Posts Tagged ‘earnings outlook’
The Dow Jones Transportation Average is still very close to its all-time high, and so are countless component companies. The airlines, in particular, have been very strong in a classic bull market breakout performance. Many of these stocks have roughly doubled over the last 12 months.
Commensurate with continued strength in the Russell 2000 index of small-cap stocks and year-to-date outperformance of the NASDAQ Composite, this is still a very positive environment for equities. The NASDAQ Biotechnology Index continues to soar.
While strength in transportation stocks is a leading indicator for the U.S. economy, so is price strength in small-caps. Smaller companies are more exposed to the domestic economy, and while it’s too early for many of these companies to report fourth-quarter earnings, the Russell 2000 has outperformed the Dow Jones industrials and the S&P 500 over the last five years, confirming the primary upward trend.
Instead of an actual correction in stocks, we’ve only experienced price consolidation; the latest being in blue chips since December.
This is very much a market in need of a pronounced price correction, if only to realign expectations with current earnings outlooks. Fourth-quarter numbers, so far, are mostly showing limited outperformance, and those companies that have beat consensus are still, for the most part, just confirming existing guidance, not raising it. If this is a secular bull market, it’s time for a break.
A meaningful price correction in stocks would be a very healthy development for the longer-term trend. Corporations are in excellent financial shape, and the short-term cost of money is cheap and certain.
In order for this market to turn in a … Read More
Looking for volatility? Stick with 3D (three-dimensional) printer stocks. While most continue to exude upward price momentum, valuations are off the charts and the action can only be described as “gut-wrenching.”
Stratasys Ltd. (SSYS) is a company we looked at back in November. Based out of Eden Prairie, Minnesota, Stratasys is one of the leading manufacturers of 3D printers. (See “In Spite of Hype, New Tech Sector Not a Fad.”)
The company’s share price is up six-fold since October of 2011, but it recently experienced its first blip in expectations. The stock dropped $15.00 a share, or about 11.5%, after reporting a 2014 earnings outlook slightly below existing consensus.
Still, this is very much a growth story, and it’s likely the company will continue to be a hot commodity on the stock market. Revenues for 2014 are expected to grow by a minimum of 25% organically.
But like many enterprises in high-growth mode, Stratasys is investing heavily in its business, hiring new sales people and spending on marketing. Combined with higher costs for research and development, total operating expenses this year are expected to rise considerably. The Street sold the position on the day of the announcement, exacerbated by the company’s extremely high valuation.
Almost twice as large as Stratasys is Rock Hill, South Carolina-based 3D Systems Corporation (DDD). This company has been on a tear, up by more than 100% on the stock market since this time last year.
The Street expects 3D Systems to grow its sales by 45% this year and another 30% next year. Earnings aren’t forecast to grow as quickly as sales for … Read More
We won’t really get into the heart of the fourth-quarter 2013 earnings season until late January into early February. Smaller companies typically take longer to report, as they don’t have the large accounting departments that blue chips have.
I’ve noticed that quite a number of Wall Street research analysts have been boosting their 2014 full-year earnings expectations. They’re playing the same old game of cat and mouse with corporations and research analysts. Corporations always want to “outperform” if they can, so they deliberately keep their outlooks pretty conservative.
Companies getting a boost to their full-year earnings outlooks include: Wal-Mart Stores, Inc. (WMT), Microsoft Corporation (MSFT), Colgate-Palmolive Company (CL), Oracle Corporation (ORCL), E. I. du Pont de Nemours and Company (DD), Exxon Mobil Corporation (XOM), and Verizon Communications Inc. (VZ). Even Intel Corporation (INTC) is having its earnings outlook nudged higher by the Street for several upcoming quarters, including all of 2014.
According to FactSet, eight out of 10 S&P 500 market sectors are expected to report an increase in fourth-quarter earnings; these sectors are led by a strong expected gain in financials, followed by the telecom and industrial sectors. Energy is expected to produce a decline, comparatively.
While revenue growth from financials should be lackluster to negative on a comparative basis, a strong expected gain in earnings will be market-boosting news. Countless financials have been doing very well on the stock market since last November.
Over several of the last quarters, companies reported they were able to increase their selling prices without materially affecting demand. Sales growth has been a combination of increased volumes and rising prices.
