Portfolio Review

5/11/2009


March-quarter earnings
Microsoft ($20; MSFT) earned $0.39 per share excluding special items, down 17% and in line with Wall Street expectations. Revenue slid 6% to $13.65 billion, marking the company’s first-ever quarterly decline. A sharp decline in computer sales has hurt Microsoft, and management says it’s preparing for the economy to contract further in the next two to four years. Few companies are better prepared to weather a prolonged downturn than Microsoft, which holds $25.34 billion ($2.85 per share) in cash with no long-term debt. Microsoft is rated a Long-Term Buy.


Western Digital ($21; WDC) earned $0.30 per share excluding special charges, down 76% but more than double the $0.12 consensus estimate. Reflecting 8% lower unit shipments, revenue fell 25% to $1.59 billion, nearly 10% above Wall Street expectations. Western Digital is a Buy.


Sigma-Aldrich ($42; SIAL) posted profits of $0.68 per share, up 6% and $0.04 above Wall Street expectations. Sales slipped 9% to $519 million. But excluding currency fluctuations, sales rose 1% on growth in all segments except specialty fine chemicals. Sigma-Aldrich is a Long-Term Buy.


Schlumberger’s ($48; SLB) profits from continuing operations slid 26% to $0.78 per share, topping the consensus by a nickel. Shares charged to a five-month high on the news. Schlumberger is a Long-Term Buy.


National Oilwell Varco’s ($30; NOV) profits edged up 2% to $1.13 per share, above the consensus of $1.06. Revenue climbed 30% to $3.48 billion. In the rig-technology segment, sales jumped 37% to $2.20 billion. National Oilwell is a Buy and a Long-Term Buy.


Laboratory Corp. of America ($63; LH) earned $1.22 per share, up 7% and $0.05 above expectations. Sales advanced 5% to $1.16 billion on 4% higher volume and 1% higher revenue per transaction. LabCorp is a Buy and a Long-Term Buy.


General Dynamics’ ($51; GD) per-share profits from continuing operations increased 8% to $1.54, topping the consensus by $0.08. Revenue climbed 18%. General Dynamics is a Buy and a Long-Term Buy.


Aflac ($28; AFL) earned $1.22 per share, up 24% and topping the consensus by $0.06. Revenue rose 13%. The insurer realized investment losses of $6 million, or $0.01 per share. Aflac is a Long-Term Buy.


Oceaneering International’s ($42; OII) per-share profits rose 10% to $0.80, topping the consensus by $0.12. Revenue was nearly flat. The firm raised the bottom end of its profit guidance for 2009 and expects June-quarter profits roughly in line with estimates. Oceaneering is a Focus List Buy.

News roundup
IBM ($102; IBM) raised its quarterly dividend 10% to $0.55 per share, payable June 10. The company also approved $3 billion for share buybacks, in addition to roughly $3.7 billion remaining under a previous program. IBM is a Focus List Buy and a Long-Term Buy.

Harris ($30; HRS) will update satellite communication terminals for the U.S. Army under a contract worth up to $600 million.The contract runs five years with five one-year options. Harris is a Focus List Buy and a Long-Term Buy.

Exxon Mobil ($67; XOM) raised its quarterly dividend 5% to $0.42 per share, payable June 10. Exxon is a Long-Term Buy.

Time Warner ($22; TWX) said it plans to spin off all or part of troubled Internet unit AOL, though the decision is not yet final. Time Warner is rated Neutral.

Health-care review
Biogen Idec ($47; BIIB) said Tysabri may not only reduce relapses of multiple sclerosis but also reverse damage caused by the disease. Tysabri, Biogen said, has shown signs of restoring the protein coat protecting nerve fibers that, when damaged, can lead to MS symptoms. Biogen is a Focus List Buy and a Long-Term Buy.

AstraZeneca ($35; AZN) and Bristol-Myers Squibb ($20; BMY) must wait another three months to learn the fate of their diabetes drug, saxagliptin. The FDA delayed its decision on saxagliptin until July 30, though an outside panel recommended the drug’s approval after finding no excessive cardiovascular risks. In other news, a 14-year study found that men taking statins — cholesterol-lowering drugs such as AstraZeneca’s Crestor — were two to three times less likely to be diagnosed with prostate cancer. AstraZeneca is a Buy and a Long-Term Buy. Bristol-Meyers is rated Neutral.

Johnson & Johnson ($51; JNJ) won approval from the Food and Drug Administration to market Simponi, a potential blockbuster arthritis drug. Separately, J&J raised its quarterly dividend 6.5% to $0.49, payable June 9. J&J is a Focus List Buy and a Long-Term Buy. 

Financial update
The federal government explained the methodology used to measure capital levels of America’s 19 biggest banks in the much-ballyhooed stress tests. Tests considered two scenarios: One used the consensus forecast of the recession through 2010, while the second factored in a bleaker outlook.

While all of the banks tested appear to be “well capitalized,” some could falter in a worsening economy. Federal officials are now pressing some banks — reports have named Citigroup ($3; C) and Bank of America ($8; BAC) — to buttress capital reserves. Stress test results are slated for release the week of May 4.


Bank of America CEO Ken Lewis testified that government officials pressured him to complete the Merrill Lynch acquisition and urged him to avoid disclosing the steep losses at the brokerage before the Jan. 1 merger. Bank of America is rated Neutral.


Citigroup agreed to sell its Japanese retail brokerage and part of its investment-banking operations for more than $5.2 billion. Citigroup is rated Neutral.


Delphi Financial Group ($17; DFG) said it will sell at least 3 million shares of stock at $17.50 per share, diluting the share base by more than 6%. Delphi Financial is rated Neutral.

Automotive report
Already a recipient of $15.4 billion in government aid, General Motors ($2; GM) asked for another $11.6 billion and offered to give the feds a stake of at least 50% in the company in exchange for forgiving half of the loans.The automaker hopes to use stock to pay off the United Auto Workers union and bondholders as well, though bondholders have balked. GM is prepared to file for bankruptcy if less than 90% of the bonds are exchanged for stock. These numbers are not final, but the deals would virtually wipe out common stockholders. GM is an Underperform.


Ford ($5; F) lost $0.75 per share excluding special items, down from a $0.20 profit in the year-earlier period. Revenue from continuing operations fell 37%. Ford is an Underperform.

  RANK CHANGES
No changes were made this week in Dow Theory Forecasts.

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