Equity markets have taken a beating recently, and the trend looks set to continue next week.
With economic data thin next week, the standoff between the West and Russia is likely to drive prices. Moscow has ramped up its military presence in and around Ukraine and Crimea being annexed over the weekend is looking more and more probable.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports including FedEx Corporation (NYSE: FDX), Oracle Corporation (NASDAQ: ORCL), Nike, Inc. (NYSE: NKE), General Mills, Inc. (NYSE: GIS), and Jabil Circuit, Inc. (NYSE: JBL).
FedEx is expected to report third quarter EPS of $1.54 on revenue of $11.46 billion, compared to last year’s EPS of $1.23 on revenue of $10.95 billion.
Merrill Lynch has a Buy rating on FedEx with a $162.00 price objective on March 14. The analyst team at Merrill Lynch took the severe winter into account for its third quarter predictions but said the company’s profit improvement plan will likely offset the decline.
“Over the past 15 years, FedEx has averaged a 33% sequential decline in EPS between F2Q and F3Q. We forecast a slimmer 10% decline in F3Q14, post weather impact, given the ongoing benefit from its $1.7 billion profit improvement plan. It noted that of its 3,600 employees that are leaving the workforce, 75% are already off the payrolls, having left in waves on May 1, August 1, and November 1, 2013, with the remaining 25% set to leave at the end of May 2014. Its remaining programs are on track for F’15 and F’16 benefits, putting it on schedule to reach its profit improvement target as it exits F2016.”
On March 8, S&P Capital IQ has a Buy rating on FedExwith a $180.00 price target. The firm also cited the company’s profit improvement program as a reason for its optimism.
“We are positive on FDX's profit improvement program, which seeks to add $1.7 billion to operating income by FY 16, with up to 75% of this target expected to be achieved by FY 15.We think the goal is realistic, using a combination of cost savings, efficiency improvements and incremental revenue-generating ideas. We also expect the company to benefit from improvement in the U.S. and global economies over the next year, which we believe will lead to increased volumes across FDX's entire network. We think the shares will benefit from increased investor interest in logistics stocks on concrete signs of economic improvement.”
Oracle is expected to report third quarter EPS of $0.70 on revenue of $9.36 billion, compared to last year’s EPS of $0.65 on revenue of $8.97 billion.
Deutsche Bank has a Buy rating on Oracle with a $45.00 price target on January 22, saying that the company’s software business was giving the company momentum.
“In a nutshell, Oracle is only investable if its core database software business is tracking well, which it is, growing at a high single-digit clip while the core businesses of other mega-cap technology firms are struggling with zero growth given the twin forces of commoditization and price deflation. In our view, the new open source database alternatives are not body-checking Oracle just yet, Exadata sales are solid and a new 12c database launch adds zest to the fiscal 2015 outlook.”
Nike is expected to report third quarter EPS of $0.72 on revenue of $6.70 billion, compared to last year’s EPS of $0.73 on revenue of $6.19 billion.
Nomura has a Buy rating on Nike with an $85.00 price target on February 13. The firm cited the company’s potential for continued revenue growth as the reason for its positivity.
“Our outlook for the shares is positive owing to our expectation for continued high-single-digit revenue growth, recent trends of accelerating futures, prospects for continued gross margin recovery, and an underappreciation for the upside existing in the women’s business. In addition to top-line growth and visibility, NIKE is tracking toward regaining its peak gross margin of 46.3% (achieved in FY10), almost 200bps above our current year estimate of 44.4%. 2014E / 2015E Revenues: $27,616mn $30,058mn vs. Street at $27,758mn / $30,184mn. FY14E EPS at $3.00; FY15E EPS at $3.50.”
S&P Capital IQ also has a Buy rating on Nike with an $86.00 price target on March 8. The analysts at S&P said the company’s growth in North America and Europe would continue to propel revenue.
“We see revenues from continuing operations reaching $27.84 billion in FY 14 (May), driven by growth in North America and Europe. NKE sold its Umbro business to Iconix Brand Group for $225 million in November 2012, and its Cole Haan business to Apax Partners for $570 million in February 2013.We perceive strong global demand for the Nike brand due to its established reputation for product innovation, quality and value, as well as time-tested authenticity. We also perceive strong growth momentum in the Converse brand, which contributed $1.45 billion of revenues in FY 13. However, we see the company's top-line results being impacted by foreign currency headwinds (Japan and emerging markets) and Nike brand repositioning in China.”
General Mills, Inc.