Extreme monetary expansion … Read More
There are still a lot of companies that are reporting quarterly earnings and, in many cases, the numbers are pretty decent. Let’s look at some of the winners.
The iconic jewelry brand Tiffany & Co. (NYSE/TIF) reported outstanding quarterly earnings growth of 50% due to significant sales strength and margin expansion from the Asia-Pacific region. The company’s American stores saw total sales grow four percent to $417 million, with European sales growing a surprising seven percent to $104 million.
Tiffany & Co. boosted its full-year earnings outlook for its fiscal year ending January 31, 2014, and the stock jumped seven points on the news, closing at a new all-time record high.
Much smaller Movado Group, Inc. (NYSE/MOV), which is based in Paramus, New Jersey, reported an 18.4% increase in third-quarter sales to $189.7 million.
The company’s quarter earnings fell comparatively due to a tax provision, but income before taxes grew to $34.0 million from $25.0 million in the same quarter last year.
Movado beat Wall Street consensus and tightened its guidance to the high end of its previous outlook.
Higher-end retailers like Tiffany & Co. aren’t representative of a general trend, but La-Z-Boy Incorporated (NYSE/LZB) recently shot way up on the stock market after reporting that consolidated sales grew 14% to $366 million in its most recent quarter.
Earnings for the quarter more than doubled. The company boosted its quarterly dividend by a whopping 50% and the stock soared on the news.
Even The TJX Companies, Inc. (NYSE/TJX), which consists of “T.J. Maxx,” “Marshalls,” “HomeGoods,” “Sierra Trading Post,” “HomeSense,” and “Winners,” beat its own expectations with a very solid quarter…. Read More
It’s an amazing performance that few people predicted at the beginning of the year—this stock market might just keep on climbing right into the New Year.
Just recently we looked at Automatic Data Processing, Inc. (ADP) as it broke a new all-time record high of $77.00 a share. Now, the position has surpassed $80.00 a share, still boasting a 2.4% dividend yield. It was $60.00 a share in January.
The stock market should have experienced a major correction this year, but it consolidated during the summer and reaccelerated instead.
The huge price movements of so many large and mature enterprises are not unusual in the historical performance of the stock market. In the middle of 1998, ADP was $30.00 a share (split adjusted). Two years later, the position hit a new, all-time record-high around $60.00 before correcting with technology stocks.
ADP and so many other positions illustrate the power that monetary policy has on the stock market’s business cycle. Clearly, equities today are overbought, but institutional investors have to be buyers, because investors don’t pay fees to have money sitting in cash.
While I feel that the stock market can close this year out strongly, generally speaking, I am not enthusiastic about investors buying this market. The fundamentals are slowly coming together to support the case for rising equity prices, but all the good news in terms of balance sheets and earnings outlooks are already priced into this market. Anything can happen going forward, but expectations for investment returns have to be extremely low if one is buying a stock market that’s already gone up.
A profound and prolonged correction … Read More
Transportation stocks are now reporting their third-quarter earnings, and it’s important for investors to pay attention to what these leading market indicators have to say.
J.B. Hunt Transportation Services Inc. (JBHT) is one of the largest trucking firms in North America. The company reported a solid third quarter, but earnings came in just slightly below what Wall Street was looking for.
Third-quarter revenues grew 11% to $1.44 billion, which is solid growth for a mature business. Earnings were $89.5 million, or $0.75 per diluted share, compared to $78.2 million, or $0.65 per diluted share. Wall Street was looking for total sales of $1.45 billion, with $0.78 in earnings per share.
The company’s cash position and accounts receivable grew solidly, and so did shareholder’s equity. All in all, it was a good quarter for this trucking firm. If Wall Street consensus was a little too high, then it was. This was still a solid report, and the company’s financial health improved.
In the railroad industry, companies continue to deal with weakening demand for coal, but earnings are holding up on modest revenue growth and higher prices.
Union Pacific Corporation (UNP) reported third-quarter sales of $5.57 billion, growing four percent over the comparable quarter last year. The company’s earnings were $1.15 billion, or $2.48 per diluted share, compared to $1.04 billion, or $2.19 per diluted share.
Third-quarter revenues measured by total revenue carloads were flat. Most of the company’s gain in total revenues came from price increases. Earnings met consensus, while revenues were just a hair below.
