Portfolio Review


Banks post quarterly results

J.P. Morgan Chase ($35; JPM) earned $1.21 per share in the June quarter, down 5% but well ahead of the consensus of $0.71. The mortgage and retail units posted strong results, helping to keep the bank profitable despite $4.4 billion in trading losses linked to the so-called London Whale. J.P. Morgan said total losses from the blunder, now standing at $5.8 billion, could increase by another $1.7 billion under the worst-case scenario. CEO Jamie Dimon said the quarterly dividend remains safe, but the company will not repurchase any shares during the September quarter. Suggesting that some of its traders may have tried to hide losses, J.P. Morgan restated March-quarter results, lowering net income by $459 million, or nearly 9%. J.P. Morgan Chase is a Long-Term Buy.

Wells Fargo ($34; WFC) grew per-share profits 17% to $0.82 in the June quarter, easing past the consensus by a penny. The release of $400 million in loan-loss reserves helped results, and management said improving credit performance should let the bank reduce reserves further this year. Revenue advanced 4% to $21.29 billion. New mortgage applications set a quarterly record, while average core deposits climbed 9% to more than $880 billion. Wells Fargo is a Focus List Buy and a Long-Term Buy.

Earnings roll call

American Express ($59; AXP) said earnings per share from continuing operations rose 7% to $1.15 in the June quarter, exceeding the consensus by $0.06. Revenue net of interest expense increased 5% to $7.97 billion, missing the consensus of $8.10 billion. Amex said cardmember spending climbed 7%, slower than the growth experienced in recent quarters. Amex is a Focus List Buy and a Long-Term Buy.

Qualcomm ($54; QCOM) earned $0.85 per share excluding special items in the June quarter, up 16% but a penny below the consensus. Sales jumped 28% to $4.63 billion. Guidance for the September quarter fell short of consensus estimates, but Qualcomm is ramping production in anticipation of strong demand in the December quarter as new products launch in time for the holidays. Qualcomm is a Focus List Buy and a Long-Term Buy.

In the June quarter, Intel ($25; INTC) earned $0.57 per share excluding special items, flat with year-earlier results but topping the consensus by $0.05. Revenue climbed 4% to $13.50 billion, with the data-center unit continuing to power growth, up 15%, while personal-computer revenue advanced 4%. Somewhat surprisingly, Intel's strongest year-over-year growth came out of Europe, where revenue rose 6% and represented 12% of total sales. Management guided sales for the September quarter below the consensus estimate and trimmed its outlook for 2012 sales growth to 3% to 5%; the consensus had targeted 5% growth. However, shares rose on the news, helped by projections for continued high profit margins. Intel is a Focus List Buy and a Long-Term Buy.

CSX ($23; CSX) earned $0.49 per share in the June quarter, implying 7% growth and exceeding the consensus by $0.02. Sales were virtually flat at $3.01 billion. Volumes treaded water as declines for agricultural products, coal, and housing and construction offset gains from the automotive and intermodal businesses. CSX is a Long-Term Buy.

Abbott Laboratories' ($66; ABT) earnings per share advanced 10% to $1.23 excluding special items, easing past the consensus estimate by a penny. Revenue crept 2% higher to $9.81 billion, as international growth (57% of sales for the quarter) was slowed by the stronger dollar. Sales of Humira, Abbott's blockbuster rheumatoid arthritis drug, rose 17% to $2.33 billion. Abbott Laboratories is a Long-Term Buy.

St. Jude Medical ($39; STJ) said June-quarter earnings per share rose 4% to $0.88 excluding special items, a penny above the consensus. Revenue slipped 2% to $1.41 billion, hurt by a 6% decline in cardiac rhythm management (53% of sales for the quarter). Management offered below-consensus profit guidance for both the September quarter and full year, and shares fell on the news. For now, St. Jude Medical retains its Long-Term Buy rating.

EMC ($23; EMC) shares rallied after the company released preliminary June-quarter results. Earnings per share rose 11% to $0.39, a penny below the consensus, while sales climbed 10% to $5.31 billion. Management reiterated its 2012 outlook, easing some concerns that weak technology spending could hurt results in the last half of the year. EMC also said company President Pat Gelsinger will become CEO of VMware ($80; VMW). EMC holds a 79% stake in VMWare. EMC is a Buy and a Long-Term Buy.

Corporate roundup

Visa ($128; V) and MasterCard ($436; MA) agreed to a $7.25 billion settlement with a group of U.S. retailers, ending a legal dispute that has dragged on since 2005. The two companies and more than a dozen big U.S. banks will pay the stores $6 billion and lower interchange rates for eight months, an agreement valued at roughly $1.2 billion. The stores will also be allowed to apply surcharges to customers who pay with certain credit cards. Visa said its tab from the settlement comes to about $4.4 billion; it had set aside $4.28 billion for the lawsuit at the end of March. But not everyone approves of the deal. A group of 3,700 retailers, mostly convenience stores, says the settlement fails to go far enough in wresting control away from Visa and MasterCard. Visa is a Buy and a Long-Term Buy. MasterCard is rated B.

DirecTV ($49; DTV) and Viacom ($49; VIAb) are reportedly making progress, but haven't yet resolved a fee dispute that has left 20 million U.S. viewers without such channels as Comedy Central and Nickelodeon. Viacom seeks to increase rates by 30%, or roughly $1 billion over five years. The dispute has reduced viewership of Nickelodeon by more than 20%, and DirecTV says its subscriber losses are “very low.” DirecTV is a Focus List Buy and a Long-Term Buy.

Brazil's oil regulator is reportedly preparing to fine Chevron ($107; CVX) about $25 million for a November oil spill off the country's coast. Although Chevron may have committed 25 safety violations, the regulator said the oil giant should soon be able to resume work at the field. The regulator's report, due out later this week, could shape the course of lawsuits related to the accident. Other Brazilian plaintiffs have sought upwards of $20 billion and prison sentences for Chevron executives. While the regulatory settlement doesn't directly affect the other lawsuits, plaintiffs may feel pressure to reduce their demands. Chevron is a Buy and a Long-Term Buy.

Comcast ($32; CMCSa) agreed to pay a reported $300 million for Microsoft's ($30; MSFT) 50% stake in MSNBC.com, the news website Microsoft and NBC jointly created in 1996. Comcast is a Long-Term Buy.

Microsoft has revamped its Office suite for tablets and other touch-screen computers that will run on Windows 8. The new version, slated for release early next year, incorporates cloud-storage features and Skype, Microsoft's video-calling service. Separately, Microsoft blamed a technical glitch for its failure to comply with an EU mandate to give users the choice of different web browsers. Microsoft is a Buy and a Long-Term Buy.

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