General Mills is expected to report third quarter EPS of $0.68 on revenue of $4.46 billion, compared to last year’s EPS of $0.64 on revenue of $4.43 billion.
Credit Suisse has a Neutral rating on General Mills with a $51.00 price target on February 18, citing worries about the company’s aggressive investment in international markets.
“As management invests more aggressively in international markets, we fear that the negative impact on margins and ROIC will slow the pace of earnings growth and shareholder value creation. Some simple math: US Retail margins are 23% and International margins are only 9%. At current rates of top-line growth, margins will fall by 70 bps and op profit will grow less than 3% over the next four years unless International margins improve or US Retail sales re-accelerate. Management put enormous emphasis on its intentions to expand internationally indicating that it had broken ground on a yogurt manufacturing site in China and that it is evaluating potential acquisitions in North Africa and India. The Yoki acquisition in Brazil has exceeded expectations by growing 19% to $1 billion in sales and expanding gross margin 200 bps. They are even experimenting with new platforms that utilize the Betty Crocker brand name in baking mixes and evoke the Hamburger Helper concept in dry dinners.”
Morgan Stanley has an Underweight rating on General Mills with a $48.00 price target on January 14. The analysts at General Mills are concerned about the company’s recent US sales trends.
“Mills’ US sales should continue to lag peers, and its guidance for ~10% EBIT growth in 2H14 may prove optimistic. With LTM stock performance driven largely by re-rating and few supportive catalysts, we view Mills’ relative risk/reward as among the least compelling in Food; downgrading to UW. We see US sales trends range-bound at 1-2%, with below-average categories (even including yogurt) and mixed share trends (yogurt, meals). We also doubt a near-term inflection in ready-to-eat cereal consumption, and believe innovation alone is insufficient (as during past two years) to accelerate growth.”
S&P Capital IQ has a Hold rating on General Mills with a price target of $51.00 on March 14. S&P noted that although the near term looked troublesome for GM, the company could see EPS growth in the future.
“We are keeping our 12-month target price of $51, reflecting a P/E of 18X, slightly below peers, applied to our FY 14 (May) EPS estimate of $2.85. GIS see's Feb-Q adjusted EPS of $0.61-$0.62, below our $0.68 estimate. Sales are being negatively impacted by lower volumes and unfavorable forex. Also, margins are being pressured by increased marketing and merchandising investment in an effort to drive demand. Despite an adverse near term environment, we look for EPS growth in May-Q to be aided by easing comparisons and share repurchases. The indicated dividend yield is about 3.1%”
Jabil Circuit, Inc.
Jabil Circuit is expected to report second quarter EPS of $0.11 on revenue of $3.62 billion, compared to last year’s EPS of $0.53 on revenue of $4.42 billion.
Merrill Lynch gave Jabil a Buy rating with a $22.00 price objective on March 13, citing improving Apple business for its optimism.
“We slightly lower our estimates for the February quarter and lower our revenue and EPS estimates for the May quarter heading into F2Q earnings, primarily on lower expected revenue from E&I (Enterprise and Infrastructure) and DMS (Diversified Manufacturing Services). We maintain our Buy rating on Jabil as we expect the company to get back to a normalized earnings power close to $2 as the Apple business ramps in the back half of the year. However we expect relatively inline results (significantly lowered last quarter) for the next 2-3 quarters, which could create some short term downside volatility.”
On January 14, Goldman Sachs upgraded Jabil to a Buy rating with a $20.00 price target. The analysts at Goldman see the company’s EPS rising far above the current consensus in 2015 and 2016.
“We would Buy JBL now given: (1) EPS Power – While we expect near-term EPS to be very weak (downside risk to May quarter Street EPS), our analysis suggests EPS could reach $2.00-$2.60 in 2015 or 2016, well above the Street at $1.66/$2.08 in FY15/16, on a partial recovery at Apple (we assume at lower sales and margins), Nypro accretion, a buyback, restructuring,and new business using proceeds from AMS plus FCF and/or leverage. While we do not take a view on any specific deal, Jabil has stated it is evaluating strategic options. Jabil has a relatively high tax rate and offshore cash, and an international merger and reincorporation could have tax and capital allocation benefits. (2) Buy laggards – Buying quality EMS companies after severe weakness at large customers has historically led to outperformance (such as Plexus in 2013). Moreover, analysis from our tactical research team suggests laggards typically outperform in 1Q of the next year. (3) Valuation – We expect JBL to generate $2.00-$2.50 in FCF both this year and next (16% CY14 FCF yield) and it is the least expensive EMS stock on 2015 EV/EBITDA at 3.5X.”
