Stocks in the News — week of April 1, 2013 (April 5 update)

 

Goodfellow LLC’s “Stocks in the News”

seen on Townhall Finance, heard on Ransom Notes Radio

F5 Networks Falls on Forecast Blunder

F5 Networks Inc. (FFIV, $74.56), maker of networking technology, is down $15.86 after it sharply lowered Wall Street’s expectations for second quarter revenue and earnings per share due to slower North American sales.

F5’s forecasting errors could easily be attributed to growing pains, as this aggressively growing company eventually learns to anticipate the seasonal demand patterns and changes in product cycles that more mature companies take in stride.

Citi Research adjusted its earnings per share forecast today to show flat numbers for 2013, then growth of 10% and 13% in F5’s next two fiscal years.  After today’s drop, watch for price support at $70, and a possible rebound this year to the mid-$90’s.  Experienced traders could make 20% on the rebound.  Aggressive growth investors should re-think holding FFIV shares now that the aggressive earnings growth is gone.  (04/05/13)

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Hanesbrands Initiates Dividend

Consumer goods company Hanesbrands Inc. (HBI, $46.30) announced the initiation of a 20-cent quarterly dividend, with a current yield of 1.7%.

Balance sheet numbers run hot and cold at Hanesbrands.  Earnings per share (EPS) growth is expected to be 29% this year, then rapidly slowing to 5% in 2015.  Annual revenue has been relatively flat for several years.  The company’s debit-to-total capital level runs more than twice as high as its industry peers, which makes it vulnerable to credit problems.

The stock broke through long-term resistance in the mid-$30’s in early January and has had a 30% run-up in price.  This is a good time for shareholders to move on to a stock with a better balance sheet. (04/05/13)

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HP Appeases Shareholders with Big Management Changes

Chairman Ray Lane and two Directors are leaving beleaguered technology giant Hewlett-Packard Co. (HPQ, $21.86), paving the way for CEO Meg Whitman to focus on corporate growth and appease shareholders.

The company suffered from continual leadership changes and a financial disaster brought on by the acquisition of Autonomy Corp.  HP’s turnaround plans include a focus on sales of more lucrative software.

On March 21, we recommended that investors sell Hewlett-Packard shares, based on falling earnings per share and a bearish chart.  We still think investors would be better served owning stocks with earnings growth and clear corporate vision. (04/05/13)

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Starwood Hotels Rebalancing Balance Sheet

Starwood Hotels & Resorts Worldwide, Inc. (HOT, $61.12) plans to sell up to $3 billion worth of hotels in order to focus on fee-based operations.  Starwood hotel brands include Sheraton, Westin and St. Regis.

Revenue from operations is expected to grow from the current 60% to a goal of 80%, making the company less susceptible to economic swings.  Earnings per share will be relatively flat in 2013, then grow 10% and 14% in the next two years.

The stock has been trading sideways for three years, and appears ready to break out and reach toward 2007 highs of $75.  The stock could appeal to traders.  (04/04/13)

source:  Starwood to Sell as Much as $3 Billion of Hotels (Bloomberg)

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Facebook Introduces New Software Today

Facebook Inc. (FB, $26.47) is revealing a new version of its smartphone software to analysts today, bearing similarities to Google’s operating system, with the goal of maximizing revenue through smartphone use.

Earnings projections remain steady from our last report in February, with growth expected at 8%, 37% and 33% over three years.  The PE is 46.

We said to avoid the stock when it was correcting in February.  Now it appears to be at the very bottom of a short-term price correction.  Opportunistic traders with an affinity for technical analysis should jump in here. (04/04/13)

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Pfizer’s Neurontin Lawsuit Still Dragging Through Courts

Pfizer Inc.’s (PFE, $29.25) epilepsy drug, Neurontin, is back in the courts after almost a decade of litigation.  Insurers continue to seek damages over allegations that Neurontin was illegally marketed for off-label treatment of bi-polar disorder.  The U.S. Court of Appeals in Boston has re-opened the door so that third-party payers can consider filing racketeering claims with class-action status.

Pfizer’s earnings are projected to grow at a slow 4% annual pace over the next two years.  The share price has had a big run-up, enhanced by the market’s recent enthusiasm for healthcare stocks.

Watch for price resistance at $29 to kick in near-term.  Shareholders will probably see the stock trade sideways for a while now.  Opportunistic shareholders could keep their money growing by trading out into another growth & income stock with better earnings and a more bullish chart.  (04/04/13)

source:  Pfizer Neurontin Class Improperly Denied, Court Says  (Bloomberg)

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S&P Lowers Opinion on Shares of Cheesecake Factory from Hold to Sell

Standard & Poor’s Research is concerned that customer traffic at The Cheesecake Factory Inc. (CAKE, $37.67) will diminish due to consumers experiencing higher payroll taxes and higher gasoline costs.  Citing a recent stock price run-up, which frankly only amounted to $2.50 per share, S&P said “sell Cheesecake Factory”.

Curiously, the consensus on Wall Street is that Cheesecake Factory’s earnings per share (EPS) growth remains strong at 14-15% per year for the next three years.  The PE is high at 30, but has ranged anywhere from 10 to 40 in the last decade.  The long-term debt ratio is just 9%, and there’s a history of strong earnings growth.

After a seven-year price correction, the stock has just retraced its 2006 high of $38 during the last week.  Cheesecake has a stable chart pattern and good earnings growth.  We’re left scratching our heads as to S&P’s sell recommendation, and wondering if the S&P analyst had a little tiff with the Cheesecake CFO, and is now getting revenge by trashing the stock.  (04/03/13)

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Global Payments Inc. has Disappointing Quarter vs. Consensus Expectations 

Global Payments Inc. (GPN, $45.62), a provider of e-payment processing services, reported third quarter revenue, operating income and earnings per share slightly below expectations.  Citi Research is maintaining  a buy rating on the stock.

