Friday, December 21, 2012

DFS 4th Qt Earnings

Discover Financial Services (DFS) reported earning December 20th, 2012.  The missed analyst estimates by $.04 with a diluted EPS of $1.07.  The news caused DFS to drop 3.42% on the day to close at $38.41.

The earnings were strongly affected by the increase in company expenses.  They have increased 18% mostly associated with their acquisition of  The increase was largely due to higher employee compensation and the marketing expenses associated with Home Loan Center (a piece of, an increased card marketing initiative and a higher headcount.  These increased expenses are anticipated to go into the next quarter.  As we expected card delinquencies did increase.  They increased 5bps however, net charge- offs rates declined 14bps to a new historic low.

The companies ROE was 23%.  DFS is continuing on its goal of organic growth.  The company issued a $.40 dividend which is a 40% increase and also repurchased 2% of the shares outstanding.  Their direct banking pretax income was $827 million which was up 51 million (7%) from the year prior.  Both Discover's sales volume and credit card loans were up 6% from a year prior.  Personal and Private student loans grew 11% from the prior year.  Also other income had an increase of 50 million (11%) from last year largely due to Discover Home Loans which was created from the acquisition.  In the future discover will be switching to a December fiscal year.

Going forward, we expect to maintain these increased levels of expenses.  Because the company is looking for organic growth these expenses will lead to a boost in revenue.  DFS is at the beginning stages with Discover Home Loans, which I believe will be a large revenue driver. The second quarter of 2013 the PayPal deal Discover has will go into affect. This agreement can also lead to increased revenues.  Discover has continued their strong growth and I think we should continue to hold DFS.

Wednesday, December 19, 2012

CBI Earnings Guidance

Chicago Bridge and Iron (CBI) updated its earnings guidance for FY13 on Wednesday Dec 19th. The company is projecting earnings per share between $3.35-3.65 for the year, compared to analyst consensus of $3.51. CB&I’s guidance on revenue of $6.3-6.7 billion is more optimistic than the consensus of $6.26 billion. CB&I further expects new awards of $7-10 billion in 2013. A special dividend of $0.05, scheduled for Dec 31st, has earlier been declared.

In addition to the earnings guidance, the company announced its shareholder’s approval of the acquisition of the Shaw Group. Over 90% of shareholders voted in favor of the $3 billion deal that is planned to be completed in the first quarter of 2013. The shareholders of Shaw still have to approve the deal in a vote on Friday Dec 21st.

The CB&I stock jumped 4.46% to $44.47 on these news today. Looking forward, we will keep CB&I as a BUY. Our thesis needs to be updated with the upcoming acquisition, but we are expecting a significant growth in revenue and new awards in 2013. The Shaw acquisition will allow CB&I to expand and diversify its competitiveness in power generation.

Monday, December 10, 2012

Honeywell 2013 Guidance & Acquisition

Honeywell forcasted earnings for 2013 today and based off an earlier projection, they are on target for the midpoint of their previous target ranges.  Posting a 1-3% organic growth with a total of 4-5% including acquisitions and an EPS growth projected to be at 6-11% to $4.75-4.95, which are being based off of a positive outlook on strong margins.  Keeping in line with previous projections and still not hitting our price target, I feel we should hold Honeywell and with needing an update to the thesis, it may become a potential buy.   

Also with guidance on earnings being released, Honeywell announced another acquisition in which they acquired Intermec, a leading provider in mobile computing, RFID and barcode solutions, label and receipt printers for use in warehouse, field service, supply chain and manufacturing environments, etc.  They were purchased for 10$ a share or a total of $600 million, net of cash and debt. This is bringing more scale to their automations and control services portfolio and providing exposure to new services. 

To reiterate, with an needed update to the thesis, I will keep Honeywell at a hold with a potential opportunity to become a buy in the near future. 

Wednesday, December 5, 2012

AAPL Slides 6%

Ryan Stern, Junior Technology Analyst:
            Today Apple shares declined 6.43% to $538.79 representing a $37.05 loss off a slew of negative company news. Media companies including CNBC cited reports that Apple’s margin requirements have been raised by at least one clearinghouse. Apple is still up 33% this year, but is down nearly 24% from its record high in September of $705.07. While the raised margin requirements have not yet been confirmed by Reuters, the sell-off was mainly fueled by an influential research firm who projected Apple is losing market share in the table space. International Data Corp said Apple has likely shed market share in 2012 to competitors such as Google and Microsoft. IDC projected Apple’s worldwide tablet market share will slip to 53.8 percent in 2012 from 56.3 percent in 2011, while Android products will increase their share to 42.7 percent from 39.8 percent. IDC also projected Windows tablets to rise from 2.9% in 2012 to 10.2% of the market in the year 2016 due to the recent launch of Windows 8 and Microsoft’s Surface tablet. The decline has also been attributable to Investors taking profits concerned about increasing tax rates on dividends and capital gains. Despite Apple’s worst decline in 4 years, it is now gearing up for the introduction of its latest iPhone 5 and iPad mini in international markets. It will begin selling the iPhone 5 in 50 countries in December, including China and South Korea. Apple still remains a leader in the computer hardware industry and we believe Apple’s quarter 4 will benefit from the release of the iPad mini and revenue growth from iPhone 5 sales.
            We reiterate Apple as a buy and believe uncertainty has unjustifiably caused this sell off despite leading industry margins, substantial earnings growth and continued innovation. In addition, we will reevaluate the portfolio’s exposure to the tablet market within Apple (and potentially, Microsoft) to determine if the portfolio would be overexposed.