Disney reports revenue and earnings upside, shares flat after-hours (DIS)

DJIA constituent Walt Disney (DIS) reported adjusted EPS of 47cents for 2010's first quarter, coming in well ahead of the street consensus of 38cents.  Revenue of $9.74billion beat estimates by $10mil.

Studio Entertainment showed the best year-over-year improvement:

Studio Entertainment revenues for the quarter were essentially flat at $1.9 billion and segment operating income increased 30% to $243 million. Higher operating income was primarily due to an increase in domestic home entertainment, partially offset by decreases in domestic theatrical distribution and music distribution.

Higher domestic home entertainment results were primarily due to lower distribution costs and marketing expenses, driven by cost reduction initiatives, and lower production cost amortization and participation expense. The decrease in amortization and participation expense reflected the strong performance of Up andThe Proposal in the current quarter compared to WALL-E and The Chronicles of Narnia: Prince Caspian, which had high participation costs, in the prior-year quarter.

The decrease in domestic theatrical distribution was driven by higher film cost write-downs in the current quarter. Lower results in music distribution were primarily due to lower album sales reflecting the strong performance of High School Musical 3 in the prior-year quarter.

The Parks & Resorts segment did ok domestically, but Disneyland Paris was a drag.

What we're left with is slow-moving Disney, fighting the good fight in a brutal environment for discretionary spending of this sort.  Annual Free Cash Flow should run just a tad over $3billion, so the Free Cash Flow Yield of 5.6% (even netting out cash to boost the yield) doesn't entice me.  Nor does the 1.2% dividend yield .  The best "upside catalyst" possibility for this stock would be investors falling back in love with it, and assigning the old "Disney Premium" of a forward PE in the 17ish range.  Not for me....

Copyright 2010 AlphaNinja

Grand Theft Taxpayer. Salary edition.

The Bureau of Labor Statistics released a report the other day detailing the disparities between private and public sector pay at the state and local level.

We'd already heard that federal employees make $30,000 more than the taxpayers paying those salaries, and even more explosive salary growth came from the Transportation Department:

"When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000."

Now, thanks to the BLS report, we see that the disparities in pay occur at every level of government.  I mentioned this to someone the other day and they said "Well we want really smart people working for us, so they need to earn more!"  


It's a common practice in business, for the founder to attempt to hire people smarter than him/herself - of COURSE they'd try to - but that doesn't mean they PAY their employees more than they take home as the owner.  But taxpayers get to do just that, and if they hesitate then they're accused of "balancing the budget on the backs" of _____ (insert children, environment, etc.)


Shame:

(Source - BLS)




Copyright 2010 AlphaNinja

Dissecting another "Lazy Bear" argument....(DIA)

One of the features of the recession - and the extreme stock market swings it's wrought - has been the preponderance of extremely negative views of the US economy's future. Day after day brings another pundit's charge that "The DJIA will fall 50% from here," or "Gold is the only safe place for your money."

Today's example is from Vitaliy Katsenelsen, author of "Active Value Investing." It's a terrific book - I bought it a couple years ago - whose main point is that stock selection will be paramount in the years ahead, because we'll face a "range-bound" market. Katsenelson has analyzed the past hundred years and found that periods of exuberance end with high valuations and lead into a stagnant period where profit margins revert to lower levels and the market generally drifts sideways.

That's all well and good, but on TechTicker the other day, Katsenelson said that, essentially, the DJIA will go nowhere for the next decade. "the market is not going to be very far from where it is today 10 years from now," were his words.

His comments, and then below I'll outline why I think this view is extremely off the mark:





A great quote for money managers, and especially pro's who offer market direction, is "Stay wedded to your wife - not your price target." People get "wedded" to these outlooks, and forget to look "under the hood" at the stocks making up the stock market, as I suggested in my 2010 outlook.

A look at the 30stocks making up the DJIA shows why a flat performance over the next 10 years is a ridiculous idea. I defended Neil Hennessy when he called for a DJIA double in ten years and (he) was lambasted for it, and this is a similar case.

The DJIA climbs 3,418points over ten years simply from it's 2.7% weighted dividend yield. And that's extremely conservative because it does not assume any INCREASES in the dividends, despite the average DJIA stock's dividend increasing 126% from 2002-2009.

(this image is from my October piece, but the yield is nearly the same...)

So there's 34%, what I'd consider to be materially different from where the index is now.

Then you factor in earnings growth. Yes, yes, yes, I know that we're a 70% consumer-driven economy and the consumer is dead, blah blah. But the DJIA gets about 60% of it's revenue (and that's a LOW estimate) internationally, which is growing faster than domestic markets. But to be fair to my own pessimism, I'll assume company earnings per share grow only 50% in TOTAL over the next 10years, then apply a PE of 15x 2020 earnings per share. That's extremely conservative too by the way, as DJIA companies have grown EPS 191% in the past 7years, versus the 50% I'll estimate for the coming ten years. That earnings growth gets us to another 10,143 points on the index, for a DJIA price target of 23,597 in ten years, or +135%.

