Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘earnings growth’

What This Company’s Earnings Say About the Broader Market

By for Profit Confidential

Company’s Earnings Say About the Broader MarketFedEx Corporation (FDX) just bounced off a new record-high on the stock market and is an important component of the Dow Jones Transportation Average.

In its fiscal first quarter of 2015 (ended August 31, 2014), the company’s sales and earnings surged. It was a great quarter and a strong indicator for the rest of the market.

Total revenues grew six percent to $11.7 billion. This may not sound like a lot of growth, but it is for such a mature enterprise in a very competitive industry.

But the big news was the company’s strong earnings growth. Net income grew 24% over the same quarter last year to $606 million. Diluted earnings per share grew 37% to $2.10, of which $0.15 per share of the total was due to share repurchases during the quarter. The company bought back 5.3 million of its own common shares in its fiscal first quarter and no shares remain now under existing repurchase authorization.

Each of the company’s three main operating divisions posted solid gains in revenues and operating earnings.

Higher rates are not affecting demand. In fact, FedEx is experiencing higher revenue per package including increases in residential and fuel surcharges, and this is going right to the bottom-line. And rates are going up by an average of 4.9% at the beginning of 2015 for FedEx Express, FedEx Ground, and FedEx Freight, which cover most of North America, Hawaii, Puerto Rico, and the U.S. Virgin Islands.

What the company didn’t do in its latest earnings report was increase its existing financial guidance for fiscal 2015. But this isn’t unusual for management to underplay their … Read More

Large-Cap Tech Doubling in Price and Headed Higher

By for Profit Confidential

Dependable Large-Cap Tech Stock’s Success an Untold Story This YearLarge-cap technology stocks, particularly old-school names, have really been on the rise, though they remain an untold story this year.

Microsoft Corporation (MSFT) is on a major upward price trend and is getting close to its all-time record-high set during the technology bubble of 1999.

The company’s stock market performance has been tremendous as of late, rising from around $27.00 a share at the beginning of 2013 to its current level of approximately $47.00, its 52-week high. Its share price has increased by more than $10.00 this year alone. (See “Eight Stocks to Beat the Street.”) And that’s with a current dividend yield of 2.6% and a trailing price-to-earnings ratio of just less than 15.

I think Microsoft is going to keep on ticking higher right into 2015 based on its sales and earnings growth momentum combined with a solid interest on the part of institutional investors seeking earnings predictability in a slow-growth environment.

Microsoft would be a solid investment-grade pick in this market for those investors considering new positions and looking for income.

Even without the company’s dividends, it should experience solid sales and earnings growth going into its next fiscal year. And in an environment where institutional investors are bidding old-school names that are offering earnings reliability, $50.00 a share shouldn’t be too difficult for Microsoft to achieve by year-end.

Share price momentum in previous technology growth stocks like Microsoft and Intel is indicative of a bull market, but one that’s still risk-averse.

Price momentum in these stocks is healthy for the broader market because large-cap tech companies like Amazon.com, Inc. (AMZN) and Facebook, Inc. (FB) … Read More

Why I’m More Excited About the Food Sector Than Apple’s Latest Products

By for Profit Confidential

This Food Company More Deserving of Your Attention Than AppleWhile the entire world was waiting for and anticipating the next-generation “iPhone 6” from Apple Inc. (NASDAQ/AAPL) on Tuesday, General Mills, Inc. (NYSE/GIS) announced it was acquiring organic and natural food company Annies, Inc. (NYSE/BNNY).

Okay, the launch of the iPhone 6 was clearly more exciting, but so what? The launch was more hype than substance, unless you consider a new and bigger iPhone earth-shattering.

But I’m not here to talk about Apple. What I will discuss is the food sector, especially the makers of organic and natural food products, which appear to be in play, based on my stock analysis.

If you owned Annie’s before it was acquired by General Mills, congratulations on your 38% jump in stock price on the news! Go treat yourself to some fine wine and a great meal. If you didn’t get to profit from this deal, there are still some stocks in the same sector as Annie’s that have great potential.

One small-cap natural food products company that I like based on my stock analysis, and this is one that I have been covering for a few years now, is Inventure Foods, Inc. (NASDAQ/SNAK). The small company produces and markets specialty food brands, concentrating on the snack food market. Some of its product lines include nutritional and natural snacks.

