Stocks in the News — week of April 22, 2013 (April 26 update)

Goodfellow LLC’s “Stocks in the News”

seen on Townhall Finance, heard on Ransom Notes Radio

 

V.F. Corp. Reports Blowout First Quarter (VFC, $171.71)

V.F. Corp., maker of Wrangler, Lee, The North Face and Timberland apparel, announced first quarter earnings per share of $2.43, handily beating the consensus estimate of $2.19.  Gross margins expanded 240 basis points year-over-year to a new high of 48.1%, reports Citi Research.

The stock rose a lot and broke out of a trading range yesterday on anticipation of the bullish quarter, then fell to support today.

Wall Street projects V.F. Corp to grow earnings 12-13% per year for the next three years.  The dividend yield is 2%.

Here’s our latest research report.  (04/26/13)

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Abbott Lab’s Recent Spin-Off, AbbVie Inc., Reports First Quarter Earnings  (ABBV, $45.41, up $1.17 today)

“AbbVie Inc. reported earnings that beat analysts’ estimates on higher sales of the rheumatoid arthritis treatment Humira in the first quarter since the drugmaker was split from parent Abbott Laboratories,” reports Bloomberg.  Prospects for Humira sales continue to grow with potential treatments for Hepatitis C, psoriasis and ulcerative colitis.

Earnings are projected to grow 3% this year.  The dividend yield is 3.54%, and the long-term debt ratio is 81%.

The stock broke past $39 on March 25, and is still on an uptrend.  Growth & income investors should retain their shares, but be aware that eps growth is slow and debt is high.  (04/26/13)

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D.R. Horton Reports Very Strong Second Quarter Earnings  (DHI, $26.14, up $1.61)

D.R. Horton Inc., the largest U.S. homebuilder by volume, reported a blowout second quarter on increased volume and gross margins.  Earnings per share came in at 32 cents vs. analysts’ expected 19 cents, and 13 cents a year ago.  New home closings rose to 5,643; 9% higher than the market expected; and SG&A expenses were 5% lower than expected.

Earnings are projected to grow between 44% and 51% per year for each of the next three years.

The stock appears to be breaking out today, after trading between $21 and $25 for three months.  Read our April 23 report on DHI.  (04/26/13)

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Aggressive Growth Days are Over for Intuit  (INTU, $56, down $8.19 today)

Intuit Inc., maker of TurboTax and Quicken software, expects approximately 4 percent tax revenue growth for the 2013 fiscal year, vs. 9% consensus estimates.  Revenue gains among QuickBooks customers are encouraging, but not enough to bolster the stock price.

Wall Street expects Intuit’s earnings growth rate to slow considerably, from over 20% in recent years, to just 10% by 2014 & ’15.

The share price has fallen about $8 today, to medium-term support at $56.  Current shareholders should reexamine their investment strategy, since Intuit is no longer an aggressive growth stock.  (04/25/13)

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Bulls Dump Safeway Shares  (SWY, $22.93, down $5.33 today)

Earnings came in on target, but revenues missed the company’s projections in grocery retailer Safeway Inc.’s first quarter report.  After a surprisingly good fourth quarter, which propelled the stock up 56% year-to-date, Morgan Stanley Research says, “we found these results to be deflating.”  The stock is down $4 today as bulls sell shares, now that the bloom is off the rose.

Safeway remains a somewhat attractive growth and income stock, and has seen four consecutive quarters of U.S. market share gains.  However, it’s unrealistic to expect a company with projected 7% eps growth in 2013 & ’14 to climb 56% and not have a big pullback.  We hope that shareholders were using stop-loss orders.  (04/25/13)

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Exxon Mobil Reports Ho-Hum First Quarter  (XOM, $88.33, down $1.10 today)

Exxon Mobil Corporation reported first quarter earnings of $2.12 vs. Wall Street’s estimate of $2.05.  U.S. refining earnings were $700 million higher than expected, equally offset by International earnings performance.  Operating margins improved slightly, but revenues fell 12% vs. the year-ago period, disappointing analysts.

Earnings per share are expected to grow 3-8% per year for the next three years.  The dividend yield is 2.85%.  Exxon Mobil plans to repurchase about $5 billion dollars worth of stock, per quarter.

The stock price has been trading sideways between $85 and $93 for ten months.  With no revenue catalyst, and earnings propped up by share buybacks, we see no reason to pursue Exxon Mobil shares.  (04/25/13)

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Apple Risks Are Coming Into Focus  (AAPL, $401.07, down $5.06 today)

Citi Research is veering away from the Apple bulls on Wall Street due to iPhone5S delays, weak results from China, concerns about gross margins, and falling earnings.  And while it’s helpful to investors that Apple announced a $60 billion dollar share buyback and a dividend increase, earnings per share are nevertheless falling.  How is this any different from the Obama administration handing out free telephones to welfare recipients, while increasing the national debt?

The bottom line at Apple Inc. is actively suffering.  Its share price has fallen to previous support around $400 per share, but has not remotely stabilized.  We told you three times since February that it’s not time to buy Apple yet, and we would not consider buying Apple shares until a pattern of growth resumes and the chart turns bullish.  (04/24/13)

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AT&T Falls as Quarterly Sales Miss Estimates  (T, $36.72, down $2.28 today)

AT&T’s “first-quarter revenue missed analysts’ estimates, dragged down by a sluggish landline business and competition with Verizon Wireless,” reports Bloomberg.  Earnings per share came in on target.  The company showed nice gains in wireless gross margin, average revenue per user; and added almost one million new U-verse internet service and tv subscribers.

