24/7 Wall St. » RAI

Investors Seeking Defensive Stocks Where 3% to Over 5% Dividends Rule!

Administrator — Mon, 14 May 2012 17:14:54 +0000

A stock market that sells off eight of nine days is not a good market. Even the Facebook IPO is being viewed as a one-off item rather than a systemic item which will make the market stronger. With “Sell in May and go away!” remaining prevalent and with Europe in meltdown as Asia slows, the big question is where to hide. Some investors just refuse to accept the floor-level rates of CDs and Treasury bills and Treasury notes, so they go hide out in the defensive stocks like tobacco, consumer staples, basic level food, utilities, big-pharma, and maybe even those high-yields in telecom. This is a market where defensive stocks should rule the roost.

People are going to buy Coke and Pepsi, most likely, in almost any economy. Pepsico, Inc. (NYSE: PEP) is actually up 0.6% at $67.23 against a 52-week high of $71.89; Coca-Cola Company (NYSE: KO) is down 0.6% at $76.95 against a 52-week high of $77.82. With yields of about 3% on average, these pay about the same as the 30-Year Treasury’s long-bond. The beer segment remains uncorrelated to defensive stocks as it did last week (in part due to currencies): Anheuser-Busch InBev SA (NYSE: BUD) is down by 0.7% at $71.43 and Molson Coors Brewing Company (NYSE: TAP) is down 1.2% at $40.81. Even the best water utility in America via American Water Works Company, Inc. (NYSE: AWK) is down another 1% $33.99 against a 52-week and all-time high of $34.89.

Food is supposed to be defensive. You gotta eat, right? McDonald’s Corporation (NYSE: MCD) is down almost 0.4% at $91.55 and getting further and further away from that $102.22 all-time high recently seen. The rest of the defensive food segment is up to mixed as food is defensive and with dividends:

Kraft Foods Inc. (NYSE: KFT) is up 0.4% at $39.20 with a 3% yield that challenges the long-bond;
ConAgra Foods, Inc. (NYSE: CAG) is down 0.2% at $25.67 with a 3.7% yield that beats the long-bond;
Campbell Soup Co. (NYSE: CPB) is up 0.25% at $34.49 with a 3.4% yield that beats the long-bond;
Hormel Foods Corporation (NYSE: HRL) is down only 0.1% at $29.08 but its 2.1% yield is ‘only’ paying what the 10-year has been paying recently.

Smoking has those nice 5%-plus yields for the defensive tobacco sector: Altria Group Inc. (NYSE: MO) is down only 0.1% at $31.75 against a 52-week high of $32.62; Vector Group Ltd. (NYSE: VGR) is down 0.5% at $16.73; and Reynolds American Inc. (NYSE: RAI) is down only 0.2% at $40.41 against a high of $42.81.

Diapers, toothpaste, deodorant, and shaving… consumer products are acting defensive: Procter & Gamble Co. (NYSE: PG) is down only 0.3% at $63.50 with a 3.5% yield; Kimberly-Clark Corporation (NYSE: KMB) is up by 0.3% at $79.62 with a 3.7% yield; Colgate-Palmolive Co. (NYSE: CL) is down 0.1% at $99.20 but it only pays about 2.5% for a dividend yield.

Drug and medical is mixed to positive: Merck & Co. Inc. (NYSE: MRK) is up by over 0.8% at $38.35 with its 4.4% yield; Pfizer Inc. (NYSE: PFE) is down only $0.01 at $22.64 with its 3.9% yield; and Johnson & Johnson (NYSE: JNJ) is down 0.5% at $64.00 with its 3.8% yield.

Those smartphones and telephones are not acting defensive at all today with Verizon Communications Inc. (NYSE: VZ) down 0.9% at $40.80 with its 5% yield and with AT&T, Inc. (NYSE: T) down 0.7% at $33.36 with a 5.4% yield.

Some investors are willing to suffer from the near-zero return of Treasuries, while others are going to try to look for the safest of stocks to seek safe and steady dividends. The DJIA is down 0.7% and the S&P 500 was down 0.6% at last look. Both are actually much better than what we were looking at just two hours or so ago.

