Monday, January 14, 2013

Earnings preview for the week of 1/14-1/18

I hope everyone had a great Christmas and New Year, it's time to get back into the swing of things as this week we get our 1st look at a handful of companies reporting Q4 '12 results. The broader markets are starting off the year on a high note with the S&P, Dow, and Nasdaq already up 3.2%, 3% and 3.5% respectively. There is a lot of bullish sentiment on the street to start 2013 due to the resolution of the so-called fiscal cliff. In the end, it was the Republicans getting the shorter end of the stick and we will see taxes rise for nearly every citizen in the US this year.

Above the S&P, Nasdaq, and Dow YTD

Dividend stocks, which I cover a lot of and own myself, have had a rough past few weeks, but appear to be coming back. Once again, the issue was the fiscal cliff due to the possibility of an increase in the dividend tax rate.  We saw that this was just a bunch of scare tactics, pushing these prices down to attractive levels. These consumer companies provide strong cash flow and solid forward earnings, and I see absolutely no reason to be selling them.

This week, Bank of America strategists are expecting a “great rotation” out of bonds and into U.S. stocks this year. In the past couple years, investors have been weary of stocks during the recent bull market, with trading volumes low and ownership of equity proving a hard sell. For the full year of 2012, there was only a net $3 billion that flowed into U.S. stock funds and exchange traded funds, which is minute compared to past bull markets.

Though this past week,  there was a big interest in purchasing stocks. A net $18-billion flowed into stock funds, blowing past the biggest week of inflows in 2012. In fact, according to BofA, the week’s inflows mark the biggest since June '08 and the 4th largest since 2000. This is not only happening in the US, but global as well. According to EPFR Global International, global emerging market and US fund data, $22-billion flowed into equity funds around the world during the same week, which is the second biggest inflow into stocks for data going back to 1996.

This could mark a trend in which small investors see the upside potential of equities; in turn the stock market could get a nice boost. Investors moving into a market tend to drive prices higher. Right now there are good reasons for a move into stocks: The U.S. economy is likely to pick up from a recovering housing market, with more government spending.

One trend I noticed is a 3 month chart of AutoZone compared with Ford and AutoZone. Ford is up 38%, GM is up 25%, while AutoZone is lagging 7%. Looking at a wider out chart of the three from the beginning of 2010, AutoZone has clearly outperformed both of them, up over 100%. In my opinion, this could be the year from the rotation out of the fixer-upper automobiles, into new cars. 

There is quite a bit of macroeconomic data out this week, lets run down what will be released:

8:30 AM EST Producer Price Index
Prev -0.8 % Consensus -0.1 % (range -0.8 % to 0.4 %)
less food & energy  Prev 0.1 % Consensus 0.2 %                (range 0.0 % to 0.2 %)

8:30 AM EST Retail Sales
Retail Sales
Prev 0.3 %
Consensus 0.2 %
Range 0.0 % to 0.8 %
Retail Sales less autos
Prev 0.0 %
Consensus 0.3 %
Range 0.0 % to 1.1 %
Less Autos & Gas
Prev 0.7 %
Consensus 0.5 %
Range 0.2 % to 1.4 %

8:30 AM EST Empire State Manufacturing
General Business Conditions Index
Prev -8.10 
Consensus 0.00 
Range -5.00  to 9.50 

10:00 AM EST Business Inventories
Prev 0.4 %
Consensus 0.3 %
Range 0.1 % to 0.5 %

8:30 AM EST Consumer Price Index
Prev -0.3 %
Consensus 0.0 %
Range -0.1 % to 0.3 %
CPI less food & energy
Prev 0.1 %
Consensus 0.1 %
Range 0.1 % to 0.2 %

9:15 AM EST Industrial Production
Prev 1.1 %
Consensus 0.2 %
Range -0.1 % to 0.6 %
Capacity Utilization Rate
Prev 78.4 %
Consensus 78.5 %
Range 78.3 % to 78.9 %
Prev 1.1 %
Consensus 0.4 %
Range 0.3 % to 0.6 %

10:00 AM EST Housing Market Index
Prev 47    Consensus  48   Range 46 to 50

8:30 AM EST Housing Starts
Prev 0.861 M
Consensus 0.887 M
Range 0.865 M to 0.920 M
Prev 0.899 M
Consensus 0.910 M
Range 0.870 M to 0.945 M

8:30 AM EST Jobless Claims
Prev 371 K
Consensus 368 K
Range 345 K to 385 K

10:00 AM EST Philadelphia Fed
General Business Conditions
Prev 8.1 
Consensus 6.0 
Range 2.0  to 14.5 

9:55 AM EST University of Michigan Consumer Sentiment
Prev 80.5 
Consensus 75.0 
Range 72.5  to 84.0 

There are quite a few earnings to report this week, most of them the large US banks, which will get most of the attention. I want to focus on a few others that look fundamentally undervalued and a good place to put money to start off 2013.

