The Applied Finance Group (AFG) is an independent equity research provider that has partnered with CEO Magazine in recent years to give investors insight into which CEOs do the best job of creating value for its shareholders; after all, that is what they are hired for.

The AFG/CEO Wealth Creation Index, which relies upon AFG’s corporate performance metric Economic Margin (EM), provides a better understanding of wealth creation than traditional accounting measures such as EPS and ROC. The link below will take you to the complete list of rankings of CEOs from S&P 500 companies that have held their current position for at least 3 years, based on their wealth creation abilities. Topping the rankings in 2009 is MasterCard’s (MA) Robert W. Selander, up from third place last year. Both Selander and runner-up Federated Investors’ (FII) J. Christopher Donahue run very high EM companies (24.5 percent and 20.6 percent three-year averages, respectively). Interestingly, both have been able to improve in a bad economy.

• King: Break up the banks! Bank of England Governor Mervyn King stepped up his call to break apart Britain's largest banks, saying more stringent capital requirements won't shield taxpayers from having to bail out more too-big-to-fail banks in the future. "The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history," King said in a speech (.pdf) late Tuesday. His comments were at odds with those of Chancellor of the Exchequer Alistair Darling, who said yesterday focusing on capital rules may be enough to ward off future crises. Meanwhile, on this side of the Atlantic, Paul Volcker keeps pounding the desk to split up banks, but no one's listening.
• State Street slapped with fraud suit. The California AG's office charged State Street (STT) with fraud Tuesday, accusing it of bilking the state's two largest pension funds - Calpers and Calstrs - of $57M, and seeking $200M in overcharges and penalties (complaint (.pdf)). The lawsuit stems from an inquiry launched after a whistleblower claimed State Street secretly and substantially marked up the price of its currency trades. State Street beat Q3 earnings estimates Tuesday, but shares dived 8.4% on news of the lawsuit and a sobering outlook.
• Yahoo defies bears. Shares of Yahoo (YHOO) are up 4.6% premarket after the internet giant beat Q3 earnings estimates handily with the help of some serious cost cutting ($0.13/share vs. $0.06), while revenue was steady from last quarter at $1.13B. "There's a change occurring in Yahoo," CFO Tim Morse said on Yahoo's earnings call (transcript), "that will value that kind of work - that good old-fashioned, get-your-hands-dirty kind of find ways to take costs down or make sure that they don't go up as much as they otherwise would have - type work." Analysts were impressed with the quarter, but said the real test of Yahoo's massive branding initiative would come in Q4. Bernstein's Jeffrey Lindsay summed it up: "The patient is off life support and back in the recovery ward. But it is certainly not out playing soccer again."
• Shedding light on the dark pools. In an effort to bring transparency to famously opaque "dark pool" off-exchange trading cliques on which Wall Street firms execute some of their largest trades, the SEC will reportedly today propose slashing the percent of daily volume in a company's shares that can be executed on the systems before quotes must be publicized to 0.25% from 5%. The move would force dark pools to either bring their prices in line with open markets, or risk losing their order flow. Trading executives warn sweeping rule changes could ultimately hurt the investors regulators are trying to empower.
