Portfolio Review

8/23/2010


July-quarter earnings

In the July quarter, TJX’s ($42; TJX) profits jumped 30% to $0.73 per share excluding a nonrecurring gain. Revenue increased 7% to $5.07 billion, helped by a 10% rise at HomeGoods stores and 17% growth in Canada. Same-store sales rose 3%. TJX raised its profit guidance for fiscal 2011 ending January, with the midpoint of the range implying 17% growth. TJX is a Buy and a Long-Term Buy.


Wal-Mart Stores ($51; WMT) said July-quarter earnings rose 9% to $0.97 per share, topping the consensus by a penny. Sales advanced 3% to $103.02 billion, largely on 11% growth from the international unit. Excluding fuel, U.S. same-store sales dipped 1.4%. For fiscal 2010 ending January, Wal-Mart raised its per-share-profit guidance by a nickel, with the midpoint of $4.00 exceeding Wall Street’s projection by $0.01. Wal-Mart is a Long-Term Buy.

RIM reportedly gives in to India

Research In Motion ($50; RIMM) gave India limited access to instant messages sent by BlackBerry users, according to an Indian government official. The same source said RIM agreed to provide full access by the end of 2010. RIM faces an Aug. 31 deadline to reach a compromise with India or risk a ban of its devices in the country, where it has about a million subscribers. In the meanwhile, RIM, whose reputation was forged on the security of its devices, is trying to reassure clients that their corporate e-mail will remain safe.

In other news, RIM launched the BlackBerry Torch, its newest smart phone, to modest fanfare. Some analysts have expressed disappointment in the initial sales — 150,000 units sold in the first weekend, versus 1.7 million in the debut of Apple’s ($252; AAPL) iPhone 4 — though RIM’s core customer are business users, who tend to be slow adopters. Research In Motion is a Buy and a Long-Term Buy.

Regulators approve NII’s Mexico purchase

Regulators approved a joint bid from NII Holdings ($40; NIHD) and Grupo Televisa ($19; TV) for a slice of Mexico’s wireless market. Another layer of government approval is pending. The bid was just $14 million, well short of a $400 million offer placed by larger rivals for an equivalent allotment of the airwaves. But NII and Televisa were the only companies to meet the auction’s qualifications, drawn up to limit the amount of spectrum any single company could buy. For now, NII Holdings remains a Focus List Buy.

Technology review

Oracle ($23; ORCL) sued Google ($491; GOOG) for allegedly violating Java patents. Google uses a version of Java, an Internet programming language, in its Android software that runs smart phones. This could be the first of many Java-related lawsuits Oracle pursues. Oracle is a Long-Term Buy. Google is rated B (average) . . . In July, Microsoft’s ($25; MSFT) Xbox 360 became the top-selling video-game console in the U.S. for the first time since September 2007. Xbox sales more than doubled to 443,500 units after Microsoft introduced a new model that features wireless Internet connectivity. Microsoft is a Buy and a Long-Term Buy . . . Intel ($20; INTC) said it will purchase Texas Instruments’ ($25; TXN) cable-modem unit for an undisclosed amount. Intel will incorporate the TI products with its own microprocessors for television modems and set-top boxes. Intel is a Focus List Buy and a Long-Term Buy. Texas Instruments is a Long-Term Buy . . . IBM ($128; IBM) agreed to pay $480 million in cash, a premium of roughly 120%, to acquire Unica ($21; UNCA), which helps clients develop marketing strategies by analyzing customer behavior. IBM is a Focus List Buy and a Long-Term Buy . . . Dell ($12; DELL) agreed to pay about $1.15 billion in cash for 3PAR ($18; PAR), a data-storage company. In other news, about 25% of shareholders withheld support of Dell founder and CEO Michael Dell, just weeks after the company agreed to pay a $100 million fine for failing to disclose that it received large payments from Intel to avoid business with rival Advanced Micro Devices ($7; AMD). Dell is rated B (average).

Corporate roundup

Newmont Mining ($58; NEM) seeks shareholder approval to sell up to 10% of its Indonesian business through an initial stock offering on the Indonesian exchange. Newmont is a Focus List Buy and a Long-Term Buy.


Swiss regulators blocked Transocean’s ($55; RIG) plan to distribute a special dividend because of ongoing litigation stemming from the April explosion aboard a Gulf of Mexico drilling rig. Transocean is rated B (average).


Israel’s defense minister approved a $2.75 billion deal to purchase 20 F-35 stealth fighter jets produced by Lockheed Martin ($72; LMT). Lockheed Martin is rated B (average).


Biogen Idec ($57; BIIB) agreed to pay up to $345 million for the rights to a late-stage drug designed to treat amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s disease. Biogen Idec is rated B (average).


Eli Lilly ($35; LLY) ended a late-stage trial for an experimental drug intended to treat Alzheimer’s disease, after studies found that it actually worsened patients’ condition and possibly increased the risk of skin cancer. Eli Lilly is rated B (average).

H-P board suied over CEO scandal

The board of directors at Hewlett-Packard ($41; HPQ) finds itself wallowing in a mess it had tried to avoid. More details have emerged, some conflicting, about the departure of former CEO Mark Hurd, blamed for falsifying expense reports and pursuing what the company called a “close personal relationship” with an H-P contractor.

Apparently, the rift between H-P’s board and its CEO widened when Hurd privately settled with the contractor, The Wall Street Journal reported. The settlement included a nondisclosure agreement, which thwarted H-P’s own investigation into possible sexual harassment. Their trust in Hurd destroyed, the board voted to oust him. But if H-P had just cause to fire Hurd, it is tough to explain why the company granted him a severance package potentially worth more than $35 million.

The board now faces a shareholder lawsuit that seeks recovery of the severance package, punitive damages, and changes in corporate governance, while also proposing that board members reimburse the company for any damages caused by their actions. Since the announcement of Hurd’s troubles, shares have tumbled 12%. In other news, H-P extended its string of acquisitions by agreeing to purchase Fortify Software, a privately held maker of security software. H-P is a Buy and a Long-Term Buy.

  RANK CHANGES

No changes were made this week in Dow Theory Forecasts.


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