First some information on the past Q and some company guidance…
• Humana has completed major acquisitions in the past quarter. Metcare Health Plans, Inc in August, PHP Companies in October and Cariten Healthcare in November. These acquisition included in co's estimate of FY09 EPS of $5.90-6.10. This estimate is above street consensus.
• It missed EPS estimates by .40 a share and guides Q4 EPS below consensus. However as mentioned earlier FY09 EPS is above consensus.
Information regarding political and economical events…
Negatives
• More intense competitive pressure along with a slumping US economy and challenging credit markets will cause significant strain and consolidation in the industry
• Democratic party reform may hit may hurt programs flourishing under Bush administration. Only time will tell.
However we still believe the company belongs in our portfolio because
• Humana has strong capital and liquidity with its $1 billion in revolving credit still available
• Growth in Commercial Specialty products
• The federal government announced regulatory changes to combat skyrocketing premiums for Humana’s Medicare Advantage plans. A significant advantage because Medicare has been seen as one of the companies most challenging prospects.
Finally, We believe that the baby-boomer population will continue to make this a successful pick in the long term and that the fundamental operations of the business have not changed enough to break the thesis and sell the stock.
Monday, November 17, 2008
Sunday, November 16, 2008
Brown-Forman Q12009
Brown-Forman posted a decline of 5% in YOY EPS for the first quarter of 2009. However, this decline in earnings was due to 25% of their Agave plants (used for making tequila) dying unexpectedly. While the company stated that it was not uncommon for a portion of the Agave stock to be unusable this high of a loss was very uncommon and should be a onetime event. Excluding this onetime charge the fundamentals of the company remained strong, as they experienced a 12% increase in EPS (excluding the $22M non cash charge) accompanied by a 7% increase in net sales. The majority of the company’s current growth is coming from less developed markets such as Eastern Europe, Latin America and Southeast Asia as growth in many developed markets has declined due to the current economic conditions. The company has maintained its FY2009 guidance expecting 1%-8% growth in EPS for the year including the onetime non cash charge.
Moving forward much of the company’s growth is expected to come from areas outside the US and its main drivers are expected to be its Jack Daniels and Finlandia brands and from its 2007 acquisition of Case Herradura. The company has developed new harvesting strategies to become more efficient and prevent further losses such as the one due to Agave, and should stand to benefit from the current decline in commodity costs especially in fuel and grain. On a valuation basis the company is trading significantly below its historical average in PE, EV/EBITDA, P/S, P/B and P/CF.
Moving forward much of the company’s growth is expected to come from areas outside the US and its main drivers are expected to be its Jack Daniels and Finlandia brands and from its 2007 acquisition of Case Herradura. The company has developed new harvesting strategies to become more efficient and prevent further losses such as the one due to Agave, and should stand to benefit from the current decline in commodity costs especially in fuel and grain. On a valuation basis the company is trading significantly below its historical average in PE, EV/EBITDA, P/S, P/B and P/CF.
Tuesday, November 11, 2008
Rockwell Collins Q4
Rockwell Collins posted a 17% gain in revenues for its fourth quarter on November 3, 2008. They posted these gains despite the strike of Boeing Co. and Hawker Beechcraft Corp. Boeing is a primary customer which suffered a seven-week strike in its commercial aircraft facility. It is expected that this strike has likely pushed back the 787 Dreamliner until 2010. However, demand has remained high for this aircraft as the backlog order is still in excess of six years due to “customers waiting for these more fuel efficient aircraft”. The strike which lasted 55 days lasted longer than I expected and was approximated that it reduced Rockwell’s top line by $40 million. Rockwell’s EPS was $1.13 per share, while one year ago it posted $0.93 per share. Rockwell beat the streets expectations which were expected at $1.07 per share. However, a tax credit helped boosted their earnings by $0.08 per share.
There are many continuing headwinds I expect to come with Rockwell. A continuing problem I see within the industry is the decline air traffic both domestically and globally. Specifically, global air traffic which had expected growth of 1% - 3%, is now expected to be flat because of the global economic downturn. Rockwell has also seen the cancellation of the Army’s Armed Reconnaissance Helicopter. There has also been a deferral of a $35 billion contract of aerial-refueling tanker and a $15 billion combat, search and-rescue helicopter contract. These contracts were awarded to Northrop Grumman and Boeing and Rockwell is a supplier to both. Along with these issues, the election of Barack Obama and with a Democratic Congress posses an interesting dilemma going forward. Expectations are for a cut in Pentagon spending because of overall tightening of our national budget as well as the expected withdrawal of troops in Iraq. Most recently, Rockwell implement a cost reduction plan which included a slash in employees of 300 or 1.5%.