• AT&T sues LCD makers over price fixing. AT&T (T) sued Samsung Electronics, LG Display (LPL), AU Optronics (AUO) Corp. and other LCD manufacturers, claiming they colluded to fix prices of panels sold in the U.S. "The conspiracy included communications and meetings in which defendants agreed to eliminate competition and fix the prices of LCD panels that were ultimately incorporated into LCD products that they knew would be sold in California and the U.S.," according to the complaint.
• Logi offer: does it make sense? An obscure hedge fund - logi Energy - said it offered to buy $1B of CIT Group's (CIT) debt, but wouldn't identify its source of capital. Logi said the deal could give CIT "wiggle room" as it works to sidestep bankruptcy. CIT wouldn't comment on whether it was seriously considering the offer.
• Volvo sale hits snag. Sources say China carmaker Geely's $2B attempt to buy Ford's (F) Volvo unit is in danger of stalling over disagreements about intellectual property rights. The impasse centers on Ford's concerns about sharing its proprietary technology and plans for new products.
• Morgan mulls giving away Crescent. Sources say Morgan Stanley (MS) may hand over its Crescent Real Estate Equities unit to Barclays (BCS), to whom the business owes $2B which comes due Nov. 2. Morgan bought Crescent for $6.5B in August 2007, and had planned to put its assets into real estate investment funds, but was left holding the bag when markets seized up.
• IRS watchdog says homebuyer plan fraught with fraud. The IRS's internal watchdog will warn the agency again about fraud in the multibillion dollar homebuyer tax credit program. The IRS faces significant challenges in preventing individuals from scamming the tax credit program.
• JPMorgan, Goldman cornering the M&A market. According to a study by Bloomberg News, JPMorgan (JPM) edged out Goldman Sachs (GS) in M&A advisory fees ($1.26B vs. $1.22B) for the first time since 2000. By deepening relationships with corporate clients, the two have created a deep moat around M&A counselling. "It's going to be very difficult for upstart or broad-based firms to come in and usurp what many believe are the insurmountable leads that Goldman and JPMorgan have over competitors," one analyst says.
• Business spending perks up. Industrial bellwether Caterpillar (CAT) joined the ranks of those who say the worst is behind us, as corporate buyers slowly begin reinvesting in their businesses. While Caterpillar's sales were 44% lower than a year ago, CFO David Burritt said he sees "encouraging signs that indicate a recovery may be under way," and predicted sales could rise 10-25% next year (read Caterpillar's Q3 earnings call transcript). Business spending accounts for about 9.5% of U.S. GDP - a fraction of the 68.2% accounted for by consumer spending - but still a potential catalyst for recovery.
• Get ready for pay as you play internet. Internet service providers including AT&T (T) and Time Warner Cable (TWC) are considering returning to usage-based pricing for internet, amid a surge in traffic as more people watch videos online, and after a push by the FCC to force ISPs to treat all web traffic equally. "Some type of usage-based model, for those customers who have abnormally high usage patterns, seems inevitable," an AT&T spokesman said, declining to provide details on the company's exact plans.

