There are lots of earnings reports and economic data out today, and the best I can say is that any green is a pleasant surprise. It's not
that I was looking for a bloodbath but after Wal-Mart (WMT) reported I was sure there could be some profit taking by traders and mostly rubber-necking
by would-be buyers. As it stands now the market is essentially flat, and that's a good sign. Stocks have made a pretty good bounce of late and maybe
needed to stall. There is also the issue of leadership, which is sorely missing today and a mystery for tomorrow. The good news is there weren't any
disasters today. Moreover, the market hints at possibly making a late move higher. There is much to chew through but when it's said and done the news
is okay. I will say that initial jobless claims do stand out like a sore thumb.
Philly Fed: Came in at 17.6 versus the
consensus of 17.0, with most components in-line with our expectations. Standouts include:
* Shipment reading climbed to 19.7 from 1.0.
*
Prices received continued its steady progression; over the past six-months the reading has improved sequentially.
PPI: The headline number was worrisome; this isn't the time
to see any signs of inflation. Of course, most of the hike came from fuel, but I was surprised at the increase in prices for hides, skins, lumber, and
fruits.
LEI: The Leading Economic Indicators climbed less than expected, and for the most part was a non-event.
More Color on Wal-Mart
Earnings
By: Brian Sozzi, Research Analyst
This morning we posted a pre-market note detailing the 4Q earnings results from
Wal-Mart (WMT). Since then we have had more time to chew on the results, as well as the comments we are hearing out there by those influential on the
stock. Most are focusing the debate on Wal-Mart's 4Q comp miss relative to estimates, and 1Q comp/earnings guidance below where some were centered.
However, we believe an overarching focus on a one quarter comp miss (which was derived from product deflation that is now abating rather than share
loss on a global scale) and 1Q guidance misses the essence of what was in the report. In our view, there is a bigger picture to keep in mind when it
comes to Wal-Mart, a picture that is bright.
What we see beneath the headline murmurs:
* A company generating higher profit for each dollar
of sales.
* A company that returned to total sales growth in 4Q.
* A company that had a profit ramp on a y/y basis in each quarter of calendar
2009.
* A company that is likely to maintain its gross margin gains from last year and maybe even expand gross margin further going forward.
Wal-Mart has brought its gross margin to a range of 24.0% to 25.0% from a once historical range of 20.0% to 23.0%.
* A company transitioning
to maximizing its operating expense leverage. By indications of the successes realized on the gross margin line in recent years and programs well
underway for the current fiscal year to drive efficiencies, operating margin expansion is quite probable as comps turn positive as soon as 2Q.
* A
company increasingly sourcing its products from China, and having an opportunity to expand private label merchandise margins through direct
sourcing.
* A company having a durable competitive advantage relative to others in an inflationary environment as a result of unmatched buying
leverage and efficiencies flowing from a privately owned truck fleet.
* A company likely to see a trade back up the merchandise price curve (from
opening price-point) going forward. It's critical that Wal-Mart sees this trade up as these products, on balance, are not the lowest priced relative
to the peer set. Wal-Mart has marketed its EDLP message strongly, so customers believe all products are at rock bottom prices.
* A company with a
growing international presence (about 25% of sales at the moment)
In the end, we believe Wal-Mart is on a trajectory to grow earnings in excess
of 10% in FY11 through a mix of modest gross margin expansion and more definitive operating margin expansion. We are valuing shares of Wal-Mart on a
PE multiple of 15.0x (currently trades at about 13.0x consensus EPS), rendering a price target of $61.00.
The Bad News for Toyota
Continues
By: David Silver, Research Analyst
If you thought the 8 million vehicles weren't enough, Toyota announced
another potential recall this morning dealing with the most popular vehicle in the world, the Toyota Corolla. The company said it is considering a
500,000 vehicle recall for 2009 and 2010 model year Corollas. This recall is a result of the power steering in the car and possible cracks in the
driveshaft. So we have had problems with the accelerator, problems with the brakes, and now it is problems with the steering. We were musing last
week about what the next shoe to drop would be; we fully expected another recall, but again we were surprised by the model and severity. It would be
one thing for a taillight or turn signal or cruise control recall, but the gas pedal, brakes, and steering seem to be three pretty important
components to a car. We thought that Toyota would be able to rebound quickly from this debacle (before the Corolla); however, I am not sure how many
more black eyes the company can take. |
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