Posts Tagged ‘earnings season’
Trading action in stocks has been all over the map so far this year, while investor sentiment remained generally positive. The fact that there was a bunch of profit-taking after the solid recovery in February and March is neither a surprise nor unnatural for a market at a high.
The Federal Reserve continues to be more than accommodative to Wall Street with its words of comfort and its willingness to provide continued monetary stimulus past previously stated benchmarks.
Near-term, geopolitical events in Ukraine are likely the biggest risk for stocks. It’s been a slow start this earnings season with unremarkable results, but the numbers aren’t that bad. Growth is growth.
The NASDAQ Biotechnology Index has just now crossed its 200-day simple moving average, if that’s meaningful. It’s done so several times over the last five years and recovered after a period of consolidation.
Biotechnology stocks aren’t worth paying a lot of attention to in terms of portfolio strategy. These risk-capital stocks trade on their own unique set of business fundamentals. They’ve been powerhouse wealth creators for sure over the last few years. They are due for an extended break.
I think the best plays in this market are still with dividend-paying blue chips as they experience price retrenchments. These stocks continue to have a tremendous amount of favor with big investors in a slow-growth environment. Dividend income is very important when top-line growth is in the single digits.
For those equity investors wanting to take on positions in this market, I’m still a fan of existing winners, particularly among the brand-name stocks that have distinguished themselves with long track records … Read More
With the broader stock market selling off, it’s amazing to see a company’s share price defy the near-term trend and appreciate in value.
Time and time again, Johnson & Johnson (JNJ) gets bid when the broader market faces convulsion. It’s a powerful signal, and there is still a great deal of angst among institutional investors; they still want those dividends and the relative safety of earnings that are predictable.
Johnson & Johnson has been—and continues to be—an excellent wealth creator. The stock’s been bouncing off $95.00 a share the last while and just recently, it seems to have broken past this price ceiling.
There’s not a lot new with this position. One Wall Street firm recently boosted its earnings expectations for the company in 2015. Sales growth is expected to be in the low single-digits this year, but annual earnings growth combined with dividends should be in the low double-digits once again. The company reports its first-quarter numbers on April 15.
There’s definitely been a change in investor sentiment regarding speculative positions. Biotechnology stocks, which have been the market’s multiyear winning sector have finally seen investors book profits. It’s been long overdue and from a market perspective, is a healthy development for the primary trend.
The selling migrated to large-cap technology names and the shakedown just might last a while longer. Anything can happen during an earnings season, but a “sell in May and go away” type of scenario is a real possibility again this year.
Other blue chip names that are also defying the market’s recent action include 3M Company (MMM), Union Pacific Corporation (UNP), Kimberly-Clark Corporation (KMB), Microsoft … Read More
Earnings are beginning to roll in and quite a few companies are missing Wall Street consensus.
This doesn’t mean, however, that there isn’t growth out there; only that estimates have so far been a little optimistic.
CarMax, Inc. (KMX) is a well-known used-car dealer. The company’s latest numbers were decent, but they came in below what Wall Street was looking for.
Fiscal fourth-quarter sales grew nine percent to $3.08 billion, which is pretty good. Comparable store unit sales grew seven percent in the fourth quarter and 12% year-over-year.
The company had to correct some accounting procedures related to extended service plans and warranties, and it took a hit on earnings because of this.
CarMax is buying back its own stock and just authorized another $1.0-billion repurchase plan that expires at the end of the 2015 calendar year. The stock only dropped marginally on the news.
Another company that missed consensus but is very much a growing enterprise is AZZ Incorporated (AZZ) out of Fort Worth, Texas. We looked at this company last year. (See “Things Are Looking Up! Let’s Hope They Don’t Wreck It.”)
This is a good business. The company manufactures electrical equipment and components for power generation and transmission. Management recently said that business conditions are improving and new quoting activity is noticeably stronger.
Fiscal 2014 fourth-quarter revenues came in at $180 million, compared to $140 million in the fourth quarter of 2013. Earnings were $10.2 million, or $0.40 per diluted share, compared to earnings of $13.2 million, or $0.52 per diluted share.