Earnings: Wed. Before Open

• Air Products and Chemicals (APD): FQ4 EPS of $1.14 beats by $0.02. Revenue of $2.13B (-21.6%) in-line. (PR)
• AirTran (AAI): Q3 EPS of $0.08 in-line. Revenue of $597M (-11.3%) vs. $600M. Shares -0.9% premarket. (PR)
• Allegheny Technologies (ATI): Q3 EPS of $0.01 misses by $0.02. Revenue of $698M (-49.9%) vs. $738M. Says the worst appears to be behind us, but many customers remain cautious due to the uncertain global economy and are keeping inventories low. Shares -8.8% premarket. (PR)
• Altria (MO): Q3 EPS of $0.48 beats by $0.01. Revenue of $4.32B (+0%) vs. $4.66B. Shares -1.4% premarket. (PR)
• Boeing (BA): Q3 EPS of -$2.23 misses by $0.11. Revenue of $16.69B (+9.1%) vs. $17.16B. Sees full-year EPS of $1.35-1.55 vs. $1.54 consensus. "The 787 cost reclassification and the 747 charge for increased costs and difficult market conditions clearly overshadowed what continues to be otherwise solid performance across our commercial production programs and defense business, We look forward to getting the 787 and 747-8 in the air soon and moving forward with flight test and certification for these two important programs." Shares -2.5% premarket. (PR)
• Deutsche Bank (DB): Q3 net income of €1.4B vs. consensus of €811M and last year's €435M. Pretax profit of €1.3B vs. consensus of €1.19B. Tier 1 capital ratio rose to 11.7% from 11% in Q2. Shares -2.3% premarket. (Bloomberg)
• Continental (CAL): Q3 EPS of $0.02 beats by $0.08. Revenue of $3.32B (-20.2%) in-line. (PR)
• Elan (ELN): Q3 EPS of -$0.06 beats by $0.07. Revenue of $399M (-19.5%) vs. $382M. (PR)
• Eli Lilly (LLY): Q3 EPS of $1.20 beats by $0.18. Revenue of $5.56B (+6.8%) vs. $5.41B. Gross margin as a percent of total revenue increased by 3.7% to 81.1%. Shares +0.4% premarket. (PR)
• FLIR Systems (FLIR): Q3 EPS of $0.38 beats by $0.03. Revenue of $286M (+3.2%) vs. $281M. Shares +2.9% premarket. (PR)
• Freeport-McMoRan Copper & Gold(FCX): Q3 EPS of $2.07 beats by $0.73. Revenue of $4.14B (-10.2%) vs. $4.24B. Reinstates dividend due to strong performance. Shares -0.1% premarket. (PR)
• KeyCorp (KEY): Q3 EPS of -$0.50 misses by $0.09. Takes a $733M provision for loan losses, which KEY says drove the miss. Average deposits were +6% (+$3.6B). Shares -4.7% premarket. (PR)
• Knight Capital Group (NITE): Q3 EPS of $0.32 misses by $0.07. Revenue of $300M (+24.5%) vs. $282M. Shares -6.4% premarket. (PR)
• Manpower (MAN): Q3 EPS of $0.26 beats by $0.09. Revenue of $4.19B (-26%) vs. $3.95B. Sees Q4 EPS of $0.17-0.27 vs. $0.28. "We continued to experience sluggish demand for our services as the labor markets throughout the world were hampered by lack of demand for companies' products and services... the uptick in revenue is muted at this time compared to previous recoveries." Shares -5.3% premarket. (PR)
• Morgan Stanley (MS): Q3 EPS of $0.38 beats by $0.11. Revenue of $8.7B vs. $6.99B. Assets under management $386B vs. $483B last year. Declares $0.05 quarterly dividend. Shares +0.9% premarket. (PR)
• Northern Trust (NTRS): Q3 EPS of $0.72 misses by $0.12. Revenue of $928M (-1.2%) vs. $985M. Shares -5% premarket. (PR)
• Northrop Grumman (NOC): Q3 EPS of $1.29 beats by $0.11. Revenue of $8.73B (+4.1%) vs. $8.58B. (PR)
• Omnicom Group (OMC): Q3 EPS of $0.53 in-line. Revenue of $2.83B (-14.4%) in-line. (PR)
• Penn National Gaming (PENN): Q3 EPS of $0.33 misses by $0.02. Revenue of $620M (+0.4%) vs. $642M. Shares -8.2% premarket. (PR)
• St. Jude Medical (STJ): Q3 EPS of $0.59 beats by $0.01. Revenue of $1.16B (+7%) in-line. Sees Q$ EPS of $0.61-0.63 vs. $0.66. "We are lowering our expectations for our fourth quarter results to accommodate the issues we are experiencing from a limited portion of our customer base in the U.S., but we are confident that our long term growth program is on track." Shares -0.9% premarket. (PR)
• U.S. Bancorp (USB): Q3 EPS of $0.30 beats by $0.03. Revenue of $4.25B (+2.2%) vs. $4.12B. Says credit deterioration moderated somewhat. Shares +0.8% premarket. (PR)
• Wells Fargo (WFC): Q3 EPS of $0.56 beats by $0.19. Revenue of $22.47B (+116.5%) vs. $21.63B. Q3 chargeoffs of $5.1B, up from $4.4B in Q2. Sees credit losses peaking in 2010, "with consumer losses potentially peaking in first half of the year and gradually declining, absent further economic deterioration." Shares -1% premarket. (PR)

