Portfolio Review


Earnings report

Oceaneering International ($59; OII) earned $0.83 per share in the December quarter, down 10% but $0.02 above the consensus. Sales declined 14% to $452 million, though Oceaneering’s biggest segment, remotely operated vehicles (37% of the quarter’s revenue), gained 5%. The backlog for subsea products rose 8% to $321 million. In other news, Oceaneering authorized the repurchase of up to 6 million shares, or about 11% of the company’s outstanding shares. Oceaneering is a Focus List Buy and a Long-Term Buy.

Transocean’s ($81; RIG) profits fell 6% to $2.21 per share excluding special items in the December quarter, $0.35 below the consensus. Revenue declined 16% to $2.73 billion. The average day rate rose 18% to $295,700 over the last year but couldn’t offset lower utilization of the drilling fleet, which plunged to 69% from 90%. Pricing and utilization on deepwater rigs remains strong, but weakness in the midwater and shallow-water markets dragged down results. Wall Street’s profit expectations may be somewhat high given December-quarter results and continued weakness outside deepwater markets. However, Transocean’s cash flow has held up well, and the stock looks cheap relative to cash flow and free cash flow, as well as relative to earnings. For now, Transocean remains a Focus List Buy and a Long-Term Buy.

TJX’s ($39; TJX) per-share profits surged to $0.94 in the January quarter, up 104% excluding special items in the year-earlier period and topping Wall Street expectations by $0.03. Same-store sales jumped 12%. For the April quarter, TJX expects at least 3% higher same-store sales and earnings of at least $0.60 per share, a penny above the consensus. The company also announced plans to raise the quarterly dividend 25% to $0.15 per share, effective in June, although the board of directors has not yet made the move official. TJX is a Long-Term Buy.

In the December quarter, Questar ($41; STR) said per-share profits fell 18% to $0.81 excluding unrealized investment gains and losses, beating the consensus by $0.09. Revenue crept up 1% to $891 million, easily topping Wall Street projections. Lower energy prices offset the effects of 20% higher production. Questar is a Long-Term Buy.

Wal-Mart Stores ($54; WMT) grew earnings 14% to $1.17 per share excluding special items in the January quarter, a nickel ahead of the consensus estimate. Revenue rose 5% to $112.83 billion on higher sales from Sam’s Club and the international unit. Despite an aggressive pricing strategy for the holidays, Wal-Mart reported 1.6% lower U.S. same-store sales. Wal-Mart is a Long-Term Buy.

Dell ($13; DELL) reported earnings of $0.28 per share excluding special items in the January quarter, down 3% and a penny above the consensus. Revenue advanced 11%, but gross profit margins, hurt by higher component costs and a shift toward low-margin personal computers, disappointed investors. Dell is rated C (below average).

Corporate roundup

Oracle ($24; ORCL) CEO Larry Ellison said he expects recently acquired Sun Microsystems, which racked up losses in excess of $2 billion over the last two years, to become profitable soon. Oracle has begun folding Sun into its operations since completing the $7.5 billion merger in January. Oracle is a Buy and Long-Term Buy . . . A federal judge approved a $150 million settlement between Bank of America ($16; BAC) and the Securities and Exchange Commission, while decrying the agreement as “half-baked justice at best.” The SEC plans to distribute the proceeds to investors who owned shares of the bank at the time as compensation for poor disclosure regarding the acquisition of Merrill Lynch. Bank of America is rated C (below average) . . . Johnson & Johnson ($63; JNJ) returned the marketing rights of ceftobiprole, an antibiotic designed to treat skin infections, to Swiss biotechnology company Basilea. The companies did not release financial details about the deal. Although used in Canada and Switzerland, the drug has been rejected by the U.S. and European Union. J&J is a Long-Term Buy . . . Schlumberger ($61; SLB) agreed to purchase Smith International ($41; SII) for $11 billion in stock and the assumption of $1.2 billion in debt. The deal would extend Schlumberger’s lead as the largest company in the oilfield-services industries based on sales and market capitalization. Schlumberger is rated B (average) . . . Frustrated by congressional gridlock over health-care reform, President Obama introduced his own $950 billion health-care plan. The plan’s cost falls between those of bills passed by the Senate and the House, but it borrows heavily from the Senate’s framework. Still seeking a bipartisan solution, the president invited Republicans to forward their own ideas for a comprehensive health plan. However, the early Republican response has been critical, and the passage of any reform bill now could prove difficult . . . Microsoft ($28; MSFT) received regulatory approval to begin a 10-year Internet-search partnership with Yahoo ($15; YHOO). Together, Microsoft and Yahoo hold a 28% share of the search market, compared to Google’s ($535; GOOG) 65% share. In other news, Microsoft, Hewlett-Packard ($50; HPQ), and Dell ($13; DELL) are planning their own versions of a tablet computer that would compete with Apple’s ($197; AAPL) iPad. Microsoft is rated a Long-Term Buy. Hewlett-Packard is a Buy and Long-Term Buy. Apple and Google are rated A (above average). Dell is rated C (below average) . . . Biogen Idec ($55; BIIB) said four more patients taking multiple sclerosis drug Tysabri contracted a deadly brain infection, bringing the number of cases to 35 since July 2008. In other news, U.S. health officials plan to investigate claims of heart risks associated with Tysabri. Biogen is rated B (average).

Dividend hikes

Abbott Laboratories ($54; ABT) raised its quarterly dividend 10% to $0.44 per share payable May 15, marking the 38th consecutive year of higher distributions. Abbott Labs is a Long-Term Buy . . . Coca-Cola ($55; KO) raised its dividend for a 48th straight year, pushing the quarterly payout to $0.41 per share, up 7% and payable April 1. Coca-Cola is rated B (average) . . . Kimberly-Clark ($60; KMB) boosted its dividend for a 38th consecutive year, increasing the quarterly distribution 10% to $0.66 per share, payable April 5. Kimberly-Clark is rated A (above average) . . . Home Depot ($31; HD) raised its quarterly dividend 5% to $0.236 per share, payable March 25, marking the first increase since 2006. Home Depot is rated B (average) . . . Altria Group ($20; MO) increased its quarterly payout 3% to $0.35 per share, payable April 9.  Altria Group is rated B (average).

News digest

AstraZeneca ($43; AZN) increased its 2010 earnings target range by $0.15 per share after agreeing to pay $783 million to settle a tax dispute that that has hung over the company for the past 15 years. AstraZeneca is rated B (average).

India accelerated its plans to purchase $11 billion of fighter jets and said it will reduce the list of prospective bidders by mid-2011. Boeing ($63; BA) and Lockheed Martin ($77; LMT) are among the companies competing for the deal. Boeing and Lockheed are rated B (average).

The EU said it will allow United Technologies ($68; UTX) to buy General Electric’s ($16; GE) security unit for $1.82 billion. United Technologies and General Electric are rated B (average).

No changes were made this week in Dow Theory Forecasts.

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