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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.
Walgreen Company (WAG) was up 1.48% and closed at $46.49, a new 52-week high, on March 22, 2013. WAG has a market cap of $43.94B with a beta of 1.01. Despite making a new 52-week high, there is more upside potential for WAG in the long term as Walgreen continues to recover and make sound strategic moves. In this article, WAG will be analyzed fundamentally and technically. Investing strategies will also be reviewed.
Q2, 2013 Earnings
On March 19, 2013, WAG released its Q2, 2013 earnings. The company earned $756M (79 cents per share), which was higher than earnings of $683M (78 cents per share) in last year’s quarter. Revenue of $18.65B missed the analysts’ forecast of $18.74B. However, adjusted earnings of 96 cents per share surpassed the analysts’ expectation of 93 cents per share.
WAG had received multiple positive upgrades and only one downgrade from the analysts so far in March. On March 21, 2013, Macquarie upgraded WAG from neutral to outperform with a price target of $52 (up from $36). On March 20, 2013, Citi upgraded WAG from sell to buy, and JPMorgan upgraded WAG from neutral to overweight with a price target of $55.00 (from $41.00). UBS and Cantor Fitzgerald also reiterated a buy rating for WAG and increased their target price to $51 (from $48) and $49 (from $45), respectively. ISI Group maintained its cautious rating but increased its target price to $43 (from $38) on the same day.
On the other hand, Goldman Sachs downgraded WAG from conviction buy to buy but increased its price target to $50.00 (from $46.00). Analyst Matthew J. Fassler said he saw less upside in the stock now that the market increasingly appreciates WAG’s association with Alliance-Boots.
Intuitive Surgical, Inc. (ISRG) was up 0.53% and closed at $489.39 on March 22, 2013. ISRG had been trading in the range of $455.18-$594.89 in the past 52 weeks. ISRG has a market cap of $19.64B with a beta of 1.58. A lot has happened since mid-February for ISRG, including questioning of robotics surgery, notice of FDA investigation, and questioning of da Vinci’s effectiveness by professionals, resulting in a 14.75% decline for ISRG after my last article on ISRG, dated February 23, 2013. With the new share repurchase plan, we will take a look at ISRG after all the turbulence in the past month.
On March 21, 2013, as reported, ISRG is fighting back after getting slammed by short sellers, trade groups and government agencies about the risk/reward of its robotic surgical devices over the past month. ISRG’s board of directors had authorized the company to repurchase an additional $1B of the company’s outstanding common stock, which will be available after the company’s internal trading window opens on April 23, 2013. With this authorization, the total amount available for share repurchases by the Company is approximately $1.21B, which includes approximately $208M remaining from previous authorizations. $1.21B represents 6.16% of ISRG’s current market cap of $19.64B.
United Technologies Corporation (UTX) and Siemens AG (SI) are two industrial companies with steady revenue growth, strong cash flow, and lower-than-industry average P/Es and Forward P/Es. Both stocks had received positive upgrades from analysts recently and will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.
United Technologies Corporation
UTX was down 0.55% and closed at $92.77 on March 18, 2013. UTX had been trading in the range of $70.71-$93.58 in the past 52 weeks. UTX has a market cap of $85.04B and a beta of 1.06.
On March 18, 2013, Citi upgraded UTX from neutral to buy. FBR Capital reiterated a market perform rating and increased the target price from $88 to $95 for UTX on the same day. Analysts currently have a mean target price of $98.22 and a median target price of $100.00 for UTX, suggesting 5.87%-7.79% upside potential. Analysts are estimating an EPS of $1.29 with revenue of $14.97B for the current ending in March, 2013. For 2013, analysts are projecting an EPS of $6.09 with revenue of $65.15B, which is 12.90% higher than 2012.
