Today, I review 6 Jim Cramer buy ideas from his July 5 show. As you’ll see his one month returns on the following calls have not been good. Take a look at my commentary on each of these names.
3M Co. (MMM) is down 9.36% since the July 5 close. In 2010, the company generated $26.62 billion in revenues, an increase of 15.3% year on year and EPS of $5.72 or an increase of 24.72%. For 2011, analysts are expecting revenues of $30.20 billion, up 13.27% and EPS of $6.24, growth of 10.74% over the same period last year. The estimates are in line with the industry’s growth of 10%, but lower than S&P 500’s earnings growth estimate of 16.20%. Meanwhile, the company’s net profit margins are stable in the region of 13% to 15%. It has also a dividend of $2.10 per share, implying a dividend pay out of 37.3% and yield of 2.40%.
The shares have fallen due to a lower than expected 2Q earnings report. The recent earnings report showed that Q2 EPS of $1.60, beating expectations by $0.01 but disappointed investors. The majority of its business segments reported modest earnings growth of 4-8%, but the company noted a weakness in its display and graphics segment, which fell by 10%. This is due to intense competition in the consumer electronics market from Sony (SNE) and Hitachi (HIT). While the company has a strong global franchise, the soft performance could provide clues of a lower than expected global growth going forward. Management re-affirms EPS guidance of $6.32-$6.47 and estimated Japan earthquake to impact this year’s earnings by $0.11-$0.12.
Caterpillar, Inc. (CAT) is down 8.86% since its July 5 close. The company reported 2010 revenues of $42.58 billion, up 31% from 2009 levels and net profit of $2.7 billion, a 202% increase compared to prior year’s results. This translates to an EPS of $4.15, an increase of 190% year on year. The efforts of management during the prior year which included improving financial position, cutting costs and increasing production have yielded significant increases in 2010. For FY 2011, analysts are looking at revenues of $57.02 billion, +33.91% and EPS of $7.19, an increase of 73% over the same period last year. The stock is trading at 13.73 times 2011 earnings and 1.90% dividend yield.
The company is continually investing globally with increased workforce and higher capital expenditures this year. This strategy is in line with the improving global demand in all of its business lines. The 2nd quarter results confirmed the outlook with an EPS of $1.52, including one-time expense in Bucyrus (BUCY) acquisition, representing an increase of 39% year on year. There is also news that private equity firms Centerbridge and BC Partners are interested in its logistics business at $1 billion, as the company focuses on its core businesses.
Cummins, Inc. (CMI) is slightly down by 0.73% since the last July 5 recommendation. In 2010, the company reported revenues of $13.23 billion, a growth of 22.46% on a year on year basis. This translated to net profit of $1.14 billion and EPS of $5.29, a significant yearly growth of 135% and 139% respectively. For this year, analysts believe that revenues will reach $18.03 billion, in line with the management guidance of $18 billion or a growth of 36%. They also forecast EBIT of $2.61 billion and EPS of $8.75, translating to a 2011 EV/EBIT of 7.47 and 11.98 times, respectively.
The company has experienced robust demand across the market it serves. For five straight quarters, the company has beaten expectations. It reported record 2Q sales of $4.6 billion, up 45% over the same period last year and non GAAP EPS of $2.41 share, up 91% year on year. As a result of these developments, the company rewarded its shareholders by increasing its dividend by 52% and repurchasing $183 million worth of stock. Meanwhile, rating agency Fitch ratings increased its ratings to A-. We expect Moody's (MCO) and S&P (MHP) to follow.
El DuPont de Nemours & Co. (DD) is down 5.57% since the July 5 close. For 2010, revenues of DD reached $31.51 billion, up 20.66% and net profit of $3.03 billion or growth of 72.70%. The company also reported EPS at $3.32, against prior year’s results EPS of $1.92. For fiscal year 2011, analysts are expecting full year revenues of $35.99 billion, +14% and EPS of $3.87, an increase of 16.56%. These forecasts are lower than the industry’s forecasted growth of 58.30% and sector growth of 23.10%. Dividend per share is at $1.64 for the past two years, implying a yield of 3.18%. The stock is trading at 13.28 times 2011 earnings and an EV/EBITDA of 10.02 times.
Top line figures in 2Q reached $10.3 billion, +19% with double digit growth across all segments. Q2 EPS is at $1.37, beating expectations by $0.02. The company’s major contributors are safety materials and agriculture & nutrition based products, which accounts for almost 40% and 29% respectively. The strong performance of these segments was mainly driven by excellent pricing performance and innovative new products. It is also pursuing growth via acquisitions with purchase of Danisco for $6.3 billion, a leading biotechnology companies and Innovalight, a startup company with silicon ink technology which is seen to boost Dupont’s solar-related revenues.
Emerson Electric Co. (EMR) is down 14.12% since the July 5 close. In 2010, the company reported revenues of $21.04 billion, an increase of 4.66% year on year and net profit of $1.98 billion, up 15.33% from prior year’s results. This translates to a fiscal year 2010 EPS of $3.62 or year on year increase of 15.41%. The company moves into 2011 with healthy backlogs at $5.62 billion, an increase from the prior year’s backlog of $4.62 billion. Analysts are projecting a better growth this year with estimated 2011 revenues of $24.52 billion, higher than last year’s revenue by 16.54% and an EPS of $3.27, a 24.80% year on year increase. These forecasts are in line with company’s revenue growth expectations of 12%-15% including completed acquisitions and foreign exchange translation. The stock is currently trading at 15.01 times forward earnings with a dividend yield of 2.80%.
The second quarter reaffirms the full year growth guidance of the company. Management reported revenue growth for quarter two, at 18% with increases in all segments. However, gross profit margins were reduced to 39.4% due to higher than expected inflation. The company has provided a lot of cushion moving forward with quarterly cash flow of $627 million and cash of $1.59 billion. Management believes that economic activity in the U.S. and Europe has slowed in the past two months, but the company is well positioned to weather such storm.
Ford Motor Company (F) is down 13.40% since the July 5 close. In 2010, the company reported that revenues reached $128.95 billion, up 110% over the prior period results but net profit increased to $6.56 billion, or 141.33%, as management successfully contained costs. This brings net profit margins at 5.08%, an improvement over prior year’s 2.33% and EPS increased to $1.90, or 111.11%. Global industry vehicle sales accelerated grew 13% in 2010. Ford accounts for 16.4% of the total market share in the combined U.S. car and truck industry and market shares of 6%-9% outside U.S. For 2011, analysts expect a 3.99% growth in revenues and flattish EPS. The stock is currently trading at cheap 6.24x forward earnings.
The recent decline of the shares is because of concerns over the short term outlook of the US economy and global economy. The second quarter earnings fell by 7% due to higher materials costs. The current share price does not reflect the improving fundamentals of the company. It has repaid a big chunk of debt. Consolidated debt is at $14 billion, while cash position is at $22 billion. Going forward, we expect that long term investors will be rewarded from both earnings growth and valuation expansion as the company has strong presence outside of the US. Ford remains a better bet than General Motors (GM) and Toyota (TM).