On March 8, S&P Capital IQ has a Hold rating on Jabil Circuit with a $16.00 price target, citing concerns about declining revenue for its caution.
“Our hold opinion is based on our concerns about near-term revenue declines. We point to unfavorable statements from two key customers. Further, we see increased risk, as Apple will account for a large portion of total sales after the BlackBerry loss and AMS sale. Over the long term, we believe that the company's success in new and less-cyclical markets will help support sales and margin growth. We are positive on the acquisition of Nypro Inc., which supplies the Healthcare, Packaging, and Consumer Electronics verticals. We expect JBL to use the $725 million ($675 million in cash) proceeds from the AMS sale for share repurchases and acquisitions.”
Economic data will be thin next week, though investors will continue to focus on the US and Europe for clues about the two nation’s central banks’ upcoming meetings. In the eurozone, investors are becoming wary of the euro’s rising strength and wondering if the ECB will intervene in April. In the US, investors are wondering if the nation’s recent spate of poor economic data was due largely to the severe winter or if it reflects the country’s slowing momentum.
When your sink is clogged, you call a plumber.
When Wall Street gets clogged, you might want to talk to Joe Saluzzi, partner and co-founder of Themis Trading and co-author of Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio.
Saluzzi believes that Wall Street's plumbing (the way orders are routed and filled) has become a serious problem for traders. He has been fighting for change and recently came on Benzinga's PreMarket Prep to discuss the issue.
"The real issue is not necessarily high-frequency trading but how the system has been built to basically allow a subset of traders who have access to speed -- whether it's location, data feed, special different information coming through -- to take advantage of the system, to game that system," Saluzzi told Benzinga.
Saluzzi was on a subcommittee for the U.S. Commodity Futures Trading Commission. He was asked to define 'high-frequency trading' (or HFT for short), but found that it was more difficult that anyone could imagine.
"High-frequency trading -- in itself, no one can even define the thing," said Saluzzi. "It's such a nebulous name. We couldn't even come up with a good definition."
Saluzzi, whose clients include mutual funds and hedge funds, think that it's time to start looking at these plumbing issues.
"Let's start to get rid of some of the conflicts of interest," he added. "We think the market should help itself."
Case-in-point: Saluzzi doesn't want to see a 4,000 page rule proposal.
"That would take years and would probably be worse than what we have right now," he said. "We need to tweak around the edges."
Decimals Changed Everything, But They Are Not The Problem
Saluzzi acknowledged that decimals and sub-decimals changed everything, but he does not believe that they are a part of the problem.
"When decimalization came out, it was a good thing," said Saluzzi. "However, they never really kind of figured out that all stocks are different. What's good for Bank of America that trades at a penny a share spread and 50 million shares a day may not be good for XYZ stock that trades 50,000 shares a day.
"Maybe you need a little bit wider spread there to encourage more liquidity… There's nothing wrong with a decimal. That probably makes a lot more sense than an eighth or a quarter."
That said, Saluzzi thinks that decimalization with minimum fills or minimum increments might have been a better idea.
"What we're recommending, and we hope the regulators are listening -- don't allow people to sub-penny you within that spread," he said. "If I have a 10 cent bid offered at 15 cents, and someone can step in for a sub-penny, you've defeated the purpose entirely of the program."
Check out the video below for a recap of Joe Saluzzi's guest appearance on Benzinga's #PreMarket Prep show:
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.
Drink up, friends.
A Michigan bill that allows people to bring their own bottles of wine to bars restaurants takes effect Friday, and it's just in time for the St. Patrick's Day weekend.
Introduced by State Representative Jim Stamas, House Bill 5046 makes it legal to bring an unopened bottle of wine to an establishment with a liquor license.
This isn't great for the restaurant industry, Michigan Licensed Beverage Association executive director Scott Ellis told Benzinga, but it won't have a huge impact. Establishments can use this opportunity to learn about new wines available.
“If they notice a pattern, the might want to pick up that brand,” Ellis said.
An opened bottle of wine that is unfinished may be re-corked by a restaurant employee and taken home with consumers.
“There's a lot wine connoisseurs,” Ellis said. “There's a lot of expensive wines, and people don't want to finish a whole bottle and then drive home.”
It's about choice
Ellis said this is about choice for restaurants. Although it's legal, a restaurant does not have to let customers bring their own bottles of wine.
Michigan Restaurant Association Vice President Justin Winslow told Benzinga that some restaurants are choosing to only allow the BYOW option for wines they don't already have on their menu.
