growth, many analysts are concerned of Verizon’s ability to support the influx of data usage. Verizon Wireless has been a market leader in service quality over the last years. Deterioration of Verizon’s wireless network could potentially cause material problems for the company’s growth and ability to maintain favorable churn. Management has stated that it is fully confident in its network, however this is an issue that UASBIG analysts will continue to monitor closely.


Thursday, January 27, 2011

CAT 4Q10 Earnings 01/27/11 - Jeremy Pellizzari

Caterpillar Inc. reported 4Q revenues of $12.8 billion, which was a 69% increase from the year before. For the fiscal year, CAT reported earnings of $42.6 billion, an increase of 31% from the prior year. The 4Q earnings showed profit nearly quadrupled year over year to $968 million, which equates to an increase of EPS from $.36 to $1.47. Caterpillar managed to beat analysts’ expectations by nearly 14% and has managed to beat earnings for eight straight quarters. Much of this can be attributed to machinery sales being up 88% and engine sales up 36%. Throughout the year, CAT raised production levels each quarter, to the point that there 4Q shipments of machinery were double that of the prior year.

Looking to the future, CAT appears to maintain strong growth into 2011 riding out the growth in developing countries. CFO Edward Rapp is quoted as saying “We’re very optimistic about what’s going on in the developing parts of the world.” The outlook for 2011 does not include two pending acquisitions of Bucyrus International Inc. and Motoren-Werke Mannheim Holding, but still forecasts earnings near $6 per share, a 45% increase from the $4.15 per share in 2010. They are forecasting sales to top $50 billion which would be a 17% increase from 2010. Some of the risks they have identified going into 2011 are rising prices of raw materials, global divergence, and central banks in developed economies tightening economic policies. In regards to raw material prices, Caterpillar reports they believe that total costs of material are expected to be “relatively flat.” They justify this with the fact that steel accounts for only 20% of material costs and the suppliers through which they buy parts have cut costs of labor by becoming more efficient. Look for Caterpillar to have a strong year in 2011 and continue to be the world’s largest manufacturer of construction and mining equipment.

Jeremy Pellizzari - Junior Analyst

Western Digital Q2 Earnings

Western Digital reported Q2 earnings with total revenue of $2.475 billion and a net income of $225 million, or 96 cents per share, beating analysts’ estimates by 38 cents per share. Western Digital, which competes with larger rival Seagate Technology, said hard-drive unit shipments in the quarter rose 5 percent to 52.2 million. Chief Executive John Coyne said the company’s results reflected “solid execution and an improvement in hard drive industry conditions compared with the prior two quarters.” However, the company warned that tablets which use flash memory rather than hard-drive storage - would reduce growth in shipments of low-end laptops by 10-20 percent over the next few quarters. Western Digital expects revenue to range from $2.2 billion to $2.25 million in the third quarter.

Vladimir Pantilei,Junior Technology Analyst

LIFE upward trend looks to continue

In the past 52 weeks, shares of Life Technologies have traded between a low of $41.10 and a high of $57.25 and are now at $54.49, which is 33% above that low price. Life Technologies is currently above its 50-day moving average of $53.66 and above its 200-day moving average of $49.64. In the last five trading sessions, the 50-day MA has climbed 0.32% while the 200-day MA has remained constant.


Wednesday, January 26, 2011

Corning posts 4Q10 earnings.

Corning has reported earnings of $0.45, just one penny shy of analyst expectations. Revenue numbers came in at $1.77B which was far ahead of the expected $1.61B analysts were looking for. After earnings were released Corning finished the day up 7.9%, closing at $21.21. We have not seen a price this high since August 2008.

Full year sales were $6.6B, a 23% increase over a year ago, with each of the company's business segments growing year over year. Full year gross margin improved 700bps to 46% year over year. Corning ended the year with $4.59B in cash and continues to look attractive.

Gorilla Glass continues to be gaining traction. It is part of the specialty materials division of the company, which has grown revenue 70% year over year. This revenue made up 9% of Corning's total revenue in 2010.

Corning currently trades at a P/E of 10.3 and doesn't seem to price in growth at all. CFO Jim Flaws stated "it might be possible for Gorilla Glass to reach $1B in sales in 2011 depending how the TV market takes to the product." Seeing a 76% growth in EPS year over year and a strong outlook, I do not see why this stock is not trading at a higher P/E. If the P/E was to grow to 15, Corning would be trading over $30. It seems the market is overlooking the growth Corning is experiencing.

-Rory Blake

TRV – Q4 earnings & FY 2011 wrap-up 1/25/2011

           The Travelers Companies reported fourth quarter net income of $1.95 per share, a decline from a record $2.36 per share in the same period last year. Despite the decrease TRV easily outpaced the consensus estimate of $1.66 per share, illustrating the fact that Q4 2009 was not a reasonable target because it benefited from three rare items. For the year, Travelers reported net income per Diluted Share of $6.62 compared to $6.33 in 2009. Yearly revenue was up 2%, and net written premiums increased by 1%. Forward guidance was not provided, but management was optimistic about the 2011 pricing environment. TRV’s board has authorized an additional 5 billion in stock buybacks in anticipation of strong operating cash flow next year.

