Stocks in the News — Week of November 11, 2013 (Nov. 15th update)

 

Agilent Stock Breaks to New Highs after Reporting Strong Fourth Quarter

(A, $54.74, up $4.20 midday)

Shares of Agilent Technologies broke past medium-term upside resistance to new highs today after reporting fourth quarter earnings of $0.81 per share, which surpassed Wall Street’s expectations of $0.76.  Quarterly revenue came in on target.  Results reflected a strong book-to-bill ratio, and solid cost controls and margins.  Morgan Stanley commented, “We like Agilent’s multi-year margin improvement story, organic growth profile and superior ROIC profile – all of which have been overshadowed by the macro weakness.”

Agilent plans to spin off its Electronic Measurement business from its life sciences & diagnostics businesses by early November 2014.  Shareholders will then own stock in two publicly-traded companies.

Earnings are expected to grow 10%, 13%, and 8% in fiscal years 2014 through 2016 (year-end October).  This growth rate is not high enough to earn a buy rating* at Goodfellow LLC.  However, the earnings growth is decent, there’s an upcoming stock spin-off, and the chart is bullish.  Current shareholders should expect continued near-term gains in the stock price.

Goodfellow LLC Rating:  Hold, Public.  (11-15-13)

*Buy-recommended stocks at Goodfellow LLC are chosen via strict criteria, using fundamental and technical analysis, so as to maximize growth while minimizing risk.  To read about our buy-rated stocks, subscribe today.

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D.R. Horton Reports Fourth Quarter

(DHI, $19.71, up $0.66 midday)

Fourth quarter net income for homebuilder D.R. Horton Inc. rose 39% year-over-year, and revenue rose 40%.  However, net new orders and revenue growth are expected to decelerate in 2014 as mortgage interest rates rise.  D.R. Horton is one of America’s largest homebuilders, with a contract backlog of $2.6 billion as of June 30 2013.

Earnings per share (EPS) are projected to grow  20%, 25% and 20% in fiscal years 2014 through 2016.  The PE is 12.4, and the dividend is low at 0.8%.

The company’s long-term debt ratio was quite fair at 36% at fiscal 2012 year-end, and has been falling significantly since it peaked in 2009.

This volatile stock will react dramatically to economic and housing industry news, and is more suited to traders than buy-and-hold investors.

To read my comments from today on what to do with D.R. Horton stock, subscribe now!  (11-14-13)

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Cisco Reports Poor Revenue Outlook; Stock Plummets

(CSCO, $21.10, down $2.90 in early trading)

Cisco Systems Inc. reported first quarter earnings of $0.53 vs. consensus $0.51, and revenue slightly below estimates.  The company also authorized $15 billion in additional stock repurchases.  But projections of an 8-10% drop in second quarter revenue unnerved Wall Street, causing at least 16 investment firms to lower their ratings and price targets this morning, and driving Cisco stock down 12% in early trading.  

The company experienced a dramatic first quarter slowdown in emerging markets revenue;  and expects ongoing difficulties in China related to U.S. spying.

Annual earnings were previously expected to grow 4%, 8% and 8% in fiscal 2014 through 2016.  Investors should expect some downward revisions to those numbers.  The PE is 10, and the dividend yield is 3.22%.

I gave Cisco a sell rating on October 3, saying, “Cisco Systems has very weak projected earnings growth and an unstable stock chart.  We would find a good exit point on Cisco shares and move on to a growth stock with a bullish chart.”

At this point, the stock is oversold.  Factoring in the chart, the dividend, and the repurchase plan, I would say that there’s tremendous price support in the very low $20’s, and would not worry that the stock will fall further.  If I owned the stock, I’d probably aim to sell my shares at $23 in the near-term, and reinvest my capital in a stock with good earnings growth and a bullish chart.

Goodfellow LLC Rating on Cisco Systems: Sell, Public.  (11-14-13)

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Macy’s Reports Blowout Third Quarter

(M, $50.80, up $4.47 midday)

Macy’s Inc. reported third quarter earnings, featuring comparable store sales up 3.5%, much higher than expected.  Earnings per share (EPS) came in at $0.47 vs. last year’s $0.36.  Analysts had expected EPS of $0.39, and investors reacted by driving the stock price up over 9% by midday.

Increased marketing efforts drove the sales results, but also served to lower gross margins vs. analysts’ expectations.

Earnings are projected to grow 9% 13% and 12% in fiscal years 2014 through 2016 (year-end January).  The PE is 13.4, which is on the high end of the recent three-year range of 7-13.  

The dividend yield is 1.97%; and the long-term debt ratio is a little higher than I prefer, at 53%.

To read my comments from today on what to do with Macy’s shares subscribe now!  (11-13-13)

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Starbucks to Pay Mondelez $2.79 Billion Settlement

An arbitrator has asked Starbucks Corp. (SBUX) to pay Mondelez International (MDLZ) $2.79 billion over a 2010 coffee-distribution dispute.  Mondelez International was spun-off from Kraft Foods Inc. in October 2012.

Starbucks plans to pay the settlement costs with cash-on-hand.  While the original dispute was with Kraft Foods Inc., the new Kraft Foods Group Inc. agreed to direct the settlement proceeds to Mondelez International.  Mondelez will use the money to repurchase stock.

To read my comments from today on what to do with Starbucks, Kraft Foods Group, and Mondelez shares, subscribe now!  (11-13-13)

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Disney Reports Fourth Quarter Earnings

(DIS, $68.27, down $0.31 midday)

The Walt Disney Co. reported fourth quarter earnings per share of $0.77, slightly beating Wall Street estimates on earnings and revenue.  Net income was up 12% vs. last year.  The quarter’s success was highlighted by higher theme park traffic, increased sales of toys and merchandise, and a strong showing from the movie “Monsters University”.

Disney’s next Star Wars movie, “Star Wars: Episode VII,” from its Lucasfilms division, will debut on December 18, 2015.

The ex-dividend date for the annual December dividend has not been announced, but occurred last year on December 6.

In my research article from October 18, I said, “The stock now appears immediately ready to break past medium-term resistance and begin reaching new highs, quite possibly as soon as Monday, October 21, 2013.”

The stock did exactly as I predicted.  Subscribe now to read my current buy/sell/hold recommendation on The Walt Disney Co., and other famous companies.

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Send questions and comments to research@GoodfellowLLC.com.

Happy investing!

Crista Huff

President

Goodfellow LLC

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