JON C. OGG

Filed under: Defensive Stocks, Dividend Tagged: AWK, BUD, CAG, CL, CPB, HRL, JNJ, KFT, KMB, KO, MCD, MO, MRK, PEP, PFE, PG, RAI, T, TAP, VGR, VZ

The Market Where Defensive Shares Are Working Again (PEP, KO, BUD, TAP, AWK, MCD, KFT, CAG, CPB, HRL, MO, VGR, RAI, PG, KMB, CL, MRK, PFE, JNJ, T, VZ)

Administrator — Tue, 08 May 2012 16:07:03 +0000

Blame whatever you want. A weaker U.S. economy, a weakening and flailing Europe, a move to socialism in France and Greece, a weaker BRIC and emerging market story, commodity prices and on and on… Commodity prices and their tracking shares are getting hosed today. Why does the “Sell in May and go away!” profile often coincide with sell-offs so well?

After the weakness in the broad market has the DJIA down 140 points (or -1.1%) and the S&P 500 Index down 15 points or 1.1%, it turns out that most of the defensive stock sector leaders are holding up far better than the broad market in our go-to defensive stock portfolio. We have taken a look at each of these with share price snapshots right before Noon EST.

No matter what, you gotta drink! Pepsico, Inc. (NYSE: PEP) is down 0.5% at $66.28 against a 52-week high of $71.89; Coca-Cola Company (NYSE: KO) is down 0.4% at $76.97 against a 52-week high of $77.82. With yields of about 3% on average, these are now challenging the 30-Year Treasury yields. The beer segment is not acting defensive as it should, perhaps because they are foreign issues now with more currency risks: Anheuser-Busch InBev SA (NYSE: BUD) and Molson Coors Brewing Company (NYSE: TAP) are not acting very defensive with price corrections of 3% and 2$ respectively.

Perhaps the most defensive you can get is water, and the top water utility is American Water Works Company, Inc. (NYSE: AWK) with a premium valuation. This water leader is down 0.8% at $33.73 against a 52-week and all-time high of $34.89.

Food is supposed to be defensive, although a drop of 1.5% in McDonald’s Corporation (NYSE: MCD) to $94.10 is causing some added stress in what was the darling of the DJIA in 2011. The rest of the defensive food segment seems to be less damaged when you evaluate the moves: Kraft Foods Inc. (NYSE: KFT) is down only 0.4% at $39.11; ConAgra Foods, Inc. (NYSE: CAG) is down 0.7% at $25.52; Campbell Soup Co. (NYSE: CPB) is down only 0.3% at $33.97; and Hormel Foods Corporation (NYSE: HRL) is down only 1 penny at $28.92 as the world is getting excited about Spam again.

Smoking is defensive again and the tobacco stocks are holding up much better than the broad market with those 5% and higher dividends: Altria Group Inc. (NYSE: MO) is down only $0.3% at $32.10 against a 52-week high of $32.62; Vector Group Ltd. (NYSE: VGR) is down only 0.2% at $16.88; and Reynolds American Inc. (NYSE: RAI) is down only 0.2% at $40.18 against a high of $42.81.

Shaving, diapers, toilet paper, and other consumer products are acting defensive with some gains on a weak day. Procter & Gamble Co. (NYSE: PG) is trading up $0.11 at $64.36 and Kimberly-Clark Corporation (NYSE: KMB) is up $0.08 at $79.08 with KMB challenging the 52-week high. Colgate-Palmolive Co. (NYSE: CL) is down ‘only’ 0.5% at $99.10 against a 52-week high of $100.81.

Drug and medical is holding up on the consumer end with losses look far less than the broader market: Merck & Co. Inc. (NYSE: MRK) is down 0.35% at $38.40; Pfizer Inc. (NYSE: PFE) is down 0.3% at $22.38; and Johnson & Johnson (NYSE: JNJ) is down the least with a drop of 0.2% at $64.65 against a 52-week high of $68.05.

Those smartphones and telephones are somewhat defensive, and those 5%-plus yields sure shield investors who are worried about chasing the hottest growth stocks. Verizon Communications Inc. (NYSE: VZ) is down only 1-penny at $40.52 with a 5% dividend yield and AT&T, Inc. (NYSE: T) is actually up 0.2% at $33.08 with a yield of about 5.4%.

When investors want safety and when the Treasury yield is so low on the longer-term Treasury market, many investors turn to the safety of the higher dividends and safer stocks that are defensive. Greece and the rest of PIIGS may fall again, but the logic is that U.S. consumers still have to eat, drink, shave, put on deodorant, and tend to stick with their core vices as best as they can.

