Earnings update


September-quarter earnings update
Harris ($38; NYSE: HRS) earned $0.88 per share, up 21%. Revenue increased 11% to $1.37 billion, paced by 31% growth in radio-frequency communications. The company reported strong radio orders in the quarter and expects orders to exceed revenue in the year ending June. Harris reiterated fiscal 2009 profit guidance, projecting growth of at least 19%. Harris is a Focus List Buy and a Long-Term Buy . . . Oceaneering International ($31; NYSE: OII) posted profits of $0.99 per share, up 3% and $0.03 better than consensus estimates. Sales grew 6% to $516 million, though the backlog has fallen 10% since June. Citing economic uncertainty, Oceaneering didn’t provide detailed 2009 profit guidance, simply projecting earnings of at least $4.00 per share, versus the $4.25 consensus at the time. But the company says it hasn’t seen any slowdown in demand and that it expects the deepwater and subsea markets it serves to see minimal effects from the economic slump as long as oil prices average more than $70 a barrel. Oceaneering is a Focus List Buy . . . Transocean ($85; NYSE: RIG) posted profits of $3.44 per share, down 26%, as share dilution from a large acquisition last year more than offset a 14% gain in net income. Average rig rental rates rose 10%. In late October, Transocean won a five-year drilling contract with Exxon Mobil ($77; NYSE: XOM) worth a potential $1.19 billion, featuring record high rig rental rates. Transocean is a Focus List Buy and a Long-Term Buy . . . Questar’s ($34; NYSE: STR) profits surged 81% to $1.16 per share, topping the consensus by $0.36. Oil and gas production jumped 34%. Questar raised its 2008 earnings forecast to at least $3.70 per share, foretelling growth of 6%, but lowered 2009 estimates based on conservative projections for oil and natural-gas prices. The new guidance sets a low bar for Questar, a Long-Term Buy . . . Exxon Mobil ($77; NYSE: XOM) earned a record $2.59 per share excluding special items, up 52% and $0.20 ahead of the consensus. Revenue jumped 35% to $137.74 billion. After adjustments for hurricane-related disruptions, depletion, and other factors, production fell 5%. Exxon Mobil is a Long-Term Buy . . . AstraZeneca ($44; NYSE: AZN) earned $1.32 per share, up 20% and $0.18 above the consensus. Sales improved 9%, or 3% excluding currency gains. AstraZeneca increased its guidance for 2008 per-share profits, reflecting currency benefits, improved gross profit margins, and lower research-and-development expenditures. AstraZeneca, trading at just nine times projected year-ahead earnings, is a Long-Term Buy . . . Chevron’s ($78; NYSE: CVX) profits more than doubled to $3.85 per share, $0.60 above the consensus. Hurricane-related expenses reduced upstream profits by about $400 million, but the segment still earned $6.18 billion, up 80% on record oil prices. Production fell 6%. Profits for downstream operations skyrocketed, nearly quadrupling to $1.83 billion. Chevron is a Buy and a Long-Term Buy . . . Motorola ($5; NYSE: MOT) earned $0.05 per share excluding special charges, up 67%. Sales fell 15% to $7.48 billion. Motorola plans to slash 5% of its work force and delay the spin-off of its mobile-devices unit until after 2009. Motorola is an Underperform.

Insurance review
Hartford Financial ($17; NYSE: HIG) lost $1.40 per share excluding special items and some realized gains and losses in the September quarter, compared to a profit of $3.33 in the year-earlier period. Shares fell 52% on the dismal news, though they have since made up most of the lost ground. Not surprisingly, Hartford lowered its profit guidance. Hartford is rated Neutral, and we would not be owners of the shares.

As American International Group’s ($2; NYSE: AIG) bills mount, tight credit markets impede the sale of the troubled insurer’s assets. Meanwhile, the value of those assets is eroding, pushing AIG into greater distress. AIG now owes the federal government up to $143 billion, though the company may not have accessed all of its credit and has reportedly paid back a small portion of the money. It is too early to get back into Neutral-rated AIG.

News roundup
About 27,000 Boeing ($54; NYSE: BA) employees, members of the International Association of Machinists and Aerospace Workers, returned to work with a four-year contract that ended a 58-day strike. The effects of the strike on Boeing’s earnings are uncertain, but of more concern is a potential slowdown in aircraft orders. Boeing is rated Neutral.

Walgreen’s ($26; NYSE: WAG) same-store sales rose 2% in October. The drugstore chain announced plans to slow new-store construction and implement aggressive cost cuts. Walgreen is a Long-Term Buy.

NII still a good call
NII Holdings ($25; NASDAQ: NIHD) enjoys strong cash resources, low leverage, and minimal debt obligations until 2011. Operating cash flow has risen at an annualized rate of 28% over the last five years, while operating profit margins have risen in each of the past five years and are nearing 30%.

Strong subscriber growth helped support 38% sales gains in the September quarter, but unfavorable currency-exchange rates in Brazil and Mexico weighed on profits. Currency translation cost NII $56 million in the quarter, causing the company to fall short of the consensus, compared to a $7 million gain in the year-earlier period. NII expects the currency weakness to carry over into the December quarter.Concerns about currency, combined with the economic slowdown, have spooked Wall Street. Over the last 30 days, consensus profit estimates for 2009 have declined 20%.

However, the company enters a challenging period with plenty of liquidity and abundant growth potential. At the end of September, NII held $1.39 billion in cash, enough to fund about a year of operating expenses. Wall Street expects per-share-profit growth of 6% in 2009 and 26% in 2010. NII is a Focus List Buy.

Risk scores released
The Forecasts has updated its Relative Risk Scores. These proprietary scores measure stocks’ risk based on volatility, bear-market performance, and other factors. You can find these rankings for our covered stocks in the monthly Monitored List supplement enclosed with this week’s issue of the Forecasts. To see scores for the roughly 5,000 stocks in our Quadrix research universe, visit www.DowTheory.com/SubscriberArea/RiskScores.asp.

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