Category Archives: Options Trading
Yum Brands, Inc. (YUM), with a market cap of $30.94B, is a quick service restaurant company based on a number of system units, including KFC, Pizza Hut, and Taco Bell. YUM took another hit with a new strain of bird flu in China while it was trying to recover from controversy over its chicken supply where unapproved levels of antibiotics were given. Despite a swift and decisive effort with “Operation Thunder,” the sales in China are still down 30 percent so far in April.
Good Profit, Missed Revenue
YUM reported Q1 earnings of $0.70 per share, beating analysts’ expectation of $0.60. However, revenue came in at $2.54B, which was below analysts’ prediction of $2.56B. Same-store sales increased 2% in the United States but dropped 20% in China. China’s sales remain a concern as 40% of YUM operating profit comes from China.
Weakness in China, but Expansion Continues
Currently, YUM remains as the largest Western fast-food chain in China with about 5,300 locations. The company is expected to open another 700 restaurants in 2013. The management is confident to overcome the bird flu issue, which happened before in 2005 causing 40 percent sales decline. The management expects its EPS growth to return to double-digit rate in 2014 and beyond. However, after 11 years of double-digit growth, YUM is expecting its EPS to decline in the mid-single digits for 2013 due to its issues in China.
Intuitive Surgical, Inc. (ISRG) designs, manufactures and markets da Vinci Surgical systems and related instruments and accessories, allowing a surgeon to control up to three endoscopic instruments from a remote console while a dual camera provides a 3-D view of the operation. Despite the positive Q1, 2013 earnings, ISRG continues to face turbulence in the short term as the debate for da Vinci Surgical systems continues on, as reported by CNBC and Bloomberg.
Growth Story Continues
For Q1, 2013, ISRG reported net income of $188.9M ($4.56 a share) compared with $143.5M ($3.50 a share) for the same period a year ago. Sales had increased to $611.4M from the year ago result of $495.2M. Both earnings and income were higher than the analysts’ expectation of $3.98 a share and sales of $582.6M.
Management‘s View on da Vinci System
With over 1 million patients who had surgery that used a da Vinci system, the management is confident that those who invest their time in a serious review of the clinical literature on da Vinci will find ample evidence and the benefit it provides to the medical community.
SanDisk Corporation (SNDK), with a market cap of $13.48B, is a global leader in the NAND flash memory market. SanDisk designs, develops and manufactures data storage solutions in a range of form factors using its flash memory, controller and firmware technologies. SanDisk’s management is expecting a healthy supply/demand balance this year and has raised its 2013 revenue target and given a forecast for June-quarter revenue that beat analysts’ expectations. As reported by Bloomberg, SanDisk is limiting increases in output from its factories and expects enough demand to keep prices healthy this year.
Q1, 2013 Result
Strong SSD Growth
The highlights for Q1, 2013 was the revenue from SSD product, which grew over 200% on a year-over-year basis. Global retail channels also showed strength and produced 34% revenue growth as compare to the last year.
Increasing Retail Mix
As I described last quarter, the company is now reporting the channel mix of revenue as retail and commercial. The commercial channel includes OEM customers, B2B customers, direct enterprise customers and licensees. The total Q1 revenue was 62% commercial and 38% retail, reflecting a year-over-year mix shift toward retail of 6 percentage point driven by strong growth in that channel.
Kinder Morgan Energy Partners LP (KMP) is a pipeline transportation and energy storage company in North America and one of the largest master limited partnerships. KMP continues to deliver solid results. KMP reported surging profit for Q1, 2013 and had increased its distribution.
Q1, 2013 Results
KMP’s distribution is increased to $1.30 ($5.20 annualized), which is up 8% from Q1, 2012. The earnings before DD&A was $1.276B, up 24% from Q1, 2012. The distributable cash flow per unit (DCF) was $1.46 versus $1.37 for Q1, 2013, with an increase of 7% year-over-year. Below is the segment breakdown:
Natural Gas Segment
While Natural Gas is the fossil fuel of the future, the challenge is to overcome the obstacles in midstream infrastructure to ensure that there is adequate capacity to connect the supply to demand. The management believes KMP is ideally situated to help meet this challenge providing the needed infrastructure in North America. The management is expecting to add about 7,000 miles of gas pipelines.
