UnitedHealth out, Schlumberger in
UnitedHealth Group ($34; NYSE: UNH) reported per-share earnings of $0.78 in the March quarter, up 5% and $0.02 below consensus estimates on 7% sales growth. The shares dropped on disheartening guidance. The company expects 2008 per-share earnings of $3.55 to $3.60, down $0.40 from an earlier company target and below the $3.87 consensus. UnitedHealth cited increased flu costs, lower investment income, and weak sales to commercial customers. Poor results from rival managed-care companies have pressured UnitedHealth, Coventry Health Care ($41; NYSE: CVH), and other insurers in recent weeks. Given UnitedHealth’s history of strong, solid profit growth, we were willing to give the company a chance to prove it wouldn’t fall into the same trap. In the wake of weak quarterly results, we’re pulling the plug on UnitedHealth. The shares are being downgraded to Neutral, and subscribers tracking our Long-Term Buy List should sell.
Schlumberger ($106; NYSE: SLB) reported profits of $1.06 per share in the March quarter, up 10% but $0.05 below consensus estimates. The company said bad weather hurt profits. Sales rose 15% to $6.25 billion, powered by 18% growth in oilfield-services revenue. Revenue at WesternGeco, a Schlumberger unit that provides geophysical surveys and reservoir-monitoring services, saw sales fall 5%.
A broad international footprint and advanced technologies represent competitive advantages for Schlumberger. The company expects continued strong spending on oil exploration and production and appears poised to capitalize on that trend. Consensus estimates project per-share-profit growth of 15% this year and 23% in 2009. Schlumberger is being added to the Long-Term Buy List.
Freeport-McMoRan’s ($119; NYSE: FCX) per-share earnings rose 31% to $2.64, $0.52 above the consensus estimate. Net income more than doubled to $1.1 billion, though the huge Phelps Dodge acquisition drove much of that growth. Copper volumes fell 9% in the quarter when adjusted to account for the Phelps Dodge assets and gold volumes plunged more than 70%, but sharply higher copper, gold, and molybdenum prices drove Freeport’s outperformance. Freeport is a Focus List Buy and a Long-Term Buy . . . Boosted by strong defense spending, Lockheed Martin’s ($104; NYSE: LMT) earnings excluding special gains rose 24% to $1.73 per share, versus the consensus estimate of $1.63. Revenue rose 8% to $9.98 billion. Sales of fighter jets declined, but profits rose in every division. Lockheed raised per-share-earnings guidance for 2008 by $0.10 to a range of $7.15 to $7.35, still below the $7.37 consensus. Lockheed is a Focus List Buy and a Long-Term Buy . . . United Technologies ($71; NYSE: UTX) reported per-share earnings of $1.05 excluding restructuring costs, up 18% on 12% revenue growth. Despite the strong results, the shares fell as the company said it saw signs of slowing growth in the U.S. and Europe and weakness in its residential businesses. United Technologies said economic conditions warrant conservative guidance. The company now projects below-consensus 2008 per-share earnings $4.65 to $4.85, representing growth of 9% to 14%. United Technologies is a Buy and a Long-Term Buy . . . Affiliated Managers Group ($95; NYSE: AMG) reported cash per-share earnings of $1.46, up 2% and in line with consensus estimates on 8% revenue growth. Cash earnings reflect income before noncash expenses. Including those noncash expenses, per-share profits declined 3%. Assets under management fell to $243.6 billion, down 11% from the end of December. The company lowered its target for 2008 cash per-share profits and now expects to earn $6.70 to $7.40, versus $6.67 last year. In other news, Affiliated Managers has been added to the S&P MidCap 400 Index. For now, Affiliated Managers remains a Buy . . . Defense contractor General Dynamics ($88; NYSE: GD) earned $1.42 per share from continuing operations, up 33%, topping consensus estimates of $1.29 per share. Revenue increased 11% to $7.01 billion, while the backlog rose to $49.77 billion, up 14%, helped by the signing of more than $3.6 billion in new contracts in the