We want to analyze how equity analysts are adjusting their 2H 2012 and FY 2013 estimates now that the 2Q results for most of the Dow components are out. In our analysis below we show that 2H 2012 earnings estimates are coming down, indicating that the news from 2Q may be worse than expected. FY 2013 estimates are declining as well and may be prone to more reductions. Recent reductions may have already been priced into stock prices, but we are interested in seeing how long earnings estimates continue to be cut and when the trend reverses.
Tuesday, July 31, 2012
A Look At Changes In Forward EPS Estimates For The 22 Dow Jones Industrials Companies That Reported 2Q Results
Twenty two companies in the Dow Jones Industrials Average (DIA) reported 2Q 2012 earnings so far. Coming into earnings season many CEOs lowered their guidance and equity analysts reduced their estimates. This weakness showed up in the results as many companies reported revenue below (reduced) estimates, though often earnings were in-line or above (reduced) estimates.
We want to analyze how equity analysts are adjusting their 2H 2012 and FY 2013 estimates now that the 2Q results for most of the Dow components are out. In our analysis below we show that 2H 2012 earnings estimates are coming down, indicating that the news from 2Q may be worse than expected. FY 2013 estimates are declining as well and may be prone to more reductions. Recent reductions may have already been priced into stock prices, but we are interested in seeing how long earnings estimates continue to be cut and when the trend reverses.
We want to analyze how equity analysts are adjusting their 2H 2012 and FY 2013 estimates now that the 2Q results for most of the Dow components are out. In our analysis below we show that 2H 2012 earnings estimates are coming down, indicating that the news from 2Q may be worse than expected. FY 2013 estimates are declining as well and may be prone to more reductions. Recent reductions may have already been priced into stock prices, but we are interested in seeing how long earnings estimates continue to be cut and when the trend reverses.
Monday, July 23, 2012
Market Update: S&P 500 And Bonds At Cusp Of Bullish Moves, But Which Is Headed Higher?
[First appeared on Seeking Alpha on July 22, 2012]
Buy Google As P/E Compression May Soon End; 2Q 2012 Earnings Good Enough For Investors
[First appeared on Seeking Alpha on July 22, 2012]
IBM's 10% Correction May Be A Buying Opportunity After 2Q EPS Beat And Guidance Raised
[First appeared on Seeking Alpha on July 19, 2012]
We were reminded of why we like IBM while we analyzed its 2Q 2012 earnings results and listened to its conference call. IBM has an attractive combination of growth potential, stellar execution, visibility, free cash flow, shareholder friendly capital policies and a low valuation. We admit that we sold our IBM position before the earnings season when we reduced risk across our portfolio and cut exposure in the technology and financials sectors.
Now that the company has announced its 2Q results, we are considering adding the stock back into our portfolio (we did the same with Intel Corporation (INTC); see our analysis on Intel here). In this update, we will analyze IBM's 2Q earnings results using our six-question checklist and discuss our strategy for IBM going forward.
We were reminded of why we like IBM while we analyzed its 2Q 2012 earnings results and listened to its conference call. IBM has an attractive combination of growth potential, stellar execution, visibility, free cash flow, shareholder friendly capital policies and a low valuation. We admit that we sold our IBM position before the earnings season when we reduced risk across our portfolio and cut exposure in the technology and financials sectors.
Now that the company has announced its 2Q results, we are considering adding the stock back into our portfolio (we did the same with Intel Corporation (INTC); see our analysis on Intel here). In this update, we will analyze IBM's 2Q earnings results using our six-question checklist and discuss our strategy for IBM going forward.
Consider Buying Intel After 2Q 2012 Earnings
[First appeared on Seeking Alpha on July 18, 2012]
Goldman Sachs 2Q12 Earnings: Waiting For The Cycle To Turn While Trading Below Book
[First appeared on Seeking Alpha on July 17, 2012]
Citigroup Q2 2012 Earnings: Company Beats Estimates, Is A Potential Buy At 0.5x Tangible Book Value Per Share
[First appeared on Seeking Alpha on July 16, 2012]
Citigroup (C) was the third major bank to report Q2 2012 earnings (see our analysis of JPMorgan and Wells Fargo). Citigroup reported results that beat expectations, but were down from a year ago. Citigroup's results, like the results of its peers, show that it is managing to navigate through this difficult period and improve its operations.
