• GMAC needs third lifeline. GMAC Financial Services and the Treasury are reportedly in advanced talks to prop up the auto-lender with its third helping of taxpayer money, making it the first of the stress-tested banks to need additional government capital. Treasury will likely inject another $2.8-5.6B into GMAC in exchange for preferred shares, bringing its total investment in GMAC thus far to $15.3-18.1B, for which it currently owns 35.4% of the firm. Sources say the FDIC has also agreed to backstop another $2.9B of GMAC's debt to facilitate day-to-day lending. The government's willingness to deepen taxpayer exposure to GMAC reflects the troubled lender's importance to the revival of the auto industry.
• Consumer confidence dips. A lower-than-expected consumer confidence reading sent a chill through markets Tuesday. Conference Board's index came in at 47.7, down from 53.4 a month ago, and lower than consensus estimates of 53.2. A plunge in expectations (65.7 vs. 73.3 in Sept.) led the way down. "Consumers' assessment of present-day conditions has grown less favorable, with labor market conditions playing a major role in this grimmer assessment," the group said, noting its Present Situation Index is now at a 26-year low. Analysts struggled to find an obvious explanation for the decline, but noted the drop didn't bode well for recovery hopes.
• Risk appetite withers. State Street's investor confidence index fell 10 points to 108.4, the lowest since April, with the most pronounced decline seen among North American investors (-12.8 to 101.1). European investors were also much more subdued (-9.3 to 101.8), but confidence rose among Asian investors, albeit to a level that still trails the U.S. and Europe (+2.4 to 95.3). "Institutional investors have paused to take stock," index co-developer Ken Froot said. "While the U.S. earnings season has been relatively robust so far, the number of positive surprises that have been observed in employment, retail sales, manufacturing and trade figures has diminished considerably, and this may be influencing investor risk appetite."
• Easing Hilton's towering debt load. Sources say Blackstone (BX) is in talks with lenders to shave about $5B off Hilton Worldwide's $20B debt load. Specifically, Blackstone is considering coughing up another $800M in equity to buy back debt at a discount (on top of its $5.6B original investment), and would like to extend debt maturing in 2013 to 2016. With capital markets reopening over the past six months, private-equity firms are using a variety of schemes (exchange offers, repurchases, tender offers) to refinance and extend the maturities on highly-leveraged debt taken on during the heyday, staving off default.
• Panel backs hedge-fund clampdown. The House Financial Services Committee overwhelmingly passed a bill that would require advisers to hedge funds, private equity and offshore funds to register with regulators, bringing some transparency to the loosely-policed industry. The bill, however, exempts venture capital funds and funds with less than $150M - which SEC chief Mary Schapiro warned "could come back to haunt investors in later years."
• Tackling too-big-to-fail. Rep. Barney Frank unveiled legislation to monitor and dissolve systemically critical financial institutions. Under the proposal, costs for taking over and euthanizing a failed bank would be paid for by shareholders and bondholders, with taxpayers temporarily covering the overflow until an assessment is rendered against the failed bank's surviving peers. A council of regulators - including the FDIC, Treasury, Fed and SEC - would be in charge of monitoring the conglomerates and invoking a wind-down if necessary.
• That's a good czar. While so-called pay czar Kenneth Feinberg's new rules for TARP backed firms cut compensation by about half, they also boosted base salaries by 14% to an average of $438K/year after executives complained, according to an analysis in today's WSJ. The move appears to contradict Feinberg's stated goal of tying pay to long-term performance, and "deepens the confusion and skepticism" surrounding the types of pay systems the government is promoting.
• Ford shows why it's #1. Consumer Reports' much-awaited yearly car reliability survey held few surprises, with foreign automakers dominating its top-10 list, and domestic brands prominently featured on its least-reliable tally. Scion took top spot, followed by Honda (HMC), Toyota (TM) and Infiniti (NSANY). Ford (F), at #10, was the only U.S. carmaker to make the grade. Least reliable brands were Chrysler, Cadillac, Dodge and Jeep. Media reports yesterday claimed Fiat models will drive Chrysler's turnaround efforts, but with new cars not due until 2012, it's unclear whether Chrysler has enough staying power in its balance sheet.
• Ruiz pegged as AMD insider. Sources say former AMD (AMD) CEO Hector Ruiz is the insider government officials have identified as providing nonpublic information to Galleon's insider trading scheme. Prosecutors released fragments of recorded conversations between an unnamed AMD executive and a Galleon employee in which they allegedly discuss the timing of the spinoff of AMD’s plants before the deal was announced in Sept. 2008. Ruiz hasn’t been charged, and prosecutors don’t say he profited from insider trading.
• Gloom on economy spreads. Americans are growing increasingly pessimistic about the economy after a mild upswing in September, according to WSJ/NBC's monthly poll released Wednesday. For the first time during the Obama presidency, a majority of those polled now see the country as being on the wrong track. Fifty-eight percent think the economic slide still has a ways to go, up from 52% in September, while only 29% think we've hit bottom, down from 35%.
• Mortgage apps drop for second straight week. Mortgage applications fell another 12.3% following a 13.7% drop last week, even as the average rate for 30-year mortgages inched down to 5.04% from 5.07% a week ago. Refinancing was 16.2% lower.
• Ford picks Geely. Ford (F) selected a group led by China's Geely as the preferred bidder for its Volvo unit, a senior Geely executive said. Geely and Ford will now enter into exclusive negotiations over Volvo.

