Nothing to do with investing but go to wonder how this got out….Minute 2:27
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Target's CFO: Why?
I just do not understand, given what has happened to those recently who have opened their mouths, why someone would do this.
Target’s (TGT) CFO said earlier this week the company could potentially pay a higher dividend, following an increase to the payout last year. “I clearly think that there’s room to increase the dividend,” Chief Financial Officer Doug Scovanner said at a conference broadcast on the Internet. But he added: “I do not believe that we are likely to fundamentally alter the dividend yield in any abrupt kind of way.”
Last June, Target increased its quarterly dividend by 2 cents per share to 14 cents per common share for a current yield of 1%.
Target has been using excess cash to buy back shares as part of a $10 billion share repurchase plan announced in November after agitation from Bill Ackman. It has said it expects to complete half or more of the stock buyback program by the end of the year.
Why is even talking about a dividend that yield 1%? It is out there now. Because you were ambiguous about it, people will want it increased and will be upset when you do not deliver. Why create an issue over a 56 cent annual payout? Now, admittedly this is not a onerous as a earnings “guarantee” but the fact that hew did not dismiss it, and actually gave it credibility will give it life.
If that is not in the plans, just say so. Dismiss it, put it to bed, and move one. Do not let it linger for people to run with.
Anything short of doubling the dividend keeps it insignificant for shareholders, ignore it. To be honest, they would probably do better by shareholders by scrapping the stupid thing and using the same cash to repurchase shares. I mean 1%?
Think about it. Target will spend about $460 million this year on dividends. At current prices they could use that to repurchase 8.2 million shares of 1% of the outstanding total. I would argue doing that each year would benefit shareholder more than a 1% yield will. Now, as they continue to repurchase the shares, that same money would by incrementally more of the outstanding number on a percentage basis.
There is a reasons that investors like Ackman, Lampert and Berkshire’s (BRK.a) Buffett never talk about 1% yields when talking about investing. There are better uses for the cash.
Disclosure (“none” means no position):None
Categories
Target’s CFO: Why?
I just do not understand, given what has happened to those recently who have opened their mouths, why someone would do this.
Target’s (TGT) CFO said earlier this week the company could potentially pay a higher dividend, following an increase to the payout last year. “I clearly think that there’s room to increase the dividend,” Chief Financial Officer Doug Scovanner said at a conference broadcast on the Internet. But he added: “I do not believe that we are likely to fundamentally alter the dividend yield in any abrupt kind of way.”
Last June, Target increased its quarterly dividend by 2 cents per share to 14 cents per common share for a current yield of 1%.
Target has been using excess cash to buy back shares as part of a $10 billion share repurchase plan announced in November after agitation from Bill Ackman. It has said it expects to complete half or more of the stock buyback program by the end of the year.
Why is even talking about a dividend that yield 1%? It is out there now. Because you were ambiguous about it, people will want it increased and will be upset when you do not deliver. Why create an issue over a 56 cent annual payout? Now, admittedly this is not a onerous as a earnings “guarantee” but the fact that hew did not dismiss it, and actually gave it credibility will give it life.
If that is not in the plans, just say so. Dismiss it, put it to bed, and move one. Do not let it linger for people to run with.
Anything short of doubling the dividend keeps it insignificant for shareholders, ignore it. To be honest, they would probably do better by shareholders by scrapping the stupid thing and using the same cash to repurchase shares. I mean 1%?
Think about it. Target will spend about $460 million this year on dividends. At current prices they could use that to repurchase 8.2 million shares of 1% of the outstanding total. I would argue doing that each year would benefit shareholder more than a 1% yield will. Now, as they continue to repurchase the shares, that same money would by incrementally more of the outstanding number on a percentage basis.
There is a reasons that investors like Ackman, Lampert and Berkshire’s (BRK.a) Buffett never talk about 1% yields when talking about investing. There are better uses for the cash.
Disclosure (“none” means no position):None
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Q1 GDP Revised ………………………. UP!
So, where is that recession?
Not only did we not contract in Q1 like most had thought we would, we actually grew at a faster rate than we had previously been reported.
Gross domestic product rose at a seasonally adjusted 0.9% annual rate January through March, the Commerce Department said in the second estimate of first-quarter GDP. A month ago, Commerce said GDP increased 0.6% in the first quarter.