Citigroup's valuation of 0.5x Tangible Book Value Per Share demonstrates investor concern about its balance sheet and doubts about its operating performance. However, if Citigroup can continue on its present trajectory, the current stock price may represent a good buying opportunity. In this update, we will examine Citigroup's results using our six question checklist. In addition, we will discuss comments from Vikram Pandit, Citigroup's CEO, about the U.S. and global economies.
As we review Citigroup's Q2 2012 earnings, we are looking for clues about whether reduced expectations by analysts and investors take into account the pessimistic outlook for the global economy, or if expectations need to be lowered further.
Citigroup (C) was the third major bank to report Q2 2012 earnings (see our analysis of JPMorgan and Wells Fargo). Citigroup reported results that beat expectations, but were down from a year ago. Citigroup's results, like the results of its peers, show that it is managing to navigate through this difficult period and improve its operations.
Citigroup's valuation of 0.5x Tangible Book Value Per Share demonstrates investor concern about its balance sheet and doubts about its operating performance. However, if Citigroup can continue on its present trajectory, the current stock price may represent a good buying opportunity. In this update, we will examine Citigroup's results using our six question checklist. In addition, we will discuss comments from Vikram Pandit, Citigroup's CEO, about the U.S. and global economies.
As we review Citigroup's Q2 2012 earnings, we are looking for clues about whether reduced expectations by analysts and investors take into account the pessimistic outlook for the global economy, or if expectations need to be lowered further.
Wells Fargo Earnings: Record Income, Strong Mortgage Business, And Economic Implications
[First appeared on Seeking Alpha on July 16, 2012]
2Q 2012 Earnings: Key Takeaways From JPMorgan's Results And Clues About The Economy
[First appeared on Seeking Alpha on July 16, 2012]
Market Update: S&P 500 At A Crossroads As JPMorgan Offers Relief, Wal-Mart Hits New Highs
[First appeared on Seeking Alpha on July 14, 2012]
The S&P 500 closed the week at 1,357. Once again it covered a lot of ground, but returned to familiar territory. As we explain below, we consider the 1,335-1,360 range on the S&P 500 as neutral territory that indicates indecision. The Q2 earnings season began after the close on Monday when Alcoa (AA) released its results (see our recap here). The S&P 500 then declined most of the week until JPMorgan (JPM) and Wells Fargo (WFC) released earnings on Friday morning and sparked a relief rally. So far, earnings seem to be in line with analysts' much-reduced estimates. The lowering of earnings estimates has likely been priced in, and now the question is whether expectations are low enough to reflect concerns about the slowdowns in the U.S., Europe, and China.
Alcoa Beats Reduced Q2 Earnings And Implications For The Broader Market
[First appeared on Seeking Alpha on July 10, 2012]
Alcoa's (AA) earnings release after the close on Monday marked the beginning of Q2 2012 earnings season. We plan to profile several key companies during earnings season to better understand how their management teams view demand in their specific markets as well as growth across the globe. Many companies and sell-side equity analysts have already reduced their earnings projections for Q2 and the rest of 2012, so we are not expecting to hear a lot of exciting stories over the next few weeks.
Instead, we want to find out if expectations are now low enough that companies can beat these numbers and if investors will react positively to the Q2 numbers. If expectations are low enough, then the market may be at a turning point and could rally. Alcoa's Q2 earnings are a good way to start to gauge market expectations and company performance as we enter the second half of the year. We are going to analyze Alcoa's earnings using a 5 question earnings checklist, which we will also use for other companies in the future.
Alcoa's (AA) earnings release after the close on Monday marked the beginning of Q2 2012 earnings season. We plan to profile several key companies during earnings season to better understand how their management teams view demand in their specific markets as well as growth across the globe. Many companies and sell-side equity analysts have already reduced their earnings projections for Q2 and the rest of 2012, so we are not expecting to hear a lot of exciting stories over the next few weeks.
Instead, we want to find out if expectations are now low enough that companies can beat these numbers and if investors will react positively to the Q2 numbers. If expectations are low enough, then the market may be at a turning point and could rally. Alcoa's Q2 earnings are a good way to start to gauge market expectations and company performance as we enter the second half of the year. We are going to analyze Alcoa's earnings using a 5 question earnings checklist, which we will also use for other companies in the future.
