Brian Nelson

Strength in the US Lifts Cisco

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Tuesday afternoon, telecommunications and network equipment maker Cisco (click ticker for report: ) reported surprisingly strong results for its fiscal year 2013 first quarter. Net sales jumped 6% year-over-year to $11.9 billion, exceeding consensus expectations. Earnings were also better than the consensus forecast, growing 12% year-over-year to $0.48 per share on a non-GAAP basis. High-margin service revenue was a major growth driver, surging 12% year-over-year to $2.6 billion, while product revenue increased 4% year-over-year to $9.3 billion. Since margins on service revenue are greater than those of product revenue, we welcome the shift in product mix towards services. SG&A also declined 150 basis points to 32%, and R&D remained flat at 15.4% of sales. Geographically, the Americas were relatively strong, … Read more

Abercrombie’s Earnings Surprise Doesn’t Tempt Us

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Teen retailer Abercrombie & Fitch (click ticker for report: ) reported better than expected third-quarter earnings and issued a stronger outlook Wednesday morning. Sales grew 9% year-over-year to $1.17 billion thanks to the company’s international expansion, but it was still in line with expectations. Earnings grew 53% year-over-year to $0.87 per share, topping the consensus estimate by $0.28. Our fair value estimate, which considers not only short-term performance but also the long-term cash flow generation of the firm, remains unchanged. The only read we can really gain from Abercrombie’s results to extrapolate to the broader clothing retail space is that cotton costs have declined, which should benefit the group. Abercrombie’s gross margins were relatively strong during the period, increasing 240 basis points … Read more

Housing Market Strength Propels Home Depot

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Thanks to strength in the US housing market, home improvement giant Home Depot (click ticker for report: ) posted terrific third quarter results this morning. Revenues grew 4.6% year-over-year to $18.1 billion, easily exceeding consensus estimates. Earnings, excluding the closing of some unproductive stores in China, increased 23% year-over-year to $0.74 per share. Increased productivity helped tremendously, as aggregate same-store sales grew 4.2% year-over-year, and US same-store sales increased 4.3% year-over-year, driven by higher average tickets and more transactions. Gross margins ticked up about 20 basis points year-over-year to 34.6%, reflecting the higher average ticket prices and better appliance sales. Appliance sales are a good indicator of consumer confidence in the housing market, in our view. Management noted that credit … Read more

Qualcomm Well Positioned for 2013

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Chipmaker Qualcomm (click ticker for report: ) reported strong fourth quarter results last Wednesday afternoon. Revenue surged 18% year-over-year to $4.87 billion, easily exceeding consensus estimates. Non-GAAP earnings per share jumped 11% from last year’s quarter to $0.89, several cents better than consensus expectations. For the fiscal year, Qualcomm’s free cash flow jumped 8% to $5.2 billion, driven by revenue that grew 19% year-over-year to $19.1 billion. The company continues to be an excellent OEM-agnostic play on the growth of smartphones, as it shipped 141 million of its MSM chips during the fourth quarter. In addition to strong chip sales, the company continues to capitalize on its 3G and 4G patent profile via licensing agreements, with revenue from licensing growing 15% year-over-year … Read more

Windows Boss Steven Sinofsky Out at Microsoft

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Late last night, news leaked that Microsoft (click ticker for report: ) veteran and Windows President Steven Sinofsky will leave the company. We’re shocked by this departure, especially considering Sinofsky’s list of accomplishments and that he was a potential successor to CEO Steve Ballmer. In addition to spearheading the revival at Windows in the wake of Vista, Sinofsky led Office for several years and was known as a “product guy.” Still, Microsoft’s shares look incredibly cheap at current levels, while providing investors with a fantastic dividend growth opportunity. We continue to hold the company in the portfolio of our Dividend Growth Newsletter. However, the wrap on Sinofsky is that he’s notoriously hard to work with, incredibly secretive, and he refused … Read more

JC Penney’s Strategy Change Was and Is Necessary

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Department store chain JC Penney (click ticker for report: ) and its CEO Ron Johnson have been under tremendous scrutiny since Johnson took the reins in November of 2011. Johnson, independently wealthy from his days leading the retail push at Apple, came in looking to revamp the retailer and ignore the Street in the process. Sales declines have been staggering; same-store sales fell 26.1% during the third quarter and internet sales, in a secular uptrend, declined 37%, leading to a 26.6% decline in total sales. Earnings, on a non-GAAP basis, fell from $0.18 per share to a loss of $0.93 per share. The company also generated negative $389 million in free cash flow, though the majority was due to cash … Read more

Jamie Dimon Agrees; Housing Is Back

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Since the turn of the year, the housing market has been on the mend (click here for when we spotted the recovery), and homebuilders have been posting excellent results as of late. At the end of July, we more definitively announced that we thought the US housing market was back, and subsequent results and commentary have strengthened our thesis. We plan to take a close look at our valuation models of a number of homebuilders today, but we don’t expect any companies’ share prices to fall outside of their updated fair value ranges, which we plan to release this afternoon. During the past several months, many US major banking institutions and mortgage originators have been posting fantastic results. Both JP Morgan Chase (click ticker … Read more