Profit rate – Stormbirds http://stormbirds.net/ Mon, 16 May 2022 13:44:16 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://stormbirds.net/wp-content/uploads/2021/07/icon-2021-07-05T151758.466-150x150.png Profit rate – Stormbirds http://stormbirds.net/ 32 32 1Q22 Earnings Show Coinbase’s Struggles https://stormbirds.net/1q22-earnings-show-coinbases-struggles/ Mon, 16 May 2022 13:35:22 +0000 https://stormbirds.net/1q22-earnings-show-coinbases-struggles/ PARIS, FRANCE – OCTOBER 05: In this photo illustration the Coinbase cryptocurrency exchange … [+] website is seen on a computer screen on October 05, 2018 in Paris, France. The Californian cryptocurrency platform is set to raise $500 million in the event of an IPO. After surpassing 20 million users this summer, the cryptocurrency trading […]]]>

With Coinbase

PIECE OF MONEY
down 77% year-to-date (YTD) and 85% since I first put the company in the danger zone in March 2021, investors might think now is the time to obtain shares at a reduced price. Think again. Coinbase’s 1Q22 earnings and guidance don’t bode well for the future, and I think stocks are only worth $17/share, even with optimistic assumptions for long-term margins and revenue growth. income.

Figure 1: COIN performance vs. S&P 500 from initial danger zone through 5/12/22

1Q22 weakness is a sign of things to come

As noted in the previous March 2022 update, the growth and profitability achieved by Coinbase in 2021 was not sustainable – 1Q22 proved it. In Coinbase’s neighborhood:

  • Net operating income after tax (NOPAT) margin fell to -19% from 43% in 1Q21
  • turnover of invested capital increased from 0.4 to 0.4, compared to 1.4 in 1Q21
  • return on invested capital (ROIC) fell to -7% from 58% in 1Q21
  • free cash flow (FCF) was -$1.4 billion, compared to $969 million in FCF in 2021.

Coinbase’s own preferred metrics were also weak:

  • trading volume hit its lowest level in five quarters
  • monthly transacting users (MTU) fell 19% quarter over quarter
  • average transaction revenue per user (ATRPU) was $35 in 1Q22, compared to $64 in 2021, $45 in 2020 and slightly above $34 in 2019.

Orientation is no better

Going forward, I expect Coinbase’s margin and revenue growth rates to decline as competition increasingly eats away at its business. Increased volatility, or another downward move, in the crypto market could also spook retail investors after big losses so far this year.

Management’s forecast for 2022 does little to allay concerns that the company is heading in the wrong direction. The guide shows:

  • MTUs should be lower in 2T22 than in 1T22
  • total trading volume expected to be lower in 2Q22 than in 1Q22
  • predicted range for MTUs in 2022 between 5 and 15 million, not exactly an accurate estimate
  • ATRPU in 2022 is expected to return to “pre-2021” levels, which certainly implies a decline

On the 1Q22 earnings call, management also noted that its goal “is to run the business roughly even, smoothed out over time for now.” In other words, the record profitability of 2021 is in the rear view mirror.

Don’t Ignore New Bankruptcy and Regulatory Risks

As noted in Coinbase’s latest 10-Q, the company faces the real risk of bankruptcy. The following statement was added this quarter:

“In the event of bankruptcy, the crypto assets we hold on behalf of our clients could be subject to bankruptcy proceedings and such clients could be treated as our general unsecured creditors.”

This public acknowledgment could instill fear among the company’s customers. Fear of bankruptcy proceedings could cause customers to cash out their investments as quickly as possible, further weakening Coinbase’s business and bringing the company even closer to bankruptcy.

As cryptocurrency grew in popularity among investors, regulations also increased. The Infrastructure Bill passed last year contains provisions increasing tax reporting requirements on cryptocurrencies, and I think this is just the beginning. Additional regulations could diminish the popularity of cryptocurrency as an asset class and negatively impact Coinbase’s growth trajectory.

Coinbase is priced to be bigger than the biggest exchanges in the world

Although COIN has fallen 85% since the opening price on the date of its IPO, the stock is still significantly overvalued. Below, I use my inverse discounted cash flow (DCF) model to illustrate the high future cash flow expectations implied by Coinbase’s current valuation.

To justify its current price of ~$60/share, Coinbase needs to:

  • achieve a 6% NOPAT margin (half Fidelity National Info Services’ TTM margin), long-term (2022-2031) despite the consensus for negative earnings in 2022 and management’s goal of achieving the balance of operations and
  • increase revenue by 25% per year through 2031 (vs. consensus estimate of 4% CAGR from 2021 to 2024)

In this scenario, Coinbase would earn $73 billion in revenue by 2031, which is greater than the combined TTM revenue of the top 10 financial and commodities market operators.[1] plus Charles Schwab (SCW) and Robinhood (HOOD). Coinbase would also earn $4.1 billion in NOPAT in 2031, which would rank second, behind only Charles Schwab, in the group of companies noted in the revenue comparison.

Given management’s goal of operating the business at “break-even” for “currently,” even a 6% NOPAT margin can be optimistic.

71% drop even if the consensus is correct

I examine an additional DCF scenario to highlight Coinbase’s downside risk even as the company grows at consensus rates and gradually improves its margins from minus 19% in 1Q22 to 6% long-term.

If I assume that Coinbase:

  • NOPAT margin equals 1% in 2022 (just above break-even) and improves to 6% by 2027,
  • revenues grow at consensus rates in 2022, 2023 and 2024 (-37%, 54% and 14%[2]), and
  • revenues increase by 10% per year from 2025 to 2031, then

COIN is only worth $17/share today, down 71%.

A 6% margin over the long term can be optimistic for several reasons. First, Coinbase plans to increase hiring, expand internationally, and significantly increase its technology and general and administrative expenses in the near term.

Second, as I’ve noted in the past, competition looms large and can eat away at any opportunity for outsized margins (i.e. the zero-fee race) given that Coinbase is dependent on transaction fees to most of his income. Traditional exchange operators, brokers and payment companies such as PayPal

PYPL
or Block (SQ) could see Coinbase’s weakness as a chance to take market share and limit Coinbase’s long-term profit potential.

Third, it is unlikely that Coinbase can simply stop spending to achieve its high 2021 profitability again, at least in the long term. Coinbase must continually spend on marketing and advertising, not only to promote its product, but also to convince new users of the underlying utility of crypto.

Stock traders don’t have this problem (or expense), because despite criticism, the stock market and its derivatives are widely accepted forms of financial value and offer tangible uses such as managing risk, raising capital, etc share faces criticism and questions about its use at every turn, which Coinbase must dispel, at no cost.

Figure 2 compares Coinbase’s implied future revenue in the above scenarios to its historical revenue as well as Charles Schwab’s 2021 revenue and the combined 2021 revenue of Intercontinental Exchange and Nasdaq.

Figure 2: Historical and Implied Coinbase Revenue: DCF Valuation Scenarios

Each of the above scenarios also assumes that Coinbase’s invested capital equals 10% of revenue each year. This growth in invested capital is less than half of the change in invested capital as a percentage of revenue in 2020 and 2021. If I assume that Coinbase’s invested capital grows at a similar rate to 2020 and 2021, the downside risk is still most important.

