DreamWorks Animation (DWA, $19.10), maker of the hit movie Shrek, releases the 3-D features The Croods today. The Croods is a family film about a dysfunctional cave family.
With increasing competition in the computer animation genre, DreamWorks has been having trouble delivering consistent profits to shareholders.
The company lost $53 million last year, and is currently expected to turn a profit in 2013. The stock price hit an all-time low this year. The share price is currently on an upswing, with resistance at $22. DreamWorks could be a good short-term trade for 15% profit if The Croods knocks it out of the park this weekend.
Under no circumstances would I buy the stock for any other reason, because there are a multitude of good stocks out there with better, more consistent earnings growth and more bullish charts. (03/22/13)
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World-famous jeweler Tiffany & Co. (TIF, $69.53) finished its fourth-quarter 2013 with earnings per share up a penny over 2012, beating consensus estimates by 4 cents per share. Quarterly revenue rose 4%, with all geographic markets participating, even recession-stricken Europe.
Earnings per share were down about 10% in 2013, and are projected to grow 9% and 13% in the next two years. With the share price trending upward, the best-case scenario would be a retracement to the previous high of $84.45, giving today’s investors a potential total return of 24% this year.
Long-term growth investors could easily find stocks with better earnings growth rates. (03/22/13)
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Nike Races Ahead of Analysts with Third Quarter Beat
Sports apparel and footwear-maker Nike Inc. (NKE, $59.71) reported third quarter earnings after the close yesterday, reporting earnings of 73 cents per share and handily beating consensus estimates. There were broad-based gains in gross margins and revenues, while the company continued to unwind an inventory problem in China faster than expected.
Nike is expected to grow earnings per share 11%, 14%, and 13% in the next three fiscal years. The stock broke out of a narrow trading range today, and should be climbing in new territory in the foreseeable future. Read our report from March 11. (03/22/13).
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Oracle’s Third Quarter Disappoints Wall Street
Oracle Corp. (ORCL, $32.60) reported a poor quarter yesterday, reflecting unexpectedly weak hardware and software sales, much of which is being blamed on a new sales force and poor closing rates. Wall Street seems to have confidence that the company can succeed in taking corrective action, especially with new hardware and software products coming out in May.
Earnings per share are expected to grow 9-10% per year for the next three years. The stock chart continues in a sidweways pattern for the last two and a half years. We would avoid ORCL shares, and look for companies with better earnings growth and bullish charts. (03/21/13)
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Amidst outrage over failed acquisitions – including an $8.8 billion writedown of Autonomy Corp. — personal computer maker Hewlett-Packard (HPQ, $22.57) attempted to appease shareholders yesterday with a 10% dividend increase. (CEO Meg Whitman could be heard whispering “Let them eat cake.”) But HP shareholders remain frustrated that its emperor wears no clothes.
Earnings per share are expected to fall about 13% this year, then stay flat for the next two fiscal years.
The stock price hit a ten-year low in December. Despite a recent dead-cat bounce in the stock price, we would sell HPQ shares. (03/21/13)
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“Delta Air Lines Inc. (DAL, $17.09) is considering buying as many as 20 wide-body jets from Airbus SAS or Boeing.” Delta already has both plane types in its fleet, and prefers to choose planes with proven track records over newer models with better fuel efficiency.
The company is by no means consistently profitable, but appears to be on a roll to that end now. Earnings per share are expected to increase 39%, 17% and 12% in the next three years. The PE is a low 6.5.
The stock price broke above resistance at $14 in early February, and has doubled since September. We would buy on a pullback to $14. (03/21/13)
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Citi Research Lowers Rating on Charter Communications to “MarketWeight”
Yesterday we reported that Liberty Media (LMCA, $111.39) will purchase a 27% stake in Charter Communications (CHTR, $102.00). Citi Research has therefore lowered its rating on Charter due to Liberty Chairman Malone’s routine use of leverage.
While Charter was previously expected to de-lever, Malone’s investment changes that scenario. If Malone increases Charter’s balance sheet leverage, that makes Charter far less likely to be a buyout target by an investment grade company, decreasing its appeal to investors.
