Portfolio Review

1/24/2011


Apple gains profits, loses CEO to illness

In the December quarter, Apple ($341; AAPL) reported per-share earnings of $6.43, up 75% and $1.05 above the consensus. Revenue jumped 71% to $26.74 billion, exceeding the consensus by more than $2 billion. Apple said it sold 4.1 million Macintosh computers (up 23%), 16.2 million iPhones (up 86%), and 19.5 million iPods (down 7%). Apple also sold 7.3 million iPad tablet computers in the quarter. The company's guidance for March-quarter sales and per-share profits topped Wall Street forecasts.

The strong results helped Apple recover some of the ground lost when it disclosed that CEO Steve Jobs has taken his third medical leave since 2004. Jobs has a rare form of cancer and received a liver transplant in 2009. Although Jobs will remain involved in major strategic decisions, Chief Operating Officer Tim Cook has taken over daily operations. Apple is a Focus List Buy and a Long-Term Buy.

December-quarter earnings

IBM ($151; IBM) said December-quarter earnings advanced 16% to $4.18 per share, topping the consensus by $0.10. Revenue climbed 7% to $29.02 billion on broad growth across all major business segments. For 2011, IBM projects per-share profits of at least $13.00, above Wall Street's forecast at the time of the announcement. IBM is a Focus List Buy and a Long-Term Buy.


Intel ($21; INTC) said December-quarter profits jumped 48% to $0.59, exceeding the consensus by $0.06. Revenue, advancing 8% to $11.46 billion, also beat Wall Street's forecast. Sales from Intel's data center unit rose 24%, offsetting sluggish growth from personal computers, up 4%. Looking ahead to the March quarter, Intel's revenue guidance of $11.5 billion is well ahead of the consensus at the time of the announcement. Intel is a Buy and a Long-Term Buy.


J.P. Morgan Chase ($45; JPM) grew December-quarter per-share profits 51% to $1.12, topping the consensus estimate by $0.13. Revenue on a managed basis, a tax-equivalent metric that excludes credit-card securitizations, rose 6% to $26.72 billion. Most segments posted higher revenue, including J.P. Morgan's biggest business, investment banking, up 26%. The exceptions were the card-services unit, which slid 18%, and corporate/private equity, which saw revenue dip 22%. The results drove shares to their highest levels since April. J.P. Morgan Chase is a Buy and a Long-Term Buy.


Citigroup ($5; C) earned $0.04 per share in the December quarter, swinging from a loss of $0.33 in the year-ago quarter but missing Wall Street's forecast of $0.08. Total revenue more than doubled to $18.37 billion but also fell short of analyst expectations, in part because of weak bond-trading results. Citigroup is rated C (below average).


Wells Fargo ($32; WFC) reported December-quarter profits of $0.61 per share, up from $0.08 in the same quarter last year. Excluding the repayment of preferred stock issued through the federal bailout, Wells Fargo earned $0.55 per share in the year-earlier period. Revenue slipped 5%. Wells Fargo is rated B (average).

Technology report

Under the direction of new CEO Leo Apotheker, Hewlett-Packard ($46; HPQ) is reportedly plotting a new strategy that could push the company further into software, networking, and data storage. The plan could be announced during H-P's annual investor meeting in March. H-P is a Buy and Long-Term Buy.


Shares of Research In Motion ($65; RIMM) rose after the company said it has given India access to monitor BlackBerry messaging services, voice calls, and Internet usage ahead of the Jan. 31 target date. But RIM stressed that encrypted corporate e-mail can only be decoded with the help of those businesses or organizations. Separately, a contract assembler said that shipments of PlayBook, RIM's upcoming computer tablet, should exceed 1 million units in the first few months of 2011. Research In Motion is a Buy and a Long-Term Buy.


Microsoft's ($29; MSFT) Xbox 360 was the only video-game system to grow unit sales in 2010, a year when revenue for game consoles slid 13% in the U.S. Interest in the Xbox has been boosted by Kinect, a device that lets users play video games without a hand-held controller. Microsoft said it shipped more than 8 million motion devices for its Xbox in the first 60 days of release. The Xbox 360 and its related accessories could help Microsoft offset possible weakness in personal computers during the December quarter. Microsoft, slated to release December-quarter results Jan. 27, is a Buy and a Long-Term Buy.


Agilent Technologies ($44; A), seeking to expand its spectroscopy business, agreed to acquire most of A2 Technologies for an undisclosed sum. Agilent is a Focus List Buy and a Long-Term Buy.

Corporate roundup

U.S. regulators will allow Comcast ($23; CMCSa) to purchase a 51% stake in NBC Universal. Protecting online competition has been a focal point of regulators. Comcast agreed to forfeit NBC's management role in Hulu, an online video service. Comcast must also give rival pay-TV companies access to NBC programming and Comcast's regional sports networks. Comcast has agreed to buy the stake from General Electric ($19; GE), which will own the remaining 49% of the company, for roughly $13.75 billion in cash and broadcasting assets. The deal, first announced in December 2009, will mark the first time a cable company has owned a TV network. Comcast is a Long-Term Buy. General Electric is rated B (average).


Abbott Laboratories ($47; ABT) withdrew an experimental psoriasis treatment after regulators suggested the drug needed further research. In one study the biologic drug, briakinumab, was linked to major cardiovascular problems. Analysts had expected the drug to produce sales of roughly $375 million in 2014. In other news, Abbott won a U.S. jury trial that protects hypertension treatment Tarka from generic competition. Abbott Labs is a Buy and a Long-Term Buy.


Massmart Holdings' shareholders approved the $2.4 billion bid by Wal-Mart Stores ($55; WMT) to take a 51% stake in the African retailer. Wal-Mart has promised to honor existing agreements with South Africa's powerful unions, though one labor leader vowed to organize “the mother of all consumer boycotts.” Wal-Mart Stores is a Long-Term Buy.


Boeing ($72; BA) pushed back the delivery date of its oft-delayed 787 Dreamliner passenger jet to the September quarter, about three years later than originally scheduled. Boeing is rated B (average).

 

Rank Changes
No changes were made this week in Dow Theory Forecasts.

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