 “AT&T is upgrading its network to a technology called long-term evolution, or LTE.“  LTE build-out will be 90% complete this year, and effectively cut $2 billion per year from capital expenditures.

Earnings per share are expected to grow 7-10% per year for the next three years, and the dividend yield is 4.88%.  The share price has been climbing, and should trade between $37 and $39 near-term.  In March and April, we told investors to Hold AT&T and Buy Verizon.  We still like Verizon’s sales and earnings prospects better than AT&T’s.  (04/24/13)

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Proctor & Gamble Fourth Quarter Guidance Weaker Than Expected  (PG, $77.91, down $4.02 today)

Proctor & Gamble reported third quarter earnings of 99 cents per share, above consensus of 96 cents, on improved operating profit.  However, gross margins and organic sales growth fell short of expectations, “indicating that recent increased marketing spending and innovation is not driving a top-line acceleration,” says Morgan Stanley Research.  P&G guided estimates downward for the fourth quarter and full year.

Earnings are expected to grow 5-9% per year for the next three years.

The stock broke past long-term resistance this year, and the chart is bullish, although the stock’s down about $4 today.  Expect P&G to trade between $78 and $83 in the near-term.  With a good chart, but slow earnings growth and disappointing revenue growth on the horizon, we would neither buy nor short P&G shares.   (04/24/13)

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Gamblers Drive Netflix Shares Through the Roof

Netflix (NFLX, $218.59 — up $44) is up over 20% today after the company announced a surprising surge in new subscribers.  Customers are being attracted by the addition of original shows and exclusive studio deals.

Netflix stock has a PE of 161.  As a comparison, when Apple Inc. had a share price of $660, its PE was 14.9.

Investors should be reminded that Netflix is a volatile stock.  The share price fell from $295 to $63 in 2011.  The stock price is so inflated today, and the PE so overvalued, that I would qualify this stock as a “gamble” rather than an “investment”.  Current shareholders should keep their profits by selling into today’s buying frenzy.  Inexperienced or greedy shareholders who are not disciplined enough to sell their shares today should absolutely use stop-loss orders to protect profits.  (04/23/13)

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Travelers Reports First Quarters Earnings

The Travelers Companies Inc. (TRV, $86.46), the second-largest U.S. commercial insurer, reported first quarter operating profit of $2.31 per share, vs. analysts’ projected $2.02.  The surprising increase was due to profit margins increasing 50% on customers’ insurance premiums after the company raised prices on insurance policies.

Travelers’ earnings per share are projected to increase 16% this year, then 5-6% for each of the next two years.  The PE is 12 and the dividend yield is 2.12%.

The stock price broke above resistance last September, and is up $20 per share since that time.  The chart is overextended.  Current shareholders should use stop loss orders to protect profits.  (04/23/13)

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Xerox Reports First Quarter Earnings

Xerox Corp. is lowering its second quarter profit forecast, due to restructuring costs and poor performance in its document business.   First quarter earnings were up and revenues were down.  The company is making a transition from  documents, towards its growing service business, which accounts for 55% of revenue.

Standard & Poor’s Research has a “Sell” rating on Xerox shares, and says, “We have concerns about IT spending budgets for both the enterprise market and the U.S. federal government.”  Xerox’s earnings are projected to grow 7-9% per year for the next three years.

The share price has never recovered from the 2008 Financial Meltdown, bouncing between $6 and $12.  There’s some price resistance at $9.50.  Shareholders would do well to consider selling at $9.25 and putting their money into a growth & income stock with better projected earnings growth.  (04/23/13)

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Under Armour Reports Mixed First Quarter

Rapidly growing sports apparel company Under Armour Incorporated (UA, $55.54) reported first quarter sales up 23%, slightly above Wall Street expectations.  Net income decreased 47% due to planned marketing expenditures.

Morgan Stanley Research reports that sales growth is being driven by “new product innovations, new retail programs, and global expansion.”  However, Morgan Stanley is concerned about stagnant margins keeping the share price in check.

Under Armour’s earnings per share are expected to grow 20 – 26% per year for the next three years.  The PE is 38, in a seven-year range of 13-70.  The stock has been trading between $44 ½ and $60 for 14 months.  The chart is generally constructive, and growth stock investors should consider buying on dips below $52.  (04/22/13)

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Amazon Impacted by Weak Yen

Dominant internet retailer Amazon.com (AMZN, $263.59) will see earnings impacted this year by unfavorable foreign exchange trends and poor European economies.  However, Bank of America Merrill Lynch still expects gross profit to grow over 30% this year.

After taking a small loss in 2012, Amazon is expected to earn $1.47 per share this year, rapidly increasing to $6.97 per share in 2015.  That gives the stock a PE of 177 today, and a forward PE of 37.

The stock has been trading between $252 and $284 this year.  With a super-high PE and a slowly evolving earnings pattern, we would not be buyers of Amazon.  Current shareholders should use stop-loss orders to protect profits.  (04/22/13)

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ValueAct Capital Takes Big Position in Microsoft Shares

“Activist investor ValueAct Capital has taken a $2 billion stake in Microsoft Corp. [MSFT, $30.89], CNBC reported on Monday.”  ValueAct typically invests in companies which it deems to be fundamentally undervalued.  Microsoft is a very profitable company with revenues growing annually.

Microsoft’s earnings per share are expected to be flat this year, then grow 13% and 9% in the next two years.  The PE has ranged from 9 to 19 over the last five years, and is currently 11.2.  The dividend yield is 3.20%.

On April 11, we reported that the stock has been trading sideways for over ten years; currently trading between $26 and $33.  Current shareholders should hold Microsoft for the big dividend and eventual share price growth.  Traders could pretty easily jump in and out within the trading range.  (04/22/13)

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