Earnings: Tue. After Close

• Amylin Pharmaceuticals (AMLN): Q3 EPS of -$0.19 beats by $0.10. Revenue of $211M (-3%) vs. $219M. Shares -1.1% AH. (PR)
• Canadian National Railway Company (CNI): Q3 EPS of C$0.94. Revenue of C$1.85B (-18%) in-line. Shares -1.6% AH. (PR)
• C.H. Robinson Worldwide (CHRW): Q3 EPS of $0.57 beats by $0.01. Revenue of $1.95B (-16%) vs. $1.96B. Shares -0.8% AH. (PR)
• Cree (CREE): FQ1 EPS of $0.30 beats by $0.08. Revenue of $169M (+20%) vs. $165M. Sees Q2 EPS of $0.28-0.30 vs. $0.23 and revenue of $180M-190M vs. $173M. Shares +3.6% AH. (PR)
• Gilead Sciences (GILD): Q3 EPS of $0.78 beats by $0.11. Revenue of $1.8B (+31%) vs. $1.75B. Shares -2.2% AH. (PR)
• Infinera (INFN): Q3 EPS of -$0.03 beats by $0.09. Revenue of $83M (+3%) vs. $80M. Shares +2.5% AH. (PR)
• Intuitive Surgical (ISRG): Q3 EPS of $1.64 beats by $0.16. Revenue of $280M (+19%) vs. $258M. Shares -5.9% AH. (PR)
• Nabors Industries (NBR): Q3 EPS of $0.18 beats by $0.02. Revenue of $804M (-44%) vs. $820M. Shares flat AH. (PR)
• Polycom (PLCM): Q3 EPS of $0.31 misses by $0.01. Revenue of $243M (-16%) vs. $236M. Shares -5.2% AH. (PR)
• SanDisk (SNDK): Q3 EPS of $0.75 beats by $0.49. Revenue of $935M (+14%) vs. $788M. Shares +0.2% AH and halted. Updated 4:30 p.m.: Shares resume trading, +10.2% AH. (PR)
• Seagate Technology (STX): FQ1 EPS of $0.58 beats by $0.11. Revenue of $2.66B (-12%) vs. $2.62B. Shares -2.9% AH. (PR)
• SLM Corp. (SLM): Q3 EPS of $0.26 beats by $0.22. Net interest income after provision for loan losses of $204M (-29%). Shares +7.8% AH. (PR)
• STMicroelectronics (STM): Q3 EPS of -$0.23 misses by $0.14. Revenue of $2.28B (-16%) vs. $2.25B. Shares +3.7% AH. (PR)
• Stryker (SYK): Q3 EPS of $0.69 in-line. Revenue of $1.65B (+1%) vs. $1.62B. Shares +3.5% AH. (PR)
• Tupperware (TUP): Q3 EPS of $0.54 beats by $0.12. Revenue of $514M (flat) vs. $486M. Raises full-year EPS guidance to $2.84-2.89 from $2.59-2.64, vs. $2.73. Shares +4.5% AH. (PR)
• Walter Industries (WLT): Q3 EPS of $0.45 beats by $0.18. Revenue of $278M (-10%) vs. $223M. Shares +1.7% AH. (PR)

Today's Markets

Overseas markets sustained losses Wednesday. U.S. futures moved lower overnight.

Q3 2009 Earnings Call

October 20, 2009 5:00 pm ET

Shorting stocks can be a risky business. Especially in a runaway market like we have seen over the past six months. While fundamental analysis and valuation techniques are helpful over a long period of time, short term market movements can turn the plans of even the most well respected analyst into dust. But despite the challenges, it still makes sense to understand fundamental concepts behind price movements. I can guarantee you that at some point, the pendulum will swing and prices will once again be affected by prospective earnings and less by investor psychology.

