Saturday, August 10, 2013

Second Quarter Surprises Send Shares Soaring

As earnings season draws to a close, the excitement surrounding remains alive and well. Following the market close on Wednesday a number of large companies reported market-moving earnings results. In this article I would like to give investors the key metrics from the results, while providing forward-looking guidance for the remainder of the year.
Oh wait, profitability matters?
Shares of Groupon (NASDAQ: GRPN) traded higher by more than 25% early Thursday morning as the company reported its earnings after the market close on Wednesday. While the company is well off the highs seen after its initial public offering near the end of 2011, shares have done exceptionally well over the last 6 months as fears of bankruptcy no longer weigh on the minds of investors.
Groupon reported a net loss of $7.6 million, or $0.01 a share, compared to net income of $28.4 million, or $0.04 a share reported in the second quarter of last year. Revenue increased 7.2% to $609 million from $568 million a year ago. The results came in largely in line with analyst expectations, excluding items of $0.02 a share on $606 million in revenue.
The Street has realized the daily deals space isn't all that profitable, and companies that derive the majority of their revenues from this business segment have been pushed by shareholders to leverage their brand across other revenue streams. Earlier in the month Groupon announced it would be looking to make its way in the increasingly competitive online dining arena through a hybrid service. The service, Groupon Reserve, is said to be "the premiere destination for the finest things to eat, see, do and buy." Customers were welcomed to steep discounts of almost 40% to some of the best local restaurants.

Tuesday, July 30, 2013

Have You Considered Biotech Yet?

We are in the midst of the earnings season, my favorite time of the year. Some of the largest and most powerful publicly traded firms have already reported their second-quarter earnings with a few still left to report. Among those that have already announced their results are two biotechnology favorites, Gilead Sciences (NASDAQ: GILD) and Celgene (NASDAQ: CELG) .
In recent weeks, I recommended investors to buy both these names on broad market weakness. If you did, you would have done well with a 30% return on Gilead alone. In this article, I would review the most recent quarterly fillings and see how these companies might perform in the future.
Approaching $100 billion
Gilead is no longer the mid-sized biotechnology company it used to be just last year. After a sharp 5% move to the upside following the report, Gilead's market cap approached the $100 billion mark. The company reported net income of $772.6 million, or $0.46 per share, an 8.5% increase from $711.6 million reported in the second quarter of last year.
The strong results were fueled by a good showing from the company's two best selling HIV medications, Atripla and Truvada. The two drugs performed well, with sales up 4% and 3%, respectively. Total product sales increased 14% to $2.66 billion for the period ended June 30. Moreover, Gilead reported strong growth in its new, single tablet HIV combination of Complera and Eviplera where sales rose a whopping 159% to $188.7 million.
As of today, the company is dabbling in various areas such as HIV, AIDS, liver disease, cardiovascular, respiratory, oncology, and inflammation. In every one of these categories, Gilead has at least one drug pending approval or in Phase 3 trials. The company has truly separated itself from the pack through diversification and sheer volume. Analysts are expecting 10% growth this year, followed by 47.2% growth next year. Even with a sharp move to the upside this year, the stock doesn't look overpriced with a PEG ratio of only 1.20.

Buying This Stock on Weakness

As we move further into earnings season a number of our favorite companies and brands will be positing their second quarter results. One of my personal favorites, Domino's Pizza (NYSE: DPZ)reported its second quarter earnings on Tuesday before the market open and fell significantly after the results. Shares traded lower by roughly 6% after what appeared to be yet another solid quarter from the quick service restaurant leader. In the past I have highlighted the company as a great buy on any significant pullback, however, we haven't been lucky enough to get one year to date. Shares have moved higher by a whopping 46% this year alone without giving the cost conscious investor a chance to buy on weakness. Since the sell-off shares have rebounded slightly, up 2.5% the day following the announcement even on broad market weakness.
Positive data
In this article I would like to review the company's most recent quarterly performance, weigh future expansion plans, and lastly take a look at the competitive quick service pizza category. From what I can tell the sell-off was unwarranted; the company reported yet another strong quarter throughout both its domestic and international business segments.
The company was able to grow its earnings per share by over 21% to $0.57 per share, beating analyst estimates of $0.56 EPS. More over, t otal revenues were up by $37.9 million, or 10.1% from the prior year quarter as a result of two promising tailwinds. First, the company was able to generate additional revenue through increased supply chain demand as a result of higher order counts. Second, the company's generated higher royalty payments as a result of strong same store sales data and new store openings abroad.
Same store sales came in better than analysts had predicted, the company's domestic sales rose by6.7% in addition to 5.8% growth from its international business segment. While the company did add 9 net new stores domestically, this number was completely overshadowed by the addition of 101 net new locations internationally. Even amid rising food costs, 3.9%, the company was able to maintain its operating margins at 30.4%. Overall, I liked the quarter; what's not to like? Rising revenue, earnings, store counts, volumes, and steady margins amid rising input costs.

