March-quarter earnings

5/5/2008



Laboratory Corp. of America’s ($75; NYSE: LH) per-share earnings rose 16% to $1.14 on revenue of $1.10 billion, up nearly 11%. Testing volume rose 8.6%, while prices rose 1.9%. Profits were in line with estimates, but adjusted revenues, which exclude the consolidation of a joint venture, increased a lower-than-expected 4%. Consensus estimates project per-share-profit growth of 16% this year and 12% in 2009. LabCorp, trading at less than 16 times the 2008 consensus estimate, is a Focus List Buy and a Long-Term Buy . . . International sales boosted PepsiCo’s ($68; NYSE: PEP) revenue and gave the company per-share earnings of $0.70, up 7%. International revenue jumped 27%, with the highest growth in Middle East, Africa, and Asia. Latin American food sales grew 37%. Despite an expected increase of 9% to 10% in commodity costs, PepsiCo maintained its 2008 profit guidance of at least $3.72 per share, or at least 10% growth. PepsiCo is a Focus List Buy and a Long-Term Buy . . . Harris ($53; NYSE: HRS) said revenue rose 24% to $1.33 billion, or 15% excluding acquisitions. Per-share earnings increased to $0.81, up 13% excluding acquisition-related costs and gains and $0.08 above the consensus estimate. The company’s tactical radios remain popular. Defense communication sales rose 22%, with new orders exceeding revenue. Harris also boosted its earnings guidance for fiscal 2009 ending June by $0.05 to between $4.05 and $4.15. Harris is a Focus List Buy and a Long-Term Buy . . . Manitowoc ($39; NYSE: MTW), a maker of cranes, marine vessels, and food-service equipment, said earnings jumped 56% to $0.78 per share, $0.04 above the consensus estimate. Sales increased 25% to $1.08 billion. Crane sales rose 30% to $884 million, with the backlog rising to $3.3 billion, up 72% from year-ago levels. The food-service and marine units both managed 7% sales growth. Manitowoc is a Focus List Buy and a Long-Term Buy . . . L-3 Communications ($113; NYSE: LLL) said per-share earnings rose 19% to $1.54 on 6% sales growth to $3.51 billion. All of the company’s business units delivered revenue growth. The funded backlog grew to $10.1 billion at the end of March from $9.6 billion at the end of December. L-3 also raised its 2008 per-share-earnings guidance and now expects $6.56 to $6.70, representing growth of 10% to 12%. L-3 is a Focus List Buy . . . Microsoft ($29; NASDAQ: MSFT) announced earnings of $0.47 per share, up 27% excluding a European Commission antitrust fine and a favorable tax ruling in the March 2008 quarter and a $1.67 billion rebate in the year-earlier period. Revenue rose nearly 14% to $14.45 billion. The shares fell on lower-than-expected Windows operating-system revenue and weak June-quarter guidance, though the company projected per-share profits of $2.13 to $2.19 in fiscal 2009 ending June, above the $2.10 consensus at the time of the announcement. While the Windows revenue decline was larger than expected, a substantial fall-off was likely in the wake of strong adoption of the Vista version last year. In other news, Yahoo ($27; NASDAQ: YHOO) allowed the April 26 deadline to accept Microsoft’s $29-per-share takeover offer to pass. Microsoft has said it would not raise its bid, instead either pursuing a hostile takeover or backing away from the deal. At press time, the company had not disclosed its next move. Microsoft is a Buy and a Long-Term Buy. Yahoo is rated Neutral . . . Sales at Coventry Health Care ($45; NYSE: CVH) rose 32% to $2.94 billion, helped by acquisitions. Earnings rose 6% to $0.81 per share. Individual and government membership rose 34% to 1.76 million, while commercial membership rose 5% to 2.91 million. The company expects 2008 per-share profits of $4.39 to $4.50, representing growth of 9% to 12%. Coventry Health Care is a Buy and a Long-Term Buy . . . Ford Motor ($8; NYSE: F) reported per-share earnings of $0.20 excluding special items, well above the consensus estimate of a $0.16 loss. Sales fell 8%. In other news, billionaire investor Kirk Kerkorian has acquired 4.7% of the company’s stock and hopes to raise his stake to 5.6%. Ford is rated Underperform . . . AstraZeneca’s ($41; NYSE: AZN) sales were up 10% to $7.68 billion. Per-share earnings of $1.28 represent 19% growth. At constant currency, revenue rose 4% and earnings per share grew 9%. The bulk of that sales growth stems from a June 2007 acquisition. AstraZeneca is a Long-Term Buy . . . Excluding a nonrecurring $327 million gain, glass and ceramics maker Corning’s ($27; NYSE: GLW) per-share earnings jumped to $0.44 from $0.28, topping market expectations by $0.02. Revenue rose 24% to $1.62 billion. The company projected June-quarter earnings per share between $0.47 and $0.50, above the $0.43 consensus at the time of the announcement. Corning is rated Neutral . . . Questar ($63; NYSE: STR) reported per-share earnings of $1.05, up 22% on increased production and higher natural-gas and liquids prices. Production rose 13%, driving revenue growth of 20%. Que- star raised its 2008 earnings guidance range by $0.20 to between $3.25 and $3.40, representing growth of 13% to 19%. Questar is a Long-Term Buy . . . General Motors ($24; NYSE: GM) reported a loss of $0.62 per share excluding special items, versus a $0.01 loss a year ago. Wall Street expected a loss of $1.60 per share, and the shares jumped on the news. Including $2.9 billion in charges for investment write-downs and legal, tax, and restructuring charges, GM lost $5.74 per share. Revenue fell 2% to $42.67 billion. GM is rated Underperform.