With the issues mentioned above, as well as beating the street expectations for Q4 and the stock still not rebounding, I feel that a consideration to a sell or reducing or full position would be in the best interest for the group. I will be raising these issues at Thursday’s meeting for a final decision by Friday for the conference call.
There are many continuing headwinds I expect to come with Rockwell. A continuing problem I see within the industry is the decline air traffic both domestically and globally. Specifically, global air traffic which had expected growth of 1% - 3%, is now expected to be flat because of the global economic downturn. Rockwell has also seen the cancellation of the Army’s Armed Reconnaissance Helicopter. There has also been a deferral of a $35 billion contract of aerial-refueling tanker and a $15 billion combat, search and-rescue helicopter contract. These contracts were awarded to Northrop Grumman and Boeing and Rockwell is a supplier to both. Along with these issues, the election of Barack Obama and with a Democratic Congress posses an interesting dilemma going forward. Expectations are for a cut in Pentagon spending because of overall tightening of our national budget as well as the expected withdrawal of troops in Iraq. Most recently, Rockwell implement a cost reduction plan which included a slash in employees of 300 or 1.5%.
With the issues mentioned above, as well as beating the street expectations for Q4 and the stock still not rebounding, I feel that a consideration to a sell or reducing or full position would be in the best interest for the group. I will be raising these issues at Thursday’s meeting for a final decision by Friday for the conference call.
Friday, November 7, 2008
NVDA F3Q09 Earnings 11/06/2008-(Daren Pon)
Nvidia shares tanked to $7.62 on Thursday, but rose to $8.40 after-hours when they released earnings, showing that they beat the street Q3 earnings estimates. Revenues were $898 million and net income was $61.7 million with Q3 earnings per share of $0.20, well above the $0.12 estimate. Also, gross margins increased from 39.1% to 41.9%. Nvidia closed on Friday at $8.72, a nearly 11% increase from our buy in price of $7.859.
Nvidia has successfully transitioned its manufacturing processes to the 55nm standard, has launched a successful partnership with Apple for its new line of Mac notebooks, and their parallel computing architecture CUDA has been gaining momentum. Additionally, Nvidia has re-priced their products in order to better recapture market share from AMD's increasing price competition. Nvidia was singled out to outperform when Citi upgraded the semiconductor industry earlier this week. While being down overall for Q3, Nvidia beat what was expected of them and I am satisfied with their performance and future profitability.
Nvidia has successfully transitioned its manufacturing processes to the 55nm standard, has launched a successful partnership with Apple for its new line of Mac notebooks, and their parallel computing architecture CUDA has been gaining momentum. Additionally, Nvidia has re-priced their products in order to better recapture market share from AMD's increasing price competition. Nvidia was singled out to outperform when Citi upgraded the semiconductor industry earlier this week. While being down overall for Q3, Nvidia beat what was expected of them and I am satisfied with their performance and future profitability.
CSCO F1Q09 Earnings 11/05/2008 - (Daren Pon)
Cisco’s Q1 revenue was up 8% year over year at $10.3 billion from $9.55 billion a year ago and net income was $2.2 billion or 37 cents a share, up 2 cents from last year. Non-GAAP EPS was up 5% to $0.42, 3 cents above the street expectation. Additionally, gross margins increased to 65.6% from last quarter’s 64.9%. Enterprise year over year order growth across all of Cisco was down 11%, while the service provider, commercial and public sector were approximately flat from the year over year orders. Assuming that the global economy recovers to normal growth rates, CEO John Chambers maintains the long-term growth rate of 12-17%. Cisco forecasts Q2 estimates of 5-10% decrease in revenues from a year ago, gross margins of 64%, and capital expenditure of 39-41%. Cisco may seek to make key acquisitions during the economic downturn to increase future profitability.
Cisco still maintains a position of product leadership and has made great progress as an enabler of Web 2.0. Momentum could be realized from their strength in emerging markets and Japan; however, the great deal of Cisco’s profitability is tied into the overall resurrection of the global economy and in turn basic Information Technology spending. I suggest a hold on Cisco to wait for more favorable long-term conditions to arise, but would offer it as the first name to be slashed within the portfolio’s technology allocation to make room for more immediately profitable equity selections and to solidify diversification.
Tuesday, October 28, 2008
ESV 3Q08 Earnings (James Fowler)
ESV reported a 5.8% increase in net income Y/Y of $282.3M, $1.99 per diluted share, on revenues of $635.8M for 3Q08, compared to income of $266.7M, $1.82 per diluted share on revenues of $536.4M for the same period last year. ESV incurred a loss of $18.9M, $0.13 per diluted share, related to the loss of ENSCO 74, a Gulf of Mexico jackup rig. The rig is believed to have sunk in the aftermath of Hurricane Ike. Average day rates for the jack up fleet for the third quarter increased 10% to $156,900, as compared to $142,100 in the previous quarter last year. Rig utilization was also increased over last year with a rate of 97%, compared to 90%. The first of seven new ultra-deepwater rigs was delivered in September and is currently mobilizing to the Gulf of Mexico. Their balance sheet remained strong with $486M in cash and short term investments and only $300M in debt which half if is not due until 2027.