“Because the bill was written with such flexibility, they (restaurants) really have the power to decide whether it makes sense for them or not,” he said.
The establishments can also choose whether or not they want to charge a corkage fee -- the price of being waited on, glassware, liability, etc. that would normally included in the markup of a bottle purchased at an establishment.
Other booze news
Sam Adams won't participate in South Boston's St. Patrick's Day Parade this year, the Boston Globe reports.
The Boston Beer Company (NYSE: SAM), makers of Sam Adams beers, pulled its sponsorship from the event after an agreement to allow a group of gay veterans to march could not be reached between parade organizers and the gay advocacy group MassEquality.
MassEquality posted a statement from the Boston Beer Co. on its website.
“We were hopeful that both sides of this issue would be able to come to an agreement that would allow everyone, regardless of orientation, to participate in the parade,” the statement said. “But given the current status of the negotiations, we realize this may not be possible.”
Club Cafe, a restaurant/night club in the south end of Boston, had announced it would stop serving Sam Adams because of the controversy. After the company's decision to pull out of the parade, the establishment announced on its Facebook page that it would continue to serve products from the Boston Beer Company.
There is an interesting slate of guests for the week's #PreMarket Prep broadcast, sponsored by OptionsHouse.
Some recurring guest will be joining in, along with new voices who have yet to bring their market perspective to the audience.
Tune into the show at 8:00 am EST Monday-Friday here.
Monday, March 17, 8:35 a.m.
Alan Brochstein (@Invest420), 420 Investor, Cannabis Financial Analyst
Marketfy's 420 Investor will begin every week be discussing the latest in cannabis stocks.
Victor Ricciardi (@victorricciardi), Author of "Investor Behavior: The Psychology of Financial Planning and Investing"
Victor is an Assistant Professor of Financial Management at Goucher College. He teaches undergraduate courses in personal financial planning, corporate finance, investments, behavioral finance, and the psychology of money.
Tuesday, March 18, 8:35 a.m.
Nic Chahine (@racernic), Creating income with options spreads
Nic will join the show every Tuesday to discuss the week's options outlook.
Rachel Fox (@foxonstocks, @rachelgfox), Actress and Trader
17-year old stock trader, musician & actress onon Desperate Housewives, Melissa & Joey. Exchanging information to encourage everyone to invest/trade.
Wednesday, March 19, 8:35 a.m.
David Grandey (@AllAboutTrends), Co-founder of All About Trends
AAT is a subscription-based newsletter service focused on helping individuals secure consistent profits in the market by trading what they see, not what they think, hear or fear.
Thursday, March 20, 8:35 a.m.
Fari Hamzei (@HamzeiAnalytics), Founder of Hamzei Analytics
Fari will join the show every Thursday, bringing his wealth of knowledge on aggressive equity options and index futures trends.
JC Parets (@allstarcharts), Founder of Eagle Bay Capital
Money Manager. Chartered Market Technician. Technical Analysis practitioner and blogger.
Friday, March 21, 8:35 a.m.
Joe Gits (@smainfo), CEO & Founder at Social Market Analytics
Joe is a pioneer in the emergence and growth of quantitative trading systems. He will join the show at the end of every week to discuss the under-the-radar stocks that travel on social media.
U.S. stocks declined as concerns escalated over Ukraine, two days before its citizens will vote in a referendum to split from Ukraine and become part of Russia.
Russian President Vladimir Putin is gearing up to “invade eastern Ukraine” as a six hour talk between U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov proved futile. Lavrov said that there is no “common vision” on resolving the crisis.
News of Note
Producer Price Index declined 0.1 percent, worse than the 0.2 percent gain expected.
Core PPI declined 0.2 percent, worse than the 0.1 percent gain expected.
March Reuters/UofM Consumer Sentiment read 79.9, below expectations of 81.8.
Analyst Upgrades and Downgrades of Note
Analysts at Sterne Agee initiated coverage of Alcoa (NYSE: AA) with a Buy rating and $15 price target. Shares lost 0.17 percent, closing at $11.84.
Analysts at SunTrust Robinson Humphrey initiated coverage of Allscripts Healthcare Solutions (NASDAQ: MDRX) with a Buy rating and $22.50 price target. Shares hit new 52 week highs of $19.37 before closing the day at $19.07, up 1.65 percent.
Analysts at Longbow Research initiated coverage of Domino's Pizza (NYSE: DPZ) with a Buy rating and $99 price target. Shares gained 0.77 percent, closing at $79.52.
