Amgen Posts Mixed Third-Quarter Results, Sales of Epogene Nosedive
October 25, 2011
Amgen posted mixed third-quarter results Monday. Though the firm’s top line and bottom line increased by 3% each, Amgen’s performance was bolstered by a lower tax rate and reduced shares outstanding (lower earnings quality growth), while being muddied by a large legal charge. Nonetheless, we are maintaining our $80+ fair value estimate, as we think our long-term projections remain in the ballpark. The firm’s top line expansion was led by a 9% increase in international product sales. Combined Neulasta and Neupogene sales jumped 6%, while US sales of Xgeva, the firm’s new cancer drug, reached $100 million in the quarter following its recent launch. Sales of Sensipar/Mimpara jumped 18%, sales of Vectibix jumped 13%, and sales of Nplate increased 28%.
Caterpillar Posts Excellent Third-Quarter Results, Record Backlog
October 24, 2011
Caterpillar reported excellent third-quarter results Monday that showed the best quarterly sales in history and an all-time record high backlog. This is probably the best report we’ve seen out of third-quarter earnings season thus far. We think the strong results support our view that the global economy is not headed south in a hurry, and our $110 fair value estimate for Caterpillar remains unchanged at this time. Revenue advanced over 40% (in part due to the acquisition of Bucyrus), but on an ex-Bucyrus basis, sales still jumped an impressive 30%+. Machinery and power system sales jumped 44% from the same period a year ago led primarily by sales volume in new equipment, though aftermarket, price realization and currency were notable
Honeywell Lifts 2011 Outlook; Organic Growth Remains Robust
October 24, 2011
Honeywell (HON) reported fantastic third-quarter results Friday that showed strong organic revenue growth and impressive margin improvement. We liked the firm’s performance and outlook, and we are maintaining our $61 fair value estimate. The conglomerate’s revenue advanced 14%, with 8% coming organically – a level matching General Electric’s (GE) organic expansion during its quarter. Honeywell’s third-quarter performance was driven particularly by aerospace, an industry which we continue to overweight in our best ideas portfolio. We firmly believe the build rates by Boeing (BA) and Airbus (EADSY.PK) will accelerate in coming years thanks to the jet makers’ massive backlogs and material narrowbody rate increases. Honeywell, as well as a number of other component suppliers, are well-positioned to capitalize on this strength.
McDonald’s Third Quarter Was Solid
October 22, 2011
Another quarter is in the books for McDonald’s (MCD), and the company has posted yet another blowout quarter. McDonald’s continues to execute well on all fronts. After reassessing our short-term assumptions, we think the firm is fairly valued in the high-$80s per share. Earnings per share surged 12% to $1.45, which blew past every estimate on the street. Margins came in higher than expected, as commodity prices fell off a cliff during the quarter, and incremental revenue gains were much higher than expected. However, with the company hedged, they were unable to experience the full extent of these cost savings. Also on the income side, McDonald’s continues to roll out new drink offerings in all of its markets, which drive not only new traffic,
We Liked GE’s Third-Quarter Performance; Achieves Record Backlog, As Industrial Organic Growth Accelerates
October 21, 2011
General Electric (GE) posted solid third-quarter results Friday that showed strength in industrial orders and improvement at GE Capital. We remain on the sidelines with respect to owning GE’s shares, but we were encouraged by the quarterly performance. The industrial giant’s revenues expanded 12%, excluding certain items, led by a 19% increase in industrial segment sales (international industrial sales jumped 25%). The firm noted that industrial organic revenue growth accelerated and was a very strong 8% and that its industrial backlog reached a record $191 billion (up from $189 billion at the end of the second quarter) thanks to a 16% jump in industrial orders (the fourth straight quarter of double-digit growth). GE said it received over $3 billion in
Microsoft Reports Fiscal First Quarter; Slows Bleeding at Bing; Office and “Cloud” Remain Strong