So there is growth out there, but it’s modest and not necessarily the result … Read More
Third-quarter earnings season continues this week; with a number of companies set to report in the next few days, the stock market’s attention should finally be on corporate earnings. And while earnings expectations are being reduced, the positive disposition to the Dow Jones Transportation Average remains.
The index has trended higher compared to many blue chips, which have been in consolidation for some time now. Many component companies of the index are trading at or near their 52-week highs.
With this trend, there is still some resilience to this stock market, even with a backdrop of reduced earnings outlooks.
What is noteworthy in this regard is the NASDAQ Composite Index, which remains right at its 52-week high and is creeping closer to its all-time record high set in 2000. Countless technology and biotechnology stocks continue to push to new highs. It’s a near-term bullish stock market indicator in an environment of declining expectations.
And declining expectations are why the action in the NASDAQ is so worrisome. The stock market’s been stretched for some time now, with previous leadership from blue chips and small-cap companies. The recent outperformance in the NASDAQ Composite—the component companies of which are far more risky than blue chips—is itself a telling indicator.
But while the stock market has been due for a correction for months now, the action in the Dow Jones transportation stocks, as well as the technology sector, is evidence of the continued resilience in equities.
Recognizing that there are very few instances of optimal buying opportunities in this stock market, I’m still very reticent to be a buyer in a market that’s … Read More
In a world where genuine revenue and earnings growth is a tough thing to come by, the company with the iconic “swoosh” did so with flying colors. NIKE, Inc. (NKE) is a business that continues to defy its maturity as a brand.
The company posted 2014 fiscal first-quarter earnings that beat Wall Street consensus, with revenue growth coming in at a solid eight percent with no significant impact from currency translation.
The company was able to increase its gross margin substantially and total earnings grew an impressive 33% to $780 million. Diluted earnings per share grew 37% to $0.86 a share on one percent less in weight average diluted shares outstanding.
NIKE purchased 8.4 million shares of its own common stock in its fiscal first quarter for $526 million, and its cash position soared $2.3 billion (after a debt issuance and the sale of Cole Haan and Umbro) to $5.6 billion.
With such strong numbers and such a solid cash position, I’m actually surprised the company didn’t effect an increase to its quarterly dividends. The company raised its dividend at the end of last year, and management may do so in the next quarter; the business can certainly afford it.
NIKE has been able to get away with price increases without affecting demand, and with strong expense control, the extra margin goes right to the bottom line.
The company had a very successful fiscal 2012 fourth quarter, and its operational momentum continues. The stock is at an all-time record high, with a current dividend yield of just over one percent; but like most successful enterprises, the company’s share price is … Read More
Investment risk for the very near-term stock market is going up. There’s been pressure on interest rates, investor sentiment was hit by the lack of tapering to quantitative easing, and finally, the third-quarter earnings outlook is mediocre at best.
Everything related to the stock market has been exceptional this year. While earnings growth was completely and totally lackluster, with several exceptions, the main stock market indices proceeded to rise tremendously based on continued monetary expansion and the fact that there really is nowhere else for investors to go but stocks.
Second-quarter earnings season was unimpressive, and I think it will be the same for the third-quarter reporting season. Financial results very well could be the catalyst for a major market retrenchment in October. I think that all investors need to prepare for such an eventuality. Generally speaking I do think that stocks can continue to rise in 2014; however, corporations will have to provide genuine earnings growth and top-line growth to keep valuations from pushing the envelope.
I would say that, given current earnings and expectations for 2014, the stock market is at least slightly—if not fully—overvalued at present. With the expectation of very modest earnings growth in the third quarter and little in the way of sales growth (especially among large-cap companies), recent stock market strength has been an expansion of valuations only.
This is why I’m so cautious near-term and why October could be a wild ride for share prices.
It is quite likely that market leaders that did well in the first two quarters of this year will continue to do so. These are the “Johnson & … Read More
From the investor’s perspective, I think consistency, both in terms of corporate financial growth and stock market performance, is absolutely golden. This is especially the case for investors who aren’t actively trading and are perhaps saving for retirement or are in retirement and want some security with their equity holdings.
One company that I regularly view as an excellent long-term enterprise for savers is PepsiCo, Inc. (PEP). PepsiCo is a drink and snack business that has consistently delivered on management forecasts. The company has a solid track record of increasing dividends over time, and its long-term performance on the stock market has, to date, offered a stable uptrend. The company’s 35-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
PepsiCo has been a stellar performer on the stock market since the beginning of the year. Like a number of other blue chips that delivered on their promises (Johnson & Johnson [JNJ], for example), the company provided the Street with exactly what it was looking for. (See “This Star Pharma Company Delivers the Goods Once Again.”)