Analysts at Morgan Stanley maintained an Overweight rating on Freeport McMoRan (NYSE: FCX) with an Overweight rating and a price target lowered to $40 from a previous $43. Shares gained 1.37 percent, closing at $31.06.
Analysts at Oppenheimer maintained an Outperform rating on Home Depot (NYSE: HD) with a price target increased to $93 from a previous $86. Shares gained 0.70 percent, closing at $79.35.
Analysts at Oppenheimer upgraded Lowe's Companies (NYSE: LOW) to Outperform from Market Perform with a price target raised to $57 from a previous $50.
Analysts at Goldman Sachs upgraded NuStar Energy (NYSE: NS) to Buy from Neutral with a price target raised to $62 from a previous $49. Shares gained 0.74 percent, closing at $49.07.
Analysts at Morgan Stanley maintained an Overweight rating on Pfizer (NYSE: PFE) with a price target raised to $36 from a previous $34. Shares gained 0.32 percent, closing at $31.22.
Analysts at Cowen & Company downgraded Plug Power (NASDAQ: PLUG) to Market Perform from Outperform with a price target raised to $7.50 from a previous $5.50. Separately, analysts at Roth Capital downgraded Plug Power to Neutral from Buy with a price target raised to $8 from a previous $0.80. Shares fell 16.12 percent, closing at $6.71.
Analysts at Morgan Stanley upgraded Teva Pharmaceuticals (NASDAQ: TEVA) to Equal-weight from Underweight with a $52 price target. Shares gained 1.92 percent, closing at $48.88.
Analysts at Credit Suisse downgraded United States Steel (NYSE: X) to Underperform from Neutral with a $19 price target. Shares lost 1.45 percent, closing at $24.05.
Equities-Specific News of Note
According to the New York Post, auto dealers in New York are pressing state lawmakers to ban direct sales of cars. New York could become the sixths state whose legislation will effectively ban or limit direct sales of Tesla Motors (NASDAQ: TSLA). Shares lost 2.87 percent, closing at $230.97.
Nelson Peltz wrote a letter to PepsiCo's (NYSE: PEP) calling on the company to "provide shareholders with analytical support for PepsiCo's continued reliance on the “Power of One” strategy and its rejection of Trian's recommendation to separate global snacks and beverages into two independent public companies." Shares lost 0.98 percent, closing at $81.00.
Vodafone (NYSE: VOD) is close to an agreement to acquire Grupo Corporativo ONO for 7.2 billion euros. Shares lost 0.59 percent, closing at $36.98.
At the request of the Department of Justice and Securities and Exchange Commission, Cisco (NASDAQ: CSCO) has started an investigation into bribery allegations relating to its operations in Russia. Shares lost 0.79 percent, closing at $21.35.
SolarCity (NASDAQ: SCTY) is teaming up with KirE builders to offer solar power to all homes in KirE's Black Canyon Estates that will open this weekend. Shares lost 0.39 percent, closing at $73.79.
A review of federal crash data from an automotive watchdog group found that 303 deaths of drivers and front-seat passengers were caused by airbags that did not deploy in recalled General Motors (NYSE: GM) vehicles. Shares gained 0.89 percent, closing at $34.09.
General Mills (NYSE: GIS) reaffirmed its prior guidance of fiscal 2014 EPS of $2.87 to $2.90. Sales and operating profit for the third quarter may come in one percent lower reflecting a drop in volume. The company will report its third quarter results on March 19 with a conference call scheduled at 8:30 AM ET. Shares lost 2.41 percent, closing at $49.78.
Alibaba is reportedly preparing for a U.S. IPO as soon as next month. The deal is significant to Yahoo! (NASDAQ: YAHOO) who maintains a 24 percent stake in the Chinese company. Shares of Yahoo! gained 0.99 percent, closing at $37.60.
Clayton Williams Energy (NYSE: CWEI) said that it has sold its Austin Chalk and Eagle Ford shale wells for $71 million to an unnamed buyer. Shares lost 0.22 percent, closing at $91.19.
Citron Research issued a report detailing its views that Questcor's (NASDAQ: QCOR) H.P Achtar Gel's specific active ingredient is less than 20 percent of the label specification. Shares gained 2.53 percent, closing at $63.30.
According to a 13D filing, Kyle Bass' Hayman Capital disclosed a 4.76 million share ownership of Nationstar Mortgage (NYSE: NSM), or 5.3 percent of the company. Hayman Capital disclosed at the end of 2013 it owned 1.85 million shares. Shares gained 4.80 percent, closing at $32.77.
Salesforce.com (NYSE: CRM) added Colin Powell to its board of directors. Shares lost 1.52 percent, closing at $58.16.