On Monday, we hear from Heartland Express.  They are a short-to-medium haul truckload carrier which provides regional dry van truckload services through its regional terminals plus its corporate headquarters. They transport freight for shippers and generally earns revenue based on the number of miles per load delivered. Their  primary traffic lanes are between customer locations east of the Rocky Mountains. With their main headquarters in Iowa, they operate nine specialized regional distribution operations in Atlanta, Georgia; Carlisle, Pennsylvania; Chester, Virginia; Columbus, Ohio; Jacksonville, Florida; Kingsport, Tennessee; Olive Branch, Mississippi; Phoenix, Arizona, and Seagoville, Texas.

The transportation index and dry land transportation in general (ex-rails) had a lousy 2012, with the Dow Jones Transportation index under performing the broader market. I see a significant turnaround for the entire sector, as we have already seen all-time highs in the Transportation index after it being up only 6% last year. Industrial demand will pick up, and more freight will need to be shipped. More companies will be moving to expand their businesses with robots, making them more efficient, and getting adequate supply out to those who demand it.

They are currently trading at a 12 month trailing P/E of 17.7 with an EV/EBITDA of 5.60.They are currently trading near 3 times book value. Their ROE for the past 12 months is 18%, with a 5 year average of 18.5% They have been profitable for every year in the past 10 years with free cash flow positive in nine of them. Free cash flow was only negative in 2011 due to a significant amount of capital expenditures spent on the upgrade of its tractor and trailer fleet.

Heartland also paid a special dividend of $1 in December, due to possible fiscal cliff troubles, as to why their share price saw a sharp decline. Long-term this will be a minor blip.

There could be some risks due to their dependence on Diesel fuel, which tends to be more expensive than regular unleaded. As I have previously posted, I believe fuel prices will also turn around this year, but the increased dry land shipping demand will cancel out the potential for increased fuel prices. The company also does not boast a very large dividend, so you are putting forth a bit more risk, when you could be investing in a safer company. Overall, I can see the shared going up 10% or more this year.

Above, a chart of HTLD, along with main competitor Knight Transportation and the Dow Jones Transports.

Next, General Electric which in my opinion has a very large potential to do well this year, because of their position in alternative energy. There will come to a point within the next century of so where we will begin to see a slowdown in the usage of oil dependency and increase in renewable energy. Wind power has been growing quietly and steadily in the U.S. for about the past decade now, to about ten times what it was from the start (4gw to 40 gw). General Electric is one of the world's largest wind turbine suppliers with over 10,000 turbine installations around the world that have amounted to over 200 million operating hours and 127,000 GWh of energy produced. Wind facilities exist in five countries so far: The US, Norway, Germany, China and Canada. GE sells the turbines and offers services that support developmental assistance and maintenance.

I believe this is a great long-term investment, they have either been in-line or beat earnings estimates the past four quarters with next quarters report out this Friday to be the highest since 2008. If they come in at expectations, that will put GE at making $1.50 a share for FY '12 with a P/E of about 14.5. There is 8% year over year growth in GAAP EPS thus far. There are 21 analysts on the name with 13 of them at a buy/overweight and 8 of them at hold. The current price target is $24.62.

Profit margins have been steady between 38-40% in the past four quarters while revenue growth has increased 3% and 2% in Q2 and Q3 respectively. Net income in Q3 was $3.49B, while the estimate for this Fridays report is expected to be $4.26B; Q1 '13 which reports in March is also expected to be higher than Q3 at $3.70B.

Overall, I believe even with the slow revenue growth and stable profit margins, this is a name to own for the future. While you will not get the instant gratification of owning the stock for a year or so, this is something to think about long-term. They boast a 3.6% dividend yield of 19 cents which they have raised by 90% since 2009, which proves that they are loyal to their shareholders (I believe we could see another dividend hike to 20 or 21 cents this year).  The dividend payout increasing overtime does not concern me due to solid operating cash flow and no real compression on margins.

Comparing GE to its main competitors, they have slightly outperformed UTX, have beat the Dow Jones Industrials, and underperformed to Siemens this past year.

That is what I am looking at this week, since the semester is starting up today, I will try and post when I can, but I am afraid it won't be weekly. I will be on twitter daily so you can catch me there: @Peter_Eller10. 

No comments:

Post a Comment