Earnings: Wed. Before Open

• ArcelorMittal (MT): Q3 income of $1.59B vs. consensus of $1.78B. Sees Q4 income of $2-2.4B. "We have seen the first signs of recovery in Q3... We should continue to see further gradual improvement through 2010, although the operating environment remains challenging." Shares -0.8% premarket. (PR)
• Ashland (ASH): FQ4 EPS of $0.96 beats by $0.06. Revenue of $2.11B (-4.6%) in-line. "Demand appears to be showing some signs of growth in many end markets." (PR)
• BorgWarner (BWA): Q3 EPS of $0.15 beats by $0.05. Revenue of $1.03B (-22%) in-line. "We continue to be cautiously optimistic about Q4." (PR)
• ConocoPhillips (COP): Q3 EPS of $1.00 beats by $0.06. Shares -0.1% premarket. (PR)
• Enterprise Products Partners L.P. (EPD): Q3 EPS of $0.36 misses by $0.06. Revenue of $4.6B (-27%) vs. $4.73B. (PR)
• CenterPoint Energy (CNP): Q3 EPS of $0.31 misses by $0.01. Revenue of $1.58B (-37.3%) in-line. (PR)
• Coca-Cola Enterprises (CCE): Q3 EPS of $0.51 beats by $0.05. Revenue of $5.57B (-3%) vs. $5.71B. (PR)
• General Dynamics (GD): Q3 EPS of $1.48 beats by $0.08. Revenue of $7.72B (+8.1%) in-line. (PR)
• Goodyear Tire & Rubber (GT): Q3 EPS of $0.45 beats by $0.05. Revenue of $4.38B (-15.2%) in-line. Shares +1.8% premarket. (PR)
• Hess (HES): Q3 EPS of $1.05 vs. consensus of $0.55. Revenue of $7.27B vs. $7.75B. Shares +1.8% premarket. (PR)
• Jones Apparel Group (JNY): Q3 EPS of $0.46 beats by $0.19. Revenue of $856M (-11.3%) vs. $867M. "We are cautiously optimistic that the holiday season will generate better financial results across the industry." Shares -13.8% premarket. (PR)
• International Paper (IP): Q3 EPS of $0.37 beats by $0.13. Revenue of $5.92B (-13.1%) in-line. "At the end of Q3, we began to see some modest improvements in demand in some segments of our paper and packaging businesses." Shares +3.8% premarket. (PR)
• Lazard (LAZ): Q3 EPS of $0.41 beats by $0.04. Revenue of $431M (-1.3%) vs. $400M. Believes corporate defaults will remain at high levels, on a more global scale than during the last cycle, and therefore expects that its restructuring business will continue to be very active. (PR)
• Level 3 Communications (LVLT): Q3 EPS of -$0.10 in-line. Revenue of $916M (-14.4%) vs. $926M. Shares -4.4% premarket. (PR)
• MeadWestvaco (MWV): Q3 EPS of $0.50 beats by $0.23. Revenue of $1.63B (-10.2%) in-line. "Given continued global economic uncertainty, future results are difficult to predict." (PR)
• Newell Rubbermaid (NWL): Q3 EPS of $0.38 beats by $0.03. Revenue of $1.45B (-17.7%) in-line. (PR)
• New York Community Bancorp (NYB): Q3 EPS of $0.26 in-line. "Although certain economic data suggests that the recession has ended, the Metro New York region we serve continues to be under duress." (PR)
• Nexen (NXY): Q3 EPS of C$0.23 beats by C$0.08. Revenue of C$1.1B (-50.4%) vs. $924M. Shares -0.1% premarket. (PR)
• Nomura (NMR): Q2 net income of ¥27.7B ($303M) vs. consensus of ¥11.5B. Revenue of ¥355B vs. ¥258B last year. Resumes ¥4/share dividend. (Bloomberg)
• Owens Corning (OC): Q3 EPS of $0.61 beats by $0.22. Revenue of $1.35B (-17.2%) in-line. On track to surpass $160M in cost savings this year. Shares +1.5% premarket. (PR)
• Praxair (PX): Q3 EPS of $1.02 beats by $0.02. Revenue of $2.29B (-19.8%) in-line. "Business conditions stabilized globally during the quarter... The strongest pick-up was in Asia and South America, where government stimulus programs have increased domestic demand and industrial production." (PR)
• Qwest Communications International (Q): Q3 EPS of $0.09 beats by $0.02. Revenue of $3.05B (-9.6%) in-line. Shares +3.5% premarket. (PR)
• SAP AG (SAP): Q3 net income of €435M vs. consensus of €454M. Sales of €2.51B vs. €2.63B. "While we are seeing signs of stabilization in the general environment, the market remains difficult. Q3 software and software-related service revenues came in lower than we expected mainly because of a particularly challenging environment in the emerging markets and Japan." Shares -7.6% premarket. (PR)
• Southern Company (SO): Q3 EPS of $0.99 beats by $0.01. Revenue of $4.68B (-13.8%) vs. $5.5B. (PR)
• SPX Corp. (SPW): Q3 EPS of $ beats by $. Revenue of $1.17B (-20.8%) in line. Sees full-year EPS of $3.80-4.00 vs. $3.96 consensus. "The global economic environment remains difficult and continues to impact our performance. Although some macroeconomic trends appear to be pointing toward a recovery, we expect our recovery to lag the broader economy." (PR)
• United Microelectronics (UMC): Q3 EPS of $0.08 beats by $0.04. Revenue of $853M (+11.1%) vs. $809M. (PR)
• WellPoint (WLP): Q3 EPS of $1.78 beats by $0.40. Revenue of $15.21B (+784%) in-line. Medical enrollment fell 1.5M to 35.3M, primarily due to the recession and a rise in unemployment. Shares -14.3% premarket. (PR)
• Wyndham (WYN): Q3 EPS of $0.58 beats by $0.02. Revenue of $1.02B (-17.1%) in-line. Shares +1% premarket. (PR)