Market Update: Buying Stocks Because Expectations Are Low
[First appeared on Seeking Alpha on July 1, 2012]
Market Update: S&P 500 Trading Ranges In The Context Of The Fed, Euro Baby Steps, Oil And Macro Events
[First appeared on Seeking Alpha on June 24, 2012]
The S&P 500 (SPY) ended a very eventful week not far from where it traded on Monday. The market digested the Greek election, the Federal Reserve's decision to extend Operation Twist and the highly anticipated downgrades of 15 global banks. From a technical perspective, the S&P 500 broke out of a month-long trading range, but retreated back inside while flirting with various moving averages. The market's roller-coaster to nowhere is an indication of confusion and, maybe, some sense of equilibrium between the bulls and the bears with no side gaining much of an advantage. In previous updates we discussed the need to avoid the obvious trade. We want to take that line of thinking one step further and change the way that we are looking at the market and our investment plans.
The S&P 500 (SPY) ended a very eventful week not far from where it traded on Monday. The market digested the Greek election, the Federal Reserve's decision to extend Operation Twist and the highly anticipated downgrades of 15 global banks. From a technical perspective, the S&P 500 broke out of a month-long trading range, but retreated back inside while flirting with various moving averages. The market's roller-coaster to nowhere is an indication of confusion and, maybe, some sense of equilibrium between the bulls and the bears with no side gaining much of an advantage. In previous updates we discussed the need to avoid the obvious trade. We want to take that line of thinking one step further and change the way that we are looking at the market and our investment plans.
Market Update: Macro Rumors And 'Risk Off' Indicators In Context; Avoid The Obvious Trades
[First appeared on Seeking Alpha on June 17, 2012]
Although the market ended the week on a high note, by trading up through the 1,335 level on the S&P 500 (SPY), macro news continues to be the catalyst for moves in both directions. In general, investors should be cautious when the market jumps around based on the latest piece of news from Europe. However, we have noticed some diverging dynamics in the "Risk Off" indicators that we review on a weekly basis.
In general, we are becoming wary of the obvious trade, which has been to sell risky assets because of the European crisis. The European crisis is not new, which means that more and more of it is being priced in. The upcoming market action will likely continue to be dominated by macro factors, especially the Fed meeting on June 19-20. Still, we are trying to decipher what is already priced into the market so that we avoid making the obvious trades.
Although the market ended the week on a high note, by trading up through the 1,335 level on the S&P 500 (SPY), macro news continues to be the catalyst for moves in both directions. In general, investors should be cautious when the market jumps around based on the latest piece of news from Europe. However, we have noticed some diverging dynamics in the "Risk Off" indicators that we review on a weekly basis.
In general, we are becoming wary of the obvious trade, which has been to sell risky assets because of the European crisis. The European crisis is not new, which means that more and more of it is being priced in. The upcoming market action will likely continue to be dominated by macro factors, especially the Fed meeting on June 19-20. Still, we are trying to decipher what is already priced into the market so that we avoid making the obvious trades.
Market Update: 'Risk Off' Indicators Retreating; S&P 500 Holding The Line
[First appeared on Seeking Alpha on June 10, 2012]
The title of our update last weekend was Market Update: Indicators Flashing 'Risk Off' But The Real Test Is Next Week. Following the S&P 500's (SPY) decline through its 200 day moving average, we wanted to see if there would be follow-though action to confirm the downward move. The market was indecisive on Monday and Tuesday, before staging a big rally on Wednesday and ending the week flopping around on Thursday and Friday. At the same time, many of the "Risk Off" indicators that we analyze on a weekly basis seem to be in retreat, which is a good sign for the bulls. Last week's market activity seemed to us more bullish than bearish, but we are still cautious.
We begin this update with a review of the recent market activity. Then we will review our weekly "Risk On / Risk Off" indicators, which give us a better understanding of the macro environment. Finally, we will discuss the bull and bear cases for the market going forward and our investment plan.
The title of our update last weekend was Market Update: Indicators Flashing 'Risk Off' But The Real Test Is Next Week. Following the S&P 500's (SPY) decline through its 200 day moving average, we wanted to see if there would be follow-though action to confirm the downward move. The market was indecisive on Monday and Tuesday, before staging a big rally on Wednesday and ending the week flopping around on Thursday and Friday. At the same time, many of the "Risk Off" indicators that we analyze on a weekly basis seem to be in retreat, which is a good sign for the bulls. Last week's market activity seemed to us more bullish than bearish, but we are still cautious.
We begin this update with a review of the recent market activity. Then we will review our weekly "Risk On / Risk Off" indicators, which give us a better understanding of the macro environment. Finally, we will discuss the bull and bear cases for the market going forward and our investment plan.