The management expects CO2 segment to be slightly above plan for the full-year 2013 despite wide Midland-Cushing spread on oil prices in January and February, which is now corrected, and lower NGL prices for the quarter compared to a year ago.
EMC Corporation (EMC) is a leading provider for hardware, software and services for enterprise network storage. EMC holds 80% ownership of outstanding shares in VMWare (VMW), the largest global vendor providing virtualization software for server operating systems. Since the announcement of “the Pivotal initiative” on March 13, both EMC and VMW had been declining. A quick preview of EMC and VMW’s upcoming earnings and fundamental analysis will be presented in this article.
Analysts‘ Calls and Earnings Preview
BMO Capital analyst Keith Bachman commented on EMC and VMW heading into earnings, where VMW reports on April 23 after the market close and EMC reports on April 24 before the market open. The analyst sees in-line results for EMC with the same 2013 EPS guidance of $1.85. The analyst maintained an outperform rating with a price target of $35 on EMC and a market perform rating and a price target of $85 on VMW. Keith Bachman stated,
We think that investors have embedded pronounced negative sentiment in storage stocks, such as EMC. Therefore, we believe that, by both EMC and VMW hitting numbers this year, EMC’s stock will move higher.
Earnings Preview for EMC
Analysts currently have a mean target price of $29.51 for EMC, suggesting 27.86% upside potential based on the closing price of $23.08 on April 16, 2013. Analysts are estimating an EPS of $0.39 with revenue of $5.42B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.86 with revenue of $23.47B, which is 8.10% higher than 2012. In the last 4 quarters, EMC had 1 negative earnings surprise and 2 positive earnings surprises.
Southern Company (SO), with 4.4 million customers and nearly 46,000 megawatts of generating capacity, is a holding company, which owns Alabama Power, Georgia Power, Gulf Power, and Mississippi Power, each of which is an operating public utility company. In this article, SO’s fundamentals are reviewed to see if its dividend increase is supported.
On April 15, 2013, Southern Company announced the increase of its annual dividend by 7 cents per share to $2.03 per share, which marks the 12th straight year of dividend increase. Further, Southern Company increased 1.75 cents per share for the quarterly dividend to 50.75 cents per share, payable June 6, 2013 to shareholders of record as of May 6, 2013, which marks 262 consecutive quarters of consistent dividend distribution.
Analysts‘ Calls and Estimates
On April 15, 2013, Wells Fargo upgraded SO from market perform to outperform. Neil Kalton noted that shares of Southern Co have underperformed since 2011, a move he ties to the company’s nuclear strategy, though these concerns are overblown in his view. Kalton said,
The upgrade of SO to Outperform from Market Perform is largely valuation driven as our assessment of SO’s underlying fundamentals and growth outlook is relatively unchanged.
Analysts currently have a mean target price of $45.75 for SO, which is below the current closing price of $47.36 as of April 15, 2013. Analysts, on average, are estimating an EPS of $0.49 with revenue of $3.75B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $2.76 with revenue of $17.78B, which is 7.50% higher than 2012.
Valero Energy Corp (VLO) is a refining and marketing company. VLO closed flat at $44.95 on March 27, 2013. VLO had been trading in the range of $20.00-$48.97 in the past 52 weeks. VLO has a market cap of $24.85B with a beta of 1.53. With the recent pullback, investors can review the long-term position for VLO, which has higher margins with a fair priced cash flow.