Selling for cash on hand might be the best case scenario

As Coinbase continues to spend heavily to expand its platform and keep up with the latest crypto market developments, investors may view sustainable profits as a distant dream rather than a mid-term reality. In such a scenario, the best case scenario (rather than spending money on a loss-making business) might be to sell the business for its cash value net of liabilities, or $1.0 billion. However, even this scenario is a bit of a moving target, given that Coinbase burned through $1.4 billion in cash in 1Q22 alone. That said, Coinbase’s net cash value in 1Q22 is $5/share.

Worse still, if investors or potential suitors consider the company’s ability to sustain an “ongoing concern” to be tenuous, which would be likely in such a scenario, they could push for a lower price or even be scared off. by concerns about legal action.

Look beyond the current rating

Coinbase’s record profitability in 2021 makes my Robo-Analyst rating on the stock attractive. However, 1Q22 results and management guidance reveal that the company’s financial performance in 2021 is not sustainable and earnings are going to be much lower in the medium to long term. The view of human analysts at my company is that the stock presents a worse risk/return than its current Robo-Analyst rating suggests. Going forward, I expect the company’s profitability to decline as expenses increase and growth slows, crypto adoption loses momentum and regulation increases. If the company’s performance is in line with my expectations, its Robo-Analyst stock rating will be downgraded as soon as its record 2021 results slip further and further into the past.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation for writing about a specific stock, industry, style, or topic.

[1] Companies in this group include Cboe Global Markets (CBOE), CME Group

CME
Deutsche Boerse AG (DBOEF), Fidelity National Information Services (FIS), Interactive Brokers Group (IBKR), Intercontinental Exchange (ICE), MarketAxess Holdings (MKTX), Nasdaq Inc. (NDAQ), Tradeweb Markets (TW) and Virtu Financier

VIRT
.

[2] Consensus estimates based on seven analyst estimates in 2022, 24 in 2023 and 14 analyst estimates in 2024.

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Profit from the rush into alternative assets with Blackstone and Brookfield (NYSE: BAM) https://stormbirds.net/profit-from-the-rush-into-alternative-assets-with-blackstone-and-brookfield-nyse-bam/ Sat, 14 May 2022 12:30:00 +0000 https://stormbirds.net/profit-from-the-rush-into-alternative-assets-with-blackstone-and-brookfield-nyse-bam/ imaginima/iStock via Getty Images Blackstone Inc. (NYSE: BX) and Brookfield Asset Management Inc. (NYSE: BAM) are among the best in the global alternative asset management industry, with over $1.5 trillion in assets under management between them. We believe that alternative assets will experience a protracted boom for the rest of this decade and possibly even […]]]>

imaginima/iStock via Getty Images

Blackstone Inc. (NYSE: BX) and Brookfield Asset Management Inc. (NYSE: BAM) are among the best in the global alternative asset management industry, with over $1.5 trillion in assets under management between them.

We believe that alternative assets will experience a protracted boom for the rest of this decade and possibly even beyond due to many macro factors that we will discuss in this article.

Given that the stock prices of BX and BAM have recently experienced steep declines alongside broader market turmoil despite posting strong results, we believe now is the right time to add stocks.

Chart
Data by YCharts

Why we’re bullish on alternative asset managers

The main bearish case on alternative assets right now is for interest rates to rise. Interest rates have risen significantly in recent months and look poised to rise further before falling:

Chart
Data by YCharts

However, zooming out for a historical perspective, we can easily see that interest rates remain at the lower end of the historical spectrum:

Chart
Data by YCharts

Interest rates look even lower relative to the rate of inflation:

Chart
Data by YCharts

This last point is essential, because alternative assets generally benefit from high inflation but are penalized by high interest rates. Therefore, when real interest rates (i.e. the difference between the inflation rate and the nominal interest rate) are negative, this bodes well for alternative assets and when interest rates real interest rates are significantly positive, this may bode ill for alternative assets.

High interest rates hurt alternative assets for the following reasons:

  1. This makes leverage more expensive and generally harder to obtain. Since investments in alternative assets are generally highly leveraged, this can reduce the cash flow yield as well as the total return potential of these investments.
  2. It increases the risk-free premium on alternative assets. If an investor can earn a 5% yield on US government bonds, they are much less likely to buy a toll road or a warehouse at a 5% cap rate, since government bonds are generally considered to be far less risky.

Alternatively, high inflation rates favor alternative assets because:

  1. It drives up the replacement cost of alternative assets, giving them a higher barrier to entry and therefore more pricing power. This in turn pushes the value and cash flow capacity of these assets upwards.
  2. High inflation is usually a symptom of vigorous economic activity, which means that demand for alternative assets is usually stronger.

The outlook for alternative assets remains very positive. Indeed, the real interest rate is deep in the red right now and is unlikely to turn black anytime soon due to the likelihood of persistently high inflation for the foreseeable future. Combined with the incredibly high US government debt and deficit, this makes raising interest rates too high unsustainable.

Third, there is a large and growing wealth gap between the world’s major economies. In order to combat growing resentment and political and social unrest among the general population of these countries, governments are likely to increasingly look to infrastructure projects to help improve the livelihoods of low-income segments of the society. This has already happened in the world’s two largest economies. China has undertaken massive infrastructure and construction initiatives to support its economic growth, while the United States recently passed a bipartisan infrastructure bill and this effort is expected to continue in the future.

Fourth, as the United States and China increasingly face each other on the world stage and compete in developing countries for geopolitical influence, access to valuable natural resources and base facilities strategic military, these countries are investing more and more in the development of the infrastructures of these other nations. While much of the money for these developments comes from governments, often the execution of these contracts and even the ownership and/or operation of these assets are privatized due to efficiency, capacity and risk mitigation.

These four macro trends point to a solid conclusion: real assets are set to boom in the coming years, with competitively positioned global alternative asset managers like BAM and BX poised to benefit hugely.

As BAM noted on slide 7 of its September 2021 investor presentation, in 2000 institutional investors allocated only 5% of their assets to alternatives. By 2021, that number had risen to 30%. By 2030, this number is expected to have doubled to 60%. With trillions of dollars pouring into space, BAM and BX should have another stellar decade ahead of them.

BX Stock Valuation

In addition to bullish macro trends for the company, BX stock currently looks attractively priced.

The forward P/E ratio is 17.37x, well below its five-year average of 26.51x. The price-to-free cash flow ratio also looks sharply reduced from its five-year average, with the current ratio standing at 8.41x compared to its five-year average of 13.09x. Finally, its forward dividend yield is 4.84%, which looks very attractive compared to its five-year average of 3.27%.

More impressively, analysts predict rapid growth in earnings per share, free cash flow and dividend per share over the next five years, with CAGRs of 12.8%, 27.2% and 11.5% provided for each, respectively.

This strong growth will likely be fueled by continued robust fundraising for its various investment funds, coupled with performance incentive fees on these funds, as BX’s superior investment knowledge, talent asset management and its deal flow combine with the bullish macro picture of alternative assets to continue to be robust. returns for its customers and shareholders.

While real estate and private equity have been BX’s two largest investment sectors, BX is also accelerating its growth in retail and insurance investments, more than doubling the size of its presence in these spaces over the past of the past year.