If that target gives you sticker shock, take a look at just how conservative this analysis is - this assumes Cisco (CSCO) stock goes up to $38 in TEN YEARS, when in fact I think we'll see that price in 18months. It only assumes PG and KO stocks go up 50% and 41% respectively, which will prove laughably low.

I appreciate negative views, positive views and anything in between - I just hope people do their homework before pontificating on the direction of markets.

Copyright 2010 AlphaNinja

Markets cheer, as Greece makes baby steps. Germany to help too.

Greek bond yields are dropping significantly, as Germany and the EU agreed to "support in the broad sense of the word" of the crippled state.  Brutal times there.

Let's not get ahead of ourselves, of course.  Greece is taking California-like steps in their attempt to raise "revenues."  By that I mean cutting taxes on lower earners and shifting the burden upstream - like it or not, even California's most liberal tax redistributionsits have accepted that having the top 1% pay an out-sized piece of the budget simply leads to huge volatility down the road.  They're also raising dividend tax rates, which will certainly scare off any new capital, other than the money Germany is about to lend.  Decreases in lower income level taxes will be offset by passed-through higher taxes on offshore oil firms and excise fuel taxes.

Among the Greek fixes, reports Reuters:

The upper tax rate of 40 percent will be applied on annual
incomes above 60,000 euros ($82,250), instead of the existing
75,000 euro threshold

Incomes between 12,000 and 16,000 euros are to be taxed at
18 percent, down from the current 24 percent tax on incomes from
12,000 to 30,000 euros. This is intended to help low-income
earners.

Dividends will be added to incomes and taxed at the
applicable rates, meaning up to 40 percent. Currently, dividend
distributions are taxed at a flat 10 percent rate.


Greek public sector workers will face a wage freeze across
the board this year, extending a freeze announced late last year
on those making over 2,000 euros a month. Seniority pay rises
will apply normally.


The government announced a 10 percent cut in public sector
workers' supplemental allowances, which are added to basic
salaries and currently constitute a large part of their total
income.


Public sector employees' gross income will fall between 1
and 5.5 percent.
Copyright 2010 AlphaNinja

REIT's under pressure, as Parkway drops a BOMB. Dividend cut 77% (PKY)

Well, this should stop people from being lazy about their search for yield.

Parkway properties (PKY) reported Funds From Operations, or FFO, way below what the street was expecting last night.  FFO was 36cents per share, versus the expected 67cents.  Shares are off 11.6%.

Forget that though, and look to 2010 guidance.  They INCREASED FFO guidance to about 2.82 per share, decently above the street consensus of 2.58.  Rent per square foot is actually up, but that's likely due to deadbeat tenants dropped, as occupancy continues to trend down.

Best news to me is the rent per square foot they were able to charge in the 4th quarter - it's above the company average and trending the right way:

So why the hell is the stock down???

It's down because hardly any of that 2010 FFO is yours as a common stockholder.  The common dividend will be slashed from 1.32 last year to a measly 30cents in 2010.  So all the thousands of investors looking at Yahoo Finance's (or google finance's, or Bloomberg's) quote of a 6.5% dividend yield as reason to buy the shares yesterday now wake up to see a new dividend yield of 1.6%.

Just another example of "KNOW WHAT YOU OWN."  And you own scraps.  The series D preferred stockholders, however, will receive a 50cent dividend on March 31, 2010 because they're ahead of common shareholders in the capital structure:

Copyright 2010 AlphaNinja

Quote of the day

I won't take a position on this, but rather just put it out there.

John Brennan, Assistant to the President and Deputy National Security Advisor for Homeland Security and Counterterrorrism, responded today to a critical USA Today editorial. That editorial called the administration's handling of the Christmas Day terrorism "amateur hour."

Among other things, Brennan responds:

"We need no lectures that this nation is at war"

Ahhh. They need "no lectures" that we're at war....yet they renamed the War on Terror the Overseas Contingency Operation, and they changed "terrorism" to "man-caused disasters."

As Seth Meyers might say on SNL, "REALLY?""""""

Copyright 2010 AlphaNinja

Intra-day action

LOVELY day.  The DJIA is up 180points, and everyone is participating!  (meaning all 30 stocks are up).

Earnings beats are dominating the gainers.

Among losers is construction aggregates producer Martin Marietta (MLM), who along with Vulcan Materials (VMC), is crying about delays in federal highway spending.

And a heatmap from Finviz of the S&P500...