June-quarter earnings report
Qualcomm ($55; NASDAQ: QCOM) has jumped 22% following the announcement that the firm had resolved all outstanding litigation with Nokia ($28; NYSE: NOK) and reached a new 15-year licensing agreement with the mobile handset maker. Under terms of the agreement, Nokia will make royalty payments and assign ownership of a number of patents to Qualcomm. The deal eliminates much of the uncertainty hanging over Qualcomm.
Qualcomm’s quarterly revenue rose 19% to $2.8 billion while per-share profits of $0.55 were even with the year-earlier quarter and in line with consensus estimates. For the September quarter, the company anticipates per-share earnings of $0.49 to $0.51 excluding the impact of Nokia’s “catch-up” royalty payments. Qualcomm’s preliminary estimate of incremental earnings per share from the Nokia settlement in the year ending September is $0.07 to $0.13. Qualcomm, a Focus Buy and Long-Term Buy, seems capable of reaching $62 to $65 over the next 12 months.
BMC Software ($33; NYSE: BMC) reported per-share earnings of $0.43 excluding special items, up 19% on 14% sales growth. License revenue rose 19%, while service revenue jumped 43%. The company reaffirmed its per-share-profit guidance of $2.10 to $2.20, implying at least 5% growth — a conservative figure in our view. BMC is a Focus List Buy.
Harris ($51; NYSE: HRS) warned that higher costs and accounting errors at 56%-owned subsidiary Harris Stratex Networks ($11; NASDAQ: HSTX) hurt quarterly results. Harris reported preliminary profits of $0.95 per share for the quarter, $0.07 below the consensus. Excluding the $0.10-per-share impact from the subsidiary’s troubles, Harris’ results topped Wall Street expectations. Revenue rose 19% to $1.43 billion, in line with the consensus. While Harris’ core business performed well, Harris Stratex’s miscues could weigh on the shares. Harris remains a Focus List Buy and a Long-Term Buy.
Laboratory Corp. of America ($67; NYSE: LH) posted per-share profits of $1.24 excluding special items, a nearly 14% increase. However, the firm cut its full-year 2008 per-share-earnings projection to a range of $4.54 to $4.66, down from its previous target of $4.74 to $4.90. The firm also lowered its 2008 revenue forecast. While the Forecasts is disappointed in the lowered guidance, the long-term story remains intact. LabCorp remains a Focus List Buy and Long-Term Buy.
Manitowoc’s ($27; NYSE: MTW) per-share profits jumped 30% to $0.99, $0.10 better than the consensus. However, Wall Street seemed to fixate on the company’s statement that it was seeing slower demand for lower-capacity cranes in Western Europe. Also, the company’s pending acquisition of Enodis, a maker of commercial kitchen equipment, continues to concern investors. The shares now trade at just eight times the 2008 consensus profit estimate of $3.41 and seem oversold. Manitowoc, a Focus List Buy and Long-Term Buy, is due for a healthy bounce.
Western Digital ($29; NYSE: WDC) earned $0.94 per share, roughly in line with year-earlier levels but $0.12 above the consensus. Revenue rose 46% on a 41% increase in shipments. But Western Digital shares fell on the news, hurt by September-quarter guidance of $0.81 to $0.89 in per-share profits, well below the $0.99 consensus. The guidance appears unduly conservative. At less than eight times the consensus profit estimate for fiscal 2009 ending June, Buy-rated Western Digital looks cheap.
Kraft Foods ($31; NYSE: KFT) earned $0.58 per share excluding asset impairments and losses on asset sales, up 16% and $0.08 above the consensus. Revenue rose 21%, or 7% excluding a large acquisition and currency gains. While prices rose more than 7%, volumes declined in the quarter. Kraft is not among our favorite stocks, but we now expect it to track the market rather than lag. Accordingly, the shares are being upgraded to Neutral.
Aflac ($56; NYSE: AFL) earned $1.00 per share, up 23%. Excluding the impact of foreign currencies, per-share earnings rose 13%. Revenue rose 15% to $4.34 billion. For full-year 2008, management expects per-share earnings of $3.86 to $3.98, below the $4.00 consensus. Aflac is a Long-Term Buy.
Ford Motor ($5; NYSE: F) plunged after reporting the worst quarterly loss in its history. The automaker lost $8.7 billion, or $3.88 per share, including special charges primarily for the write-down of assets. Without charges, Ford posted a loss of $0.62 per share, far worse than the loss of $0.27 Wall Street expected. Revenue fell 4% to $38.6 billion. Ford is rated Underperform.