JON C. OGG

Filed under: Consumer Goods, Defensive Stocks, Dividend, Drug companies, Food, Telecom, Tobacco Tagged: AWK, BUD, CAG, CL, CPB, HRL, JNJ, KFT, KMB, KO, MCD, MO, MRK, PEP, PFE, PG, RAI, T, TAP, VGR, VZ

Altria Doesn’t Light it Up (MO, RAI, LO, PM)

Paul Ausick — Thu, 26 Apr 2012 11:43:15 +0000

Altria Group Inc. (NYSE: MO), the maker of Marlboro cigarettes and other products, reported earnings this morning that did not match expectations. The consensus estimate for EPS was $0.49 and the revenue estimate came in at $4.01 billion. Last year the company posted EPS of $0.44 on revenue of $3.94 in its first quarter.

Adjusted EPS came in at $0.49, right on the estimate, but revenue of $3.98 billion was low. Total sales came in at $5.1 billion, but tobacco-related settlement charges are backed out. Earlier this week Reynolds American Inc. (NYSE: RAI) and Lorillard Inc. (NYSE: LO) reported soft earnings for the quarter. Only Altria’s sister company, Philip Morris International Inc. (NYSE: PM) beat earnings estimates in the first quarter.

Altria, which also owns about 27% of brewing giant SABMiller, did not get any help from beer sales in the quarter. In all, SABMiller contributed $0.01 to Altria’s adjusted EPS.

And as with Reynolds and Lorillard, cigarette sales volume was down — in Altria’s case -2.5%. (Yes, we know the joke.) Marketing and promotional costs were also higher. Net revenues were down -0.8% year-over-year although operating margins rose 1.5% to 41%.

The company reaffirmed full-year adjusted EPS guidance of $2.17-$2.23. The consensus estimate is $2.20. In the first quarter, share buybacks totaled about $294 million and the company has approximately $378 million remaining of its authorized $1 billion share buyback program. Altria boasts a dividend yield of 5.1%, paying an annual dividend of $1.64/share.

Shares of Altria are up 0.35% in the pre-market at $31.80 in a 52-week range of $23.20-$32.10.

Paul Ausick

Filed under: Consumer Goods, Earnings, Tobacco Tagged: LO, MO, PM, RAI

Reynolds American: Not Smokin’ (RAI, MO, PM, LO, BTI)

Paul Ausick — Tue, 24 Apr 2012 13:04:04 +0000

Tobacco merchant Reynolds American Inc. (NYSE: RAI) reported first quarter earnings this morning, and posted a clear miss. Adjusted EPS came in at $0.63, lower than the consensus estimate of $0.65. Revenues totaled $1.93 billion, lower than the $1.99 billion in the same period a year ago, and lower than the consensus estimate of $1.98 billion.

Last week Philip Morris International Inc. (NYSE: PM) reported better than expected earnings and revenues, and Altria Group Inc. (NYSE: MO), Philip Morris’s US counterpart, reports earnings on Wednesday. Lorillard Inc. (NYSE: LO) reports earnings tomorrow, and British American Tobacco plc (AMEX: BTI) has not yet scheduled its earnings release.

Reynolds, like Philip Morris, was able to raise prices during the first quarter, but unlike its competitor, Reynolds experienced a decline in volume. However, Reynolds expects to meet its existing full-year adjusted EPS guidance of $2.91-$3.01.

Lorillard, which reports earnings tomorrow, is expected to post EPS of $2.00 on revenue of $1.2 billion. Altria, reporting on Wednesday, is expected to post EPS of $0.49 on revenue of $4.01 billion.

All the cigarette makers are facing a packaging challenge that is set to take effect in Australia by the end of this year. Packaging would be standardized with no logos allowed. Instead, makers would be required to include graphic images of the diseases caused by cigarettes along with the brand name in a generic type style. British American Tobacco, and others, are challenging the Australian law, and all could soon be challenging similar laws in New Zealand, Canada, Belgium, Iceland, and France.

Far worse, from the tobacco companies’ point of view, would be the adoption of similar laws in the emerging markets of Asia, where sales are growing. There has been no evidence that such laws will be enacted, but the tobacco companies are keeping a close eye on developments.

From an investors point of view, the tobacco companies are particularly attractive for their dividend yields. Reynolds yields 5.40%, Altria yields 5.10%, Philip Morris yields 3.50%, Lorillard yields 4.50%, and British American yields 5.30%.

Shares of Reynolds are off about -1.7% in the pre-market at $41.00 in a 52-week range of $31.82-$42.81.