As long as inflation continues to outpace interest rates – which we believe is very likely in the long term given that this is the only way for the most indebted governments (including the US) to remain solvent – BX’s vast real estate and private equity assets Empires should continue to generate strong returns, which should also drive the stock higher over time.

Valuation of BAM shares

BAM stock also looks attractively priced, although its valuation metrics are a bit different than BX. Based on adjusted funds from operations (i.e. AFFO), BAM looks deeply undervalued as it trades at just 11.03x compared to its five-year average of 15.98x. On a price/FFO basis, BAM is also undervalued, with a current multiple of 15.62x from its five-year average of 17.41x, although analysts expect FFO per share to record. an impressive CAGR of 18% over the next five years.

This growth will be driven by BAM’s many growth initiatives, ranging from its strong Green Energy/ESG (BEP) funds (BEPC), its world-leading infrastructure business (BIP) (BIPC), its growing private equity (BBU) (BBUC), its Oaktree-led credit business (OAK), as well as its new ventures in insurance (BAMR), technology, and attracting investment from small investors in addition to its solid network of institutional investors.

Another way to look at BAM’s valuation is to look at the sum of its parts. Its annualized asset management fee in the first quarter of 2022 was $1.9 billion, while its net carried interest was $2.2 billion. Applying a 20x multiple to asset management fees and a 5x multiple to its carried net interest implies a $49 billion valuation for the asset management business. Meanwhile, the invested capital balance sheet had a net worth of $56.9 billion. In total, that puts the company’s total net worth at $105.9 billion, compared to its current market capitalization of $78.3 billion. This implies an upward valuation of around 35% for the stock.

Key takeaway for investors

The macro outlook for alternative assets is extremely optimistic at the moment, and BX and BAM are exceptionally well positioned to benefit from it. Their formidable track record of generating crushing market returns for clients, their global scale and impressive deal flow combine to give them access to an incredible stream of additional assets to manage. On top of that, their stocks look undervalued at the moment and look set to deliver strong outperformance going forward for investors at current prices.

That said, we believe there is a better opportunity in the alternative asset management space than Patria Investments (PAX), so we personally aren’t long on either name at this time. .

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The benefit of Rocket Cos. 63% year-over-year drop to $1 billion https://stormbirds.net/the-benefit-of-rocket-cos-63-year-over-year-drop-to-1-billion/ Tue, 10 May 2022 21:08:48 +0000 https://stormbirds.net/the-benefit-of-rocket-cos-63-year-over-year-drop-to-1-billion/ Rocket Companies Inc., the parent company of Detroit-based mortgage giant Rocket Mortgage, said on Tuesday that first-quarter profits were down about 63% year-over-year as the mortgage industry facing headwinds, including rising interest rates. Rocket posted a net profit of about $1 billion on net revenue of nearly $2.7 billion. That’s down sharply from the first […]]]>

Rocket Companies Inc., the parent company of Detroit-based mortgage giant Rocket Mortgage, said on Tuesday that first-quarter profits were down about 63% year-over-year as the mortgage industry facing headwinds, including rising interest rates.

Rocket posted a net profit of about $1 billion on net revenue of nearly $2.7 billion. That’s down sharply from the first quarter of 2021, when the company reported net income of nearly $2.8 billion on revenue of $4.5 billion.

“Rocket delivered a strong performance in the first quarter and achieved our best purchase and disbursement refinance volume in the first quarter, even as rates rose rapidly,” said Jay Farner, vice president and CEO of Rocket Cos. ., in a press release.

Rocket Mortgage generated approximately $54 billion in closed mortgage volume, down nearly 58% from the same period last year. The company’s gain-on-sale margin for the quarter was 3.01%, compared to 3.74% in the first quarter of 2021.

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How Elliott Associates’ Proposal to Split Two Businesses at Western Digital Can Create Value https://stormbirds.net/how-elliott-associates-proposal-to-split-two-businesses-at-western-digital-can-create-value/ Sat, 07 May 2022 11:51:10 +0000 https://stormbirds.net/how-elliott-associates-proposal-to-split-two-businesses-at-western-digital-can-create-value/ A Western Digital office building is shown in Irvine, California, U.S., January 24, 2017. Mike Blake | Reuters Company: Western Digital (WDC) Business: Western Digital is a leading developer, manufacturer and supplier of data storage devices and solutions and operates in two market-leading franchises: hard disk drives (“HDD”) and NAND flash memory (“Flash”). These two […]]]>

A Western Digital office building is shown in Irvine, California, U.S., January 24, 2017.

Mike Blake | Reuters

Company: Western Digital (WDC)

Business: Western Digital is a leading developer, manufacturer and supplier of data storage devices and solutions and operates in two market-leading franchises: hard disk drives (“HDD”) and NAND flash memory (“Flash”). These two companies came together through the acquisition of SanDisk for $19 billion in 2016, leading the company to diversify its nearly five-decade business away from hard drives and become one of the largest Flash industry players.

Market value: $18.6 billion ($59.45 per share)

Activist: Elliott Associates

Percentage of ownership: ~6.0%

Average cost: n / A

Activist Comment: Elliott is a very successful and shrewd activist investor, especially in the technology sector. Their team includes analysts from leading technology private equity firms, engineers, operational partners – former CEOs and technology COOs. When evaluating an investment, they also hire specialist and general management consultants, expert cost analysts, and industry specialists. They often watch companies for many years before investing and have a large stable of impressive board candidates.

What is happening?

On May 3, 2022, Elliott sent a letter to Western Digital’s board of directors, expressing his belief that the company should spin off its NAND flash memory business. Elliott called on the board to conduct a full strategic review and expressed his belief that such a separation could lead to a stock price of more than $100 per share by the end of 2023.

In the wings

As new “activists” come onto the scene, we have seen a fair amount of “sell the business” activism without a detailed plan or reason. We have been very critical of this style of activism, deeming it short-term and greedy. Activists who did not understand why we were so critical should read Elliott’s letter as an example of a well-thought-out, deeply analyzed, and shareholder-focused strategic activism campaign. Elliott provides a detailed 13-page letter explaining why the two businesses of the company should be separated and a plan to achieve the separation that is in the best interests of shareholders.

The company is one of the world’s largest suppliers of storage components for data infrastructure and has built a successful hard drive business. However, the hard drive industry began a slow decline in 2013 as desktops and laptops switched to faster NAND flash solid-state drives (SSDs). So in 2015, the company announced that it would acquire SanDisk for $19 billion to enter the fastest-growing Flash industry. In the years following this acquisition, the hard drive industry rebounded and once again became a growth market, with Western Digital being one of the two main suppliers of this technology, behind Seagate. Western Digital is today the only company that works with both HDD and NAND flash.

Over the past six years, the company has underperformed in several areas. First, they attempted to realize the strategic synergies of a combined HDD and Flash portfolio, but lost market share in both HDD and Flash. Second, operational missteps have consistently led to missed financial targets, including compound annual growth rate of revenue, gross margins, operating expenses, and operating margin. Third, the company is showing poor stock market performance, with returns of -23.10%, 6.14%, and -39.57% over the past 1, 3, and 5-year periods versus -0.89%, 41 .07% and 74.0% for the S&P 500, respectively. .

