Goodfellow LLC’s “Stocks in the News”
Worst Earnings Miss in Forever
Chronic poor demand for PCs and a consumer shift to mobile gadgets are strangling profits at Microsoft Corp. (MSFT, $31.40). A huge fourth quarter earnings miss shocked analysts, and the company reported a $900 million writedown of Surface tablets. Long-term revenue growth trends remain intact, with quarterly sales up 10%.
Microsoft’s earnings projections are experiencing another round of cuts after today’s news, with 2013 earnings now expected to be down year-over-year. The dividend yield is 2.82%, and may increase again in September.
The stock has been trading sideways for over ten years. We told investors twice this year on Ransom Notes Radio to stay on the sidelines. As the earnings situation continues to deteriorate, we see no reason to own shares in Microsoft. (07/19/13)
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GE Reaching Goals with Aviation and Oil & Gas Divisions
General Electric Company (GE, $24.72) reported a slight earnings beat in the second-quarter, though sales and profit were down year-over-year. Importantly, GE’s future is focused on its aviation and oil & gas divisions, each of which had revenue increases of 9% and drove the company’s order backlog to a record. The company also made significant progress toward its 2013 goal of a 70 basis point gross margin expansion.
Earnings are projected to grow 9-10% per year over the next three years. The dividend yield is 3.06% and the PE is 15.
GE’s stock price is on a long-term uptrend, and broke out of a trading range today to recent highs. We recommended the stock* to growth & income investors four times this year, and would continue to accumulate shares. (07/19/13)
* Note to Goodfellow LLC website investors: General Electric stock does not meet all the criteria for a buy recommendation on our website. This buy recommendation was for Ransom Notes Radio listeners.
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Schlumberger Reports Booming Quarter
Global oilfield services company Schlumberger Ltd. (SLB, $82.74) reported adjusted earnings per share of $1.15 vs. the $1.10 estimate, reflecting strength in all business segments, as “drilling activity outside North America reached a 30-year high.” The company derives over 70% of revenue from overseas operations, and has not suffered from lower domestic natural gas prices like we saw today in Baker Hughes’ disappointing earnings report.
Schlumberger’s earnings are projected to grow 12, 22, and 18% over the next three years. The dividend yield is 1.53% and the PE is 17.6.
The stock is pressing up against two-year price resistance today. Expect it to trade between $78 and $82 as it prepares to climb toward the next resistance level at $95. (07/19/13)
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eBay Investors Skittish as Second Quarter Comes in on Target
eBay Inc.’s (EBAY, $53.52) management lowered full-year earnings expectations to the lower end of previous guidance, sending tech stocks lower on Thursday. Profits are being affected by weakness in South Korea and Europe, and adverse foreign exchange conditions. Revenue for the second quarter rose 15% to $3.9 billion, on target, as were earnings per share. Marketplaces and Payments revenues rose 10%and 20% respectively. Citi Research commented, “eBay’s core businesses continue to perform well.”
This appears to be a case of a market overreaction to macroeconomic factors.
Earnings per share (EPS) are now expected to grow about 15, 17, and 18% in the next three years, down only a fraction from previous company guidance.
To find out what we would do with eBay stock, read this week’s Featured Stocks in Action, or our most recent research report. (07/18/13)
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Morgan Stanley Reports Strong Second Quarter
Morgan Stanley (MS, $27.75 midday) reported second quarter net income up 66% year-over-year, with revenue up 26%, and all business segments participating in the increases. Earnings per share were 45 cents vs. the 43 cent estimate. The company also received regulatory approval for a $500 million share buyback.
Earnings per share are expected to be solid this year, after a 2012 loss, and then grow another 25% and 15% in the next two years. The PE is 13.7.
The stock is on an uptrend, with price resistance in the low $30’s. Growth stock investors should accumulate shares under $26. (07/18/13)
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IBM Increases Full-Year Earnings Growth Projections
Computer-services company International Business Machines Corp. (IBM, $198.16 midday) beat second quarter earnings estimates, reporting $3.91 per share vs the expected $3.78, on higher gross margins, cost cuts and share buybacks. Second quarter revenues were down year-over-year, led by a 7% decline in hardware sales. Citi Research noted IBM’s “extremely strong new service signings.” Morgan Stanley says, “IBM has successfully transformed itself into a structurally higher margin and less cyclical business”
The company increased its 2013 earnings growth estimate to 11%, up from the consensus 9%. The dividend yield is 1.91%, and the PE is 11.8.
IBM stock fell in April when first quarter estimates missed expectations for the first time in eight years. The stock has been trading steadily between $190 and $216 for 18 months. Growth & income investors should accumulate shares under $197. (07/18/13)
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SanDisk — Extreme Value for Growth Stock Investors
SanDisk Corp. (SNDK, $61.01 midday), a leader in data storage solutions, posted second quarter earnings of $1.21 per share, beating last year’s 15 cents, and the consensus estimate of 93 cents. Sales rose 43% year-over-year, with gross margins higher than expected.
SanDisk’s earnings estimates have increased repeatedly this year, currently at 74% growth for 2013, and rising again after today’s report. The PE is 14, and the long-term debt ratio is very low at 9%.
The stock has been trading between $57 and $63, with long-term resistance in the low $70’s. Value investors and growth stock investors should jump in anywhere below $60. (07/18/13)
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Yahoo! Earnings Growth Expected to Fade
Yahoo! Inc. (YHOO, $29.10 midday) reported a mixed second quarter, with earnings on target, and revenues down one percent due to falling ad prices. Highlights include Alibaba Group revenue up 71%, and another $1.9 billion in share buybacks to come.