While the company actually missed Wall Street consensus earnings by $0.02 a share … Read More
Earnings season is here and a number of companies have already reported. Some offer more useful information about the general economy and their earnings are a decent barometer.
Paychex, Inc. (PAYX) is the second-largest U.S. payroll company. It just beat Wall Street consensus on revenues and earnings.
The company said its fiscal third quarter of 2014 (ended February 28, 2014) saw revenues climb seven percent to $636.5 million, which is a very healthy comparable gain.
Payroll service revenues grew five percent to $413.9 million, based on growth in checks per payroll and revenues per check. Human resource service revenues improved 12% to $212.1 million due to client-based growth.
This produced a gain in bottom-line earnings of 11% to $160.1 million comparatively. Diluted earnings per share grew 10% to $0.44, up from the comparable figure of $0.40. Paychex reiterated existing revenue guidance for fiscal 2014. Earnings are expected to be higher than previously forecast.
Decent growth at payroll companies is a positive sign. With an attractive dividend yield of approximately 3.3% currently, this stock has room to tick higher if the broader market doesn’t come apart.
Paychex’s one-year stock chart is featured below:
Automatic Data Processing, Inc. (ADP) is slightly more than double Paychex’s market capitalization.
This large-cap is trading only a few points from its all-time record-high, and it currently has a 2.5% dividend yield.
The company doesn’t report its next set of earnings until April 30, but in its second fiscal quarter of 2014 (ended December 31, 2013), total sales climbed nine percent to $3.0 billion. (See “Stocks: Why I’m Starting to Favor the … Read More
Going by the choppy trading action this year, investment risk with equities is going up.
Recent shocks to the system include events in Ukraine and Crimea, Chinese economic data, and Citigroup Inc.’s (C) failed stress test.
This is a very uneasy stock market, and because the main indices are right around their highs, any shock has the potential to deliver a serious haircut to asset prices. The choppy, trendless action combined with full valuations is the reason why I’ve been advocating taking profits from speculative positions. This stock market is just plain tired out.
First-quarter earnings season is just around the corner, and while it’s looking like we’ll get more of the same from corporations (a meet-or-beat on only one financial metric, revenues or earnings) the stock market needs more than dividends and share buybacks in order for share prices to keep appreciating.
Blue chips, especially, have been coasting along, providing single-digit earnings growth on modest sales. The icing on the cake has been the rising dividends and share repurchases, which the stock market has eaten up over the last two years.
But sentiment is slowly changing regarding share repurchases. Big investors want to see more than these financial tools in the businesses they own. Rising dividends are always great, but you need underlying revenue and earnings growth to sustain the case. And in order to do so, corporations have to make new investments. They’ve been very reticent to date.
Healthy balance sheets are always desirable, but new business investment and innovation is what creates wealth over the long-term. Everything’s been short-term thinking the last few years, and companies … Read More
This is an odd stock market. On one hand, you don’t want to miss out on any of the upward moves, which is why you should continue to ride the gains; on the other hand, you also want to make sure you have an exit plan in place. (See “Time for Investors to Create an Exit Strategy?”)
As we move toward the end of the first quarter, the one thing that is clear is the difference in the market behavior this year versus the same time in 2013, when everything was moving rapidly higher with minimal regard for the underlying market fundamentals.
As I wrote in these pages in January, this will be a more difficult market in which to make money compared to the previous few years.
The move by the Federal Reserve under Janet Yellen to continue to dismantle the quantitative easing that was put into place by former Fed Chair Ben Bernanke a few years ago has continued into 2014 with the third straight month of cuts to the central bank’s monthly bond buying.
The gradual $10.0-billion-per-month reduction in the Fed’s monthly bond buying will likely continue until the program reaches zero early in the fourth quarter, unless, of course, the economic renewal stalls.
What this means for the stock market is that the drying up of easy money from the Fed will continue to put a damper on the money available for speculating on stocks, especially those in the emerging markets. And as bond yields rise, there will be more of a shift to bonds.