In his letter, Elliott makes a compelling argument that the reason Western Digital is underperforming is because the two companies shouldn’t be owned by the same company. Both companies are strong and have a good market share, but would be much more valuable as stand-alone entities. Hard disk and flash are totally different technologies: spinning mechanical disks versus advanced solid-state devices. The manufacturing processes are distinct and although the companies share common customers, the products may compete in certain use cases.

Prior to the SanDisk acquisition, Western Digital consistently had a higher price-to-earnings ratio than its closest counterpart, Seagate. Since the acquisition, Seagate has had a significantly higher price-to-earnings ratio. Today, Western Digital has an enterprise value of $21 billion, compared to the combined pro forma enterprise value of Western Digital and SanDisk of $34 billion when they announced the acquisition there. is six years old, representing an impairment loss of $13 billion. In contrast, during the same period, Seagate increased its enterprise value from $17 billion to $22 billion. When Western Digital announced its acquisition of SanDisk, its stock was trading at $75 per share. Six years later, the stock has fallen almost 30% to $53 per share. During the same period, the S&P 500 and the Nasdaq rose 103% and 190%, respectively. Seagate (the company’s closest HDD counterpart) has outperformed Western Digital by 278% over the past decade, and Micron (its closest NAND counterpart) has outperformed Western Digital by 868% over the past decade. .

Elliott believes that Western Digital’s valuation today reflects the market view that owning HDD and Flash generates a conflict of synergies in terms of operational and financial performance. As a result, they are asking the company to explore a complete separation from the Flash business, which they believe could lead to a stock price of over $100 per share by the end of 2023, and they illustrate the way to get there.

Western Digital’s HDD business has a market share of 38% (compared to 46% for Seagate), revenue of $9.4 billion (compared to $12 billion for Seagate), a growth rate of 21% (compared to 18% for Seagate) and both companies have a gross profit margin of 30%. . Using Seagate’s multiples of 1.8x LTM revenue and 6.1x LTM gross profit, Western Digital’s HDD business would be worth $17 billion.

Western Digital’s flash business generates $10 billion in revenue and similar businesses have been acquired at multiples of 1.7 to 1.9 times revenue. This would attribute a minimum value of $17 billion to Flash activity. But this is not the normal call to strategic action. Elliott puts its money where its mouth is and offers over $1 billion in additional equity in Flash business at an enterprise value of $17 billion to $20 billion, which can be used either in a derivative transaction, either as equity financing in a sale or merger with a strategic partner. Essentially, Elliott is expressing its willingness to participate in the acquisition of the Flash business with a $1 billion investment. So Elliott sees each company valued at around $17 billion, while the company’s total enterprise value is $21 billion.

If Elliott secures the divestment of the Flash business at the value at which they are investing their own money, that would attribute a $4 billion valuation to the entire HDD business. There’s good reason to believe there are buyers for the Flash business, especially with a combination of Western Digital’s Flash business with joint venture partner Kioxia. Western Digital’s interest in acquiring Kioxia is well documented over the years, including a proposal in 2017 and the rumored $20 billion deal value last year (1.7x revenue LTM). Over the past five years, Kioxia has been publicly rumored to receive interest from a long list of other strategic and financial parties.

Their plan may resonate favorably with the company’s current board and management team. The decision to acquire SanDisk predates the company’s CEO, David Goeckeler, and his management team, almost all of whom were hired in 2020 or later. In fact, Goeckeler’s first operational decision was to separate HDD and Flash within Western Digital. It’s not a big step for the board to separate it into a different company, especially since only two of Western Digital’s current ten directors served on the board for the SanDisk acquisition. Also, shareholder activism is about the power of persuasion and the power of argument, and Elliott makes a very compelling argument here.

It should also be noted that Elliott declared an investment of around $1 billion in the company, but did not file a 13D despite having a position of around 6%. Based on their history and philosophy, this is likely because Elliott uses swaps and other derivatives to construct its position and these types of securities are not required to be included in “beneficial ownership”. ” for the purposes of 13D repositories for the time being. The use of swaps in this manner is the subject of a current Securities and Exchange Commission proposal and could very well change in the short term, forcing Elliott to file a 13D in this investment.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist investments 13D. Squire is also the creator of the AESG™ investment category, an activist style of investing focused on improving the ESG practices of portfolio companies.

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Australian ANZ sees margins improve on rate hike, cash profit rises https://stormbirds.net/australian-anz-sees-margins-improve-on-rate-hike-cash-profit-rises/ Wed, 04 May 2022 01:15:00 +0000 https://stormbirds.net/australian-anz-sees-margins-improve-on-rate-hike-cash-profit-rises/ H1 cash profit increased by 4.1% Said on track to grow in line with peers by year end Increase in New Zealand home loan market share Declares a dividend of A$0.72 per share Share up around 2%, best intraday gain since mid-March May 4 (Reuters) – The Australian and New Zealand Banking Group (ANZ.AX) beat […]]]>
  • H1 cash profit increased by 4.1%
  • Said on track to grow in line with peers by year end
  • Increase in New Zealand home loan market share
  • Declares a dividend of A$0.72 per share
  • Share up around 2%, best intraday gain since mid-March

May 4 (Reuters) – The Australian and New Zealand Banking Group (ANZ.AX) beat first-half profit estimates on Wednesday, helped by the release of pandemic-era provisions and home loan growth in New Zealand. Zealand, and expects second half margins to improve as interest rates rise.

The lender said it expects margins to be helped in part by higher deposit-led earnings growth as the banking sector enters a new period of higher lending rates.

The Reserve Bank of Australia announced its first rate hike in more than a decade on Tuesday. The Reserve Bank of New Zealand has raised rates in its last four meetings to levels not seen since June 2019. read more

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“The rate hike – it’s going to hurt some people, it’s going to take money out of people’s pockets. But at this point people are well prepared for it,” chief executive Shayne Elliott said.

Shares in the lender rose 2.1% to AU$27.830, outpacing a 0.7% rise in the benchmark ASX 200 index (.AXJO) and marking ANZ’s biggest intraday pct jump since the March 17.

Driven by higher institutional client revenue, strong New Zealand home lending momentum, cost controls and the release of credit provisions worth A$284 million, cash profit from continuing operations rose 4.1% from a year ago to A$3.11 billion ($2.2 billion). ), ahead of a Visible Alpha consensus estimate of AU$2.99 ​​billion.

However, it fell 3% from the previous half.

“The weak core earnings result should worry investors today,” Citi analysts said in a note. “However, the second half should improve as rising rates begin to push net interest margins higher.”

Net interest margin – a key measure of profitability – rose to 1.58% in the half from 1.65% in the second half of 2021.

“When I look at the environment we had to operate in in the half, I actually think it was a very strong result…we managed margins tightly,” said chief financial officer Farhan Faruqui.

ANZ, which has lost Australian home loan market share since 2019 due to slow processing times, said its capacity had improved over the half-year and was on track to grow at the same pace. than the other major national banks by the end of the financial year.

It also announced plans to create a new listed parent holding company that would control two separate wholly-owned groups of entities: banking and non-banking groups, mirroring the organizational structure of global banks.

The bank declared an interim dividend of 72 Australian cents per share, up from 70 Australian cents a year earlier.