Earnings: Tue. After Close

• Ace (ACE): Q3 EPS of $2.07 beats by $0.10. Revenue of $3.39B (-6%) vs. $3.33B. Expects meaningfully stronger revenue growth in Q4. Shares +2.3% AH. (PR)
• Amkor Technology (AMKR): Q3 EPS of $0.12 misses by $0.07. Revenue of $616M (-14%) vs. $604M. Sees Q4 EPS of $0.17-0.23 vs. $0.16. Shares -1.5% AH. (PR)
• Apollo Group (APOL): FQ4 EPS of $1.06 beats by $0.02. Revenue of $1.08B (+30%) vs. $1.03B. Announces an informal SEC inquiry into revenue recognition practices. Shares -19.8% AH. (PR)
• Boston Properties (BXP): Q3 FFO of $1.13 beats by $0.03. Revenue of $359M (+6%) vs. $353M. Sees Q4 FFO of $1.04-1.06 vs. $1.09. (PR)
• Century Aluminum Company (CENX): Q3 EPS of $0.45. Revenue of $229M (-59%) vs. $225M. Results impacted by $55.6M net after-tax benefit related to contract replacement. Shares +3.8% AH. (PR)
• Cephalon (CEPH): Q3 EPS of $1.62 beats by $0.21. Revenue of $549M (+10%) vs. $559M. Sees full-year sales of $2.125B-2.175B vs. $2.22B. Shares +1.4% AH. (PR)
• Chicago Bridge & Iron (CBI): Q3 EPS of $0.42 beats by $0.03. Revenue of $1B (-38%) vs. $1.1B. Shares +5.4% AH. (PR)
• Dreamworks Animation (DWA): Q3 EPS of $0.23 beats by $0.07. Revenue of $135M (-10.6%) vs. $129M. Shares +0.4% AH. (PR)
• E*TRADE Financial (ETFC): Q3 EPS of -$0.05 beats by $0.01. At-risk delinquencies declined by 10% and provision for loan losses decreased by $57M to $347M. Shares +0.6% AH. (PR)
• Fiserv (FISV): Q3 EPS of $0.92 in-line. Revenue of $992M (-5%) vs. $1.05B. Shares -2.6% AH. (PR)
• Harris (HRS): FQ1 EPS of $0.83 beats by $0.06. Revenue of $1.2B (-3%) in-line. Shares +5.4% AH. (PR)
• Illumina (ILMN): Q3 EPS of $0.17 misses by $0.03. Revenue of $158M (+5%) vs. $167M. Shares -14.8% AH. (PR)
• Integrated Device Technology (IDTI): FQ2 EPS of $0.07 beats by $0.05. Revenue of $140M (-30%) vs. $131M. Shares +4.2% AH. (PR)
• Massey Energy Company (MEE): Q3 EPS of $0.19 beats by $0.01. Revenue of $642M (-16%) vs. $677M. Shares -7.4% AH. (PR)
• McKesson (MCK): FQ2 EPS of $1.11 beats by $0.09. Revenue of $27.1B (+1.9%) vs. $26.75B. Sees full-year EPS of $4.45-4.60 vs. consensus of $4.29. Shares +1.9% AH. (PR)
• Molex (MOLX): FQ1 EPS of $0.18 beats by $0.03. Revenue of $674M (-20%) vs. $661M. Sees Q2 EPS of $0.11-0.15 vs. $0.19, including pretax restructuring charge of about $0.07 after tax. Shares -1% AH. (PR)
• Nalco Company (NLC): Q3 EPS of $0.20 misses by $0.05. Revenue of $957M (-14%) vs. $961M. (PR)
• Norfolk Southern (NSC): Q3 EPS of $0.81 beats by $0.03. Revenue of $2.1B (-29%) in-line. Shares +1.8% AH. (PR)
• Panera Bread Company (PNRA): Q3 EPS of $0.61 beats by $0.03. Revenue of $335M (+6%) vs. $334M. Same-store sales increased 3.3%. Sees Q4 EPS of $0.85-0.87 vs. $0.85, and full-year EPS of $3.05-3.15 vs. $3.04. Shares +5.2% AH. (PR)
• Pharmaceutical Product Development (PPDI): Q3 EPS of $0.32 in-line. Revenue of $341M (-13%) vs. $334M. Sees full-year EPS of $1.38-1.40 vs. $1.34, on revenue of $1.29B-1.32B vs. $1.34B. Shares +0.2% AH. (PR)
• RF Micro Devices (RFMD): FQ2 EPS of $0.13 beats by $0.04. Revenue of $255M (-6%) vs. $234M. Shares +7.1% AH. (PR)
• ValueClick (VCLK): Q3 EPS of $0.15 beats by $0.01. Revenue of $130M (-12.1%) vs. $129M. Sees Q4 EPS of $0.15-0.16 vs. consensus of $0.17 on revenue of $128-138M vs. $142M. Shares +1.8% AH. (PR)
• Visa (V): FQ4 EPS of $0.74 beats by $0.02. Revenue of $1.9B (+10%) vs. $1.8B. Sees 2010 revenue growth at lower end of 11-15% range. Sees 2011 growth of more than 20%. Shares +1.9% AH. (PR)