We are already seeing the impact on the … Read More
You know another earnings season is right around the corner because Oracle Corporation (ORCL) and Adobe Systems Incorporated (ADBE) always report their fiscal results just ahead of the calendar quarter end.
Both technology stocks are bellwethers, and while they are mature enterprises, they do help set the tone in sentiment. It’s exactly what the marketplace needs now so investors can have something else to worry about over geopolitical events.
Oracle’s been going through its own issues trying to generate top-line growth. Revenue and earnings the last several quarters have been very modest.
And so have Adobe’s numbers, but Wall Street analysts have been boosting their earnings estimates for the company in 2015 and the stock has doubled over the last 18 months.
Oracle is definitely more of a value play, and the company pays a dividend. Adobe is expensively priced and while much smaller, still boasts a stock market capitalization of approximately $34.0 billion.
In previous quarters, it was pretty obvious what the Street was looking for in terms of earnings results. At the beginning of 2013, investors just wanted to know that corporate earnings would hold up. Then they were happy with modest growth so long as dividends were increased.
This quarter, there doesn’t seem to be a financial metric that the market is looking for just yet. The choppy trading action is a reflection of all the uncertainty in the world, but also a market that hasn’t experienced a material price correction since 2008/2009, which is a long time to go.
As much as a broad stock market correction would be a healthy development for the long-run trend, … Read More
The lull between earnings seasons will soon be here and with the absence of corporate results, trading action can get choppy.
It’s still important to follow transportation stocks and the NASDAQ Composite. Transportation stocks have a tendency to lead the broader market, and outperformance from the NASDAQ Composite (compared to the other major indices) signals speculative fervor remains.
The one commodity that’s very much back in play in terms of a reflection of investor sentiment is oil. West Texas Intermediate (WTI) has come back to the $100.00-per-barrel level on what looks like speculative betting on better economic growth this year.
There were actually quite a few disappointments in big oil’s recent financial results and production is definitely an issue. Both large-cap and small-cap oil stocks have not seen their share prices rise commensurately with oil prices, but some value is finally appearing in this sector.
One company that we looked at previously is Kodiak Oil & Gas Corp. (KOG). This is a Bakken oil play that, until recently, was expensively priced. (See “While Few See It, This Stock Sector Is Getting Risky.”)
Kodiak expects to produce 42,000–44,000 barrels of oil equivalent per day (boepd) this year, which represents about a 45% gain over last year. The company’s stock chart is featured below:
Kodiak reports its fourth-quarter and year-end financial results at the end of this month. Junior oil companies may see their fourth-quarter numbers affected by the severe cold in terms of the number of well completions.
While Kodiak may be considered a hold currently, this position is becoming more attractively valued. The … Read More
This choppy trading action in stocks is here to stay for a while, and it could even be more pronounced once fourth-quarter earnings season ends.
The numbers continue to pour in, but the unease in investor sentiment is obvious, and it’s partially due to the fact that stocks didn’t experience a meaningful correction last year. Whatever the reason or catalyst, further retrenchment in share prices is an eventuality that’s easily in the cards this year.
While companies, especially large-cap corporations, are able to manipulate adjusted earnings and fully diluted earnings per share, the numbers are still only mediocre at best. And share prices came up so tremendously in the Fed-induced reflation that today’s earnings results aren’t making the case for buyers.
In the large-cap space, The Clorox Company (CLX) perfectly illustrates the numbers being presented by countless blue chips.
The company beat on revenues but missed on earnings. Fiscal second-quarter sales were flat at $1.33 billion. Net earnings were down to $115 million, or $0.87 per diluted share, as compared to earnings of $123 million, or $0.93 per diluted share last year. Currency translation had a material effect on U.S. dollar sales.
The company delivered one percent in total volume growth in the most recent quarter, which is quite anemic, even for a mature blue chip consumer company.
Fiscal 2014 total sales growth is expected to be between one and two percent. Diluted earnings per share should be between $4.40 and $4.55, but management specifically cited unfavorable currency rates as a red flag.
Nothing is as troublesome in global capital markets than currency movements. The devaluation of emerging market currencies … Read More
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