Earnings per share are projected to grow 5% this year at Global Payments, while competitors Visa (V) and MasterCard (MA) have projected earnings growth of over 15% for 2013 and more bullish charts.  We continue to recommend Visa & MasterCard stock.

We see no reason to chase less successful companies, like Global Payments, in the stock market, when investors can maximize potential capital gains by going with industry leaders.  (04/03/13)

source:  Citi Research

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Bank of America Summons the Troops to Battle Falling Revenue 

“Bank of America (BAC, $11.84) CEO Brian Moynihan has summoned more than 100 of his regional leaders to a private meeting today where they’ll be pushed to boost the lender’s flagging revenue,” reports Bloomberg.  BofA’s revenue fell 17% in 2011 and another 9% in 2012.

The revenue push will be modeled after Citibank’s famed “Financial Supermarket” concept, which emphasized cross-selling banking, mortgage and investment services to customers.

Projected earnings per share are rising at BofA after a string of losses.  The stock price has risen to a trading range of $11-$15.  Bottomfeeders are finally being rewarded with capital gains, but we wouldn’t recommend people throwing money at BofA shares until the revenue problem is resolved.  (04/03/13)

source:  BofA Chief Moynihan Said to Summon Managers for Revenue Push (Bloomberg)

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Surprise Increase in Medicare Rates Boosts Health Insurance Stocks

The U.S. Government has reversed a decision which would have cut Medicare payments to insurers and to doctors, instead increasing insurers’ fees, while leaving doctor pay at the previous rates.  Health insurance stocks are up on that news, with Humana Inc. (HUM, $80.95) leading the pack.

Humana is a slow-growing company, with earnings per share projected to grow 4-6% per year for the next three years.  The stock chart is constructive, with price resistance at $80, and then again at $92.

Due to the slow earnings growth and the run-up in share price, we would not buy Humana stock at this point in time.  (04/02/13)

soure:  Humana Rises as U.S. Reverses Medicare Rate Cut Decision   (Bloomberg)

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Verizon and AT&T in Discussions to Purchase Vodafone 

On March 6, we told you that Verizon Communications Inc. (VZ, $49.64) was considering purchasing part or all of Vodafone Group (VOD, $29.89).  Today Bloomberg reported that Verizon and AT&T Inc. (T, $37.39) may purchase Vodafone in a joint venture.  Verizon’s goal is to own the 45% of the Verizon Wireless joint venture that’s currently owned by Vodafone, and then possibly allocate Vodafone’s international business to AT&T.

We like Verizon best, of the three companies.  Read more about Verizon here.  (04/02/13)

source:  Vodafone Jumps on Report AT&T and Verizon Mulling Joint Bid  (Bloomberg)

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AT&T Increases Dividend and Updates Share Repurchase Program 

AT&T (T, $37.39) announced an increase of its quarterly dividend to 45 cents, as expected.  The new dividend yield is 4.83%.  Share buybacks for the quarter are running about 50% higher than Citi Research projected, at 168 million shares.  The company just authorized another repurchase of 300 million shares, and then plans to slow the pace of buybacks in 2014.

We like AT&T stock for the big dividend and low volatility.  There’s some price resistance at $38, and then again at $40.  But for new money, we still prefer Verizon Communications.  (04/02/13)

source:  Citi Research

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Chevron Announces Oil Discovery in Gulf of Mexico

Chevron (CVX, $119.69) has announced an oil discovery at the Coronado prospect in the deepwater U.S. Gulf of Mexico.  The well is located 190 miles off the coast of Louisiana, and six miles below sea level.  Chevron has several other new wells in the Gulf which are scheduled to begin production in 2014.

Chevron’s earnings are projected to be relatively flat for the next two years.  The PE is is 9.6 and the dividend yield is 3.0%.

The stock spent 20 months trading between $90 and $110, then rose again beginning August 2012.  We would urge current shareholders to hold the stock during the upswing in price using stop loss orders to protect profits.  For new investors, though, the lack of earnings growth does not offer investment appeal.  We would instead pursue companies with good projected annual earnings growth.  (04/01/13)

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Panasonic Announces Structural Reforms  (source: Citi Research)

Panasonic Corp. (PC – ADR, $6.65), the Japanese electronics manufacturer, announced changes to its business plan in the wake of huge annual losses.  The company plans to reduce its number of business units from 88 to 49. This includes the sale of red-ink businesses, and also non-core, profitable businesses, like healthcare.  The company intends to de-list its ADRs (American Depository Receipts), and hire a new chairman.

Panasonic Corporation lost $4.23 per share last year, and is projected to lose another $3.59 this year.  The stock price hit a ten-year low in November.  We would sell shares in Panasonic and invest that money in a company with a profitable business model.  (04/01/13)

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UAL Lowers Earnings Guidance  (source:  Morgan Stanley Research)

United Continental Holdings Inc. (UAL, $31.18) has guided first quarter earnings downward due to increased costs.  Expenses increased due to weather and 787 delays.  Offsetting positive trends include: improvement in customer surveys, on-time performance, and strong month-to-date load factor growth.

Earnings per share are expected to increase a whopping 135%, 31% and 7% over three years.  The PE is a very low 8.6.

The stock price broke out of a stable, three-year trading range in March.

Read this carefully:  UAL stock DOES NOT meet our investment criteria for recommended stocks, due to a long-term debt ratio of 82%.  However, there’s no doubt that the chart is bullish, and the other numbers I mentioned are very attractive.  IF we were to buy this stock, we would use stop loss orders to protect the downside AND we would sell our shares as the stock approaches resistance at $41.  (04/01/13)

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