The best news? Inventories fell in the first quarter instead of rising as reported a month ago. Stockpiles of all goods shrank by $14.4 billion. In the original first-quarter GDP report, Commerce had said inventories January through March rose, up $1.8 billion; that estimate meant a GDP boost of 0.81 percentage point. While the revision led to a smaller GDP boost, it was a positive in a way, indicating businesses weren’t sitting on a backlog that could grow in the second quarter, swamp their shelves, and reduce GDP in that April-June period.
Short answer? Lean inventories mean that businesses and consumers are aligned in their purchases and large scale layoffs that would really hurt the economy aren’t likely to happen.
Evidence of this can be found today in the jobs report showing that the 4 week moving average for jobless claims actually fell by 2,000. It is going to be real hard to have a recession is unemployment does not rise substantially.
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Buying AutoNation (AN)
After watching value investors dive into the market, time to join them.
Almost exactly a month ago I took a look at AutoNation (AN) and at the time said “I think one could wait until summer to pick up shares at and not pay too much more than today.” Shares sat at $15.96 then a today sit at $15.80.
Having just cashed out of our oil (USO) position there are funds laying around for investment. Being hesitant to put more into the retail sector currently, the retail auto sector does look very appealing.
When you have investors like Lampert, Berkshire’s (BRK.A) Buffett, Leucadia (LUK) and Wilbur Ross entering the sector, it pays to monitor them.
Why AutoNation then? Back in March CEO Mike Jackson did an interview and here is the jist of it:
Forecasts this year call for about 15.5 million cars to be sold. Now, interesting tidbit. On CNBC, CEO and Chairman Mike Jackson was speaking of running his (or any) business. In the interview he said he runs his business for “a 1,000 year flood”. He then said that if auto sales dropped to 10 million units, “a depression” he called it, his business would be “cash flow neutral”. That is his basis for decision making.
As a potential investor, this is fantastic news. It simply means that the business will still produce cash even in an almost devastating economic climate. Wonderful…
A positive cash company in the current economic climate makes for tremendous flexibility competitors will not have. Jackson can reduce debt, repurchase shares or expand. In fact, Jackson has reduced share count by 30% the last two years. The repurchases have allowed EPS to stay flat at $1.44 despite the downturn in the auto industry during that time frame.
In the past two years, U.S. auto retail sales have declined 12 percent, Jackson said in early February and he said that economic downturns run in cycles of 30 to 40 months, and the market is currently 24 months into the downswing.
AutoNation’s markets in California and Florida, who account for half of new vehicle sales drove down earnings last year. The two states account for 20 percent of industry-wide new vehicle sales.
When things get better, investors ought to see an amplified increase on the other end due to the repurchases. Hold flat in down times and explode up in good ones, very nice.
The demand for auto related items can be found in recent news from auto parts retailers like AutoZone (AZO) and Advanced Auto Parts (AAP) who both reported increased earnings in the latest quarter. The things is, people have to have cars, the demand will always be there and Jackson has built a business that can capitalize on all demand scenarios.
Trading at 9 times earnings AutoNation will be a winner when demand for auto’s returns. That, it turns out may be sooner than we think. $4 a gallon gas is already changing people behavior and there just may be a rush to trade in that SUV for something much more affordable on gas. Whether it happens now or year from now, AutoNation currently trades at a multiple that assumes it just may never happen, that is wrong..
What Jackson said today on CNBC clinched it for me:
The guy has his business set to profit no mater what happens. Electric cars? Ok. Hybrids? Sure. SUV? Got ’em. People must have a vehicle and Jackson is there to provide whatever they need from whoever produces it. With his scale it come very close to a toll bridge business. He provides people a necessity that they must replenish fairly often at considerable expense…
Disclosure (“none” means no position):Long AN, none
Sears reported a 43 cent loss (53 cents without items) today vs a $1.15 gain last year. Lousy but not surprising..
Our first quarter results reflect the difficult economic environment and intense competition for consumer business. That said, since May 3, 2008, our sales declines have moderated somewhat,” said W. Bruce Johnson, Sears Holdings’ interim chief executive officer and president. “As a result of actions we have taken and will continue to take to manage our costs, our current forecast for 2008 reflects higher EBITDA than we achieved last year. At the same time we are managing costs, we will continue to invest in our future by hiring talented leaders and improving our online and multi-channel capabilities.”
Cash Position
They had cash and cash equivalents of $1.4 billion at May 3, 2008 (of which $656 million was domestic and $757 million was at Sears Canada) as compared to $3.5 billion at May 5, 2007 and $1.6 billion at February 2, 2008. The $0.2 billion net decline in cash and cash equivalents since the end of fiscal 2007 primarily reflects $517 million of cash used in operating activities, capital expenditures of $178 million and total long-term debt payments (net of new borrowings) of approximately $131 million. These amounts were partially offset by a $646 million increase in short-term borrowings, primarily through borrowing on our $4 billion credit facility. As of this date borrowings on the facility have been reduced to $400 million.