With a current dividend yield just shy of three percent, PepsiCo is a company that a long-term equity investor can build a position in over time and still be able to sleep at night. It’s also an attractive equity investment in which to consider a dividend reinvestment plan. A company that pays rising dividends combined with an investor who reinvests those dividends into new shares compounds wealth. It’s an old-school and simple … Read More
Typically, September is a volatile and tough month for stocks, but there’s a real resilience to the current stock market. Even the NASDAQ Composite is holding up well, considering Apple Inc.’s (AAPL) drop last week.
A key metric for me remains the Dow Jones Transportation Average and the components of the Dow Jones Industrial Average. Top- and bottom-line growth for blue chips is very modest, but balance sheets remain strong, and the institutional drive towards stock market safety and consistency remains a solid investment theme.
Dividends and the prospect for more dividends remain highly attractive in a slow-growth economy, and new funds for equities have to go somewhere. I see no reason why the Dow Jones Industrials can’t come through with their earnings outlooks going into the last quarter of the year.
But regardless of corporate fundamentals, the Federal Reserve has been and will continue to be the clear driver of this stock market. Institutional investors are still of the mantra that it doesn’t pay to fight the Fed and betting against it by those who get paid to play the stock market is highly unlikely.
Unless there is some new shock to the system, the stock market is likely to finish off a very good year.
If corporations are still wary about investing in new plant, equipment, and employees, the outlook for balance sheets and rising dividends remains strong. For years now, it’s been much easier for corporations to borrow cheap money and buy back shares in … Read More
The best companies the stock market has to offer rarely go on sale. But when they do, you have to make a determination as to whether there’s been a fundamental change in the long-run prospects of an enterprise. If there hasn’t been a change, then that company is worthy of serious consideration.
One such company that’s been an excellent wealth creator on the stock market and has recently pulled back from its high is Visa Inc. (V). The position crossed below its 50-day simple moving average (MA) at the end of July and is just a few points away from hitting its 200-day simple MA.
Prospects for Visa haven’t diminished. Wall Street has been consistently increasing its earnings outlook on the company for this year and next.
Both Visa and MasterCard Incorporated (MA) trade similarly on the stock market. While Visa is the larger company by market capitalization, both positions are off their highs.
Now is a good time to put Visa on your radar for a number of reasons. The position isn’t down from its high very often—let alone being down to this degree. Business prospects for the company haven’t changed. It’s the lull between earnings seasons, and the marketplace is worried about a reduction in monetary stimulus. For long-term portfolios, Visa is a good pick to consider.
The business of credit cards is a good one. In its fiscal third quarter of 2013 (which just ended), Visa’s revenues were $3.0 billion, up markedly from $2.57 billion in the comparable quarter. Plus, the company is highly profitable, generating earnings of $1.23 billion last quarter, compared to a loss due … Read More
We all know that corporate earnings are managed, but in a sense, it works, because an investor is better off having some ballpark earnings outlook over nothing. Earnings estimates for mature, large-cap businesses are typically more accurate over traditional growth companies, and you can use these estimates for your buy and sell decisions on the stock market.
One company that has a long history of providing decent guidance is Automatic Data Processing, Inc. (NASDAQ/ADP) out of Roseland, NJ. Automatic Data Processing (ADP) is a payroll processing and human resources outsourcing firm that is actually considered a technology stock. The company belongs to the NASDAQ 100 index, and I view it as a great barometer on the stock market, investor sentiment, and employment.
On the stock market, ADP has been doing great for years, though it did get ahead of itself in the late 1990s, as did so many other stocks. The “overperformance” produced underperformance in the 10 years following 2001; but normalized stock market long-term returns from this business have been good, especially with the addition of dividends.
Chart courtesy of www.StockCharts.com
In its latest earnings report for the second fiscal quarter of 2013, ended December 31, 2012, ADP reported revenue growth of seven percent to $2.7 billion. Earnings were down slightly during the quarter, but management says the company can produce top-line growth between eight percent and 10% this year, with five to seven percent in diluted earnings-per-share growth from continuing operations.
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