($1 = 1.4088 Australian dollars)

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Reporting by Sameer Manekar and Harish Sridharan in Bengaluru; Editing by Shailesh Kuber and Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

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Growing economic fear hits Wall Street https://stormbirds.net/growing-economic-fear-hits-wall-street/ Fri, 29 Apr 2022 16:27:16 +0000 https://stormbirds.net/growing-economic-fear-hits-wall-street/ But in April, Fed officials began to change their minds, expressed in speeches and other public comments, about how quickly interest rates will need to rise to bring inflation under control, and economic projections of Wall Street have also changed. In the futures market, where traders are betting on possible interest rate hikes, the prevailing […]]]>

But in April, Fed officials began to change their minds, expressed in speeches and other public comments, about how quickly interest rates will need to rise to bring inflation under control, and economic projections of Wall Street have also changed. In the futures market, where traders are betting on possible interest rate hikes, the prevailing view is now that the Fed’s benchmark rate will climb to around 2% by July, which seemed unimaginable there. one more month.

For that to happen, the central bank would have to raise its key rate by half a percentage point at each of its next three meetings, and the fear is that such aggressive increases could trigger an economic crisis, rather than simply chill things enough to slow inflation but keep the economy growing.

“Every time the Fed has spoken, the markets have taken it quite negatively,” said Saira Malik, chief investment officer at Nuveen, a global investment manager. “Investors fear that with these multiple rate hikes, the Fed will cause a recession rather than a soft landing.”

Rising interest rates will affect consumer demand. Mortgage rates, for example, have already jumped to more than 5%, from 3.2% at the start of the year, swallowing up the budget of new home buyers. Other borrowing costs, ranging from consumer loans to corporate debt, will rise as the Fed raises its benchmark rate.

For now, many companies — from United Airlines to PepsiCo — are passing on rising costs and reporting that sales continue to rise.

Economists wonder how long this will last.

“There’s going to be a natural slowdown in spending, maybe before interest rates rise, as costs go up,” said Jean Boivin, director of the BlackRock Investment Institute. “The central bank will have to watch that very carefully because if that happens naturally and then you add interest rate increases, that’s how you get to a recessionary scenario.”

Broadly speaking, this week’s earnings reports showed that earnings growth continues. About 80% of S&P 500 companies that reported results through Thursday did better than expected, according to FactSet data.

But other companies have only added to the downdraft. Netflix plunged after saying last week that it expected to lose subscribers – 200,000 in the first three months of the year and another two million in the current quarter. The stock is down more than 46% for the month.

On Friday, Amazon fell 12% a day after the e-commerce giant reported its first quarterly loss since 2015, citing rising fuel and labor costs and warning that sales would slow. Its shares are down 22% this month.

General Electric warned on Tuesday that the economic fallout from Russia’s invasion of Ukraine would weigh on its bottom line. Its shares fell 10% that day and are down about 16% for the month.

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Allegion exceeds low expectations for 1Q22 but faces many challenges (ALLE) https://stormbirds.net/allegion-exceeds-low-expectations-for-1q22-but-faces-many-challenges-alle/ Thu, 28 Apr 2022 00:34:00 +0000 https://stormbirds.net/allegion-exceeds-low-expectations-for-1q22-but-faces-many-challenges-alle/ andresr/E+ via Getty Images Allegation (NYSE: ALL) is a leading supplier of locks and doors with a wide range of products ranging from simple mechanical assemblies for individual doors in single-family homes to complete high-tech solutions for large buildings. To position yourself well across this wide range of products and customers, the company uses 23 […]]]>

andresr/E+ via Getty Images

Allegation (NYSE: ALL) is a leading supplier of locks and doors with a wide range of products ranging from simple mechanical assemblies for individual doors in single-family homes to complete high-tech solutions for large buildings. To position yourself well across this wide range of products and customers, the company uses 23 brands, eight of which are dedicated to products intended for non-residential customers.

Ingersoll Rand plc, an industrial conglomerate spun off from ALLE in 2013. ALLE has two divisions – Allegion Americas (Americas) and Allegion International (International). Allegion International sells its products on four continents and has manufacturing facilities in 10 countries.

ALLE’s 1Q22 results beat analysts’ expectations but illustrate lingering challenges

ALLE reported adjusted EPS of $1.05 versus analyst estimates of $0.98. The favorable performance compared to expectations is most likely explained by higher than expected price increases. CEO Dave Petratis attributed the 4% revenue growth to a 6% price increase, with a secondary benefit coming from a modest volume increase in the non-residential and international segment in Americas, partially offset by exchange rate headwinds.

ALLE badly needed a significant price increase after inflation eroded its margins in 2021. The table below shows that ALLE exercised pricing power while effectively controlling its costs, which improved its results in 2017-2020. This has changed drastically in 2021.

Impact on operating profit

2021

2020

2019

2018

2017

Pricing

1.8%

1.0%

1.8%

1.6%

1.8%

Excess COGS inflation

-1.2%

-0.2%

1.6%

-0.1%

0.4%

Excessive inflation of general and administrative costs

-0.5%

2.3%

-0.4%

-0.4%

0.6%

Source: SEC Filings

Unfortunately, the sharp rise in prices put an end to the good news for 1Q22 results. ALLE’s operating margin further compressed to 16.2% from 18.9% in 1Q21. According to ALLE’s 10-Q, inflation accounted for 2.1 percentage points of the erosion of 2.7 percentage points. Therefore, it appears that management still has not aligned ALLE’s pricing with its costs despite the significant price increase in 1Q22. On the earnings call, CEO Petratis said the company has advised customers of price increases for 2Q22, but margins may not improve until 3Q22.

ALLE will need to show improvement throughout the year to reach its 2022 Adjusted EPS guidance of $5.55 to $5.75. The chart below suggests that 1Q21 should have been an easy comparison for 1Q22 given that ALLE’s gross margin and operating margin both declined in 2021. A few analysts who participated in the call on results appeared to note that 1Q22 adjusted earnings of $1.05 were below the quarterly rate needed to meet ALLE’s full-year targets. CFO Mike Wagnes said around 60% of revenue will be generated in 2022.

Gross margin and operating margin of ALLE

Chart created in Excel

Gross margin and operating margin of ALLE (SEC Filings)

Source: SEC Filings

Supply chain issues AND rising inventory?

Over the past year, many companies have blamed supply chain issues for negatively impacting their revenue. The media has documented this global macroeconomic problem with particular attention to the problems at two Californian ports. ALLE’s continued assertions of supply chain issues hampering revenue are puzzling as its inventory level increased throughout 2021 and into 2022. The graph below shows that the number of days inventory on hand (DOH) at ALLE increased to 84 at the end of 2021 after remaining in a narrow range of 62-67 since 2015. DOH inventory increased another 3 days in 1Q22 to reach 87 on 31 March 2022, i.e. 19 days longer than on the same date in 2021.

ALLE Inventory and Available Inventory Days

Chart created in Excel

ALLE Inventory and Available Inventory Days (SEC Filings)

Source: SEC Filings

The increase in DOH inventory would make sense if the supply chain problem was centered on logistics and the goods remained on ALLE’s balance sheet because they were stuck in the delivery process. However, that is not how CEO Petratis portrayed the problem in recent earnings calls. Instead, he focused on input shortages.

