Yahoo’s Turnaround Not Progressing As Planned
July 17, 2013
On Tuesday, Yahoo (click ticker for report: ) reported lackluster second-quarter results that showed its turnaround is not progressing as planned. The firm’s revenue (excluding traffic acquisition costs—TAC) dropped modestly from the same period a year ago, while non-GAAP income from operations fell 13% (adjusted EBITDA decreased 7%). Earnings in equity interests, which include its 24% stake in China-based Alibaba Group and 35% ownership in Yahoo Japan, advanced nearly 25% (representing one of the few bright spots in the quarter). Non-GAAP net earnings per share jumped 19%, to $0.35, better than the consensus estimate, but the performance was bolstered primarily by a reduced share count. The quarter was a low-quality beat, in our view, and we’re particularly discouraged by Yahoo’s core
Legal Costs Cloud Citigroup’s Earnings Potential
July 16, 2013
International banking power Citigroup (click ticker for report: ) reported solid second quarter results Monday morning. Revenue increased 7% year-over-year to $20 billion, exceeding consensus expectations. Earnings were even better, growing 25% year-over-year on a non-GAAP basis to $1.25 per share, handily exceeding consensus estimates. Still, return on equity (ROE) was well below that of Wells Fargo (click ticker for report: ) and JP Morgan (click ticker for report: ), both of which reported late last week, coming in at 8.8%. Wells Fargo’s ROE was 14% while JP Morgan’s ROE was 17% in their most recent quarters. On a capital adequacy basis, Citi looks relatively strong, with its Basel I Tier 1 common ratio currently sitting at 12.2% (above the
AT&T Tries Again…This Time: Leap Wireless
July 16, 2013
Through the course of the past two years, we’ve seen a trend toward consolidation in the US wireless industry. AT&T (click ticker for report: ) failed to purchase T-Mobile (TMUS) in late 2011, but the firm has taken another stab at gobbling up spectrum and customers, announcing its intention to acquire Leap Wireless (LEAP) Friday for $1.2 billion plus the assumption of Leap’s net debt of approximately $2.8 billion. The deal works out to $15 per share, but AT&T will sell Leap’s Chicago spectrum with the proceeds going to Leap shareholders, which investors are pegging at $2+ per share of additional value. After regulators squashed AT&T’s purchase of T-Mobile, T-Mobile USA merged with MetroPCS. Not long after, Sprint (click ticker
UPS Cuts Outlook
July 16, 2013
Shipping giant UPS (click ticker for report: ) announced weaker than anticipated second quarter earnings Friday morning, blaming a weak global economic outlook and global freight overcapacity. Second quarter earnings per share will be $1.13, well below the Street’s consensus estimate of $1.18 per share. The firm also cut its full-year earnings outlook to $4.65-$4.85 per share compared to previous guidance of $4.80-$5.06 per share, but we suspect further downside is likely. UPS’ primary competitor, FedEx (click ticker for report: ) cut its guidance several times during its 2013 fiscal year, and its recent fourth quarter results weren’t great, so UPS’ decision to cut its earnings outlook isn’t shocking. Both companies are dealing with the same basic issue: customers are
Mortgage Originations Heading Lower at JP Morgan and Wells Fargo
July 15, 2013
Banking giant JP Morgan Chase (click ticker for report: ) posted strong second-quarter results Friday morning. Revenue exceeded consensus expectations at $25.2 billion, 14% higher than the year-ago period. Earnings per share climbed 32% year-over-year to $1.60, also better than consensus estimates. Return on tangible common equity increased 200 basis points year-over-year to 17%. Mortgage king Wells Fargo (click ticker for report: ) also reported solid second-quarter results Friday morning. Revenue was up approximately $89 million year-over-year to $21.4 billion, a touch better than consensus expectations. Earnings per share surged 20% year-over-year to $0.98, several cents better than consensus estimates. Pre-tax pre-provision profit increased 3%, to $9.1 billion. Return on equity advanced 116 basis points year-over-year to 14%. Capital levels
RadioShack: Cigar Butt, Valuentum Won’t Puff
July 15, 2013
Famed investor Benjamin Graham, author of Security Analysis and the Intelligent Investor, made a fortune out of what he liked to call “cigar butts.” These stocks were often poor operating businesses selling for less than liquidation value. Graham would purchase said stocks with the hope that there was one last “puff” of profit left. Not all of them worked out positively, but Graham would bet on dozens of stocks trading at less than book value and hope for the best. RadioShack (click ticker for report: ) looks like a cigar butt. The firm’s core operating business is rapidly deteriorating, the firm is generating negative free cash flow, and recent rumors suggest the company is hiring advisors to help shore up
Market Overreacts to Heat Damage on Boeing’s 787 at Heathrow
July 14, 2013
Boeing’s (click ticker for report: ) shares tumbled a few percentage points Friday after reports of a fire in the upper part of the rear fuselage of one of Ethiopian Airlines’ 787 Dreamliners that was parked on the tarmac at London Heathrow Airport. Preliminary results of the investigation reveal that the fire (heat damage) was not caused by the plane’s lithium-ion battery (location of batteries shown here), which had been the trigger of previous fire-related incidents on the aircraft. Interestingly, the plane had been parked for as many as eight hours and was unoccupied, leaving the cause of the blaze unidentified (unwitnessed) and somewhat peculiar. We expect the aft fuselage on this 787 to be a total loss, given our assessment
Valero Will Miss Big in the Second Quarter
July 12, 2013
Refiner Valero (click ticker for report: ) preannounced weak second-quarter results Thursday afternoon. Including a $0.05 per share charge for spinoff-related expenses and other charges related to environmental and legal matters, the company plans to earn between $0.80 and $0.90 per share during the second quarter of 2013, nowhere near the consensus estimate calling for earnings of $1.27 per share and well short of last year’s $1.50 per share. The firm’s interim-update release was very brief, but Valero blamed “lower discounts for heavy sour crude oil, higher natural gas costs, higher costs to comply with the Renewable Fuels Standard, and turnaround and maintenance activity at the Quebec City, McKee, Meraux, and Port Arthur refineries.” Discounts for heavy sour crude oil
Firms Increasing Their Dividends During the Week Ending July 12 Included Paychex and Fastenal
July 12, 2013
Below we provide a list of firms that upped their dividends for the week ending July 12. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports, please click here. Firms Raising Their Dividends This Week ConocoPhillips (COP): now $0.69 per share quarterly dividend, was $0.66. Paychex (PAYX): now $0.35 per share quarterly dividend, was $0.33. Fastenal Company (FAST): now $0.25 per share quarterly dividend, was $0.20. KLA-Tencor (KLAC): now $0.45 per share quarterly dividend, was $0.40. << Last Week’s Dividend Increases Ever wonder why we use the Valuentum Dividend Cushion score as a key component of our dividend analysis? Click here.
What Does a Reorganization Mean for Microsoft?
July 12, 2013
Thursday morning, software goliath Microsoft (click ticker for report: ) announced that its long-rumored reorganization plan has been finished, and the details are now available to the public (via an internal email from CEO Steve Ballmer). Some companies seem to go through countless ‘reorgs’ and the actual impact of such changes can often become obfuscated without ample evaluation and monitoring. The new Microsoft will have 4 engineering organizations, included within a total of 12 business functions. First of all, we think the premise of Microsoft’s reorg is spot on. The company is dividing into a dozen teams, but the logic behind the new teams looks sound. Perhaps the most obvious takeaway from the reorg is that individual devices such the