ExxonMobil (NYSE: XOM) said that its PNG LNG liquefied natural gas project in Papua New Guinea should begin delivering gas by June, months ahead of schedule. The $19 billion plant will supply 6.9 million metric tons per year of liquefied natural gas to Japan, Taiwan and China. Shares lost 0.19 percent, closing at $93.46.
Idenix Pharmaceuticals (NASDAQ: IDIX) filed a patent infringement lawsuit against Gilead Sciences (NASDAQ: GILD) in several European countries. Idenix is seeking remedies relating to Gilead's commercial activities involving its drugs containing sofosbuvir. Shares of Idenix finished the day unchanged at $6.94 while Gilead lost 3.79 percent, closing at $75.05.
Winners of Note
Starbucks (NASDAQ: SBUX) and Keurig Green Mountain (NASDAQ: GMCR) announced that they have made changes to their five-year agreement. Starbucks will receive improved business terms in exchange for no longer using a previous exclusive use of “super-premium” coffee. Separately, Keurig announced a new multi-year agreement with Peet's Coffee & Tea to launch a variety of new K-Cups. Shares of Starbucks were little moved on the news announcement, losing 0.21 percent, closing at $74.27 while shares of Keurig Green Mountain gained 6.68 percent, closing at $113.25.
Liberty Media (NASDAQ: LMCA) announced it will create two new tracking stocks. The first will be known as ‘Liberty Media' with the other ‘Liberty Broadband.' Investors will receive one share of Liberty Media and four shares of Liberty Broadband for every share of Liberty currently owned. The shareholders will also receive a subscription right to acquire one additional series A or series B share of Liberty Broadband tracking stock for every five shares of series A or five shares of series B Liberty Broadband tracking stock at a 20 percent discount to the 20 day volume weighted average trading price. The company also announced that its offer to acquire Sirius XM Holdings (NASDAQ: SIRI) is no longer applicable, but the company remains enthusiastic over its already existing 53 percent holding of Sirius. Separately, Sirius confirmed it will resume its stock purchase program following Liberty Media pulling out its acquisition offer. Shares of Liberty Media gained 7.22 percent, closing at $135.25 while Sirius gained 2.08 percent, closing at $3.44.
Decliners of Note
Cowen Research took to Twitter with Aeropostale's (NYSE: ARO) “new $150MM senior secured credit commitment now supersedes equity shareholders in the capital structure.” Shares closed at new 52 week lows of $5.83, down 20.14 percent.
On no new news FuelCell (NASDAQ: FCEL) declined today. The move can be seen as investors locking in profits, or investors reacting to the two downgrades that hit Plug Power (NASDAQ: PLUG) today. Shares of FuelCell lost 9.31 percent, closing at $3.02.
Earnings of Note
This morning, Cooper Tire & Rubber (NYSE: CTB) reported its fourth quarter results. The company announced an EPS of $0.31, beating the consensus estimate of $0.26. Revenue of $861 million beat the consensus estimate of $772.32. Net income for the quarter fell to $20 million from $73 million in the same quarter last year as volume of tires sold was lower both domestically and internationally. The company noted that it had a reduced impact from its Apollo Tyres merger in the quarter than it did in the preceding one. Shares gained 6.75 percent, closing at $24.36.
This morning, ANN (NYSE: ANN) reported its fourth quarter results. The company announced an EPS of $0.10, beating the consensus estimate of $0.07. Revenue of $623.3 million was in-line with the consensus estimate. Comparable-store sales rose 2.9 percent in the quarter as net income nearly doubled to $4.7 million from $2.4 million in the same quarter last year. ANN announced that it will realign the company to better position itself for growth by increasing its focus on improving and creating omni-channel capabilities. Shares gained 7.57 percent, closing at $37.51.
Quote of the Day
"Do not rely on decoupling. Do not rely on central bank liquidity. Do not reply on hope. Hope is a false friend in these markets” – Albert Edwards, Societe General's “uber-bearish” strategist in comments made today.
Shares of Herbalife (NYSE: HLF) sold off following Gasparino's tweet on Friday.
Following heavy stock action throughout the week, Charles Gasparino tweeted Friday afternoon “$Hlf worried state AG's might launch probes into cos biz model; worried that probes cld further depress stk”.
Shares declined 1.01 percent following the tweet going from $58.58 to $58.00, before rebounding during Gasparino TV appearance. Gasparino commented that Carl Icahn may take an activist role in protecting Herbalife due to his 16 percent stake in the company.
