Abercrombie Surprises Wall Street with Strong December Sales
(ANF, $36.23, up $3.02 midday)
Specialty apparel retailer Abercrombie & Fitch provided upward guidance on fourth quarter and full year 2014 earnings after the close yesterday. The company “now expects full year adjusted non-GAAP earnings per diluted share to be in the range of $1.55 to $1.65,” reports Reuters. The change in outlook was prompted by unexpectedly strong December sales and well-controlled inventory.
Despite record 2013 revenue of $4.5 billion, this profitable company cannot seem to provide consistent earnings growth to shareholders.
Earnings per share (EPS) are projected to fall about 52% in 2014 (fiscal year-end January) — largely attributed to store closures and restructuring expenses.
Abercrombie’s stock price has been suffering at the low end of its ten-year trading history.
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Walgreen Company’s (WAG, $61.14) shares are up nicely YTD, on the heels of strong December same-store-sales. Numbers came in much higher than expected, driven by pharmacy sales.
Earnings per share (EPS) are expected to grow 11%, 12% and 22% in the next three years (fiscal year-end August). The PE is 17.7, within a normal range of 10-24; and the dividend yield is 2.06%.
On Sept. 18, I said, “Growth & income investors should buy on any pullback to the low $50′s.” The stock bounced under $54 in late September, and is up 13% since then.
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Macy’s Announces Cost Reductions to Improve Bottom Line
Macy’s Inc. (M, $55.80) lowered Wall Street’s expectations today on January and full-year 2014 sales (year-end Jan.), on the heels of what Morgan Stanley calls “the worst holiday shopping season since 2008”. Macy’s will report fourth quarter and full-year 2014 earnings on the morning of February 25.
The company also announced cost reductions and operational changes today, designed to increase margins in fiscal 2015. As a result, the stock rose over 7% today.
Macy’s shares do not earn a Goodfellow LLC “buy rating” because their projected earnings growth is not high enough, and their long-term debt ratio is higher than I find acceptable. However, considering the bullish chart, current shareholders should hold their shares for additional gains, and use stop-loss orders to protect profits.
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Michael Kors’ Shares Drop to Support Levels
Shares of apparel & accessory manufacturer Michael Kors Holdings Ltd. (KORS, $77.90) are off from recent highs, after Citigroup downgraded the stock from Buy to Neutral.
KORS’ earnings outlook has barely changed since my December 17 report.
You’ll notice in the Barron’s article that the company is still expected to exceed upcoming earnings estimates. This week’s price pullback is perfectly normal, with or without a rating downgrade.
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Harman Int’l Makes Waves at Consumer Electronics Show
Audio manufacturer Harman International Industries (HAR, $83.00) showcased new products yesterday from its Infotainment and Lifestyle divisions at the Consumer Electronics Show in Las Vegas, NV.
Morgan Stanley reported today, “The Lifestyle segment’s Signal Doctor technology was the star of the exhibit, in our view. Signal Doctor corrects highly compressed digital music and returns it to high quality audio. It can be used on any DSP system including as an app on certain smartphones. HAR also showcased its latest JBL and Infinity consumer audio products, which were highly impressive.”
Subscribe now to read my recent report on Harman International Industries, including technical chart and earnings outlook.
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Yahoo! Featured at Consumer Electronics Show
Yahoo! Inc. (YHOO, $40.92) is in the news today after making several product announcements yesterday.
S&P reports, “In a keynote late yesterday at the Consumer Electronics Show, CEO Marissa Mayer discussed YHOO’s ‘vision to make the world’s daily habits inspiring and entertaining.’ …Mayer made multiple content/advertising announcements. Most notably, we think, were those related to new personal technology and food sites, a mobile app called News Digest that summarizes and delivers daily news, and a number of new advertising offerings.”
Yahoo is working to expand its shrinking share of the U.S. digital ad market, as competitors Google and Facebook continue to outshine Yahoo’s performance.
Yahoo shares have a 2014 PE of 24.6, and projected 2014 earnings growth of 13.7%. The stock does not receive a Goodfellow LLC buy rating due to its very slow projected 2015 earnings growth, and high PE. However, the chart remains bullish. Current shareholders should hold their shares for additional capital gains, and protect their downside risk with stop-loss orders.
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Valeant Pharmaceuticals Reiterates Bullish Outlook
(VRX, $124.83, up $12.21 midday)
Reuters reported today, “Valeant Pharmaceuticals International Inc., Canada’s largest listed drugmaker, on Tuesday forecast 2014 adjusted earnings of $8.25 to $8.75 per share and revenue of $8.2 billion to $8.6 billion, both up about 40 percent from the previous year.”
S&P said, “We are encouraged by Valeant’s new goal of becoming one of the world’s top five drug companies by market capitalization by the end of 2016, to be accomplished mostly via acquisitions. Based on VRX’s past record, we think that goal is achievable.”
Valeant was featured in my January 5 article, Monday’s Buy List, in which I highlighted my favorite five stocks for this week.
On December 30, I said, “no one has missed their opportunity to catch the pending run-up in Valeant’s stock.”
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Eli Lilly Reiterates Poor Earnings Prospects for 2014
(LLY, $51.48, down $0.05 in early trading)
Bloomberg reported today that Eli Lilly & Co., “the leading U.S. maker of diabetes products, forecast a drop in 2014 profit and reduced its sales outlook because of generic competition to its Cymbalta antidepressant and Evista drug for osteoporosis. The company lost patent protection on Cymbalta, its best-selling drug, last month, leading to expectations that revenue will decline to its lowest level since 2007.”
2014 is expected to be a trough year for revenues, which will begin increasing again in 2015 as new products come to market. Thirteen products are currently in late-stage testing or regulatory review. The company is gaining market share Japan, emerging markets, animal health, diabetes and oncology.
Today’s news report did not harm the stock price, because analysts already expected the 2014 earnings drop, in line with Lilly’s guidance that 2014 earnings per share (EPS) would come in around $2.77-$2.85.
S&P commented today, “we do not expect [Lilly] to regain its indicated 2013 level of profitability before 2017.”
Lilly announced a new $5 billion share repurchase plan in October.
Lilly’s earnings per share are expected to rise 22% in their final 2013 report, fall 33% in 2014, and rise 15% in 2015. The 2014 PE is 18.5. The dividend yield is hefty at 3.8%.
On October 3, when the share price was $48.88, I said, “Aggressive growth investors could buy low, sell at resistance, and collect the dividend.” At that point, the stock dipped briefly to an unusual low point, then immediately stabilized and traded in the $49.00-$51.50 range for three months. Yesterday, the stock broke through the upside, and will likely climb to the next resistance level at $55.
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T-Mobile and Verizon Wireless Bolstered by Airwave Agreement
“T-Mobile US Inc. (TMUS, $32.28), the fourth-largest U.S. wireless carrier, agreed to buy spectrum from Verizon Wireless for about $2.4 billion in cash as part of an airwave swap that will give both companies more network capacity in areas where they need it,” reports Bloomberg today. Verizon Wireless is a wholly owned subsidiary of Verizon Communications (VZ, $48.42).
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