Inventure Foods sells products under its own brand and other licensed brands, including the following: “Boulder Canyon Natural Foods,” “Jamba,” “Seattle’s Best Coffee,” “Rader Farms,” “T.G.I. Friday’s,” “Nathan’s Famous,” “Vidalia Brands,” “Poore Brothers,” “Tato Skins,” “Willamette Valley Fruit Company,” “Fresh Frozen,” and “Bob’s Texas Style.” The company’s manufacturing plants are located in Arizona, … Read More

Two Blue Chips with Excellent Upside

By for Profit Confidential

My Top Blue Chips Offering More Capital GainsThere’s good resilience to this market. On most days, the NASDAQ Composite is still beating both the S&P 500 and Dow Jones Industrial Average comparatively, which is bullish. Lots of stocks are pushing new highs and many seem to be breaking out of their previous near-term trends.

NIKE, Inc. (NKE) is a large-cap, dividend-paying company that I view as attractive for long-term investors.

The stock has been in consolidation, trading range-bound since the beginning of the year but is finally breaking out and pushing through the $80.00-per-share level.

This position went up tremendously last year and has been due for a break. The company has experienced solid revenue and earnings growth over the last several quarters.

The stock’s reacceleration looks meaningful, and I suspect the position is in for a new uptrend.

The other company that I feel is a good example of the kind of stock that could make for a great holding in any long-term equity market portfolio is The Walt Disney Company (DIS). (See “Why This Is Still My Favorite Entertainment Stock.”)

I’m not surprised this position is still ticking higher. But it has been moving up very consistently since October of 2011.

The stock just broke the $90.00-per-share level. This time two years ago, the company was trading for $30.00 a share, which is incredible capital appreciation for such a mature large-cap enterprise.

Institutional investors are still buying earnings reliability, and I think this trend will hold right through 2015.

Both NIKE and Disney offer earnings reliability and the fact of the matter is that it’s difficult for any company to generate double-digit growth…. Read More

Eight Stocks to Beat the Street

By for Profit Confidential

How Investors Can Beat the StreetCountless stocks are pushing new highs and a lot of them are still blue chips. The Dow Jones Industrial Average is lagging the other indices this year, but this is not unusual.

The fact that many blue chips are still slogging higher is further indication of a bull market, despite all the shocks, risks, and the fact that stocks haven’t experienced a real correction for a number of years now.

PepsiCo, Inc. (PEP) had a great second quarter (for such a mature brand). The company increased its quarterly dividend once again and Wall Street earnings estimates for this year and next have been going up across the board.

What large corporations and well-known business brands say about their operating conditions is as useful as any other kind of information or opinion regarding the equity market. Stocks get overvalued and undervalued, but the best investing information I’ve found is what corporations actually report about their businesses, regardless of whether a company meets, beats, or comes in below consensus.

What Caterpillar Inc. (CAT) says about its global heavy equipment sales is material information, even if you aren’t interested in buying the stock. The same goes for Intel Corporation (INTC), The Boeing Company (BA), Visa Inc. (V), and The Walt Disney Company (DIS).

Second-quarter earnings season came in better than expected, and while many blue chips reiterated their existing guidance, I suspect it’s a simple strategy to make it easier to beat the Street by keeping expectations modest.

It could easily be another great year for stocks with a fundamental backdrop that is still so favorable to equities. And this includes the reality … Read More

What Sets This Company Above the Rest

By for Profit Confidential

Old Stock Is Worth Your TimeThere are lots of companies that are one-time wonders. They experience explosive growth (or the expectation of it), plateau, and very often collapse on the weight of an overly aggressive business plan.

The marketplace is full of these types of businesses, but what’s not in great supply is a business that provides consistency—both in terms of operational growth and investment return to stockholders.

One business that falls into the category of consistent growers is The Toro Company (TTC). This is a really good enterprise operating in an industry that doesn’t mind spending money on equipment.

Toro is based in Bloomington, Minnesota and the company manufactures professional turf equipment for golf courses. Toro also makes sprinkler heads and all kinds of irrigation products for sports fields, golf courses, and home systems. The company owns the “Lawn Boy” brand. Toro is a very good business and has proven to be a very good wealth creator for investors.

The company’s medium-term stock chart is featured below:

Toro Company Chart

Chart courtesy of www.StockCharts.com

This isn’t the fastest growing enterprise in the world, but it is consistent. The company’s most recent quarter beat Wall Street consensus on earnings and revenues and management increased its full-year 2014 guidance.

According to the company, its fiscal third quarter (ended August 1, 2014) saw revenues grow a solid 11.3% to a record $567.5 million. Sales growth was driven by what management reported as strong retail demand for both its professional and residential products.