UTX has a strong buyback plan of $5.4B, where the company will repurchase as many as 60 million shares for a total of about $1 billion for 2013, which is in-line with the previous projection. UTX is set to benefit from the improving economics in China and UTX expects Asian sales to increase about 7-8 percent in the next decade as construction of skyscrapers in China boosts demand for elevators and air conditioners.
Intel Corporation (INTC) and Microsoft Corporation (MSFT) are two underdogs in the mobile and wireless market at this moment. However, it may be a good thing for investors to evaluate both undervalued stocks now as too much optimism may already be baked in for the market while it trades at a level near multi-year highs. INTC and MSFT, both with strong cash flow and trading at low Forward P/E, will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.
INTC was down 0.54% and closed at $21.26 on March 18, 2013. INTC had been trading in the range of $19.23-$29.27 in the past 52 weeks. INTC has a market cap of $105.15B with a beta of 1.00.
INTC was last upgraded by Drexel Hamilton from sell to hold with a price target of $22.00 (from $18.00) on February 26, 2013. Analysts currently have a mean target price of $22.96 and a median target price of $23.00 for INTC, suggesting 8%-8.18% upside potential. Analysts are estimating an EPS of $0.42 with revenue of $12.69B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.93 with revenue of $53.97B, which is 1.20% higher than 2012.
Two food processing companies in the consumer defensive sector, with short-term positive catalysts, will be presented in this article. Mondelez International Inc (MDLZ), with a new buyback plan, and Dean Foods Co (DF), with the recent positive upgrades from analysts, will be updated. Both stocks will be analyzed fundamentally and technically. Investing strategies will also be presented.
Mondelez International Inc
MDLZ was separated from Kraft Foods Group (KRFT) to unlock a higher multiple for its faster-growing snack business. As a leading player in the global confectionery space (15% share of the chocolate market, 30% of the gum category, and 7% of the candy aisle worldwide), who also owns dominant share of the biscuit category (18% of the market), MDLZ is a gem for investors looking for stability, income, and international growth. MDLZ is expected to achieve 5% plus revenue growth in the next 2 years. MDLZ was up 0.19% and closed at $28.52 on March 14, 2013. MDLZ had been trading in the range of $24.32-$28.75 in the past 52 weeks. MDLZ has a market cap of $50.72B with a low beta of 0.59.
On March 13, 2013, MDLZ’s Board of Directors had authorized the repurchase of up to the lesser of 40M shares or $1.2B of Mondelez International’s Class A Common Stock. The primary purpose of the program will be to offset dilution from the company’s equity compensation plans. The authorization to repurchase shares will end in three years, unless it is terminated or extended by the Board of Directors. MDLZ currently has 1.78B of shares outstanding. The Board of Directors of Mondelez International, Inc. had declared a regular quarterly dividend of $0.13 per common share of Class A stock. This dividend is payable on April 15, 2013, to stockholders of record as of April 1, 2013. MDLZ currently offers an annual dividend yield of 1.82%.
Vodafone Group (VOD) is the second-largest wireless company in the world behind China Mobile (CHL) and the largest carrier in terms of the number of countries served. VOD owns 45% stake in Verizon Wireless, the largest wireless communications services provider in the United States with 98.2 million subscribers as of Q4, 2012. In this article, recent developments will be updated for VOD. Investing strategies will also be presented.
Aiming for Growth in Spain
As reported by Seeking Alpha, VOD and France Telecom‘s (FTE) Orange unit plan to invest €1B (USD$1.30B) in a fiber-optic cable broadband network in Spain, indicating that the country’s fixed-line Internet market is an area of growth. The company’s investment appears to be part of a strategy to move into the fixed-line sector across Europe.
The Big Deal
As indicated by Norman Levine, a managing director with Toronto-based Portfolio Management Corp, “A merger between Verizon Communications (VZ) and Vodafone, or the sale of Vodafone’s stake in their joint venture, could make its stock go up substantially higher.” Mr. Levine also suggested that a merger is more likely as it could minimize tax implications compared with VOD selling its joint-venture stake.