Today's Markets

Overseas markets moved lower Wednesday and futures are under pressure.

Q3 2009 Earnings Call Transcript

October 27, 2009 5:00 pm ET

In recent weeks we have written several blogs (S&P 500 sector stock watch, Attractive stocks under $35, with potential investment opportunities, Solid S&P Value Companies, Cheapest Stocks In the S&P 500), discussing investment opportunities within the S&P 500. These stocks ideas all had favorable scores under The Applied Finance Group's (AFG’s) investment criteria, which includes economic performance, valuation, earnings quality and management’s ability to create shareholder wealth, among other criteria.

Another way that AFG identifies potentially attractive investments is through the use of its Value Expectations interface, which helps investors get a better understanding of the expectations embedded into stock prices. This interface allows us to understand the Sales Growth, EBITDA Margin, and Asset Turnover a company has to deliver in the future to justify its current trading price. In theory and in normal circumstances, if the imbedded future performance is very conservative relative to the company’s historical performance, the stock is regarded as undervalued. The table below displays the implied future Sales Growth (“Priced-in Sales Growth) of the companies we have recently recommended in our recent blogs, assuming their EBITDA Margins and Asset Turnovers stay at 5-year median levels.

Company Background

The Applied Finance Group’s (AFG’s) goal is to help its clients pick the best stocks in any index, sector or market cap through the use of its Economic Margin (EM) methodology, valuation techniques, and ability to evaluate management’s capability to create shareholder wealth. The EM methodology helps investors understand the true economic profitability a company has earned by making adjustments to correct for some of the common distortions in traditional GAAP accounting practices. The valuation model AFG has built has proven through time to identify mis-priced securities which helps its clients take advantage of those mis-pricings and outperform their chosen benchmark (most commonly the S&P 500).

Below is a list of companies from the S&P 500, one from each major AFG sector (Excluding Financials), that meet AFG’s criteria to be considered as an attractive investment opportunity based on expected improvement in EMs, attractive valuation and a management team following a wealth creating strategy.

Fiserv [NDQ:FISV] August 17, 2009 $47.25

52-week range: $27.75 (Nov. 21, 2008) - $54.67 (Sep. 12, 2008)

Having said that, it is often instructive to take a look at the changes made during Q2 to get a sense of what themes managers are focusing on. Of course, we cannot see their short portfolios so for many of these managers you really only get half the story. But on the long side, having the data from Q4 2008, Q1 2009 and Q2 2009 all together, it is sometimes possible to re-engineer a certain manager’s strategy.