Bottom-line earnings came in at $50.0 million, or $0.87 per share, compared to $40.1 million, or $0.68 per share, the previous year, which is very good improvement.

Double-digit … Read More

Why Exposure to Healthcare Sector Is a Must

By for Profit Confidential

How These Companies Celebrate a Great QuarterIn what is on par with the course in today’s stock market, biotechnology firm Amgen Inc. (AMGN) posted double-digit revenue and earnings growth while raising its full-year outlook.

The kicker for this stock and its recent price strength was the news that the company plans to cut 12%–15% of its global workforce (2,400 to 2,900 employees) and close four of its facilities in Washington and Colorado. A lot of the job cuts will be to middle management, according to Amgen’s Securities and Exchange Commission (SEC) Form 8-K.

The company’s second-quarter sales grew 11% to $5.18 billion on strong sales and better margins on “ENBREL,” which is a treatment for arthritis. GAAP (generally accepted accounting principles) earnings grew 23% to $1.55 billion, while adjusted earnings per share grew 25% to $2.37.

On the back of such a strong earnings performance, you’d think the company would be hiring. But such is the marketplace with large corporations and large institutional investors.

Amgen has finally broken out of a 12-year price consolidation on the stock market and is set for more capital gains.

A share split wouldn’t be a surprise and the company is well positioned to provide shareholders with another dividend increase at the beginning of next year.

While Wall Street earnings estimates are going up for this company, I would say that a lot of good news (and drug development expectation) is built into the share price. Still, I don’t see Amgen as overpriced considering its business plan for the next few years. The company’s new restructuring plan is substantial and is likely to be rewarding to stockholders.

Healthcare-related stocks are proven … Read More

The Problem With Reality in 2014

By for Profit Confidential

U.S. Economy Halfway to a Recession AlreadyEarlier this month, Jeremy Siegal, a well-known “bull” on CNBC, took to the airwaves to predict the Dow Jones Industrial Average would go beyond 18,000 by the end of this year. Acknowledging overpriced valuations on the key stock indices are being ignored, he argued historical valuations should be taken with a grain of salt and nothing more. (Source: CNBC, July 2, 2014.)

Sadly, it’s not only Jeremy Siegal who has this point of view. Many other stock advisors who were previously bearish have thrown in the towel and turned bullish towards key stock indices—regardless of what the historical stock market valuation tools are saying.

We are getting to the point where today’s mentality about key stock indices—the sheer bullish belief stocks will only move higher—has surpassed the optimism that was prevalent in the stock market in 2007, before stocks crashed.

At the very core, when you pull away the stock buyback programs and the Fed’s tapering of the money supply and interest rates, there is one main factor that drives key stock indices higher or lower: corporate earnings. So, for key stock indices to continue to make new highs, corporate profits need to rise.

But there are two blatant threats to companies in the key stock indices and the profits they generate.

First, the U.S. economy is very, very weak. While we saw negative gross domestic product (GDP) growth in the first quarter of this year, the International Monetary Fund (IMF) just downgraded its U.S. economic projection. The IMF now expects the U.S. economy to grow by just 1.7% in 2014. (Source: International Monetary Fund, July 24, 2014.) One more … Read More

Top Sector Offering More Capital Gains

By for Profit Confidential

The One Sector with More Capital Gains to ComeWhile business conditions are pretty good in the domestic oil and gas business, they’re also holding up very well in the railroad sector.

If railroad companies and related services are old economy, they are still important economic benchmarks and they continue to be great businesses producing excellent returns to stockholders.

Union Pacific Corporation (UNP) is an important company to follow, even if you aren’t interested in owning a position. What the company reports about its business conditions is material and helpful in advancing your own market view. Union Pacific reports on Thursday.

Norfolk Southern Corporation (NSC) just hit an all-time record-high on the stock market. This time last year, the stock was around $77.00 a share; now, it’s close to $107.00.

CSX Corporation (CSX) is not as large in terms of market capitalization as Norfolk Southern or Union Pacific, but it is still a $31.0-billion company with extensive operations in the eastern United States and Canada.

Its second quarter of 2014 was a record quarter with sales growing seven percent to $3.2 billion on an eight-percent gain in volume.

Earnings growth was more modest, coming in at $529 million, or $0.53 per diluted share, compared to $521 million, or $0.51 per diluted share, for second quarter 2013. But management expects margin expansion going into 2015, and the Street wasn’t fazed.

