Member Articles

Google’s Fourth-Quarter Misses on European Weakness, Ad Pricing Declines

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On Wednesday, Google announced weak fourth-quarter results that showed relatively disappointing earnings growth, declining cost per clicks (money paid to the firm for its ads) and slowing international revenue expansion. Though we’ll be re-evaluating our intermediate-term projections on the internet giant, we don’t expect to make a change to our fair value estimate at this time. Google’s revenue advanced 25% in the fourth-quarter from the same period a year ago thanks to a 29% increase in ‘Google Sites Revenues’ and a 15% increase in ‘Google Network Revenues.’ Paid clicks jumped 34% in the fourth quarter from the same period a year ago, but average cost-per-click declined 8%. Though there was some currency impact and management blamed “format changes”, we had been … Read more

Best-Idea eBay Reports Fantastic Fourth-Quarter Results; Outlook Tempered, as Expected

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Best-idea eBay (EBAY) reported strong fourth-quarter results and provided conservative forward guidance. We are maintaining our above-market fair value estimate of the online auction and payment processor. eBay’s revenue for its fourth quarter jumped 35% from the same period a year ago. The firm’s PayPal business continued to perform well, ending the quarter with 106.3 million active registered accounts (up 13% from the same period a year ago). Revenue from PayPal jumped an impressive 28% thanks to continued merchant and consumer adoption and increased penetration on eBay. PayPal’s net total payment volume (TPV) grew 24%, and the firm noted that its international markets exceeded revenue from the US for the first time, reflecting its global footprint. Its Marketplaces business also … Read more

Lack of Winter Weather Hits Dick’s Sporting Goods and Big 5; We’re Not Fans of Either

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Dick’s Sporting Goods (DKS) and Big 5 (BGFV) recently pre-announced dismal guidance for the fourth quarter of 2011. Though both companies cited a lack of winter weather as the main driver of poor same store sales growth, we think the stories at each company are quite different. Dick’s remains a steadily growing, well-run business focused on driving high returns on invested capital, whereas Big 5 is an inferior player focused on smaller markets that’s struggled to find its way. However, as with any investment, getting the right price remains key to our decision-making process, even for firms that may not be best-in-breed.  Risk/reward at Dick’s Sporting Goods isn’t very compelling right now. With our fair value of Dick’s at $31 per share, and … Read more

JP Morgan Posts Fourth-Quarter Results; Sees Improving Loan Demand and Credit Quality

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JP Morgan (JPM), the largest bank in the US by assets, reported fourth-quarter results Friday that showed declining profits but solid loan growth, credit-quality improvement, and continued strength in its fortress balance sheet. We continue to hold positions in the Financial Select Sector SPDR ETF (XLF) and the SPDR S&P Bank ETF (KBE) in the portfolio of our Best Ideas Newsletter, but not any bank specifically as we seek to dodge firm-specific risk within the banking sector at this time. However, we think the US banks will have a nice year during 2012 as unemployment (now 8.5%) and housing trends improve (new order growth). JP Morgan’s fourth-quarter net profit fell to $3.7 billion ($0.90 per share) from $4.8 billion ($1.12 per … Read more

Lennar’s Order and Backlog Growth Impressive; Housing Market on the Mend

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On Wednesday, homebuilder Lennar (LEN) reported decent fourth-quarter results that showed strength in new orders and solid advancement in backlog. Though we remain unexcited about the homebuilding group in general, Lennar’s results today suggest that we may finally be past the bottom in housing (both with respect to unit growth and pricing). Our fair value estimate for Lennar is unchanged.   The homebuilder’s revenue jumped 11% thanks to a 9% growth in deliveries (3,375 homes) and a 2% increase in the average sales price of homes delivered. Lennar experienced new order growth of 20% (3,027 homes), and while this number fell below deliveries—indicating a book-to-bill below 1—we were encouraged at the pace of growth. The homebuilider’s backlog advanced an impressive … Read more

Lululemon Raises Guidance; Our Valuation Remains Unchanged

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Not surprisingly, Lululemon’s (LULU) weak fourth-quarter guidance, issued previously, was revised upwards Monday, sending shares higher. The company hinted that same store sales would come in the low- to- mid 20%’s (20%+) and that revenue would be be in the range of $358 to $363 million (from $327 to $332 million). Both are staggering increases, and the company also guided earnings to a range of $0.47-$0.49 per share (from $0.40-$0.42). Since the increased ranges aren’t much different from what we had expected, our fair value remains unchanged at $68 per share. We think the increased revenue range reflects the increased likelihood that inventory grew sufficiently to meet burgeoning demand, whereas it had been chasing it all year. Additionally, seasonally-warm weather in the Midwest and Northeast may have helped boost sales of Lululemon … Read more

Alcoa Posts Weak Fourth-Quarter Results, Will Focus on Preserving Cash Balance in 2012

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Similar to the third quarter, Alcoa (AA) kicked off fourth-quarter earnings season with a wimper. The aluminum giant posted a fourth-quarter loss on charges associated with cutting high-cost smelting capacity, lower aluminum prices, and general market weakness. We continue to be comfortable with our fair value estimate and do not expect to make any changes to it at this time. Revenue fell 7% sequentially thanks to weakness in Europe and weak alumina and aluminum pricing, but increased 6% from the same period a year ago. Revenues in packaging, industrial products, and building and construction each fell at a mid-to high-teens pace on a sequential basis, with only the aerospace and industrial gas turbine markets revealing continued growth. On a year-over-year … Read more