Poor international results

Turbulence in Europe will only exacerbate Allegion International’s poor performance. The segment generated 27% of ALLE’s revenues in 1Q22, but only 14% of its operating profit. The chart below illustrates that 1Q22 was not an anomaly. ALLE made several acquisitions in Europe which did not develop as expected. The company recorded a charge of $99 million in 2020 for impairment of goodwill and intangible assets from its operations outside of the Americas. There was no impairment for Allegion Americas.

ALLE operating margin by segment

Chart created in Excel

SEC Filings

Source: SEC Filings

Note: Results for International eliminate the impact of the $99 million impairment charge in 2020.

Russia’s invasion of Ukraine could make a bad situation worse. The latest forecast from the International Monetary Fund (IMF) reduces real GDP growth in the European Union in 2022 to 2.8%, down from 3.9% in its previous forecast. The IMF expects Germany, one of Allegion International’s key markets, to be particularly hard hit.

Potential headwind from residential construction

Interestingly, implied management revenue stagnates in residential Americas as they highlighted international and non-residential Americas as growth drivers in 1Q22. The outlook for revenue growth in the residential Americas could be bleak over the next few years. According to the Census Bureau, new home sales fell 6% in 2021 after increasing at an annual rate of 10% between 2011 and 2020. The National Association of Home Builders’ Confidence Index fell 2 points in April , marking the fourth consecutive decline. Additionally, higher mortgage rates could dampen home sales in 2022. Freddie Mac’s mortgage benchmark recently topped 5%, more than 2 percentage points higher than the 2021 average.

Evaluation

The following valuation uses management’s outlook for 2022 and recent trends to project free cash flow (FCF), then values ​​ALLE as an increasing perpetuity. The table below presents ALLE’s FCF forecast for 2022 as well as actual figures for 2019-2021. The comparisons show that the projected 8% free cash flow growth in 2022 is reasonable. Projected free cash flow for 2022 reflects management’s expectation of revenue growth of 7.5% to 9.0% and improved operating results. As mentioned earlier, management guidance looks aggressive based on 1Q22.

($ million)

2019

2020

2021

2022 (fcst)

Revenue

2,854

2,720

2,867

3,104

Gross profit

1,252

1,179

1,205

1,273

SG&A

681

636

675

714

Amortization

15

14

12

11

EBITA

586

557

542

570

Pro forma taxes

76

72

70

74

Pro forma net income

510

485

472

496

Depreciation

47

47

45

45

Capex

78

57

32

35

D Working capital

13

3

34

20

FCF

466

472

451

486

Key indicators

Revenue increase

4.5%

-4.7%

5.4%

8.3%

Gross margin

43.9%

43.3%

42.0%

41.0%

SG&A / Sales

23.9%

23.4%

23.5%

23.0%

Tax rate

13.0%

13.0%

13.0%

13.0%

Source: company documents

It seems reasonable to value ALLE using increasing perpetuity with a terminal growth rate of 3%. Management’s forecast for 2022 includes 8% growth in free cash flow, a proxy for FCF, and analysts expect ALLE’s EPS to grow 8% in 2023. However, these rates growth benefit from comparisons with a weak FCF in 2021 and high inflation. It will be much more difficult for ALLE to systematically increase the FCF above 3% after 2023.

FCF’s rising perpetuity values ​​ALLE at $96, 16% lower than ALLE’s closing on April 26, 2022. It would be reasonable to add $1 to $3 for ALLE’s recently announced acquisition of Stanley Black and Decker’s Access Technology Business for $900 million. ALLE believes there is at least $1 per share in tax savings. Access Technology operates in ALLE’s more profitable Americas segment. Therefore, it is conceivable that management could derive additional value from the acquisition; however, it seems unlikely that the acquisition could bridge the gap between ALLE’s current stock price and the stock price indicated by the model assuming the data is reasonable.

Stock price calculation

Item ($millions)

Value

Source

(A)

FCF0

$486

Pro forma FCF for 2022 in the table above and in line with management guidance of $470m to $490m

(B)

FCF growth rate

3.0%

Selected

(VS)

Risk-free rate

2.8%

https://www.treasury.gov

(D)

Beta

1.14

Yahoo finance

(E)

Market risk premium

5.0%

Damodaran Online: Aswath Damodaran Home Page

(F)

Cost of equity

8.5%

(C) + (D) * (E)

(G)

Debt

$1,440

10-Q as of 03/31/22

(H)

The cost of debt

4.4%

Current yield on corporate debt Baa2

(I)

Effective tax rate

13.0%

Management tips

(J)

WACC

7.9%

(Cost of Equity * Market Cap ($10,110) + Cost of Debt * (1-Effective Tax Rate) * Debt) / (Market Cap + Debt)

(K)

Enterprise value

$9,918

(A) / [(J) – (B)]

(L)

Equity value

$8,478

(KG)

(M)

Outstanding shares

87.8

Yahoo finance

(NOT)

Estimated share price

$96

(G) / (M)

Sources: quoted above

Conclusion

ALLE faces a myriad of challenges. It has not been able to bring its prices in line with its costs to compensate for the rise in inflation. Rising inventory levels and supply chain issues indicate weak operational management. International’s profit margins consistently lag the Americas by a wide margin. Residential Americas seems to be slowing down after a very strong decade of growth. Against this backdrop, it is difficult to envision a combination of FCF and WACC growth rate justifying ALLE’s current stock price of $114.

Share Price Sensitivity to Key Variables

Rate of growth

WACC

7%

8%

9%

ten%

2%

94

76

63

53

3%

122

94

76

63

4%

168

122

94

76

5%

260

168

122

94

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Panel Calls for Higher Labor Rates for Auto Body Shops | Boston https://stormbirds.net/panel-calls-for-higher-labor-rates-for-auto-body-shops-boston/ Sun, 24 Apr 2022 09:15:00 +0000 https://stormbirds.net/panel-calls-for-higher-labor-rates-for-auto-body-shops-boston/ BOSTON — Labor rates at Massachusetts body shops have stagnated for years, according to a new report, which calls on Beacon Hill to increase the amount private insurers pay for repairs to help prop up the industry. troubled industry. The report released by the Legislative Assembly Commission on Auto Body Labor Rates lays out a […]]]>

BOSTON — Labor rates at Massachusetts body shops have stagnated for years, according to a new report, which calls on Beacon Hill to increase the amount private insurers pay for repairs to help prop up the industry. troubled industry.

The report released by the Legislative Assembly Commission on Auto Body Labor Rates lays out a series of options that would ultimately increase body shop labor rates and urges lawmakers to consider several recommendations.

The 13-member panel, which included lawmakers, collision repair shop owners, auto dealers and insurance industry representatives, was created by the Legislative Assembly in 2021 to study the impact of insurance deregulation in the collision industry and whether the rates paid by insurers should be increased.

The panel adopted the report by a vote of 10 to 3, with all three insurance industry representatives voting “no” to its recommendations.

A majority of the commission concluded that bodywork rates need to be increased, but suggested there are several different options for getting there — including passing bills currently pending before the state legislature.

One recommendation, offered by a representative of the Alliance of Automotive Service Providers of Massachusetts, called for a tiered approach to raising rates that would require approval of pending legislation.

He suggested a $33 increase in the minimum reimbursement rate and annual adjustments based on the Consumer Price Index, among other changes.

The report cites federal labor data showing the average collision repair salary in Massachusetts is $47,400, while the annual salary for all industries is $72,940.