All Ethanol Plants Running
Valero Energy had resumed production on March 21, 2013 at an ethanol plant in Linden, Indiana, the last of several plants that the company idled in 2012 due to poor margins. The Linden refinery was idled last year. When running, it can process about 43 million bushels of corn into 120 million gallons of denatured ethanol and 370,000 tons of co-products. Valero spokesman Bill Day said, “Improved margins have allowed the plant to be operated profitably, which led to the restart”.
Operations resumed at a Valero facility in Bloomingburg, Ohio, in early March and a plant in Albion, Nebraska, was restarted last month. With the restart of the Linden, Indiana, plant, all 10 of Valero’s U.S. ethanol facilities are online.
Wells Fargo And JPMorgan Chase: Buying For Solid Fundamentals And Inexpensive Cash Flow [Seeking Alpha]
Wells Fargo & Co (WFC) and JPMorgan Chase & Co. (JPM) are two large-cap bank stocks with strong cash flow, which comes at an attractive price (P/CF below 8). Both stocks also have stronger ROE and lower P/E compared with peers. WFC and JPM will be reviewed fundamentally and technically in this article. Investing strategies will also be presented.
Wells Fargo & Co
WFC was up 0.24% and closed at $37.30 on March 26, 2013. WFC had been trading in the range of $29.80-$38.20 in the past 52 weeks. WFC has a market cap of $196.60B with a beta of 1.36. WFC remains a great long-term buy with its solid fundamentals and inexpensive cash flow.
Analysts‘ Calls and Estimates
On March 13, 2013, BMO Capital initiated coverage on WFC with a market perform rating and a price target of $40.00. Analysts currently have a mean target price of $39.51 for WFC, suggesting 5.92% upside potential. Analysts, on average, are estimating an EPS of $0.88 with revenue of $21.58B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $3.64 with revenue of $85.61B, which is 0.60% lower than 2012. However, for 2014, analysts are predicting an EPS of $3.89 with revenue of $86.43B, which is 1.00% higher than 2013.
National-Oilwell Varco, Inc. (NOV) and Enterprise Products Partners L.P. (EPD) are two oil & gas related stocks in the sector of basic materials, both with high net margins, solid revenue growth, and offering steady dividends. Both stocks will be analyzed fundamentally and technically in this article. Investing strategies will also be reviewed.
National-Oilwell Varco, Inc.
NOV was up 1.40% and closed at $69.74 on March 26, 2013. NOV had been trading in the range of $59.07-$89.95 in the past 52 weeks. NOV has a market cap of $29.64B with a beta of 1.71. NOV remains a great buy with its strong fundamentals and solid growth at current valuation.
On March 26, 2013, Guggenheim upgraded NOV from neutral to buy with a price target of $83.00 (from $71.00). Analysts currently have a mean target price of $85 for NOV, suggesting 21.88% upside potential. Analysts, on average, are estimating an EPS of $1.37 with revenue of $5.39B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $5.96 with revenue of $22.72B, which is 13.40% higher than 2012.
Westport Innovations Inc. (WPRT), with a market cap of $1.56B, is a provider of engine and fuel system technologies, engaged in the research, development and marketing of low-emission engine and fuel injection systems that utilize alternative gaseous fuels such as natural gas, propane or hydrogen. WPRT was down 0.14% and closed at $28.24 on March 26, 2013. WPRT had been trading in the range of $21.93-$45.85 in the past 52 weeks. WPRT is currently 38.41% below its 52-week high and 28.77% above its 52-week low.
As reported by Zacks, Cummins Westport, a joint venture between Cummins Inc. (CMI) and Westport, revealed that its ISX12 G engine had received a certificate from the U.S. Environmental Protection Agency. The engine met both the EPA 2013 regulations and the new greenhouse gas and fuel-efficiency rules that are about to take effect next year. Limited production of the ISX12 G engine will be started next month, and full production of the engine will start in August.
WiNG Power Ready on Ford F-Series
Westport announced that the Ford F-Series Super Duty trucks with the Westport WiNG Power System will soon be available to Canadian customers and be ready for delivery to customers by late June 2013.