Dimon in the Rough and Earnings Updates

by Ed Elfenbein | May 12, 2012 8:00 am

Dimon in the Rough and Earnings Updates

The big news in the markets came after Thursday’s closing bell when JPMorgan Chase (NYSE:JPM[1]) announced a special conference call. CEO Jamie Dimon told investors that the bank took $2 billion in trading losses[2] in derivatives and that it could take another $1 billion this quarter. Jamie, WTF?

For his part, Dimon was clear that the bank messed up. This is very embarrassing for JPM and frankly, I don’t expect this type of mismanagement from them. The stock will take a big hit from this news, but it doesn’t change my positive outlook for the bank. (Matt Levine at Dealbreaker has the best explanation of the losses: “This was not driven by the market moving against them (though it seems to have); it was driven by them getting the math wrong”).

As ugly as this is, it’s not a reflection of JPM’s core business operations. Sure, it’s terrible risk-management. But as far as banking goes, JPM is in good shape. Don’t be concerned that JPM faces a similar fate as the banks in Spain. They don’t.

In fact, most banks in the U.S. are pretty safe right now. Warren Buffett recently contrasted U.S. banks with European banks when he said that our banks have “liquidity coming out of their ears.” He’s right. JPMorgan Chase remains a very good buy.

Bed Bath & Beyond (NYSE:BBBY[3]) surprised us this week by buying Cost Plus (NASDAQ:CPWM[4]) for a half billion dollars. The deal is all-cash which is what I like to hear. The best option for any company is to pay for an acquisition without incurring new debt.

BBBY said they expect the deal to be slightly accretive. That means that BBBY is “buying” CPWM’s earnings at a price less than the going rate for BBBY’s earnings. As a result, the deal will show a net increase to BBBY’s bottom line for this year.

The press release also said: “Bed Bath & Beyond Inc. continues to model a high single digit to a low double digit percentage increase in net earnings per diluted share in fiscal 2012.”

Now let’s look at some earnings.

On Monday, Sysco (NYSE:SYY[5]) had a decent earnings report although the CEO said the results “fell short of our expectations.” Sysco is a perfect example of a defensive stock since the food service industry isn’t adversely impacted by a downturn in the business cycle. The key with investing in Sysco is the rich dividend. The company has increased their payout for 42 years in a row, and I think we’ll get #43 later this year, although it will be a small increase. Going by Thursday’s close, Sysco yields 3.87%. Sysco is a good buy.

DirecTV (NASDAQ:DTV[6]) reported Q1 earnings of $1.07 per share. That’s a nice jump over the 85 cents per share they earned a year ago. DirecTV’s sales rose 12% to $7.05 billion which was $10 million more than consensus.

The company has done well in North America, but they see their future lying in Latin America. DTV added 81,000 subscribers in the U.S. last quarter. In Latin America, they added 593,000. Yet there are more than twice as many current subscribers in the U.S. as there are in Latin America. Last year, revenue from Latin America revenue grew by 42%.

DirecTV has projected earnings of $4 per share for this year and $5 for 2013. This earnings report tells me they should have little trouble hitting those goals. The shares are currently going for less than 11 times this year’s earnings estimate. They’re buying back stock at the rate of $100 million per week.

On Thursday, CA Technologies (NASDAQ:CA[7]) reported fiscal Q4 earnings of 56 cents per share. That’s a good result and it was four cents better than Wall Street’s estimates. For the year, CA made $2.27 per share which is a nice increase over the $1.92 from last year. For fiscal 2013, CA sees revenues ranging between $4.85 billion and $4.95 billion and earnings-per-share ranging between $2.45 and $2.53. I’m impressed with that forecast, but Wall Street had been expecting revenues of $5 billion and earnings of $2.50 per share. The stock was down in the after-hours market on Thursday, but I don’t expect any weakness to last. CA is going for less than 11 times the low-end of their forecast.

A quick note on Oracle (NASDAQ:ORCL[8]): The stock took a hit this week on the news of Cisco’s (NASDAQ:CSCO[9]) lousy outlook[10]. Oracle is also in the middle of a complicated intellectual property trial with Google (NASDAQ:GOOG[11]). I doubt the trial will go Oracle’s way, but the dollar amounts involved are pretty small compared with the size of these two firms. On Thursday, Oracle fell below $27 for the first time since January. That’s a very good price.

That’s all for now. Wall Street will be focused on Facebook’s massive IPO scheduled for next Friday. The stock might fetch 99 times earnings. I’m steering clear of this one.

Endnotes:
  1. JPM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JPM
  2. the bank took $2 billion in trading losses: http://investorplace.com/2012/05/so-jamie-dimon-what-do-you-think-of-the-volcker-rule-now/
  3. BBBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBBY
  4. CPWM: http://studio-5.financialcontent.com/investplace/quote?Symbol=CPWM
  5. SYY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SYY
  6. DTV: http://studio-5.financialcontent.com/investplace/quote?Symbol=DTV
  7. CA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CA
  8. ORCL: http://studio-5.financialcontent.com/investplace/quote?Symbol=ORCL
  9. CSCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSCO
  10. lousy outlook: http://investorplace.com/2012/05/cisco-misses-on-q4-outlook-shares-plummet/
  11. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG

Source URL: http://investorplace.com/2012/05/dimon-in-the-rough-and-earnings-updates-jpm-ca-orcl-csco-goog-dtv/
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