Like so many other large-caps, the company is buying its own shares, including some $131 million worth during the most recent quarter.

By April of next year, the company will have spent $1.0 billion on share repurchases over the last two years.

Notably, CSX saw double-digit volume and revenue gains … Read More

The Big News on 2Q14 Earnings Season So Far

By for Profit Confidential

My Two New Favorite Stocks This Earnings SeasonThe numbers are in from Johnson & Johnson (JNJ) and they’re good. The position sold off on the news, which is no big surprise considering how well it’s done since the beginning of the year.

Johnson & Johnson is still mostly a pharmaceutical play, but it won’t likely be able to produce the same growth results it experienced from its hepatitis C drug in its most recent quarter.

The company adjusted its earnings-per-share guidance slightly higher and lowered its full-year sales guidance also just slightly.

The second quarter saw the company produce sales growth of nine percent to approximately $19.5 billion and adjusted earnings growth (excluding one-time items) of about 12% to $1.66 a share, which handily beat Wall Street consensus. (See “Why This Institutional Favorite Tops My List of Stocks.”)

While I do think that second-quarter earnings from blue chips will be pretty decent, it’s not unreasonable at all for these positions to sell off on the news. Stocks have come a long way, even just since the beginning of this year.

The stock market needs a break, or at the very least, another material price consolidation. It would be a healthy development for the long-run trend.

Another company that just reported a decent second quarter was CSX Corporation (CSX), which is the biggest railroad in the eastern U.S. market.

Management cited broad-based economic momentum in its rail freight business. The company’s numbers basically met consensus with second-quarter sales growth of 6.5% to $3.24 billion and earnings of $529 million, or $0.53 per share, up a penny from consensus.

The company plans to increase its capital spending … Read More

Why This Institutional Favorite Tops My List of Stocks

By for Profit Confidential

Why This Company Is One Great Long-Term PlayOne of my favorite companies for long-term, income-seeking investors is Johnson & Johnson (JNJ).

While pharmaceuticals are the company’s anchor, its other business lines help with cash flow and dividend increases.

Investors have bid Johnson & Johnson shares tremendously in recent years, and it’s difficult to consider buying the company now, as the position is up another 10 points since March.

But Johnson & Johnson is the kind of stock income-seeking investors should keep an eye on for more attractive entry points, even though they may not come around all that often. The most recent possible entry points were in late September of last year and late January of this year.

My expectations for a mature company like this is for total annual sales to grow by the mid-single digits, with earnings growth and dividends producing an approximate 10% total annual return.

With a 10% annual return on investment, your money doubles every seven years.

Johnson & Johnson is typically priced at a slight premium to the S&P 500, but the company has earned its higher valuation by providing relatively consistent growth, reliable corporate outlooks, and a strong track record of dividend increases.

The company’s stock chart is featured below:

Johnson & Johnson Chart

Chart courtesy of www.StockCharts.com

Johnson & Johnson has typically been a good performer over the long term, but just like any large-cap, it can sit and produce no capital gains for long periods of time.

The position broke out at the beginning of 2013 after a number of years of modest capital gains. Institutional investors, wanting the earnings safety and solid dividends that the company provided, bid the stock … Read More

What Do This Quarter’s Mixed Earnings Results Mean?

By for Profit Confidential

Market May Be Entering a New Cycle—But Don't Buy Just Yet!Oracle Corporation (ORCL) announced a quarterly revenue gain of three percent, but Wall Street was looking for more and the company’s share price retreated on its earnings results.

If it weren’t for the Federal Reserve, we probably would be in a correction, if not a consolidation, which has been the broader market’s go-to trend when it should have retreated further.

It’s such a mixed bag out there both in terms of economic news and corporate reporting.

While I think dividend-paying blue chips have the advantage going into the second-quarter earnings season, if the Federal Reserve wasn’t so extremely sensitive to Wall Street, this market would probably be a lot lower.

Even the Fed’s recent language is assuaging. If this market had to operate on its own (with free market interest rates and liquidity), things would be a lot different.

But this isn’t the environment we live in. Economic history clearly supports the scenario that it doesn’t pay to fight the Fed and that Wall Street will move mountains when it has Fed certainty.

Lots of investors bemoan the quarterly earnings cycle or game, but I don’t. I want to know a public company’s up-to-date financial results as frequently as possible.

While earnings are managed, over time, a business can’t manufacture success unless it’s a fraud (which, sadly, does happen).

