Brian Nelson

3M Posts Another Weak Quarter; Results Should Not Be Extrapolated to Broader Economy

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3M (MMM) reported disappointing third-quarter results Wednesday that showed negligible earnings expansion and guided to weak fourth-quarter performance. The firm is one of the few industrial names that have disappointed investors this earnings season, and we think such a weak report is by far an exception. We maintain that a recession is nowhere in sight, and our fair value estimate—which considers the long-term intrinsic value of the company–of $93 per share for 3M remains unchanged. Worldwide organic sales growth advanced just shy of 3%, as the firm noted weakness in the electronics market (LCD TVs)—which was well known and expected—and slowing growth in the developed world (a trend that left little impact on other industrial firms sporting strong third-quarter results). Though … Read more

First Solar drops 25% as CEO Gillette Resigns

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The problems continue to mount at First Solar (FSLR). After dipping on the news of the Solyndra bankruptcy, shares of the solar power giant have been in a steady decline, which was accelerated by today’s resignation of CEO Robert Gillette. Though no reasons for the resignation were given, we assume Gillette and the board didn’t see eye-to-eye, or he just wanted to get out before things got completely out of hand. Founder and board chairman Mike Ahearn will become CEO for the interim. With Europe, one of the world’s largest solar customers, on a clear path towards austerity, we expect demand for solar panels will continue to fall. With demand falling, and First Solar producing panels for a higher cost … Read more

Amazon Posts Miserable Fourth Quarter Profit Guidance; Sales Expansion Still Impressive

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Amazon (AMZN) reported third-quarter results that may turn out to be the biggest disappointment of earnings season so far. The online retailer reported earnings per share of 14 cents, which is 37 cents less than the same quarter last year (a 73% decline in net income) and also well below expectations. Fourth-quarter guidance also indicates that the company expects operating income to be between a $200 million loss and a $250 million gain, a huge range. We think the rollout of its suite of Kindles at ultra-low (and perhaps money-losing) prices is the primary reason behind the wide profit expectations. But there was also good news that came out of the Amazon’s report. Net sales increased 44% (39% excluding currency impact) … Read more

Amgen Posts Mixed Third-Quarter Results, Sales of Epogene Nosedive

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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%. … Read more

Caterpillar Posts Excellent Third-Quarter Results, Record Backlog

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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 … Read more

Honeywell Lifts 2011 Outlook; Organic Growth Remains Robust

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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. … Read more

McDonald’s Third Quarter Was Solid

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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, … Read more

We Liked GE’s Third-Quarter Performance; Achieves Record Backlog, As Industrial Organic Growth Accelerates

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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 … Read more

Microsoft Reports Fiscal First Quarter; Slows Bleeding at Bing; Office and “Cloud” Remain Strong

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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 … Read more

Union Pacific Reports Best-Ever Third-Quarter Results; Industrial, Energy Volumes Up

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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 … Read more