quarter. General Dynamics is a Buy and a Long-Term Buy . . . Qualcomm ($42; NASDAQ: QCOM) reported earnings of $0.54 per share, excluding one-time items and share-based compensation, up 8%. Revenue rose 17% to $2.60 billion, topping the consensus despite concerns about slowing sales of microchips. Chipset revenue jumped 29%. The company also raised its guidance for fiscal 2008 ending September, with revenue projections higher than the consensus estimate and profit projections a bit lower than the consensus. Qualcomm is a Buy and a Long-Term Buy . . . Higher commodity prices boosted earnings at Energen ($71; NYSE: EGN). Per-share earnings rose 13% to $1.62, $0.08 above consensus estimates, on higher oil and natural-gas-liquids prices, profits from an asset sale, and a 3% increase in production. Energen also increased 2008 per-share-profit guidance by $0.20 to $4.15 to $4.55, versus the consensus estimate of $4.42. Energen is a Long-Term Buy . . . Aflac ($66; NYSE: AFL) said per-share operating earnings rose 20% to $0.98, topping consensus estimates by $0.02. Excluding gains from the strength of the Japanese yen versus the U.S. dollar, per-share profits rose 13%. Revenue rose 14% to $4.27 billion. The Japanese unit delivered 3.6% growth in premium income at constant currency, lagging the U.S.division’s 9.3% growth Aflac is a Long-Term Buy . . . Currency benefits helped Sigma-Aldrich ($61; NASDAQ: SIAL) post per-share earnings of $0.64, up from $0.56 a year ago. Excluding currency gains, per-share profit fell 4%. Revenue rose 15% to $569 million, with organic sales growth of 6.5% augmented by currency gains and an acquisition. The chemical maker raised 2008 per-share earnings guidance to between $2.57 and $2.67, roughly in line with the consensus estimate of $2.62. Sigma-Aldrich is a Long-Term Buy . . . Bank of America ($37; NYSE: BAC) said profits fell 80% to $0.23 per share, well below consensus estimates of $0.41. Income fell to $1.21 billion from $5.26 billion, as the company recorded $1.31 billion in trading losses and set aside another $3.30 billion to cover bad loans. Shares fell more than 2% on the news. Bank of America is rated Neutral . . . Citigroup ($25; NYSE: C) reported a per-share loss of $1.02, below expectations for a $0.95 loss. The bank wrote down another $12 billion in loans, debt securities, and other investments, and announced it would cut 9,000 jobs. Citigroup also sold $13.4 billion in equipment leases to General Electric ($32; NYSE: GE) for about 10% below face value. Citigroup and GE are rated Neutral . . . Merrill Lynch ($47; NYSE: MER) posted a per-share loss of $2.20 from continuing operations versus a $2.12 profit in the year-earlier quarter. Revenue fell 26% to $7.4 billion. The investment bank blamed the weak performance on deteriorating credit markets. The company wrote down $6.6 billion in investment losses and said it would cut 4,000 jobs. Merrill Lynch is rated Neutral . . . Drug giant Pfizer ($20; NYSE: PFE) reported per-share earnings of $0.61 excluding amortization and merger-related expenses, down from $0.68 and below the consensus estimate of $0.66. Sales fell 5% to $11.85 billion, hurt by generic competition for the blood-pressure drug Norvasc and cholesterol treatment Lipitor. While generic Lipitor is not available, the drug must contend with generic versions of rival medicines. Pfizer is rated Neutral.
IBM ($124; NYSE: IBM) raised its 2008 per-share-earnings target to at least $8.50, $0.25 above the consensus estimate at the time of the announcement. IBM is a Buy and a Long-Term Buy.
Caterpillar’s ($82; NYSE: CAT) March-quarter earnings rose 18% to $1.45 per share, $0.12 above the consensus on strong international sales. Caterpillar is rated Neutral.
Shares of Internet powerhouse Google ($555; NASDAQ: GOOG) jumped nearly 20% after the company announced per-share earnings of $4.84 excluding special items, up 52% and beating estimates. Google is rated Neutral.
MetLife ($60; NYSE: MET) authorized the repurchase of $1 billion in shares, or 2% of market capitalization, on top of $261 million from an earlier authorization. MetLife is a Buy and a Long-Term Buy.