A Herbalife spokesperson declined to comment on the Gasparino tweet.
Shares of Herbalife gained 1.27 percent on Friday, closing at $58.04.
Shares of Keurig Green Mountain Inc. (NASDAQ: GMCR), were on the rise Friday, after the company announced it has agreed to new terms in its deal with Starbucks (NASDAQ: SBUX). In this new contract, in exchange for eliminating the coffee exclusivity terms of the existing agreement, Starbucks will receive improved business terms, including expanding Starbucks K-Cup pack and other variety types.
Mark Wood, Senior Vice president, Global Hot Systems for Keurig said, “This amended agreement creates more favorable business terms for both companies and allows us to build upon our strong relationship.”
John Culver, Starbucks Coffee Company group president said, ““This amendment advances Starbucks commitment to strengthening its global leadership position in the nearly $8 billion premium single cup coffee category. With nearly 2 billion Starbucks K-Cup® packs shipped from the inception of our relationship through the end of 2013 this contractual update underscores the appeal of Starbucks to the millions of Keurig brewer owners and the continued innovation and collaboration our relationship reflects.”
Shares of Keurig Green Mountain jumped $3.12 per share or 2.94 percent to $109.28, while shares of Starbucks were relatively neutral at $74.30
Analysts respond to Aeropostale's (NYSE: ARO) disappointing earnings results.
Quarterly Earnings Results
Fiscal Year Earnings Results
Shares of Aeropostale closed down 20.14 percent on Friday at $5.83.</ul>
With stocks in some sort of consolidation mode at the present time, it is natural for one's thoughts to turn to the bigger picture.
Is this it? Has the bull market finally run out of gas? Are stocks overvalued? Will the economy improve? Have earnings peaked? Is Crimea a real issue? Yada, yada, yada.
The problem with pondering such issues is that even if you do happen to get the answers right, it may not help you stay on the right side of Ms. Market's mood. Remember, stocks can become overvalued and then stay overvalued for years. Overbought conditions and extreme sentiment readings are only negative when a catalyst comes around. As usual in this business, timing matters.
However, understanding where we are in the game can be helpful. Put another way, if an investor can gauge where they are in the stock market's cycle of life, they can adjust their approach accordingly. For example, if you believe we are in the late stages of a bull market, you can certainly stay in the game and enjoy the ride. However, it might also be a good idea to take your foot off of the gas a bit and play it more conservatively.
As we've discussed ad nauseam, stocks have been rising for five years now. The S&P 500 (NYSE: SPY) has gained about 180 percent. And given that both the age and the size of this bull market's gain are well above average, it might be a good idea to start playing as if we are in the late stages of the game.
One way to gauge where the market stands is to look at the public's degree of stock ownership. Remember, at bear market bottoms, nobody wants stocks and the percentage of equities owned by households, institutions and foreigners is quite low. It also follows that when bull markets end, the percentage of equities owned tends to be quite high.
So, while looking at this type of indicator is next-to-useless, in terms of near-term timing, it can be very helpful in trying to get one's bearings from a big-picture perspective.
The Public's Exposure To Stocks Is...
First, let's take a look at the level of stock ownership by households in the U.S. as a percentage of total household assets. The idea here is to compare the current level of stock ownership by American households to the peak levels seen in the past.
Where does one obtain such statistics? The Federal Reserve, of course.
As of Dec. 31, the percentage of stocks (including mutual funds and ETFs) relative to all assets of households in the U.S. was 41.4 percent. Compared to the average since 1952 of 23.6 percent, this would seem pretty darn high.
And compared to the secular bull market peak of 1966, when the reading was 37.9 percent, the current level of 41.4 percent certainly looks high.
However, it is important to keep in mind that mutual funds, IRA's and 401K's didn't really become a thing in American society until the 1980's. So, let's take a look at how the current percentage of equity holdings stacks up in what might be considered modern financial times.
The Death of Equities
In the second quarter of 1982, investors had all but given up on the stock market. The stock market was in the midst of a secular bear market and DJIA (NYSE: DIA) hadn't breached the 1,000 mark for nearly two decades. This was about the time that Newsweek ran its famous cover with the title, "The Death of Equities." Thus, it isn't surprising to learn that equities, as a percentage of household assets, were at an all-time low of 13.3 percent.
However, this was also right about the time that a rip-roaring secular bull market began. And if memory serves, the stock market marched merrily higher for the next 18 years.