The stock price rose 11% this week after the Liberty Media announcement. We would not pursue Charter shares at this time. (03/20/13)
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“Restaurants are reeling from their worst three months since 2010, as American diners spooked by higher payroll taxes cut back on eating out.”
The article goes on to call this “a very emotional moment” for consumers. “Spooked”…”emotional”…was this story written by liberals? Why are they talking about feelings when Americans are broke?! After two months of slightly falling sales, restaurants experienced a 5.4% drop in sales in February – the first three-month decline in three years.
Yum! Brands (YUM, $69.36), for example, is expected to have earnings per share fall 3% in 2013, after multi-year increases. Yum is the owner of 37,000 Pizza Hut, Taco Bell, and KFC restaurants in 120 countries, and can be considered a bellwether for the global economic slump.
We would avoid Yum! Brands at this time. (03/20/13)
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General Mills Beats the Street in Third Quarter ‘13
General Mills (GIS, $47.22) surprised Wall Street with good third quarter performance due to increased operational earnings, higher revenues, a lower tax rate, and lower interest expense.
General Mills is expected to finish fiscal 2013 shortly, with earnings per share (EPS) up 5%, then increase EPS by 9% in each of the next two years. That gives the stock a forward PE of 15.9. The PE normally fluctuates in a very tight and predictable range of 15 to 19.
A PE of 19 in fiscal 2014 would put the stock price over $55. With a dividend yield of 3.27%, that’s a very attractive potential total return. After a recent run-up, we would buy on a pullback to $44. (03/20/13)
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Lululemon (LULU), maker of the much-loved yoga pants, is recalling a recent shipment after a manufacturing error made them too sheer. The recall affects 17% of the retailers’ bottoms currently in stock, and will affect quarterly earnings.
The company sells athletic wear in 33 stores, located primarily in Canada.
Wall Street expects earnings per share to grow 45%, 23% and 23% in the next three fiscal years. However, the stock price fell through support today. We recommend that potential investors stay on the sidelines until the chart turns bullish. (03/19/13)
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John Riccitiello is stepping down as CEO of video-game maker Electronic Arts (EA) after several of the company’s recent video games failed to meet sales and performance expectations, including “Medal of Honor” and “Sim City”.
The company took $2.5 billion dollars in losses in recent years, earned a small $76 million profit last year, and is expected to have flat-to-slightly-higher earnings per share in fiscal 2013, which ends this month.
With no clear growth plan in place, and no captain steering the ship, we would avoid EA shares. (03/19/13)
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Liberty Media (LMCA) is acquiring 26.9 million shares of private-equity in Charter Communications (CHTR) for $95.50 per share, along with 1.1 million warrants. The acquisition will enhance Liberty’s presence in the U.S. cable tv market.
Morgan Stanley Research speculated that Liberty is likely to use cash on hand, and to sell some of its 50% stake in Sirius XM Radio (SIRI), to finance the deal. “[Charter] has all the elements of a [Liberty] investment, leverage-able cash flow and a tax shield.”
Wall Street expects Liberty Media to increase earnings per share by 23% this year. However, the PE is 63. Pending acquisitions frequently bog down a stock price, the chart is already flat, and the high PE increases potential volatility. There are many more attractive media and entertainment stocks to be purchased right now. (03/19/13)
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Wall Street analysts are expecting Apple Inc. (AAPL, $448.87) to raise its quarterly dividend to about $4.14, or a yield of 3.75%. This increase would easily be funded out of cash flow.
The stock price has been hemorrhaging since it became clear that earnings growth has ground to a halt. Earnings per share are projected to increase less than one percent this year.
The share price tumbled from a high of $705 to the current range of $420-$450, and has not yet formed a base. We would continue to avoid AAPL until the chart stabilizes and earnings are growing again. (03/18/13)
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“Ford Motor Company (F, $13.24) fell short in three crucial areas last year: market share, cash flow, and profit.” As a result, CEO Alan Mulally has received a pay cut of 29%, to a cash & stock combo of $21 million.
Earnings per share fell in 2012, and are expected to be flat in 2013, due to economic woes in Europe, a glut on the car market in South America, and margin pressures in China.
We would avoid shares in Ford, and any other companies with flat or falling earnings per share. (03/18/13)
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