CH Robinson Worldwide (CHRW) is one of the stocks that I want to be holding short when that transition takes place. Sure, the $9.8 billion dollar company has a 1.6% dividend yield and no debt. But the current stock price simply cannot be justified by the fundamentals of the company.

About Economic Margin

Created by The Applied Finance Group, The Economic Margin (EM) Framework was developed to evaluate corporate performance from an economic cash flow perspective and is an alternative to accounting-based valuation metrics. EM measures the return a company earns above or below its cost of capital and provides a more complete view of a company’s underlying economic vitality

Standard & Poor's recently updated the list of dividend growers from the S&P 1500 Index. In addition to the list containing decent growers, the companies exhibit a strong dividend coverage ratio. The criteria used in assembling the list include:

• paid increasing annual cash dividend for the past 10-years

EPS Hit, Sales Miss

Q2 2009 Earnings Call

July 21, 2009 5:00 pm ET

• Bernanke defends Fed independence. Bernanke gave his semi-annual monetary policy testimony in the House of Representatives yesterday, and continues today with testimony to the Senate. Bernanke stressed the importance of central bank independence, warning against the dangers of too much political scrutiny of the Federal Reserve, and told lawmakers they should focus on cutting 'unsustainable' budget deficits. In terms of the economy, Bernanke pointed to 'notable improvements' in recent months, although financial markets 'remain stressed,' and downplayed the risk of inflation. Supportive policies will continue to be necessary to prevent rising unemployment from hurting a recovery. (Read Bernanke's testimony)
• Apple shines on profit beat. Apple (AAPL) reported better-than-expected quarterly earnings (see details below) as price cuts helped attract more first-time buyers for Macintosh computers. Mac sales rose 4% in the quarter, compared to an industrywide decline of 3.1%. iPhone sales beat estimates as well, increasing sevenfold to 5.2M units. iPod sales slipped, as executives noted "we expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod Touch and the iPhone."
• China plans buying spree. China plans to use its foreign exchange reserves, the largest in the world, to speed overseas expansion and acquisitions by Chinese companies. Premier Wen Jiabao said the reserves should be used to "hasten the implementation of our ‘going out’ strategy," the first time an official has publicly articulated a policy of getting Chinese companies, particularly large state-owned industrial groups, to buy offshore assets.
• Reining in the credit raters. The Treasury released its plan to reform credit rating agencies, sending a draft bill to Congress where financial overhaul efforts are being slowed by growing doubts among lawmakers. The plan tries to limit conflicts of interest by preventing consultation between rating agencies and the companies they rate, and by requiring companies to disclose 'pre-ratings' to investors to limit companies' ratings shopping. The Treasury also wants to empower the SEC to set up a special office for overseeing rating agencies. (Read the Treasury's fact sheet)
• Now you C-it, now you don't. CIT Group (CIT) unveiled more of its restructuring plan that will significantly shrink the company's size, including the possible sale of its Utah bank, its rail-car and aircraft-leasing arm and its credit/cash-advance business. However, the company warned in an SEC filing that failure to complete any of the outlined steps could still land the lender in bankruptcy court. CIT received an expensive $3B emergency loan from bondholders but faces another $7B in debt coming due in the next year. In a further setback, some companies have already begun to cut ties with CIT, including Microsoft (MSFT), which terminated a vendor-financing agreement with CIT yesterday. (Read CIT's 8-K filing)
• P&G closes in on drug unit sale. Procter & Gamble (PG) is reportedly moving closer to the sale of its prescription-drug unit, and is in late-stage discussions with several firms, including specialty drug maker Warner Chilcott (WCRX) and Cerberus Capital Management. The unit could fetch around $3B. In a sign that acquisition financing may be easing, sources say Cerberus has already lined up preliminary financing from several Wall Street banks.
• Recession hurts Yahoo earnings. Yahoo (YHOO) reported quarterly earnings Tuesday evening (see details below), posting a 13% fall in overall revenue amid steep declines in both display ads and graphical ads. Cost-cutting allowed the company to post a year-on-year profit gain of 7.8%, which CFO Timothy Morse said was "not too bad in this type of environment," though he admitted the future looks cloudy as the recession exacerbates some long-standing Yahoo problems related to its search business and flagging brand. Separately, Yahoo is reportedly looking to sell HotJobs and Yahoo Small Business as part of its efforts to shed non-core assets.
• Exelon moves on. Exelon (EXC) dropped its $7.7B hostile bid to acquire NRG Energy (NRG) after shareholders rejected Exelon's slate of directors. The four directors nominated by NRG gained 75% approval. Exelon CEO John Rowe said "the NRG shareholders have spoken, and Exelon will move on."
• New Freddie CEO, again. Freddie Mac (FRE) confirmed Charles E. Haldeman Jr. will be the company's new chief executive, becoming Freddie's fourth CEO in less than a year.
• MBA apps rise. Mortgage applications rose 2.8% last week, MBA said. The average interest rate on 30-year fixed-rate mortgages rose to 5.31% from 5.05%.
• Retail sales. Chain store sales fell 1.7% in the first two weeks of July, Redbook said, worse than the -0.9% expected. According to ICSC, weekly sales were up 0.5%, with the increase spread across most segments.
• Chicago Fed index still negative. The Chicago Fed's National Activity Index was -1.8 in June, vs. -2.3 in May and -2.27 in April. All four broad categories of indicators continued to make negative contributions to the index, with employment and housing-related indicators leading the laggards.
• Consumer confidence. ABC's Consumer Confidence Poll came in at -50, up from last week's -51 but on its fifth week at -50 or below. Just 22% of Americans say it's a good time to buy things.