Inventories
Merchandise inventories at May 3, 2008 and May 5, 2007 were $10.3 billion. Domestic inventory levels declined from $9.5 billion at May 5, 2007 to $9.4 billion at May 3, 2008. Sears Canada’s inventory levels increased from $0.8 billion at May 5, 2007 to $0.9 billion at May 3, 2008. The increase in Sears Canada’s inventory is primarily due to the change in exchange rates.
Share repurchases:
The Company also announced today that our Board of Directors has approved the repurchase of up to an additional $500 million of the Company’s common shares. This authorization, when added to the $143 million remaining as of May 3, 2008 under previous authorizations, provides us with a current aggregate authorization of $643 million. Share repurchases may be implemented using a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, the purchase of call options, the sale of put options or otherwise, or by any combination of such methods. Timing of repurchases is dependent on prevailing market conditions, alternative uses of capital and other factors.
Bruce Johnson added, “We continue to have a strong balance sheet which, when combined with our expected free cash flow generation in 2008, enables us to take steps to invest in our business, consider other alternative investment opportunities, pay down debt, and repurchase our shares.”
Sears repurchased 0.4 million common shares at a total cost of $40 million (or $94.19 per share) under the share repurchase program during the first quarter of fiscal 2008. Since the third quarter of fiscal 2005, when the repurchase plan was first approved, they have repurchased approximately 33.1 million of the common shares at a total cost of $4.4 billion pursuant to the program. As of May 3, 2008, they had approximately 132 million common shares outstanding.
Now the hysterical folks out there will screaming about a loss that ought not be all that surprising. Those of us who invest in the business, look at the balance sheet and cash position and recognize those are a solid as ever. As a mater of fact, when compared to competitors JC Penny (JCP), Kohl’s (KSS), Macy’s (M) and even Home Depot (HD), Sears has by far the strongest balance sheet. It also is the largest appliance retailer by FAR. Since that category currently is being hit very hard by housing, it only stands to reason that they will suffer more than the others.
The balance sheet is what will position Sears to capitalize when retail finds footing and rebounds. Also, nothing has been said about the brand positioning the company is undertaking.
I will be a tough ride in the near term. The question is “would you be better off as an investor of any of the about companies”? No. Your investment would be impacted the same or worse and of more importance, the balance sheet of the company you are invested in has been more negatively impacted as well.
What to do? Hold on. Maybe we get lucky and be able to get more in the mid 70’s. It all comes down to your time frame. If it it years then this is just a blip on the screen and a great buying opportunity. If it is months, then you are panicking and if you invested in a big box retailer for the short term in the current environment, you should be.
It should be noted they are forecasting higher EBITDA than last year (an unusual move) and Johnson said they are going to “consider alternative investments”. Something will happen, just a matter of time…
Disclosure (“none” means no position):Long SHLD, None
Sears reported a 43 cent loss (53 cents without items) today vs a $1.15 gain last year. Lousy but not surprising..
Our first quarter results reflect the difficult economic environment and intense competition for consumer business. That said, since May 3, 2008, our sales declines have moderated somewhat,” said W. Bruce Johnson, Sears Holdings’ interim chief executive officer and president. “As a result of actions we have taken and will continue to take to manage our costs, our current forecast for 2008 reflects higher EBITDA than we achieved last year. At the same time we are managing costs, we will continue to invest in our future by hiring talented leaders and improving our online and multi-channel capabilities.”
Cash Position
They had cash and cash equivalents of $1.4 billion at May 3, 2008 (of which $656 million was domestic and $757 million was at Sears Canada) as compared to $3.5 billion at May 5, 2007 and $1.6 billion at February 2, 2008. The $0.2 billion net decline in cash and cash equivalents since the end of fiscal 2007 primarily reflects $517 million of cash used in operating activities, capital expenditures of $178 million and total long-term debt payments (net of new borrowings) of approximately $131 million. These amounts were partially offset by a $646 million increase in short-term borrowings, primarily through borrowing on our $4 billion credit facility. As of this date borrowings on the facility have been reduced to $400 million.
Inventories
Merchandise inventories at May 3, 2008 and May 5, 2007 were $10.3 billion. Domestic inventory levels declined from $9.5 billion at May 5, 2007 to $9.4 billion at May 3, 2008. Sears Canada’s inventory levels increased from $0.8 billion at May 5, 2007 to $0.9 billion at May 3, 2008. The increase in Sears Canada’s inventory is primarily due to the change in exchange rates.