• Reactions to Microhoo. Reactions to the Microsoft (MSFT) and Yahoo (YHOO) search deal announced yesterday have been mixed. Some investors wondered why Yahoo agreed to a deal with no upfront fee, after previously saying any deal would be conditioned on 'a boatload of cash,' and doubts about the deal's benefits to Yahoo helped pull shares down 12% (Microsoft closed up 1.4%, and the deal may mark an important turning point for CEO Steve Ballmer). Still, others felt "dropping the dead weight of search isn’t a horrible idea" for a company that has no realistic chance of beating Google (GOOG). The deal could face antitrust concerns but will likely be approved.
• TARP exit for AmEx. American Express (AXP) has officially exited TARP after repurchasing warrants from the government for $340M. The company said the warrant buyback, along with $74.4M of dividend payments it made, provided taxpayers with an annualized 26% return. Analysts noted the repurchase price was in line with the $1.1B Goldman Sachs (GS) paid, indicating the Treasury has indeed taken a tougher negotiating stance on the warrant purchases in light of congressional pressure.
• FDIC to break up banks. In an effort to entice more buyers, the FDIC is poised to start breaking up failed banks into good and bad pieces. The goal is to sell the most distressed parts of failed banks to private equity firms and other investors that are willing to take a larger risk on bad assets. The 'good' pieces of failed banks, including deposits and branches, could then be sold to traditional banks.
• Sanofi buys out Merck's JV stake. Sanofi-Aventis (SNY) agreed to buy Merck's (MRK) half of their joint Merial animal-health venture for $4B in cash, and said the companies may work together again in the future to form the world’s largest maker of animal treatments. Sanofi and Merck had collaborated on Merial for over ten years, building it into a company with $2.6B in annual sales. The deal should help Merck allay antitrust concerns over its proposed purchase of Schering-Plough (SGP). Premarket: SNY -0.9% (7:00 ET).
• Mortgage fraud probe includes Goldman, Deutsche. A Senate panel reportedly subpoenaed financial firms including Goldman Sachs (GS) and Deutsche Bank (DB) in search of evidence of mortgage fraud during last year's market meltdown. The probe is focused on whether bankers had private doubts about the financial soundness of the mortgage-related securities they were publicly promoting. Washington Mutual, now largely owned by JPMorgan Chase (JPM), may also have been among the firms that received a subpoena.
• Citi advances asset sales. Citigroup (C) is 'moving extremely fast' on asset sales, said CEO Vikram Pandit. Citigroup announced today it had agreed to sell its stake in a Japanese asset management unit to Sumitomo Trust & Banking, Japan’s fifth-largest bank, for ¥112.4B ($1.18B).
• New help for homeowners. The White House is planning to announce new guidelines today to help homeowners struggling with Federal Housing Administration-insured mortgages. The guidelines will narrow the gap between the FHA's mortgage-modification program and the White House's foreclosure-prevention plan, and will "offer borrowers an opportunity to stay in their homes, make payments that are manageable and defer [payment of] the money owed to a later time when, hopefully, home values have improved."
• Fidelity signs IPO pact with Deutsche. Fidelity Investments struck a deal with Deutsche Bank (DB) allowing Fidelity's individual investors to participate in initial public offerings underwritten by Deutsche as of this week. Fidelity reached a similar deal last month with private equity group Kohlberg Kravis Roberts, but the Deutsche deal carries more weight because Deutsche is one of the 10 busiest underwriters of stock offerings in the U.S. For Deutsche, access to Fidelity's customers will broaden the range of IPOs it can land.
• Beige Book sees recession moderating. The Federal Reserve's Beige Book was released yesterday, and noted the recession seems to be growing less severe. Some regions said the downturn's pace has moderated, and others reported that activity is stabilizing. Retail sales are still sluggish, and wages and benefits are steady or falling in most districts. (Read the Fed's Beige Book summary)
• China seeks to reassure on monetary policy. In a volatile day of trading, Chinese stocks managed to close up 1.7% after China's central bank released a statement aimed at calming jittery investors. After the Chinese stock market fell 5% on Wednesday, its largest daily drop in eight months, the central bank pledged to maintain loose monetary policy in order to support an economic recovery and to ensure sustainable credit growth, seemingly without relying on a strict, central bank-directed quota system used in the past.
• Boeing gets squeezed. British Airways (BAIRY.PK) is pressuring Boeing (BA) to renegotiate installment payments on its 787 Dreamliner orders. Predelivery payments can total tens of millions of dollars per jetliner, and as airlines find it increasingly difficult to bankroll the payments, plane makers like Boeing are getting squeezed. In other bad news for Boeing, a contractor said yesterday that the Dreamliner's braking system is still incomplete because of a dispute over who should pay for the work, and S&P downgraded Boeing's credit rating by one notch over concerns of additional production cuts due to airline order deferrals and cancellations.
• PennyMac a few pennies short on IPO. PennyMac Mortgage Investment Trust, the distressed-mortgage investment company run by former Countrywide No. 2 Stanford Kurland and 10 other former Countrywide officials, raised $320M in its initial public offering, $80M less than planned. The company sold 16M shares at $20 each.