October 21, 2011
On Thursday, Microsoft (MSFT) reported in-line fiscal first-quarter results. We are maintaining our mid-$30s fair value estimate and think the firm would be a nice addition to our Best Ideas portfolio upon technical improvement. We’re also not hurting for additional technology exposure, as we already hold eBay (EBAY), Intel (INTC), and Apple (AAPL). The software giant’s revenue advanced 7% in its fiscal first quarter, while net income and diluted earnings per share jumped 6% and 10%, respectively (the bottom line number met consensus, but disappointed some). All major reporting segments—Windows, Server and Tools, Online Services, Microsoft Business, Entertainment and Devices—experienced top-line expansion, though only its Server and Tools (read “cloud”), Microsoft Business (“Office”), and Online Services divisions (“Bing”) showed improvement in
Union Pacific Reports Best-Ever Third-Quarter Results; Industrial, Energy Volumes Up
October 21, 2011
Union Pacific (UNP) reported excellent third-quarter results Thursday that revealed quarterly records for operating revenue, operating income and earnings per share. We think such results reinforce our view that the economy is not headed for recession anytime soon. Union Pacific’s revenue advanced 16% over the same quarter a year ago thanks to higher business volumes across four of the firm’s six business groups: automotive (up 10%), industrial products (up 8%), energy (up 7%) and chemical shipments (up 5%)–agricultural and intermodal volumes fell, the latter due to a lost customer. However, freight revenues advanced across all six segments driven by fuel-cost recoveries (car rates)—industrial products were up a whopping 24%, while automotive was up 23%, supporting our view on the strength
Rundown of Third-Quarter Airline Earnings: Southwest, American Airlines, Alaska Air
October 21, 2011
As followers of Valuentum know, we’re not too fond of airline stocks. We view them as merely speculative bets on changes in the macro-economy and jet-fuel prices—two factors largely out of airline executives’ control. Though we’ve made some money in our Best Ideas Newsletter entering into put contracts in American (AMR) and the Guggenheim Airline ETF (FAA) a number of weeks ago, we cover the group—to a large extent—to serve as a reminder to investors that airline stocks are merely speculative instruments and not long-term investments. Below, we summarize the third-quarter performance of Southwest (LUV), American (AMR), and Alaska (ALK) below: Southwest Southwest posted a net loss in its third quarter Thursday, which compares to net income of over
Lilly’s Third-Quarter Results Were Mixed; Patent Cliff Represents Major Risk
October 21, 2011
Eli Lilly (LLY) reported mixed third-quarter results Thursday that showed strong top-line expansion but a meaningful decline in earnings. The road ahead will be challenging for Lilly as it will face a host of generic competition across its top drugs in coming years, but we are sticking with our $42 fair value estimate. Lilly’s revenue jumped 9% in the quarter (4% volume) thanks to double-digit expansion from key brands like Cymbalta (up 29%), Humalog (up 20%), Cialis (up 16%), etc. and favorable exchange rates (4%). The company also noted that it saw strong growth in animal health (up 28%), China and Japan. Though the top line growth was solid, operating expenses swelled due to marketing efforts to support new launches
Chipotle Posts Third-Quarter Results; Sees Significant Comp Declines in 2012
October 21, 2011
Chipotle (CMG) reported third-quarter revenue and earnings Thursday, following the strong performance of best-idea Buffalo Wild Wings (BWLD) yesterday. Whereas we think Buffalo Wild Wings is an excellent growth and valuation play, we think Chipotle’s stock price has gotten way ahead of its fundamentals. Though our put option contract on Chipotle that we hold in our best ideas portfolio may expire worthless, or not, in January (it’s a $300 strike), we maintain the firm remains significantly overvalued at 37 times next year’s earnings, and we are waiting patiently. We are sticking with our $213 fair value estimate (~$275 per share on the high end) on Chipotle and expect the company’s price to converge to our fair value over time. Chipotle’s
