Thursday, July 16, 2009

Daily Wrapup For July 16th

[Note: corrected CVB Financial EPS error, and removed link to inaccurate source.]

The trading day got off to a slow start, but picked up in the afternoon to shoot the three major averages up about 1% by the end of the regular session. Some tried to ascribe JP Morgan's earning for the late-afternoon rally; another explanation, which seemed to be more accurate with respect to the timing, ascribed it to Nouriel Roubini saying that the recession may end this year. Earnings season, which might as well be re-named anchoring season, continues. IBM reported 2Q results that beat the Street consensus, and Google also reported a result that could be said to be consensus-beating. Despite the ballyhooesque nature of the AP story on IBM's report, the stock was barely up in after-hours trading; Google was solidly down. Perhaps this anchoring thing isn't all that reliable after all.

In line with the general market, the cut-off number for the lowest P/E quintile rose too. Yesterday's 10.19 was replaced by today's 10.30. The inferred SPDR dividend rate dropped slightly, from 2.67% to 2.65%. These changes, after ETFs and stocks with market cap below 500M were eliminated, left the Low P/E Bin with ninety-four stocks: an increase of two from yesterday. Here are today's changes, as dash-listed below:

- Alliant Energy Corporation
- CVB Financial Corp.
- Polaris Industries Inc.
- Safety Insurance Group, Inc.
- Sempra Energy
- Telecom Corp of New Zealand

- Corus Entertainment Inc.
- Hugoton Royalty Trust
- Lincoln Electric Holdings, Inc.
- Whirlpool Corporation

One of the Arrivals got there for a definitely happy reason. CVB Financial had gotten out of the Bin through its market cap dropping below 500M some time ago. Today, because of an earnings surprise, CVB got back in. Its second-quarter results topped the consensus by seven cents - or by 70%, as the reported 2Q EPS was 17 cents. As the CVB chart shows, there hadn't been much good expected for the stock. This morning's results changed that impression dramatically. CVF was up 12.48% when regular trading ended, closing at $6.67.

Another Arrival got there through an earnings announcement of the opposite kind. Polaris reported 2Q EPS of 53 cents, and lowered its 3Q guidance to 76-86 cents. The Street was expecting 95 cents for 3Q. Despite Polaris beating the consensus for 2Q '09, the guidance disappointment was enough to knock Polaris down 5.47% on the day. Its full-year '09 guidance was revised to $2.70-$2.90. I note in passing that a rough average for the lowest P/E quintile cut-off is 10: using the low end as forward EPS, Polaris would likely stay in the lowest quintile next year at a price of $27 or below. It closed at $31.78.

The rest of the Arrivals got in through more usual reasons. Two utilities, Alliant and Sempra, got back in through P/E compression. Telecom New Zealand returned because the P/E cut-off rose faster than its own P/E today. Safety Insurance Group got in through its market cap expanding above 500M, although its 1.1% gain on the day was far less exciting than CVB's.

One of the Departures, Corus Entertainment, got out because its 12-month trailing earnings has turned into a 12-month trailing loss. Hugoton's market cap sunk back below 500M. Lincoln got out because of P/E expansion. So did Whirlpool: it extended its recent run by another 9.08% today. So far, no news has explained why.

That's all for today's Wrapup. Thanks for reading, and marvel at the continuance of the Earnings Two-Step.

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