Earnings: Thursday Before Open

• AmerisourceBergen (ABC): FQ3 EPS of $0.42 beats by $0.03. Revenue of $18.39B (+2.2%) vs. $18.11B. (PR)
• Aon (AOC): Q2 EPS of $0.76 beats by $0.02. Revenue of $1.9B (-4%) in-line. (PR)
• Art Technology Group (ARTG): Q2 EPS of $0.06 beats by $0.02. Revenue of $44M (+6%) in-line. Shares +3.2% premarket (8:20 ET). (PR)
• AstraZeneca (AZN): Q2 EPS of $1.64 beats by $0.24. Revenue of $8B (+0%) vs. $7.8B. Shares +3.5% premarket (6:40 ET). (AstraZeneca's press release (.pdf))
• Automatic Data Processing (ADP): FQ4 EPS of $0.45 in-line. Revenue of $2.1B (-4.5%) in-line. Issues downside guidance for FY '10, sees EPS of $2.29-2.39 vs. $2.44 consensus, sees revenue down 1-4%, or to roughly $8.51-8.78B, vs. $8.94B consensus. (PR)
• Avon (AVP): Q2 EPS of $0.38 beats by $0.04. Revenue of $2.47B (-9.7%) in-line. (PR)
• Barrick Gold (ABX): Q2 EPS of $0.49 beats by $0.11. Revenue of $2B (+3%) vs. $1.9B. Shares +3.5% premarket (8:10 ET). (PR)
• Becton, Dickinson and Co. (BDX): FQ3 EPS of $1.30 beats by $0.06. Revenue of $1.8B (-2%) in-line. (PR)
• BioCryst Pharmaceuticals (BCRX): Q2 EPS of -$0.23 beats by $0.02. Revenue of $4.8M (+80%) vs. $4.1M. R&D expenses decreased to $11.2M from $13.4M a year ago. (PR)
• CIGNA (CI): Q2 EPS of $1.14 beats by $0.18. Revenue of $4.5B (-8%) vs. $4.8B. (PR)
• Cincinnati Financial (CINF): Q2 EPS of -$0.03 misses by $0.21. Revenue of $874M (-5%) vs. $912M. (PR)
• CMS Energy (CMS): Q2 EPS of $0.26 misses by $0.02. Reaffirms guidance for FY '09, sees EPS of $1.25 vs. $1.27 consensus. (PR)
• Colgate-Palmolive Company (CL): Q2 EPS of $1.07 beats by $0.02. Revenue of $3.75B (-5.5%) in-line. Gross margin increased 2 points to 58.8%, driven by easing raw and packaging material costs, and continued benefit from higher prices already implemented and its ongoing aggressive savings programs. (PR)
• CONSOL Energy (CNX): Q2 EPS of $0.62 misses by $0.19. Revenue of $1.1B (-12%) in-line. (PR)
• Covidien (COV): FQ3 EPS of $0.74 beats by $0.08. Revenue of $2.5B (-3%) in-line. (PR)
• Cummins (CMI): Q2 EPS of $0.30 beats by $0.04. Revenue of $24.3B (+525%) vs. $2.5B. (PR)
• Digital Realty Trust (DLR): Q2 FFO of $0.71 in-line. Revenue of $155M (+25.2%) vs. $161M. (PR)
• Dow Chemical (DOW): Q2 EPS of $0.05 beats by $0.14. Revenue of $11.3B (-40%) vs. $13B. (PR)
• Eastman Kodak (EK): Q2 EPS of -$0.71 misses by $0.34. Revenue of $1.77B (-28.9%) vs. $1.83B. Sees loss from continuing ops at the low end of its previous $200-400M range. Shares -0.9% premarket (8:00 ET). (PR)
• Endo Pharmaceuticals (ENDP): Q2 EPS of $0.73 beats by $0.06. Revenue of $373M (+22%) vs. $358M. (PR)
• ExxonMobil (XOM): Q2 EPS of $0.84 misses by $0.18. Revenue of $74.46B (-46.1%) vs. $71.29M. Production was down 3%. Lower margins reduced earnings by $1B. Shares -1.8% premarket (8:30 ET). (PR (.pdf))
• GrafTech International Ltd (GTI): Q2 EPS of $0.12 beats by $0.08. Revenue of $158M (-51%) vs. $143M. (PR)
• International Paper (IP): Q2 EPS of $0.20 beats by $0.20. Revenue of $5.8B (-0.1%) in-line. (PR)
• Iron Mountain (IRM): Q2 EPS of $0.25 beats by $0.02. Revenue of $746M (-3%) vs. $741M. (PR)
• KBR Inc. (KBR): Q2 EPS of $0.42 beats by $0.01. Revenue of $3.1B (+17%) vs. $2.9B. (PR)
• Kimco Realty (KIM): Q2 EPS of $0.31 misses by $0.01. Revenue of $189M (+3%) in-line. (PR)
• Mack-Cali Realty (CLI): Q2 EPS of $0.87 beats by $0.06. Revenue of $173M (-3%) vs. $167M.