ESV still seems to be trading at a discount relative to fundamentals. The company will have all of the ultra-deepwater rigs operational by 2012 and anticipates the fleet will contribute approximately one-third of revenue once operational. ESV seems to be highly correlated to the price of oil, and after the price of oil peaking at $144 per barrel; ESV has traded off along with the price of oil. ESV has a strong balance sheet, favorable contract backlog, and is taking a conservative approach to internally funding the rig expansion program. I believe that price of oil is going to stabilize around $80 per barrel in the near future and begin to increase again once we are out of these hard economic times. Sentiment is to hold the position.
ESV still seems to be trading at a discount relative to fundamentals. The company will have all of the ultra-deepwater rigs operational by 2012 and anticipates the fleet will contribute approximately one-third of revenue once operational. ESV seems to be highly correlated to the price of oil, and after the price of oil peaking at $144 per barrel; ESV has traded off along with the price of oil. ESV has a strong balance sheet, favorable contract backlog, and is taking a conservative approach to internally funding the rig expansion program. I believe that price of oil is going to stabilize around $80 per barrel in the near future and begin to increase again once we are out of these hard economic times. Sentiment is to hold the position.
Tuesday, October 21, 2008
DD Q3 08 Earnings
DuPont Co reported lower third-quarter earnings on Tuesday, hurt by hurricane-related charges and lower volume shipments, and cut its full-year forecast. Revenue rose 9.3 percent Y/Y to $7.3 billion, largely because of higher pricing in all regions. Net income in the quarter fell to $367 million, or 40 cents a share, from $526 million, or 56 cents a share, a year earlier. Excluding a charge for plant damage, lost inventory and other problems from the hurricanes, the company earned 56 cents a share, down from 59 cents a year earlier.
-cnbc.com (full article @ http://www.cnbc.com/id/27291899/for/cnbc/)
Hey I mean when the street's looking for 51 cents/share and you come out at 40 cents/share that's a problem. Obviously they felt an impact from hurricane-related problems; in the form of a significant item of about 16 cents/share for clean up and repair) and about 120M during Q3 and Q4 to replace equipment. On the call and in the investor presentation management cited that although they feel that their balance sheet is strong and they have good access to the commercial paper market, challenges that they will continue to face are the ongoing credit crisis, as well as high raw material, energy, and transportation costs. They also cut their EPS outlook for the year to $3.25 to $3.30 per share. It previously had forecast $3.45 to $3.55. Wall Street had been expecting $3.49. Bottom line, we bought it at 51.82 and its trading at 33.28 at the close 10/21/08. We think it's too late to sell and we don't really see reason for much more downside and management still has a good vision for the business. Ag and Nutrition, which was one of the main reasons we purchased it, had solid results. It was up 22% from Q3 07 with 40% top-line growth in Latin America sales. Couple that with the evenutal recovery of the auto and housing market, we can hopefully make up most of what we have lost on it so far and possibly be realizing gains in the not too distant future. It's a strong company, with good management and the fundamental reasons for us purchasing it have not changed.
-cnbc.com (full article @ http://www.cnbc.com/id/27291899/for/cnbc/)
Hey I mean when the street's looking for 51 cents/share and you come out at 40 cents/share that's a problem. Obviously they felt an impact from hurricane-related problems; in the form of a significant item of about 16 cents/share for clean up and repair) and about 120M during Q3 and Q4 to replace equipment. On the call and in the investor presentation management cited that although they feel that their balance sheet is strong and they have good access to the commercial paper market, challenges that they will continue to face are the ongoing credit crisis, as well as high raw material, energy, and transportation costs. They also cut their EPS outlook for the year to $3.25 to $3.30 per share. It previously had forecast $3.45 to $3.55. Wall Street had been expecting $3.49. Bottom line, we bought it at 51.82 and its trading at 33.28 at the close 10/21/08. We think it's too late to sell and we don't really see reason for much more downside and management still has a good vision for the business. Ag and Nutrition, which was one of the main reasons we purchased it, had solid results. It was up 22% from Q3 07 with 40% top-line growth in Latin America sales. Couple that with the evenutal recovery of the auto and housing market, we can hopefully make up most of what we have lost on it so far and possibly be realizing gains in the not too distant future. It's a strong company, with good management and the fundamental reasons for us purchasing it have not changed.
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