Share repurchases:
The Company also announced today that our Board of Directors has approved the repurchase of up to an additional $500 million of the Company’s common shares. This authorization, when added to the $143 million remaining as of May 3, 2008 under previous authorizations, provides us with a current aggregate authorization of $643 million. Share repurchases may be implemented using a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, the purchase of call options, the sale of put options or otherwise, or by any combination of such methods. Timing of repurchases is dependent on prevailing market conditions, alternative uses of capital and other factors.
Bruce Johnson added, “We continue to have a strong balance sheet which, when combined with our expected free cash flow generation in 2008, enables us to take steps to invest in our business, consider other alternative investment opportunities, pay down debt, and repurchase our shares.”
Sears repurchased 0.4 million common shares at a total cost of $40 million (or $94.19 per share) under the share repurchase program during the first quarter of fiscal 2008. Since the third quarter of fiscal 2005, when the repurchase plan was first approved, they have repurchased approximately 33.1 million of the common shares at a total cost of $4.4 billion pursuant to the program. As of May 3, 2008, they had approximately 132 million common shares outstanding.
Now the hysterical folks out there will screaming about a loss that ought not be all that surprising. Those of us who invest in the business, look at the balance sheet and cash position and recognize those are a solid as ever. As a mater of fact, when compared to competitors JC Penny (JCP), Kohl’s (KSS), Macy’s (M) and even Home Depot (HD), Sears has by far the strongest balance sheet. It also is the largest appliance retailer by FAR. Since that category currently is being hit very hard by housing, it only stands to reason that they will suffer more than the others.
The balance sheet is what will position Sears to capitalize when retail finds footing and rebounds. Also, nothing has been said about the brand positioning the company is undertaking.
I will be a tough ride in the near term. The question is “would you be better off as an investor of any of the about companies”? No. Your investment would be impacted the same or worse and of more importance, the balance sheet of the company you are invested in has been more negatively impacted as well.
What to do? Hold on. Maybe we get lucky and be able to get more in the mid 70’s. It all comes down to your time frame. If it it years then this is just a blip on the screen and a great buying opportunity. If it is months, then you are panicking and if you invested in a big box retailer for the short term in the current environment, you should be.
It should be noted they are forecasting higher EBITDA than last year (an unusual move) and Johnson said they are going to “consider alternative investments”. Something will happen, just a matter of time…
Disclosure (“none” means no position):Long SHLD, None
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Thursday's Links
Spam, Greenie, Mortgages, Travel
– On my god….. why won’t he go away?
– Doesn’t stuff like this mean the worst is behind us?
– Will the 4th make it two in a row?
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Thursday’s Links
Spam, Greenie, Mortgages, Travel
– On my god….. why won’t he go away?
– Doesn’t stuff like this mean the worst is behind us?
– Will the 4th make it two in a row?
Leucadia (LUK), in three transactions added an additional 1.01 million shares of auto finance company AmeriCredit (ACF).
Leucadia now holds 30.347 million of the 115 million shares oustanding.