• MasterCard (MA): Q2 EPS of $2.67 beats by $0.25. Revenue of $1.28B (+2.7%) in-line. Net revenue was up 7% on a constant currency basis. Gross dollar volume was down 0.6%; purchase volume was down 0.7%. Shares +7.2% premarket (8:30 ET). (PR)
• Motorola (MOT): Q2 EPS of -$0.01 beats by $0.03. Revenue of $5.5B (-32%) vs. $5.6B. Issues downside guidance for Q4 (Dec), sees EPS of -$0.01 to $0.01 vs. $0.05 consensus. Shares +7.3% premarket (7:45 ET). (PR)
• Mylan (MYL): Q2 EPS of $0.32 beats by $0.02. Revenue of $1.3B (+5%) vs. $1.2B. (PR)
• Newell Rubbermaid (NWL): Q2 EPS of $0.47 beats by $0.12. Revenue of $1.5B (-18%) in-line. (PR)
• Noble Energy (NBL): Q2 EPS of $0.66 beats by $0.11. Revenue of $491M (-59%) vs. $588M. (PR)
• NRG Energy (NRG): Q2 EPS of $1.56 vs. consensus of $0.74 (may not be comparable). Revenue of $2.2B (+70%) vs. $2.1B. (PR)
• NYSE Euronext (NYX): Q2 EPS of $0.51 beats by $0.06. Revenue of $1.1B (+9.5%) in-line. (PR)
• OfficeMax (OMX): Q2 EPS of $0.04 beats by $0.03. Revenue of $1.66B (-16.5%) in-line. "Given the projected weak economic climate and our anticipation of a soft Back-to-School season, OfficeMax remains very cautious in its expectations for the second half of 2009." (PR)
• Oshkosh Truck (OSK): FQ3 EPS of -$0.30 misses by $0.12. Revenue of $1.23B (-36.1%) vs. $1.38B. "For Q4, we expect solid performance from our defense and fire & emergency segments, while we expect that our access equipment and commercial segments will both continue to face tough market conditions." (PR)
• Parker-Hannifin (PH): FQ4 EPS of $0.31 beats by $0.09. Revenue of $2.2B (-34%) in-line. Shares -1% premarket (7:50 ET). (PR)
• Patterson-UTI Energy (PTEN): Q2 EPS of -$0.12 in-line. Revenue of $161M (-69%) vs. $167M. (PR)
• Regal Entertainment Group (RGC): Q2 EPS of $0.26 misses by $0.03. Revenue of $789M (+17%) vs. $769M. (PR)
• Rockwell Collins (COL): FQ3 EPS of $0.91 beats by $0.01. Revenue of $1.1B (-9%) in-line. (PR)
• Royal Dutch Shell (RDS.A): Q2 EPS of $0.62 vs. consensus of $0.93 (may not be comparable). Revenue of $63.9B (-51%) vs. $60.5B. Shares -0.65% premarket (6:50 ET). (PR)
• Sally Beauty (SBH): FQ3 EPS of $0.16 in-line. Revenue of $673M (-0.5%) vs. $684M. (PR)
• Sony (SNE): FQ1 net loss of ¥37.1B ($390M) vs. consensus of -¥110B and vs. a net profit of ¥35B a year ago. Still sees full-year loss of ¥120B. Revenue fell 19% to ¥1.6T. Shares +7.2% premarket (8:10 ET). (DJ)
• Spirit AeroSystems (SPR): Q2 EPS of $0.61 beats by $0.02. Revenue of $1.1B (-0.2%) in-line. Shares +2.3% premarket (8:00 ET). (PR)
• Taiwan Semiconductor (TSM): Q2 EPS of $0.14 beats by $0.01. Revenue of $2.2B (-23%) in-line. (PR)
• Travelers (TRV): Q2 EPS of $1.26 misses by $0.02. Revenue of $6.2B (-2%) in-line. (PR)
• Tyco International (TYC): FQ3 EPS of $0.58 beats by $0.13. Revenue of $4.2B (+0.6%) vs. $4.3B. (PR)
• Ventas (VTR): Q2 FFO of $0.68 beats by $0.06. "Our high-quality, diversified healthcare and seniors housing assets are performing very well due to demographic and need-driven demand." (PR)
• Waste Management (WMI): Q2 EPS of $0.52 misses by $0.02. Revenue of $2.95B (-15.5%) vs. $3B. Company is changing its ticker symbol to WM as of August 5, 2009. Issues downside guidance for FY '09, sees EPS of $1.95-1.99 vs. $2.02 consensus. (PR)
• Xcel Energy (XEL): Q2 EPS of $0.25 in-line. Revenue of $2B (-23%) vs. $2.6B. (PR)