Market Update: Indicators Flashing 'Risk Off' But The Real Test Is Next Week
[First appeared on Seeking Alpha on June 3, 2012]
The market reached a multi-month low on Friday following the weak jobs report. The S&P 500 closed at 1,278, corresponding to 128 on the SPDR S&P 500 ETF (SPY), representing a 10% decline from its recent highs. The narrative has now shifted to fears of a European crisis, especially the potential for Greece's exit from the Euro and problems with the Spanish banking system, as well as slower growth in the U.S., Europe, China and other parts of the world.
We start this update with a review of the market's 10% decline from its April high to Friday's close. Then we will review our weekly "Risk On / Risk Off" indicators before discussing the bull and bear cases for the market and our investment plan.
The market reached a multi-month low on Friday following the weak jobs report. The S&P 500 closed at 1,278, corresponding to 128 on the SPDR S&P 500 ETF (SPY), representing a 10% decline from its recent highs. The narrative has now shifted to fears of a European crisis, especially the potential for Greece's exit from the Euro and problems with the Spanish banking system, as well as slower growth in the U.S., Europe, China and other parts of the world.
We start this update with a review of the market's 10% decline from its April high to Friday's close. Then we will review our weekly "Risk On / Risk Off" indicators before discussing the bull and bear cases for the market and our investment plan.
Market Update: Analyzing 'Risk On / Risk Off' Indicators After The S&P 500 Rebound
[First appeared on Seeking Alpha on May 28, 2012]
The S&P 500 (SPY) entered the week following a 6-day losing streak, three straight down weeks and the Facebook (FB) IPO let down. However, it managed to rebound in a week dominated by macroeconomic news and fears. The fact that the market could stop its decline in such a negative environment seems like a positive sign going forward; however, it will be difficult to sustain a rally if macroeconomic news continues to dictate trading action.
As we noted in our update last week (Market Update: S&P 500 Trading Range Breakdown And Key 'Risk Off' Indicators), the S&P 500 broke down from its trading range between 1,350 and 1,425, corresponding to 135.00 and 142.50 on the SPDR S&P 500 ETF. With the downward momentum building throughout May, it seemed like the SPY was heading toward its 200-day moving average at approximately 128, which was also near the bottom of the trading range from the first part of last year. However, the market rebounded and closed the week at 132.10.
The S&P 500 (SPY) entered the week following a 6-day losing streak, three straight down weeks and the Facebook (FB) IPO let down. However, it managed to rebound in a week dominated by macroeconomic news and fears. The fact that the market could stop its decline in such a negative environment seems like a positive sign going forward; however, it will be difficult to sustain a rally if macroeconomic news continues to dictate trading action.
As we noted in our update last week (Market Update: S&P 500 Trading Range Breakdown And Key 'Risk Off' Indicators), the S&P 500 broke down from its trading range between 1,350 and 1,425, corresponding to 135.00 and 142.50 on the SPDR S&P 500 ETF. With the downward momentum building throughout May, it seemed like the SPY was heading toward its 200-day moving average at approximately 128, which was also near the bottom of the trading range from the first part of last year. However, the market rebounded and closed the week at 132.10.
Market Update: S&P 500 Trading Range Breakdown And Key 'Risk Off' Indicators
[First appeared on Seeking Alpha on May 20, 2012]
The real story of the moment is the 5-day decline in the S&P 500 last week following the trading range breakdown. The S&P 500 entered the week at a critical juncture, at the low end of its 1,350 to 1,425 trading range, corresponding to 135 to 142.5 on the SPDR S&P 500 ETF (SPY), as we noted in our previous update (Market Update: JPMorgan And Europe Bad News Drive Market To Trading Range Bottom).
The market responded with five days of declines and the SPY closed the week at 129.74, clearly below the previous trading range.
The real story of the moment is the 5-day decline in the S&P 500 last week following the trading range breakdown. The S&P 500 entered the week at a critical juncture, at the low end of its 1,350 to 1,425 trading range, corresponding to 135 to 142.5 on the SPDR S&P 500 ETF (SPY), as we noted in our previous update (Market Update: JPMorgan And Europe Bad News Drive Market To Trading Range Bottom).
The market responded with five days of declines and the SPY closed the week at 129.74, clearly below the previous trading range.