Disclosure (“none” means no position):None
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Thursday's Upgrades and Downgrades
Upgrades
Medarex (MEDX)- RBC Capital Mkts Underperform » Sector Perform
Midas (MDS)- BB&T Capital Mkts Hold » Buy
WebMD Health (WBMD)- Citigroup Hold » Buy
NVIDIA (NVDA)- JMP Securities Mkt Perform » Mkt Outperform
Frontier Oil (FTO)- Bear Stearns Underperform » Peer Perform
Adobe Systems (ADBE)- Jefferies & Co Underperform » Hold
Amylin Pharms (AMLN)- Lehman Brothers Underweight » Equal-Weight
Progressive (PGR)- Lehman Brothers Underweight » Equal-Weight
Royal Bank of Scotland (RBS)- Credit Suisse Underperform » Neutral
Alaska Comms (ALSK)- Banc of America Sec Neutral » Buy
Downgrades
Iowa Telecom (IWA)- Soleil Buy » Hold
Entercom (ETM)- Stanford Research Buy » Hold
Edenor (EDN)- Citigroup Buy » Hold
Basic Energy Services (BAS)- UBS Buy » Neutral
OmniVision (OVTI)- Oppenheimer Outperform » Perform
Exelon (EXC)- Citigroup Buy » Hold
Lloyds TSB plc (LYG)- Credit Suisse Neutral » Underperform
Categories
Thursday’s Upgrades and Downgrades
Upgrades
Medarex (MEDX)- RBC Capital Mkts Underperform » Sector Perform
Midas (MDS)- BB&T Capital Mkts Hold » Buy
WebMD Health (WBMD)- Citigroup Hold » Buy
NVIDIA (NVDA)- JMP Securities Mkt Perform » Mkt Outperform
Frontier Oil (FTO)- Bear Stearns Underperform » Peer Perform
Adobe Systems (ADBE)- Jefferies & Co Underperform » Hold
Amylin Pharms (AMLN)- Lehman Brothers Underweight » Equal-Weight
Progressive (PGR)- Lehman Brothers Underweight » Equal-Weight
Royal Bank of Scotland (RBS)- Credit Suisse Underperform » Neutral
Alaska Comms (ALSK)- Banc of America Sec Neutral » Buy
Downgrades
Iowa Telecom (IWA)- Soleil Buy » Hold
Entercom (ETM)- Stanford Research Buy » Hold
Edenor (EDN)- Citigroup Buy » Hold
Basic Energy Services (BAS)- UBS Buy » Neutral
OmniVision (OVTI)- Oppenheimer Outperform » Perform
Exelon (EXC)- Citigroup Buy » Hold
Lloyds TSB plc (LYG)- Credit Suisse Neutral » Underperform
Sears’ (SHLD) Chairman trough his ESL and RBS Partners hedges funds purchased another 1 million shares of auto retailer AutoNation (AN)
Lampert now holds 70.66 million shares or 39.6% of the total outstanding.
Disclosure (“none” means no position):None
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"Fast Money" for Thursday
THURSDAY’S PICKS
Guy Adami recommends Celgene (CELG) $58.53
Karen Finerman prefers WellPoint (WLP) $55.48
Pete Najarian suggests Amylin (AMLN) $30.98
Jeff Macke thinks Yahoo (YHOO) $27.16 is a sell.
WEDNESDAY’S RESULTS
Jeff Macke likes Border’s Group (BGP) $6.25 because “it was a dollar higher a week ago.” Close $5.80 LOSS
Guy Adami recommends Charter Communications (CHTR) $1.31 on a recent upgrade. Close $1.39 Gain
Karen Finerman suggests Alliance One (AOI) $5.83 but emphasizes that this trade comes with “tons of risk.” Close $5.85 GAIN
Pete Najarian thinks Washington Mutual (WM) $9.5 is an attractive stock in a toxic area. Close $9.40 LOSS
2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 40-34-1
Tim Seymore= 17-14
Guy Adami= 42-36
Pete Najarian= 38-37
Karen Finerman= 37-31-1
Joe Terrenova= 1-3
2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Altria Group (MO) reaffirmed its 2008 guidance for adjusted diluted earnings per share from continuing operations in the range of $1.63 to $1.67. This represents a growth rate of approximately 9% to 11% from an adjusted base of $1.50 per share in 2007. “This full-year earnings per share forecast reflects expected stronger earnings per share growth in the second half of this year when compared to the first half,” said CEO Micheal Szymanczyk.
“Altria and its operating companies have dedicated employees, strong brands, remarkable cash flows, disciplined financial management, and an increasingly diverse tobacco product portfolio,” Mr. Szymanczyk continued and then said, “I believe that these strengths should enable Altria to deliver consistent annual total shareholder return in excess of 12%.”
Following today’s Annual Meeting of Stockholders, Altria’s Board of Directors declared a quarterly dividend of $0.29 per common share, payable on July 10, 2008 to stockholders of record as of June 13, 2008. The ex-dividend date is June 11, 2008.
For those of you not very math proficient, that makes a $1.16 annual dividend for a nice very fat 5.25% yield. A 5% (and very safe and growing) yield and double digit earnings growth. Anything not to like? OK, sure tobacco kills but last I checked, Coke (KO) and Pepsi (PEP) were not “healthy for you” and folks have no qualms about investing with them.
Szymanczyk also said, “As the company looks to the future, it has clear recognition of the fact that conventional cigarettes are harmful in society and we’d like to make some progress on improving that situation,”. He said he plans on doing that by rapidly expanding the company’s line of smokeless products. Szymanczyk said the company already has made a number of modifications to those products based on input from consumers in the test markets (Dallas and Indianapolis). “We’re making remarkable progress,” he said. “We’ve learned a lot that will allow us to efficiently develop our products further.”
Disclosure (“none” means no position):Long MO, none