Earnings: Wednesday After Close

• AFLAC (AFL): Q2 EPS of $1.20 beats by $0.06. Revenue of $4.3B (flat) vs. $4.7B. Announced planned acquisition of Continental American for $100M. (PR)
• Agnico-Eagle Mines (AEM): Q2 EPS of $0.01 misses by $0.11. Revenue of $139M (+58%) vs. $126M. EPS includes noncash currency loss of $0.12/share and stock option expense of $0.03/share. (PR)

• Akamai Technologies (AKAM): Q2 EPS of $0.40 misses by $0.01. Revenue of $205M (-2.7%) vs. $211M. (PR)

Q2 2009 Earnings Call

July 29, 2009 10:00 am ET

A recent article in the NY Times features the role of Fiserv (FISV) as a nexus point for the Madoff, Heath, and Pearlman scandals. It seems that each of the Ponzi artists told their investors to establish their IRA accounts under Fiserv's custodianship.

Is this just a coincidence, or did the crooks all know, somehow, that this particular custodian could be relied on to overlook such discrepancies as, hmmm, no stocks in their custody? Or, worse, were one or more employees of the company actively colluding with the scammers?

The New York Times’ Diana Henriques wrote an excellent account of Fiserv’s (FISV) potential liability for investor losses in several unrelated Ponzi schemes. As you may recall, Zamansky & Associates filed a class action lawsuit in federal court in Colorado on behalf of Madoff investors who were instructed to use Fiserv as their custodian for their IRA accounts.

The article clearly shows that Ponzi schemes almost always have large financial institutions supporting them in one way or another. In this case, Fiserv, one of the largest IRA service providers in the country, may be held accountable for $1 billion in investment losses.

With the Nasdaq now up 9 days in a row and the Dow up 6 days in a row, lots of individual stocks have put together solid winning streaks as well. In fact, 236 stocks in the Russell 1,000 are up 5 days in a row or more, and 71 are up at least 8 days in a row.

Below we highlight the stocks that are up at least 8 days in a row. Lots of big names are on the list including IP, SLB, WFMI, CSCO, GLW, TXN, INTC, SNDK, and YHOO. With futures up again this morning, we're likely to see a number of stocks with double-digit winning streaks by the end of the day.

With less than 2 weeks until the next option expiration, I wanted to put together a list of buy/write option strategies on strong stocks (based on one of my methods of finding bullish stocks), that had a greater than or equal to 50% current probability of expiring in the money on July 18, 2009 (closest current option expiration), and gave decent downside protection as well as a decent return if the option expires in the money and the stock is sold at the strike price.

The list below includes: Company name (sorted alphabetically), Ticker, Strike Price (all for July options expiration), Downside Protection in % (noted by Downside %), Return on Buy/Write option strategy in % if stock gets called out at expiration (noted by Return %), Current probability in % that current option market is factoring in, that the stock meets or exceeds strike price at expiration (noted by % Probability), and if the stock is currently above the strike price known as in the money (noted by IN$).

After 16 weeks, 35% gains and more prayers to assorted deities than you can shake a stick at, the sell-side sentiment fell enough between Friday, June 19 and Friday, June 26 to cause the first “sell” signal since the First Coverage Market Index (i.e., sell-side sentiment) turned bullish at the start of March. And, even though Monday saw sentiment tick up a touch, and there was uncertainty reflected in the sell-side closing out more positions than they opened last week, as they say in the Old West, “The damage, she be done, and we be short!”

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up, we have Eminence Capital. Eminence is a New York hedge fund ran by Ricky Sandler. As of this last quarter's filing, Eminence held $4 billion in long U.S. equity exposure. Sandler attended the University of Wisconsin and holds a CFA designation. Prior to Eminence, Sandler started his career as a research analyst for Mark Asset Management and then went on to start Fusion Partners at the age of 25 with Wayne Cooperman. As their investment styles started to differ, Sandler went on to start Eminence.

Background

Founded in 1984 and headquartered in Brookfield, Wisconsin, this heartland based company brings sophisticated solutions to Main Street and Wall Street financial institutions. Fiserv (FISV) helps small, medium and large financial intuitions operate more profitably and provide superior customer service -- even better than they can do it in-house. The stress and scrutiny that the Financial Services Industry faces today represents an excellent growth opportunity for Fiserv.

The Applied Finance Group’s (AFG’s) Economic Margin (EM) methodology helps investors understand what a company earns above its true cost of capital or how profitable a firm is. Companies expected to improve their Economic Margins have proven to be more likely to outperform than companies with expected EM declines. The table below provides 10 stocks expected to improve their Economic Margins in the next fiscal year and look attractive from a valuation perspective according to AFG’s valuation model. All 10 of these firms also currently have a default buy recommendation and look to have considerable long-term upside.

click to enlarge

Q1 2009 Earnings Call Transcript

April 30, 2009 5:00 pm ET

Below is a summary of 22 AFG Buy Recommendations from the S&P500 Index. The report highlights the 2 companies from each sector (ex. financials) that have the most attractive value score and are currently rated Buys by The Applied Finance Group, Ltd. (AFG). Factors used to derive a AFG’s recommendation include: Expected change in Economic Margins, Intrinsic Value, and Management Quality.

We also ran a VE analysis and provided the results. The VE analysis of each company is used to identify implied sales growth expectations versus what the company has delivered historically in sales growth over the past 5 years. Measuring the spread between a company’s VE sales growth expectations and what it has historically delivered should give you a good idea of which companies have the best chance of meeting or exceeding those expectations, and thus are more likely to outperform.