Earnings: Wednesday Before Open

• Air Products & Chemicals (APD): FQ3 EPS of $1.05 beats by $0.07. Revenue of $2B (-28.1%) vs. $2.1B. (PR)
• AirTran (AAI): Q2 EPS of $0.34 beats by $0.02. Revenue of $604M (-12.9%) vs. $601M. (PR)
• Allegheny Technologies (ATI): Q2 EPS of $0.03 in-line. Revenue of $710M (-51.4%) vs. $817M. (PR)
• Altria Group (MO): Q2 EPS of $0.50 beats by $0.03. Revenue of $6.7B (+32.9%) vs. $5.35B. (PR)
• Bank of New York (BK): Q2 EPS of $0.46 misses by $0.07. Revenue of $3.2B (-17.7%) vs. $3.3B. (PR)
• Boeing (BA): Q2 EPS of $1.41 beats by $0.20. Revenue of $17.15B (+1.1%) in-line. Shares +2.2% premarket (7:45 ET). (PR)
• Delta Air Lines (DAL): Q2 EPS of -$0.24 beats by $0.05. Revenue of $7B (+27.3%) in-line. (PR)
• Eli Lilly & (LLY): Q2 EPS of $1.12 beats by $0.10. Revenue of $5.3B (+0.8%) in-line. Raises FY '09 EPS guidance to $4.20-4.30 vs. $4.00-4.25 previous guidance. (PR)
• Entegris (ENTG): Q2 EPS of -$0.20 in-line. Revenue of $83M (-44.2%) vs. $74M. (PR)
• Gentex (GNTX): Q2 EPS of $0.09 beats by $0.04. Revenue of $117M (-31.2%) vs. $115M. (PR)
• Host Hotels & Resorts (HST): Q2 FFO of $0.27 beats by $0.03. Revenue of $1.1B (-23.3%) in-line. (PR)
• Illinois Tool Works (ITW): Q2 EPS of $0.36 beats by $0.02. Revenue of $3.4B (-25.5%) in-line. (PR)
• KeyCorp (KEY): Q2 EPS of -$0.69 vs. consensus of $0.41 (may not be comparable). Loss largely stems from increase in loan loss provisions, which rose to $2.5B (3.53% of total loans) in Q2 vs. $1.4B (1.87% of total loans) in the year-ago period. (PR)
• Knight Capital Group (NITE): Q2 EPS of $0.52 beats by $0.12. Revenue of $314M (+65.4%) vs. $259M. (PR)
• Morgan Stanley (MS): Q2 EPS of -$1.37 misses by $0.88. Revenue of $5.4B (-11.3%) in-line. Shares -4.9% premarket (8:20 ET). (PR)
• Northern Trust (NTRS): Q2 EPS of $0.95 beats by $0.40. Revenue of $1B (-4.5%) in-line. (PR)
• PepsiCo (PEP): Q2 EPS of $1.06 beats by $0.06. Revenue of $10.6B (-3.2%) vs. $11B. (PR)
• Pfizer (PFE): Q2 EPS of $0.48 beats by $0.01. Revenue of $11B (-9.4%) in-line. (PR)
• SEI Investments (SEIC): Q2 EPS of $0.22 beats by $0.01. Revenue of $252M (-23.5%) vs. $250M. (PR)
• St. Jude Medical (STJ): Q2 EPS of $0.63 in-line. Revenue of $1.2B (+4.2%) in-line. (PR)
• Suncor Energy (SU): Q2 EPS of C$0.20 misses by C$0.13. Cash flow from operations C$342M vs. C$1.4B in Q2 2008. (PR)