Oil prices buoy National Oilwell
Shares of National Oilwell Varco ($69; NYSE: NOV) have risen more than 30% from March lows, benefiting from a surge in oil prices that has lifted many oilfield-services stocks. Despite the recent strength, the shares remain well off October highs. At 14 times the 2008 consensus estimate, the seller of rigs and drilling equipment seems reasonably valued relative to its growth potential.

While the blistering pace of equipment orders may moderate, National Oilwell still looks attractive. The backlog grew by $1 billion in the December quarter and another $900 million in the March quarter, suggesting that exploration-and-production spending remains healthy. In the March quarter, per-share profits rose 42% to $1.11 per share on 24% sales growth. Strong demand for offshore rigs boosted the company’s rig backlog to $9.9 billion, while revenue in the segment jumped 31% from year-earlier levels.

National Oilwell’s orders are weighted toward offshore (85% of backlog) and international (89%) markets, which are likely to remain robust even if oil prices dip. In addition, the need to update rig technology and replace aging equipment should support continued sales and order growth. Consensus estimates project per-share-profit growth of 26% in the June quarter and 23% for the year. National Oilwell Varco is a Buy and a Long-Term Buy.

News digest
Merrill Lynch ($50; NYSE: MER) announced it is raising $9.55 billion through the issuance of bonds and preferred shares. Rivals Citigroup ($26; NYSE: C) and J.P. Morgan Chase ($47; NYSE: JPM) each sold about $6 billion of preferred stock. Merrill Lynch, Citigroup, and J.P. Morgan are rated Neutral.


Shares of Merck ($37; NYSE: MRK) fell after the U.S. Food and Drug Administration rejected the company’s cholesterol drug Cordaptive. Merck is rated Neutral.


Johnson & Johnson ($67; NYSE: JNJ) boosted its quarterly dividend 11% to $0.46 per share, payable June 10. J&J is a Buy and a Long-Term Buy.


ExxonMobil ($92; NYSE: XOM) raised its quarterly dividend 14% to $0.40 per share, payable June 10. ExxonMobil is a Long-Term Buy.


Time Warner ($15; NYSE: TWX) announced it would spin off its 84% stake in Time Warner Cable ($28; NYSE: TWC). Time Warner’s per-share earnings declined sharply in the March quarter. Time Warner is rated Neutral.


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