           During the conference call, CEO Jay Fishman addressed numerous questions about the company’s municipal bond portfolio. Analysts were concerned that the continuing budget deficits across all levels of domestic government might lead to pockets of insolvency. Any weakness in government debt would impact TRV because they systematically invest more of their reserves in the municipal market than their competitors, a strategy which helped them avoid MBS losses like those of Allstate – who is currently suing Bank of America over 700 million in bad debt. Fishman allayed these concerns by saying, “If one takes the 10 states that our analysis suggests are the most challenged, whether that's through pension or medical liability, medical payments or debt obligations, we own an aggregate in all of those 10 states. And this is excluding pre-refunded bonds, we own an aggregate of $1 billion of state-issued general obligation bonds in those entire 10 states. That represents 3.1% of our municipal portfolio.”

           TRV management also detailed their first venture into a developing market, “we will invest approximately $370 million or 43% of the common stock at J. Malucelli, the market leader in the [construction insurance] business in Brazil.” This is a welcome first step for a company that has almost no business outside of the United States, Canada, and the UK. Unfortunately, management later admitted that, “The Malucelli situation was really very opportunistic. And it really came about because of an outreach from the folks in Brazil… We don't have any ambition to be a global company.”

           Looking ahead, the concerns I voiced about the company’s long term strategy in my Q3 review are still unresolved. They are mirrored succinctly by Morningstar’s Drew Woodbury, “In the absence of growth opportunities, the company has been buying back shares… The company repurchased more than 18% worth of its year-end 2010 equity. In 2011, management expects to buy back $1.5 billion more than its full-year operating earnings. We think previous repurchases have been a good use of capital, given alternative low-return opportunities, but we would hope that as the market improves Travelers will put more capital toward expanding its business.”


Saturday, January 22, 2011

Bank of America Disappoints With 4Q2010 Loss

Analysts had high expectations for Bank of America going into the release of its fourth quarter earnings; unfortunately, the $1.24B ($0.16/share) loss was a substantial setback to the positive momentum it had been building since early December. Countrywide continues to be a negative influence on earnings, particularly due to the poor performance of its mortgage portfolio.

Like most other banks, changes in loan loss provisions continue to have a tremendous impact on the the bottom line. Bank of America posted a $4.1B provision for loan buybacks - $1.1B higher than CEO Brian Moynihan had disclosed just three weeks ago. The total cost of credit and mortgage impairments for 2010 amounted to $12.4B, but Moynihan is optimistic that credit costs will steadily improve throughout 2011.

On the positive side, quite a few of the large charges they took this quarter were one-time expenses, which may make for an easier comparison in 1Q2011. Excluding goodwill write-downs, adjusted net income was $0.04/share - still far below the consensus of $0.24/share, but positive nonetheless.

Bank of America continues to work on cleaning up its balance sheet and strengthening its mortgage portfolio, particularly Countrywide's mess of subprime loans and potential looming loan repurchases. With one-time expenses out of the way and continuing credit improvement, the bar for first quarter earnings should be set higher - hopefully Moynihan can reach that bar.

-Dan Hurley, Junior Analyst

Management Shake up Again for Hewlett Packard

The recent departure of 5 board members can be linked to the handling of ex-ceo Mark Hurds departure from the company. Share holders were upset with his severance package and are currently in suit with the company.

HP named 5 new directors to the board. In this addition they added 3 women to their board of directors more than doubling the average of women on any board. Some believe this may be a PR push to boost the image of the company but the individuals added to the board are all extremely qualified and have specialties in different areas. It is very beneficial to have a diversified board enabling a strong foresight in the industry.

"Corporate governance expert Nell Minow of Governance Metrics International told MarketWatch’s Benjamin Pimente that the H-P board “has long been overdue for a shake-up,” adding, “I give them credit for recognizing that.”" I agree with Nell the management shake up is very beneficial for the company and is expected when a new CEO joins a company.

New Board Memebers
Meg Whitman - Ex - CEO of eBay
Patricia Russo - Ex-CEO of Alcatel-Lucent
Dominique Senequier - CEO of Paris-based AXA Private Equity
Shumeet Banerji - CEO of Booz & Company
Gary M. Reiner - Ex - CIO of General Electric

Current Price of HP after hours January 21st : 46.95

Friday, January 21, 2011

Wells Fargo

Wells Fargo & Co reported record earnings of $3.4 billion or 61 cents per share for the fourth quarter 2010. The company also saw improvement in credit quality for the quarter, with nonperforming loans, nonperforming assets, and net charges off all decreasing. For the first time in over a year Wells Fargo & Co saw an increase in loan growth quarter over quarter at just less than 1%. Although a small percentage change, seeing growth in loans is very positive for the banking industry as well as the whole economy.