Thursday, July 25, 2013

Why You Should Consider Mortgage Finance

While the economy is finally starting to show signs of a recovery, opportunity within the finance sector can possibly still be found within an unconventional, niche industry. The majority of the financial sector, everything from the credit to the small regionals, have performed exceptionally well of late.
Why?
Rising interest rates, improving credit quality, and a recovering housing market have created a near-perfect storm for this industry. Financial companies, which have taken themselves to the highest level of operating efficiency, are now ready to benefit from this environment. The institutions can afford to lend greater amounts due to improving credit quality at higher interest rates, thus leaving the potential for great growth in net interest income.
A niche industry you may have never heard of, mortgage insurance, may benefit greatly during this time of recovery. Companies within this sector write insurance policies that protect mortgage lenders or title holders in the event that the borrower defaults on payments, dies, or is otherwise unable to to pay mortgage. I would like to highlight three stocks positioned to benefit from the major tailwind that I just mentioned.

Why You Should Care About Oreos

Can you appreciate a good Oreo?
Over the last week, quite a bit of interest has been placed on the traditionally slow-paced consumer goods sector. At the Delivering Alpha Conference, presented by CNBC and Institutional Investor, one institutional investor in particular caused some stir within the sector by outlaying a proposal forPepsiCo (NYSE: PEP) . Trian Fund Management's Nelson Peltz stated that Pepsi should acquire snack maker, Mondelez International (NASDAQ: MDLZ) . Shares of Mondelez traded slightly higher at $30 per share, well under the proposed range of $35-$38 per share, after the announcement.
Who is Peltz?
Before we go further, I would like to give you some background on Nelson Peltz to better weight the value of his proposal. Peltz got his start in the food industry in 1963 after dropping out college to help his family business. He worked for his father's w holesale food distribution business, which delivered fresh produce and frozen food to restaurants in New York. Peltz eventually took over the company, and over the next 15 years he took the company's revenue from $2.5 million to $150 million prior to it being acquired in 1988. Since then, he has built himself a reputation as an aggressive activist investor with involvement in deals including Kraft, Cadbury, Snapple, and Wendy's, to name just a few. According to the most recent regulatory fillings, Trian owned 12 million shares of Pepsi and 40 million shares of Mondelez. With these positions, Peltz, of course, carries bias. However, the guy seems to know what he is doing within the food sector.

Buy This Bargain on the Pullback

Shares of Las Vegas Sands (NYSE: LVS) traded lower by as much as 3% early in Thursday's session as a result of a slightly earnings miss. While shares have moved to the upside by over 20% year to date, shares have moved well off the highs over the last few weeks. Just a couple months ago shares traded just above $60 before pulling back sharply as a result of China fears and statements regarding the future of online gambling from no other than the Chief Executive Officer, Sheldon Adelson.
If you have followed my recent articles regarding the company you would see I have been extremely bullish when it comes to the longer term prospects of this company. Even amidst executive step downs, China slowdowns, lawsuits, and a number of other struggles, the company has positioned itself as a global leader in the addictive gambling sector. In this article I would like to review what was a strong quarter, take a look at the long term prospects, and look at the competitive landscape within the sector.
The report
Las Vegas Sands reported its second quarter results following the market close on Wednesday. The company reported a 120% increase in its second quarter net income to $529.8 million or $0.64 per share, from $240.6 million or $0.29 per share on a year over year basis. On an adjusted basis, the company reported $0.65 in EPS compared to an analysts consensus estimate of $0.68 per shares. The miss of analyst estimates were due in large part to lower than anticipated table wins out of some of its properties.
Macau, the driver of growth and revenues for the last few years performed well with record setting table wins and impressive volume growth. Mass table win in Macau for the quarter was up an astonishing 61.1% to a record $930 million. Las Vegas Sands was able to grow twice as fast as the rest of the market in the most significant business segment. The company set record volumes, up 25.7%, in the quarter to a $42 billion. China's Slowing Down? Adjusted EBITDA across the Macao property portfolio expanded 53.2% to reach yet another record $657.2 million. While one may say gambling is addictive, and will outperform a broad Chinese slowdown, as with many inelastic services. Strength was seen in places other than gaming, within the Venetian Macao results, mall and retail revenues rose a whopping 17.9% and 25.2% respectively.