• SunTrust Banks (STI): Q2 EPS of -$0.41 beats by $0.11. Revenue of $2.2B (-15.6%) in-line. (PR)
• TCF Financial (TCB): Q2 EPS of $0.08 misses by $0.02. Revenue of $297M (+8.3%) vs. $264M. (PR)
• US Bancorp (USB): Q2 EPS of $0.12 beats by $0.02. Revenue of $4.2B (+7.1%) vs. $4B. (PR)
• USG (USG): Q2 EPS of -$0.41 misses by $0.04. Revenue of $829M (-33.7%) vs. $956M. Shares -5.9% premarket (8:45 ET). (PR)
• Wells Fargo (WFC): Q2 EPS of $0.57 beats by $0.23. Revenue of $22.5B (+28%) vs. $20.5B. Shares -7.1% premarket (8:20 ET). (Wells Fargo News Release (.pdf))
• Whirlpool (WHR): Q2 EPS of $1.04 beats by $0.53. Revenue of $4.2B (-17.9%) in-line. (PR)

Earnings: Tuesday After Close

• Advanced Micro Devices (AMD): Q2 EPS of -$0.62 misses by $0.15. Revenue of $1.18B (-13.1%) vs. $1.13B. Gross margin was 37%, down from 43% in Q1. "While we increased cash, exceeded our revenue plan and reduced operating expenses in the second quarter, gross margin was disappointing." (PR)

• paid increasing annual cash dividends for the past ten years

• 2009 estimated coverage and 2010 ratio of at least 2-to-1 (based on street estimates divided by the current 12 month indicated dividend rate)

Source:

Standard & Poor's (.xls)

Traditional Discounted Cash Flow (DCF) models have been been underutilized in equity analysis over the years primarily because of the assumptions one has to sign off on. We will concentrate on just two of the major issues we have with traditional DCF models, the lack of ability to deal with competition and the perpetuity assumption embedded in a DCF model. These assumptions lead to irrational calculations of intrinsic value and force analysts to make compromising decisions in their model building efforts.

AFG uses a modified DCF model that accurately addresses the competitive nature of the business while also dealing with the perpetuity issue through our Economic Margin decay or competitive advantage period.

This list of companies selected for top financial strength characteristics could be valuable to do-it-yourself, conservative, risk averse individual stock or bond investors, as a starting place to begin looking for suitable opportunities.

From the thousands of companies available in the US, this list of 38 companies represents some of those with the greatest fundamental financial strength.