The Bank did put up strong earnings but there are still a number of concerns looming. The fourth quarter results were inflated by $850 million released from loan loss reserves. There is also the threat that the company may have to buy back some mortgages that were sold improperly. Some analysts say this could be upwards of $2 billion. Net interest margin, the difference between what the bank pays for funds and what it charges for loans, narrowed to 4.16 percent from 4.25 percent in the third quarter.


Monday, January 10, 2011

Endo Taking a Beating

The FDA continued to flex its muscles with the rejection of Endo's tamper-resistant form of Opana ER. It was unclear why the FDA rejected the drug as the complete response letter did not call for additional studies to be conducted for the drug to be approved. Endo's management has already undertook discussions with the FDA and expects to file for approval by mid-2011, with an expected six month review cycle.

At first, the rejection of Opana TRF certainly seems like a major blow to my valuation of Endo, with the stock finishing down almost 3.5% at the end of trading day. However, Endo does not actual face generic competition for Opana ER until 2012, which gives the company some cushion while it works to gain approval for Opana TRF. So I do not feel this event causes a great concern to my valuation, but is something I will certainly be keeping track of. Endo has also been experiencing heavy put volume since late 4Q of this past year due to its run-up in price starting in the 3Q of 2010, this may also have been a reason behind the substantial price drop along with the FDA rejection of Opana TRF. I have been expecting a slight correction in the stock, but it should rebound over the next two quarters as the company will start to show results from its acquisitions.


Wednesday, January 5, 2011

Hewlett Packard: On the Rise

Since the acquisition of Hewlett Packard in the portfolio the company has had many newsworthy actions that support the purchase of the stock. It has has been on the rise and closed today at $44.17 (January 5th 2011).

The main risks going into this new fiscal year was whether or not Hewlett Packard was going to maintain its strong sales ability in renewing and obtaining new contracts. Since the beginning of the fiscal year they have received contracts summing in the multi-billions of dollars. A note-able contract was with NASA beating out Lockhead Martin, the HP Enterprise Services won a $2.5 billion contract to manage, secure, and maintain its IT infrastructure across all of the agency’s research and flight centers. The program is called Agency Consolidated End-User Services, or ACES, and stretches out over 10 years. Currently Hewlett Packard ranks No. 12 on Washington Technology’s 2010 Top 100 list of the largest federal government contractors.

RBC Capital analyst Amit Daryanani writes in a report that came out January 3 that 2011 he assigns HPQ an Outperform rating and a $57 price target.

Hewlett-Packard on tuesday January 4th 2010 announced a netbook with some cutting-edge mobile broadband and graphics technologies that could make it the most powerful netbook yet. The lightweight Pavilion DM1 netbook comes with an 11.6-inch screen, and runs on Advanced Micro Devices' new Fusion processor, which bundles a graphics chip and CPU into a single piece of silicon. The DM1 runs for a maximum of 10.5 hours with solid-state drive storage, and 9.5 hours on hard drive storage. This Netbook will be have the capability to be on wireless LTE (long-term evolution) mobile broadband networks, which offer faster data transfers than current 3G networks.(Rumored with Verizon but could possible be with another network.)

Chief Marketing Officer Michael Mendenhall resigned and is going to be replaced by SAP V.P. Bill Wohl. There is no definite reason for mendhalls leaving as of yet but this will sure stir up some controversy.

HP has invited the press to a WebOS announcement which will not be at CES but on Feb. 9. "The wording of the invite also hints there may be more than one device presented."

-Jonathan Wiener

Monday, January 3, 2011

Dress Barn Corporate Reorganization

The Dress Barn, Inc. announced today that the company completed its expected holding company reorganization on January 1, 2011. Ascena Retail Group, a new Delaware corporation, has replaced Dress Barn as the publicly held corporation and will begin trading immediately under the ticker “ASNA.” The reorganization was approved at Dress Barn’s annual shareholders meeting on December 17, 2010.

This move should not affect Dress Barn’s position in the portfolio because as a result of the reorganization, shareholders of Dress Barn automatically become stockholders of Ascena on a one-for-one basis. We will be holding the same number of Ascena shares and have the same ownership percentage after the reorganization as held of Dress Barn prior to the reorganization.

According to the company's press release, “Incorporating the new holding company in Delaware will allow the company to take advantage of the flexibility, predictability and responsiveness that Delaware corporate law provides.” The three core brands: dressbarn, maurices, and Justice, have become wholly-owned subsidiaries of Ascena and will continue operations as is under the new structure. No changes have been made to directors or executive officers.

Given the successful acquisitions of maurices and Justice within the last five years, the reorganization confirms a strategic shift in direction for the company. Prior to the purchase of maurices in 2005, Dressbarn was centered around a single brand but has begun to develop a more portfolio-style brand approach. Management has proven their ability to integrate these acquired brands, and the transition to a portfolio driven holding company suggests further acquisitions are expected in the future.