Likewise, the average labor rate paid by insurance companies is $40 per hour, which is lower in New Hampshire, New York, and other neighboring states.

The Alliance of Automotive Service Providers of Massachusetts released a scathing statement with the report criticizing insurers for opposing the changes and “not offering viable alternatives or solutions.”

“It’s obvious that as far as they’re concerned, they’re quite happy with a system that artificially removes the labor rate reimbursement amount in a way that can best increase their profits while keeping costs down. generals as low as possible,” the band wrote. . “Unfortunately, those who operate collision repair shops do not have the luxury of cutting out other cost factors in their business to ensure healthy profit margins.”

Legislation proposed by the Massachusetts State Automobile Dealers Association, which was also among the recommendations, would allow the state Division of Insurance to set minimum labor rates for body shops.

In 2008, the state’s insurance division overturned regulations that had set labor rates for body shops since the late 1980s after determining there was sufficient competition in the market. car insurance. This decision essentially allowed auto insurance companies to set their own labor rates.

But the commission’s report noted that these rates have remained largely unchanged over the past 14 years and have not kept pace with increases in similar industries.

The report found that the number of body shops operating in Massachusetts has decreased by 6.5% since 2018, when there were about 1,800 shops statewide. In 2020, there were 1,686 car workshops.

Meanwhile, vocational schools have seen declining enrollment in auto body repair programs as students choose other trades, the report’s authors noted.

“There has been continued concern about the body industry workforce, particularly for collision repair technicians,” the report’s authors wrote. “This sentiment was echoed by body shop owners, dealerships and vocational school representatives.”

Panelist Evangelos “Lucky” Papageorg, executive director of the Massachusetts Alliance of Automotive Service Providers, said the recommendations, if implemented, will institute a “reimbursement rate that reflects expertise, investment and responsibility associated with collision repairs performed in Massachusetts”.

The panel’s report was sent to the House Ways and Means Committee for review.

Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group newspapers and websites. Email him at cwade@northofboston.com.

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CSX 1Q profit jumps 22% on higher rates despite service issues https://stormbirds.net/csx-1q-profit-jumps-22-on-higher-rates-despite-service-issues/ Thu, 21 Apr 2022 22:46:24 +0000 https://stormbirds.net/csx-1q-profit-jumps-22-on-higher-rates-despite-service-issues/ FILE – A CSX freight train passes through McKeesport, Pennsylvania, June 2, 2020. The CSX railroad struggled to keep up with demand in the first three months of the year, though it still managed to generate 22% more profit through higher shipping rates offsetting a slight drop in the number of shipments it handled. The […]]]>

FILE - A CSX freight train passes through McKeesport, Pennsylvania, June 2, 2020. The CSX railroad struggled to keep up with demand in the first three months of the year, though it still managed to generate 22% more profit through higher shipping rates offsetting a slight drop in the number of shipments it handled.  The Jacksonville, Fla.-based railroad said Wednesday (April 20, 2022) that it earned $859 million, or 39 cents per share, in the first quarter.  (AP Photo/Gene J. Puskar, File)

FILE – A CSX freight train passes through McKeesport, Pennsylvania, June 2, 2020. The CSX railroad struggled to keep up with demand in the first three months of the year, though it still managed to generate 22% more profit through higher shipping rates offsetting a slight drop in the number of shipments it handled. The Jacksonville, Fla.-based railroad said Wednesday (April 20, 2022) that it earned $859 million, or 39 cents per share, in the first quarter. (AP Photo/Gene J. Puskar, File)

PA

CSX Railroad struggled to keep up with demand in the first three months of the year, but still managed to generate 22% more profit from higher shipping rates, offsetting a slight decline in the number of shipments processed.

The Jacksonville, Fla.-based railroad said Wednesday it earned $859 million, or 39 cents a share, in the first quarter. That’s up from $706 million, or 31 cents per share, a year ago.

The results exceeded Wall Street expectations. The average estimate from seven analysts polled by Zacks Investment Research was for earnings of 38 cents per share in the latest quarter.

In recent weeks, several rail shipper groups have complained to regulators about rail delays that have forced grain mills, ethanol plants and food producers to sometimes shut down their factories while waiting for trains. Federal regulators plan to hold a hearing on the issues next week.

But the problems predate these complaints. The railroad has struggled for some time to hire the workers it needs as the economy recovers from the pandemic.

“No matter where you go, there’s a labor shortage,” said CSX CEO Jim Foote. “I don’t care if you go to fast food or wherever you go – the lines are longer, there aren’t as many people working as they used to be, and we’re no different.”

Foote said the key to improving service is hiring more workers, and the railroad has made incremental progress in that regard this year. And staffing has improved since the omicron wave of the pandemic peaked in January.

At the start of the year, CSX had only about 6,218 daily active employees on average at the height of the omicron wave in January. That figure rose to 6,459 in February and continued to grow to an average of 6,629 in April as more new employees completed their training.

Foote said demand for the railroad’s services remains strong, but volume was down 2% in the quarter as CSX struggled to handle all shipments. He expects rail operations to continue to gradually improve as more workers board.

Revenue for the freight railroad jumped 21% to $3.41 billion during the period, also beating Street’s forecast. Five analysts polled by Zacks expected $3.29 billion.

Edward Jones analyst Jeff Windau said CSX posted solid profit growth despite hiring and service challenges as it was able to raise fares and charge fuel surcharges higher as diesel prices soar.

CSX said it now expects revenue and operating profit to grow at a double-digit rate this year because demand remains so strong.

CSX Corp. is one of the nation’s largest railroads and operates more than 21,000 miles (34,000 kilometers) of track in 23 eastern states and two Canadian provinces. It recently won approval to add approximately 1,200 miles of track and three additional states to its network later this year when it acquires Pan-Am Railways in the northeastern United States.

_____

Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on CSX at https://www.zacks.com/ap/CSX

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Stocks were little changed as investors weigh on the wave of earnings and downgraded IMF forecasts https://stormbirds.net/stocks-were-little-changed-as-investors-weigh-on-the-wave-of-earnings-and-downgraded-imf-forecasts/ Tue, 19 Apr 2022 15:17:11 +0000 https://stormbirds.net/stocks-were-little-changed-as-investors-weigh-on-the-wave-of-earnings-and-downgraded-imf-forecasts/ U.S. stocks climbed on Tuesday as investors processed a deluge of earnings reports and a revised International Monetary Fund (IMF) forecast that the global economy is set to ‘slow down significantly’ amid Russia’s invasion of Europe. Ukraine. The S&P 500 rose 1.3%, marking its best intraday session in three weeks, and the Dow Jones Industrial […]]]>

U.S. stocks climbed on Tuesday as investors processed a deluge of earnings reports and a revised International Monetary Fund (IMF) forecast that the global economy is set to ‘slow down significantly’ amid Russia’s invasion of Europe. Ukraine.

The S&P 500 rose 1.3%, marking its best intraday session in three weeks, and the Dow Jones Industrial Average jumped 360 points. The tech-heavy Nasdaq Composite rose 1.5% after hitting a one-month low on Monday with the S&P 500. Meanwhile, Treasury yields continued to climb, the index of 10-year US benchmark exceeding 2.9%, the highest since December 2018. .