Full year earnings are expected to rise 21%, then slow to single digits in the next two years. The PE is 20.5.
The stock continues to recover from the 2008 Financial Meltdown, with price resistance at $30. Valuation is pricey in light of slow future earnings growth. Shareholders should use stop-loss orders to protect capital gains. (07/17/13)
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Financial Times Reports on Free Market Curbs to Payment Processors
The European Commission has drafted legislation which introduces ceilings on debit- and credit-card interchange fees, and possible forced separation of card schemes from processing entities. In response, Morgan Stanley Research commented, “we are not overly concerned about growth prospects for the European payments industry.”
MasterCard Inc.’s (MA, $591.84 midday) earnings are projected to grow 16 and 18% in the next two years. The company has $5 billion in cash, no debt, and a $1.7 billion share repurchase program.
MasterCard’s stock is up 9% since we recommended it on Ransom Notes Radio on May 1, and it broke past upside resistance on July 5. Read our most recent research reports on MasterCard and Visa. (07/17/13)
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United Rentals Reports Fourth-Straight Quarterly Earnings Beat
United Rentals Inc.’s (URI, $55.43 midday) stock traded up 9% this morning after reporting second quarter earnings of $1.12 vs. the Wall Street estimate of $1.01; its fourth quarterly earnings beat in a row. The largest equipment rental company in the world serves construction and industrial customers, and the profit surge reflects on an improving U.S. economy. Citi Research and Piper Jaffray have price targets of $70 and higher.
Full-year earnings per share (EPS) are projected to grow 32%, 21%, and 18% over the next three years, and the PE is 11.
The stock is volatile and the chart is neutral, currently trading between $49 and $57, with some short-term resistance at $60. Patient growth stock investors should be able to buy shares below $53 in the near-term. Read our latest report on United Rentals Inc. (07/17/13)
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Glaxo Bribery Scandal Details Emerge
Four senior Chinese executives have been arrested in a criminal investigation against healthcare company GlaxoSmithKline PLC (GSK, $51.87), after Glaxo allegedly used extensive bribery to increase sales. Bribes allegedly totalled $489 million, and were spent on fraudulent travel and meeting expenses, and sexual favors, to 700 companies, doctors and officials.
A separate Chinese pricing investigation could potentially cause greater harm to pharmaceutical companies, as it did with Mead Johnson Nutrition Co. (MJN, $73.63) and other baby formula manufacturers earlier this month.
The stock chart is neutral and the price has not been affected by the potential $5-$10 million dollar fine. (07/16/13)
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Multiple Sales Problems Hinder Coca-Cola’s Second Quarter
Coca-Cola Co. (KO, $40.23) reported earnings in-line with expectations today, masking sales problems generated from bad global weather, weak economies, unfavorable foreign exchange rates, and negative PR on sugary soft drinks. Global sales volume grew 1%, far below the 3.3% average estimate.
Earnings are expected to grow 6-9% per year for the next three years. The dividend yield is 2.79% and the PE is 19.
The stock has been trading between $39 and $43 for four months, and will likely remain there for the time being. (07/16/13)
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Dreamworks’ Second Quarter May Play Starring Role vs. Peers
Wall Street is bullish on DreamWorks Animation SKG Inc.’s (DWA, $25.04) second quarter report due out on July 31, despite weak peer group performance. DreamWorks is the maker of the hit movie Shrek, and tomorrow’s new release Turbo.
The company lost $53 million last year, and is expected to earn 83 cents per share this year. Anaylsts are expecting between five and forty cents per share for the quarter, which means we’ll see volatility when earnings are announced.
The stock is up 33% since we recommended it on Ransom Notes Radio as a trading buy on March 22. There’s price support at $24 and $22. Shareholders should protect recent profits with stop-loss orders. (07/16/13)
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Citigroup Second Quarter Beats Estimates
Citigroup Inc. (C, $51.55 midday), the third-biggest U.S. bank by assets, reported second-quarter operating profit of $1.24, beating the consensus estimate of $1.18, and up 42% year-over-year. Stock-trading revenue spiked 68%. Losses on unwanted assets in Citi Holdings fell to $570 million, its smallest quarterly loss ever.
Earnings per share are expected to rise 23%, 15% and 12% in the next three years. The PE is 10.9. Share buybacks are expected to total $7.4 billion in 2014.
The stock looks capable of breaking past long-term resistance at $52 in the near-term. (07/15/13)
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AT&T and Leap Wireless agree on $1.2 Billion Acquisition
AT&T Inc. (T, $35.48 midday) has agreed to buy Leap Wireless International Inc. (LEAP, $16.94 midday) for $15 per share, and the stock is trading near $17 today. The deal gives AT&T more customers and airwaves. Leap shareholders should absolutely sell into today’s inflated share price.
AT&T’s earnings are expected to grow 8-9% per year for the next three years. The PE is 14, and the dividend yield is 5%.
With a big dividend and a neutral stock chart, we told investors on Ransom Notes Radio to hold AT&T three times this year. (07/15/13)
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Roche Holdings is Going Elephant Hunting, Seeks Alexion Bid
Roche Holdings AG is purportedly seeking financing on a bid for Alexion Pharmaceuticals (ALXN, $109.33 midday), in order to diversify into treatments for severe and rare health disorders. However, Alexion is not the best strategic fit for Roche, and might be too expensive.
Wall Street expects Alexion to increase earnings per share another 38% in 2013. The PE is 37.
On February 14, we told investors on Ransom Notes Radio to “buy Alexion under $90”. The stock then rose 23% through May, corrected, and is now bouncing up against last year’s record high at $118. (07/15/13)
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