MetLife ($50; NYSE: MET) posted operating earnings per share of $1.30, down 24% and below the consensus of $1.51. Revenue rose 4% and total premiums rose 12%. Management cut its 2008 per-share-earnings guidance to $5.70 to $5.90, below the $6.15 consensus. While the results were disappointing, the stock has appeal as a rebound pick based on its modest valuation and management’s relatively minor reduction in 2008 profit guidance. MetLife remains a Buy and Long-Term Buy.
Cooper Industries ($43; NYSE: CBE), a maker of electrical equipment and tools, said per-share operating earnings were $0.97, up 24% and $0.06 above the consensus. Revenue rose a higher-than-expected 18%, with internal growth of 7%. For full-year 2008, management now expects per-share earnings to increase to $3.61 to $3.71, versus the consensus of $3.59 per share. Cooper is a Long-Term Buy.
Oceaneering International ($64; NYSE: OII) earned $0.93 per share in the June quarter, up 8% and $0.03 above the consensus. Revenue rose 16% to $500 million. Citing a lower-than-expected backlog and higher costs at the subsea-products business, Oceaneering lowered its per-share-profit target for 2008 to a range of $3.45 to $3.65, below the $3.68 consensus. The weak guidance is disappointing, but Oceaneering still sees strong demand for deepwater services, and for now the stock retains its place on the Focus List . . . National Oilwell Varco ($82; NYSE: NOV) posted June-quarter per-share operating earnings of $1.20, up 33% and $0.07 above the consensus. Revenue increased 39% to $3.32 billion and also beat Wall Street expectations. Gross profit margin rose more than two percentage points to 30.9%. National Oilwell is a Buy and a Long-Term Buy . . . Utility/energy hybrid Energen ($60; NYSE: EGN) earned $0.93 per share in the June quarter, down 1% and 14% below the consensus estimate. Profits at the production unit increased more than 5%, but reduced natural-gas usage contributed to a quarterly loss at the utility. Energen reiterated earlier profit guidance for 2008 and 2009, but the targets were below the consensus estimate at the time of the announcement. Energen remains a Long-Term Buy . . . Questar ($53; NYSE: STR) topped consensus estimates in the June quarter, earning $0.93 per share excluding unusual items, up 45% and $0.08 above the consensus estimate on 54% revenue growth. Production jumped 14%. Questar raised its 2008 per-share-profit target, projecting 22% to 26% growth. However, the midpoint of the new guidance range was below the consensus estimate at the time of the announcement, and the shares fell on the news. Questar, which owns an impressive portfolio of production assets, retains its Long-Term Buy rating . . . Transocean ($133; NYSE: RIG) agreed to sell two deepwater rigs to Northern Offshore of Norway for $750 million as a condition of its 2007 purchase of GlobalSantaFe. Transocean is a Focus List Buy and a Long-Term Buy.
Mergers and deals
Teck Cominco ($47; NYSE: TCK) agreed to pay nearly $14 billion in cash and stock for the 80% of Fording Canadian Coal Trust ($89; NYSE: FDG) it doesn’t already own. Teck is buying at a time when coal supplies are low and overseas demand is high. Shares of Neutral-rated Teck rose on the news . . . General Electric ($28; NYSE: GE) is restructuring itself into four business units from the current six, dividing most of its remaining industrial business into technology and energy infrastructure groups and consolidating the financial businesses. GE is rated Neutral . . . Biotech firm Genentech ($95; NYSE: DNA) said it would evaluate a takeover offer from Swiss drug giant Roche Group, which agreed to pay $89 per share, for the 44% of Genentech it doesn’t already own. Genentech trades about 7% above the offer price, suggesting Wall Street expects a higher offer. Genentech is rated Neutral, though investors with a tolerance for risk may want to wait for a new offer before selling.
Merrill Lynch ($26; NYSE: MER) shares jumped on news that it found a buyer for $30.6 billion of distressed debt. The company also sold $8.55 billion in new shares at a below-market price. Merrill is rated Neutral.
Johnson & Johnson’s ($68; NYSE: JNJ) epilepsy drug Topamax was approved for use in young children, extending its patent protection by six months to March 2009. J&J is rated Buy and Long-Term Buy.