Supply chains like Barbie’s are a direct result of the changes wrought by the rise of container shipping. They were unheard-of back in 1956… and in 1976 when oil prices brought sky-high freight costs that stifled the flow of world trade. Until then, vertical integration was the norm in manufacturing; a company would obtain raw materials, sometimes from its own mines or oil wells, move them to its factories, sometimes with its own trucks or ships or railroad; and put them through a series of processes to turn them into finished products. As freight costs plummeted starting in the late 1970s and as the rapid exchange of cargo from one transportation carrier to another became routine, manufacturers discovered that they no longer needed to do everything themselves. They would contract with other companies for raw materials and components, locking in supplies, and then sign transportation contracts to assure that their inputs would arrive when needed. Integrated production yielded to disintegrated production. Each supplier, specializing in a narrow range of products, would take advantage of the latest technological developments in its industry and gain economies of scale in its particular product lines. Low transport costs helped make it economically sensible for a factory in China to produce Barbie dolls with Japanese hair, Taiwanese plastics, and American colorants, and ship them off to eager girls all over the world.

-Marc Levinson, The Box

Background

Pacer International (PACR) is a transportation logistics and brokerage business focusing on inter-modal railroad traffic. I touched on many of the fundamental drivers of this industry in my report on Trinity Industries. (TRN). I believe Pacer is more immune to system-wide pricing shocks than TRN. As an asset-light operator, Pacer generally avoids owning property or equipment that needs to be kept in productive use. Operating leverage should be low, allowing CoGS to vary with revenue. On a quarter-to-quarter basis, Pacer could have some trouble perfectly matching leasing obligations to client needs, but in the long run they should only take business that earns a spread.

Supervalu, Inc. (SVU) – The grocery retailer has climbed by about 1% to $16.51 per share. We observed some investors taking a bullish position on the stock by selling about 1,400 puts at the June 15 strike price for about 72 cents each in order to fund the purchase of 1,400 calls at the June 17.5 strike for an average premium of 65 cents. The trade results in a 7 cent credit to the investor who is looking for shares to climb by 6% from the current price in order for the calls to land in-the-money by expiration. The same strike prices described above were also targeted by a trader who appears to have established a sold strangle by shedding approximately 3,600 puts at the June 15 strike for about 72 cents while also selling the same amount of calls for 68 cents each at the June 17.5 strike. The strangle strategy yields a gross premium of 1.40 and will be fully retained by the investor if the share price remains ‘strangled’ between the two strike prices. The trader would face losses at any share price below the breakeven to the downside at $13.60 or at any price above the breakeven to the upside at $18.90.

Q1 2009 Earnings Call

April 21, 2009 5:00 pm ET

Long time readers will know our love/hate relationship with earnings season. As information hogs we love more data; but as stock market participants we hate the massive overreactions to companies based on 90 days of business and a penny here or there in earnings per share, or +/- 1-2% of revenue on the top line. But this is the only game in town, and if certain companies should win or lose 20-30% of their market value within seconds of the all important press release, it is not up to us; this is the market "we've" created.

So we'll gap up or down in many individual stocks, and the market as a whole based on 1-2 "important" companies that - based on a few pennies here or there - shift the entire complexion of a $14 Trillion economy. Or so the pundits will opine. In most cases, I will be cutting back positions going into earnings since they have become 50/50 propositions with completely unknown risks v returns as lemmings rush in (or out).

Unemployment is on the march, the plummeting housing market has yet to find a bottom and top U.S. companies in the banking and automaking sectors remain downright shaky. And yet the U.S. stock market – as a discounting mechanism – experienced a robust rally last week, posting a four-day rally that saw the Dow Jones Industrial Average gain 9.0% and the Standard & Poor’s 500 Index a resounding 10.7%.

Unfortunately, in an economy that has been deeply hurt by huge imbalances that took years to build, we are left with key sectors that are operating in distress mode. They are now at the mercy of the aggressive government actions being taken in an attempt to whip them back into shape.