At the first quarter of 2000 and after a gain of 1,330(ish) percent on the DJIA, American's love affair with the stock market was in full swing. Stock ownership as a percentage of household assets had soared to 53.3 percent. And to put this historic run into perspective, at the end of the first Gulf War in 1990, equity ownership had been just 17.7 percent.
So, in the ensuing decade, the American public truly embraced stocks as their primary investment choice. Equity ownership as a percentage of all household assets rose three-fold. And by the time the technology bubble burst in the spring of 2000, equities represented more than half of all household wealth.
The Lost Decade
As you might suspect, equity holdings fell as the bear market of 2000-02 ravaged stocks. Equities as a percentage of household assets fell from 53.3 percent to 31 percent in 2003.
However, the American public, along with their faith in the stock market, is nothing if not resilient. As such, equity holdings had rebounded to 41.1 percent by the second quarter of 2007.
Then the Credit Crisis hit. As 401K's turned into 201K's in the process, the percentage of equity holdings dove proportionately. And by the first quarter of 2009, which also marked the bottom of that brutal bear market, equities represented just 24.2 percent of household assets.
But, as usually happens, the crisis ended and a new bull market began. So along with the 180 percent gain in the S&P 500 came an increase in household's equity holdings, which went from 24.2 percent to 41.4 percent.
So what's the takeaway from this history lesson? In short, American households currently hold about the same percentage of stocks that they did in 2007. And while this level is well below the peak seen in 2000 (53.3 percent), it is also the second highest on record.
To be sure, stocks can go higher from here. Remember that bull markets go farther and last longer than most investors can ever imagine. However, it is worth noting that stocks could be starting to become over-owned at the present time. And while this, in and of itself, is not a reason to sell, it should be viewed as a sign that this bull market is getting old.
When it rains for General Motors (NYSE: GM), it pours.
A review of federal crash data from an automotive watchdog group found that 303 deaths of drivers and front-seat passengers were caused by airbags that did not deploy in recalled GM vehicles.
The automaker recalled 1.6 million vehicles last month due a defect with ignition switches that is linked to 12 deaths
The review by the Friedman Research Corp., which conducts vehicle design and occupant protection research, was commissioned by the Center for Auto Safety. The search looked at data for 2005-07 Chevrolet Cobalts and 2003-07 Saturn Ions, two of the seven recalled models.
This is not the first examination into the recall. In addition to an inquiry by the National Highway Traffic and Safety Administration (NHTSA), GM is undergoing investigations by both the congressional House Energy and Commerce Committee and the Department of Justice.
“The probe into the GM ignition switch problem is continuing to snowball with questions swirling about how much GM and the National Highway Traffic Safety Administration knew about the issue and when they learned it. Some nine years have elapsed since the initial reports, begging those questions,” said Senior Kelley Blue Book analyst Jack Nerad. “Now, with potential blood in the water, there is a gathering of interested parties to investigate potential regulatory and criminal misconduct.”
At this point, senior KBB analyst Karl Brauer said, the worst-case scenario for GM would be for the government to find the automaker at fault regarding how it handled this recall.
“A component of GM's restructuring a few years ago was to shield it from any prior legal liabilities. So, even if GM is found negligent, this shield will largely, though not completely, mitigate the damages,” he said. “This legal wrinkle makes it difficult to determine how much the government might ask GM to pay in damages.”
But the Detroit automaker needs to come to a quick and satisfying resolution of the issue, Nerad said.
“The fact that GM was rescued by the American taxpayers makes a resolution that is satisfactory to the average person on the street even more imperative than if such an issue arose in another company,” he said.
Who watches the watchmen?
NHTSA, the agency responsible for federal motor vehicle safety standards, is also under fire. In a letter to the agency, CAS said NHTSA's Fatal Analysis Reporting System (FARS) data "clearly" show front-seat occupants were being killed in crashes where airbags did not deploy shortly after the recalled vehicles were introduced. There were three deaths in Ions during 2003 and six in Cobalts during 2005.
“NHTSA could and should have initiated a defect investigation to determine why the airbags were not deploying in Cobalts and Ions in increasing numbers,” the letter says. “As the agency has done in past investigations, special investigation teams should have been sent out to acquire more information on the crashes found in FARS and determine in which ones the airbag did not deploy due to the ignition key defect.”
Brauer said it's interesting that evidence shows NHTSA had prior knowledge of GM's ignition switch problem.
“This means either the evidence wasn't striking enough to indicate a valid concern at the the time, in which case GM has a lot more latitude in failing to act sooner, or it suggests NHTSA's own review processes were ineffective, despite the changes made at the safety agency after the Ford/Firestone recall back in 2000,” he said.