Market Update: JPMorgan And Europe Bad News Drive Market To Trading Range Bottom
[First appeared on Seeking Alpha on May 14, 2012]
In our update last week (Market Update: The New Trading Range And How To React) we discussed the trading range on the S&P 500 from approximately 1,350 to 1,425, which corresponds to 135 to 142.5 on the SPDR S&P 500 ETF (SPY), as depicted in the chart below. Interestingly, the bottom end of this year's range was the high end of the range during the first part of last year.
Last week we expected that the market would test the bottom of the current range, which is where it spent most of the last few trading sessions. The market will now either maintain the range or breakdown from it. We are preparing for either scenario to play out and will adjust our portfolios accordingly.
In our update last week (Market Update: The New Trading Range And How To React) we discussed the trading range on the S&P 500 from approximately 1,350 to 1,425, which corresponds to 135 to 142.5 on the SPDR S&P 500 ETF (SPY), as depicted in the chart below. Interestingly, the bottom end of this year's range was the high end of the range during the first part of last year.
Last week we expected that the market would test the bottom of the current range, which is where it spent most of the last few trading sessions. The market will now either maintain the range or breakdown from it. We are preparing for either scenario to play out and will adjust our portfolios accordingly.
Market Update: The New Trading Range And How To React
[First appeared on Seeking Alpha on May 7, 2012]
In our market update last week, which can be found here, we discussed our observation that the market is not rallying through the current earnings season like it did in February when Q4 earnings were released. After a strong rally, it seems that the market is settling into a trading range between 1,350 and 1,425 on the S&P 500 (SPY). Following the declines at the end of the week, it looks like the market may test the bottom of this range. If a breakdown from this range emerges, the market could see sharper declines in the near term.
In our market update last week, which can be found here, we discussed our observation that the market is not rallying through the current earnings season like it did in February when Q4 earnings were released. After a strong rally, it seems that the market is settling into a trading range between 1,350 and 1,425 on the S&P 500 (SPY). Following the declines at the end of the week, it looks like the market may test the bottom of this range. If a breakdown from this range emerges, the market could see sharper declines in the near term.
MGM Resorts: Maintaining Positive Outlook After Q1 Earnings (Long-Term Price Target: $24)
[First appeared on Seeking Alpha on May 4, 2012]
A few days ago, we presented our analysis of MGM Resorts International (MGM), which can be found here. We believe that MGM can reach $24.00 per share by 2014 based on a Las Vegas recovery, with additional upside from growth at MGM China, growth at CityCenter, potential legalization of online gambling and other opportunities.
A few days ago, we presented our analysis of MGM Resorts International (MGM), which can be found here. We believe that MGM can reach $24.00 per share by 2014 based on a Las Vegas recovery, with additional upside from growth at MGM China, growth at CityCenter, potential legalization of online gambling and other opportunities.
Own Your Own LBO: MGM Resorts International
[First appeared on Seeking Alpha on April 30, 2012]
With record low interest rates, we are looking for investment opportunities in companies that can take advantage of the situation. One of our low interest rate plays is to invest in the equity of highly levered companies that are positioned to grow and repay debt over the next few years. As small investors, we do not have the wherewithal to do take-private LBO transactions like large private equity funds, but we can invest in public companies that have the characteristics of LBO transactions. These companies are not expected to be targets of LBOs themselves, since they already have high levels of debt, but patient investors may be able to generate attractive returns. The high leverage in these situations will amplify the return to equity holders, if successful outcomes are achieved.
With record low interest rates, we are looking for investment opportunities in companies that can take advantage of the situation. One of our low interest rate plays is to invest in the equity of highly levered companies that are positioned to grow and repay debt over the next few years. As small investors, we do not have the wherewithal to do take-private LBO transactions like large private equity funds, but we can invest in public companies that have the characteristics of LBO transactions. These companies are not expected to be targets of LBOs themselves, since they already have high levels of debt, but patient investors may be able to generate attractive returns. The high leverage in these situations will amplify the return to equity holders, if successful outcomes are achieved.
Market Update: Q1 Earnings Are Not The Catalyst Investors Are Looking For
[First appeared on Seeking Alpha on April 30, 2012]
This time is different, at least so far. Back in January the stock market rallied through the Q4 2011 earnings season. On January 9, Alcoa (AA) released its Q4 results, marking the beginning of earnings season, and the S&P 500 continued its rally over the following weeks and months.
This time is different, at least so far. Back in January the stock market rallied through the Q4 2011 earnings season. On January 9, Alcoa (AA) released its Q4 results, marking the beginning of earnings season, and the S&P 500 continued its rally over the following weeks and months.
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