Big companies have the operational leverage and the cash to keep boosting their earnings per share. Oracle’s latest financial results were uninspiring, and while recognizing that this is a very mature business with growing competition in the cloud, the position advanced a material 10 points since last June—this seems so overdone…. Read More

As Stocks Brush Off Geopolitical Tensions, Here’s the Catalyst for a Correction

By for Profit Confidential

Where's the Catalyst for Correction in StocksCountless stocks are bouncing off their highs, and in many cases, a lot of these companies are due for share splits.

It’s a peculiar environment for investors in that the main market indices are right at their highs, yet the Main Street economy isn’t performing anywhere near as well.

Stocks are a leading indicator and share prices move in advance of anticipated corporate earnings, but it’s so difficult to be a buyer when most stocks have already gone up like they have. It’s not boom time at all in the real world.

So with this backdrop, I think it’s fair to conclude that an investor has to be extremely careful in the current environment.

I view investment risk in equities as being high because stocks are at their highs and Main Street is stagnant. It’s not a good combination. And with the real possibility of rising interest rates later this year or early 2015, the boom that hasn’t happened could easily turn into a bust.

For an investor looking to buy stocks right now, I would say to wait until second-quarter reporting season begins and we get the latest numbers from corporations before investing.

This market is so badly due for a material price correction, and with the right catalyst, it could happen near-term.

Given the current information, I would view a material price correction as a buying opportunity. A real stock market correction has eluded us for too long since the March of 2009 low.

And while there was a small sell-off at the beginning of this year, stocks have been moving consistently higher for two straight years.

I … Read More

Why We Are Closer to a Recession in 2014 Than You Think

By for Profit Confidential

U.S. Economy to Fall into a Recession This QuarterDon’t buy into the notion that there’s economic growth in America!

We’ve already seen U.S. gross domestic product (GDP) “unexpectedly” decline in the first quarter of 2014, and now there are signs of another contraction in the current quarter. (The technical definition of a recession is two negative quarters of GDP—we’re halfway there!)

As you know, consumer spending is the biggest part of our U.S. economy, accounting for about two-thirds of our GDP. And consumers are pulling back.

Consumer spending in the U.S. economy declined 0.26% in April from March. This was the first monthly decline since December of 2013. (Source: Federal Reserve Bank of St. Louis web site, last accessed June 4, 2014.)

And while consumer spending is one indicator that suggests a recession may soon be coming into play in the U.S. economy, there’s also one very interesting phenomenon occurring that suggests the very same.

The Federal Reserve is serious about pulling back on its quantitative easing program. And in anticipation of the Fed pulling back on money printing (when it first indicated it would start tapering), the yields on bonds shot up.

But since 2014 began, and the Federal Reserve actually started to taper, the yield on the long-term 30-year U.S. bond has declined more than 12%.

 30 Year t Bond Yield Chart

Chart courtesy of www.StockCharts.com

If the Fed is pulling back on printing (it has said it wants to be out of the money printing business by the end of this year), why are bond yields declining?

From a fundamental point of view, it suggests the market anticipates very slow growth for the U.S. economy ahead.

Dear reader, the perfect … Read More

About That Economic Mirage We Are Living Today

By for Profit Confidential

U.S. Economy Contracts in First Quarter of 2014. Someone Tell the Stock Market!Dear reader, yesterday we got the news that the U.S. economy “unexpectedly” contracted by one percent in the first three months of this year. This is the first time since the first quarter of 2011 that the U.S. experienced negative growth!

This news should come as no surprise to my readers, as I’ve been writing for months how my research shows the U.S. economy is slowing. Most obviously, U.S. companies had a terrible first quarter in respect to earnings growth. In respect to revenue growth, it’s nonexistent.

So why is the stock market rising? Well, it’s not really rising; it’s an illusion. Yes, we keep hearing in the news how the stock market is breaking to new highs. But if we look at the Dow Jones Industrial Average, it’s up only one percent so far in 2014. The Russell 2000 Index (a broader gauge of the market) is actually down 2.5% for the year.

And the money going into buying stocks is actually collapsing. In the first five months of this year, the volume on the S&P 500 was the lowest since 2007!

When you have a stock market rising on weaker and weaker trading volume, it’s a very dangerous stock market. In fact, in the last two months (April and May), there hasn’t been a day when volume on the Dow Jones Industrial Average was more than 500 million shares. In 2013, there were only seven days when the volume on the Dow Jones Industrial Average was less than 500 million!

The rising (or should I say “holding-its-own”) stock market has convinced the media, economists, government, and investors that … Read More

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