The IMF said on Tuesday it expects global GDP, a measure of economic growth, to grow 3.6% in 2022 (down from January’s projection of 4.4%) and an additional 3.6% in 2023 (also down from the last projection of 3.8%).

“This crisis is unfolding as the global economy was on the road to recovery but had not yet fully recovered from the COVID-19 pandemic,” IMF economic adviser Pierre-Olivier Gourinchas said.

Quarterly earnings from 69 S&P 500 companies are in the queue for investors to digest through Friday. Big names in the revenue ledger set to be released this week include United Airlines (UAL), American Express (AXP) and Tesla (TSLA).

Netflix (NFLX), which is expected to report quarterly results after the market close on Tuesday, will provide investors with insights into the streaming service’s post-COVID-19 slowing subscriber growth.

On Monday, 53% of the 34 companies in the S&P 500 (comprising 10% of index earnings) that said they beat both sales and earnings per share so far, the Bank of America, slightly better than the typical week 1 beat rate of 47% and the last quarter week 1 rate of 50%. The institution expects EPS above 4% in the first quarter, but anticipates downside risks to estimates for the year 2022, which implies an acceleration in earnings each quarter until next year.

“Pressure on profit margins from rising costs for virtually everything, including labor, materials and transportation, has made this quarter difficult to navigate,” LPL Financial strategists Jeff Buchbinder and Ryan Detrick. “Add in the fallout from the Russian-Ukrainian conflict and intermittent COVID-19 lockdowns in China, and corporate results are hit from multiple directions.”

“Despite the challenging environment, we believe the odds favor companies beating estimates, as they have historically driven by double-digit revenue growth,” Buchbinder and Detrick added. “High inflation translates into higher incomes, so profits can grow at a healthy pace, even with some narrowing in profit margins.”

Unlike BofA, research from FactSet suggests that while analysts have tempered their expectations for Q1 earnings, lowering the bottom-up Q1 overall EPS forecast by 0.7% from $52.21 to $51.83, EPS forecasts for the second, third and fourth quarters are higher. Earnings estimates for all of 2022 also rose 2.2% this year to $228.50 per share.

“The first takeaway for investors should be to watch how your stock reacts more than the news,” Heritage Capital Chairman Paul Schatz told Yahoo Finance Live. “If your stock is bouncing back on bad news, that’s a pretty good sign that the markets have absorbed and digested and priced in the bad news.”

11:16 a.m. ET: Investors await Netflix earnings report after the bell

Netflix (NFLX) is expected to release a quarterly report after market close. Investors are bracing for a further slowdown in growth amid the company’s exit from Russia and growing saturation in its key North American market.

Wall Street expects Netflix to post fiscal first-quarter revenue of $7.95 billion, earnings per share of $2.91 and net subscriber additions of 2.51 million.

If realized, new subscribers of 2.51 million would represent the smallest quarterly addition for Netflix since the second quarter of 2021. Subscribers increased by nearly 4 million during the same quarter last year, and at In total, Netflix had more than 220 million subscribers worldwide as of the end of the last quarter.

Netflix has grappled with slowing user growth for much of the past year, with new users slowing to a trickle after a pandemic-fueled surge in signups. But that slowdown will be further compounded by Netflix’s exit from Russia in early March, which followed the country’s invasion of Ukraine earlier this year. Cowen analyst John Blackledge estimated that Russia has around 1 million Netflix subscribers.

Shares of Netflix rose 3% during intraday trading to $347.99 per share at 11:16 a.m. ET.

9:33 a.m. ET: Stocks stagnate as investors digest earnings, IMF forecast downgraded

Here’s where the major indices were trading at Tuesday’s opening bell:

  • S&P 500 (^GSPC): +3.54 (+0.08%) to 4,395.23

  • Dow (^ DJI): +92.77 (+0.27%) to 34,504.46

  • Nasdaq (^IXIC): -18.72 (-0.14%) to 13,332.36

  • Raw (CL=F): -$3.38 (-3.12%) at $104.83 per barrel

  • Gold (CG=F): -$22.50 (-1.13%) at $1,963.90 per ounce

  • 10-year cash flow (^TNX): +4.3 bps for a yield of 2.9050%

9:08 am ET: IMF says Russian-Ukrainian war will cause ‘significant downturn’ in global economy

The International Monetary Fund (IMF) has said the global economic recovery will “slow down significantly” this year due to Russia’s invasion of Ukraine.

The IMF downgraded growth prospects in Eastern European countries, but also warned that countries around the world would be hit by the disruption in commodity markets as a result of the war. The international body now expects global GDP, a measure of economic growth, to grow 3.6% in 2022 (down from January’s projection of 4.4%) and 3. Another 6% in 2023 (also down from the last projection of 3.8%).

“This crisis is unfolding as the global economy was on the road to recovery but had not yet fully recovered from the COVID-19 pandemic,” IMF economic adviser Pierre-Olivier Gourinchas said.

Russia has seen the biggest downgrade in the IMF report, with the country’s economy now expected to contract 8.5% this year (compared to the 2.8% growth it projected before the invasion ).

8:58 a.m. ET: Housing starts rise, building permits rise in March

US residential construction activity unexpectedly picked up last month, but single-family housing starts fell due to rising mortgage rates.

The Commerce Department said housing starts rose 0.3% in March to a seasonally adjusted annual rate of 1.793 million units last month. Data for February was revised up to a rate of 1.788 million units from the 1.769 million units previously reported. Bloomberg economists expected housing starts to fall to a rate of 1.740 million units.

Permits for future housing rose 0.4% to 1.873 million units last month.

The 30-year fixed-rate mortgage averaged 5.0% in the week ended April 14, the highest since February 2011, from 4.72% the previous week, according to the mortgage finance agency Freddie Mac. Further increases are expected as the Federal Reserve moves forward with its monetary tightening plans.

7:10 a.m. ET: Stock futures near balance, Treasury yield nears 2.9%

Here’s how major benchmarks fared in premarket trading on Tuesday:

  • S&P 500 Futures Contracts (ES=F): -2.75 points (-0.06%) to 4,384.00

  • Dow futures (JM=F): -2.00 points (-0.01%) to 34,311.00

  • Nasdaq futures contracts (NQ=F): -18.25 points (-0.13%) to 13,889.50

  • Raw (CL=F): -$1.59 (-1.47%) at $106.62 per barrel

  • Gold (CG=F): -$5.00 (-0.25%) at $1,981.40 per ounce

  • 10-year cash flow (^TNX): +0.00 bps for a yield of 2.8620%

6:13 p.m. ET Monday: Futures surge as earnings season heats up

Here are the major moves in the markets ahead of overnight futures trading on Monday:

  • S&P 500 Futures Contracts (ES=F): +14.25 points (+0.32%) to 4,401.00

  • Dow futures (JM=F): +104.00 points (+0.30%) to 34,417.00

  • Nasdaq futures contracts (NQ=F): +59.50 points (+0.43%) to 13,967.25

  • Raw (CL=F): -0.77$ (-0.71%) at $107.44 per barrel

  • Gold (CG=F): -$4.90 (-0.25%) to $1,981.50 per ounce

  • 10-year cash flow (^TNX): +3.4 bps for a yield of 2.8620%

A trader works on the floor of the New York Stock Exchange (NYSE) in Manhattan, New York, U.S., April 11, 2022. REUTERS/Andrew Kelly

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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