Paul Ausick

Filed under: Consumer Goods, Earnings Tagged: BTI, LO, MO, PM, RAI

24/7 Wall St. Closing Bell (AET, MO, MWW, RAI, ZNGA, DRI, DLGC, ACN, BONE, WTSLA, KBH, KITD, CPWM, BTU, PLUG)

Paul Ausick — Fri, 23 Mar 2012 20:06:58 +0000

Markets opened about flat this morning but lost ground almost immediately as new home sales data came in weaker than expected. Then came a report that Iranian crude shipments were falling as a result of US-led sanctions, and that pulled the major indexes into positive territory (our coverage here). By the last hour of trading the indexes were up slightly. The US dollar index fell today, now down -0.47% at 79.360. Commodities were generally higher on the dollar weakness. WTI crude oil closed up 1.4% at $106.87/barrel, and Brent crude trades up 1.56% at $125.06/barrel. Gold settled up 1.2% today, at $1,662.40/ounce, finishing the week up 0.4%..

The unofficial closing bells put the DJIA up nearly35 points to 13,080.73 (0.27%), the NASDAQ rose nearly 5 points (0.15%) to 3,067.92, and the S&P 500 rose 0.31% ormore than 4 points to 1,397.11.

There were several analyst upgrades and downgrades today, including Aetna Inc. (NYSE: AET) cut to ‘neutral’ at Goldman Sachs; Altria Group Inc. (NYSE: MO) raised to ‘outperform’ at Wells Fargo; Monster Worldwide Inc. (NYSE: MWW) raised to ‘outperform’ at Baird; Reynolds Aluminum Inc. (NYSE: RAI) cut to ‘market perform’ at Wells Fargo; and Zynga Inc. (NASDAQ: ZNGA) started as ‘underperform’ at Needham.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Darden Restaurants Inc. (NYSE: DRI) is down -1.9% at $50.85; Dialogic Inc. (NASDAQ: DLGC) is up almost 95% at $1.40; Accenture plc (NYSE: ACN) is up 2% at $64.79 after posting a new 52-week high of $64.88 earlier today; Bacterin International Holdings Inc. (NASDAQ: BONE) is down -26% at $2.49; and Wet Seal Inc. (NASDAQ: WTSLA) is down -7.9% at $3.27.

Other standouts from today include the following stocks:

KB Home (NYSE: KBH) is down more than 9% at $10.20. The homebuilder posted weak earnings and said that orders were down. More coverage here.

KIT Digital Inc. (NASDAQ: KITD) is down more than -23% at $6.25 after posting a new 52-week low this morning of $5.99. The video technology company is going through a management shake-up. More coverage here.

Cost Plus Inc. (NASDAQ: CPWM) is up more than 16% at $18.62 after hitting a new 52-week high of $18.98 earlier today. The company reported good earnings and offered an upbeat forecast. More coverage here.

Peabody Energy Corp. (NYSE: BTU) is down about -0.50% at $30.39. The coal miner said estimates would come in at the lower end of the forecast range. More coverage here.

Plug Power Inc. (NASDAQ: PLUG) is down more than -4% at $1.35. The company had a secondary offering of 1.95 million shares today. More coverage here.

Stay tuned for Monday. Federal Reserve Chairman Ben Bernanke and Philadelphia Fed President Charles Plosser are giving speeches. We have also noted the following events on the schedule (all times Eastern):

8:30 a.m. – Chicago Fed national activity index
10:00 a.m. – Pending home sales index
10:30 a.m. – Dallas Fed manufacturing survey
11:30 a.m. – 3- and 6-month Treasury bill auction

Have a great weekend!

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: ACN, AET, BONE, BTU, CPWM, DLGC, DRI, KBH, KITD, MO, MWW, PLUG, RAI, WTSLA, ZNGA

Top Analyst Upgrades & Downgrades (AET, MO, CVH, CBST, DFS, EXM, HFC, MWW, RAI, XLNX, ZNGA)

Administrator — Fri, 23 Mar 2012 12:20:43 +0000

These are some of the top analyst upgrades, downgrades, and initiations seen from Wall Street research calls this Friday.

Aetna Inc. (NYSE: AET) Cut to Neutral at Goldman Sachs.

Altria Group, Inc. (NYSE: MO) Raised to Outperform at Wells Fargo.

Coventry Health Care, Inc. (NYSE: CVH) Raised to Buy at Goldman Sachs.

Cubist Pharmaceuticals, Inc. (NASDAQ: CBST) Started as Buy at ThinkEquity.

Discover Financial Services (NYSE: DFS) Raised to Conviction Buy List at Goldman Sachs; named Bull of the Day at Zacks.

Excel Maritime Carriers (NYSE: EXM) Cut to Underperform as Bear of the Day at Zacks.

HollyFrontier Corporation (NYSE: HFC) named as value stock of the day at Zacks.

Monster Worldwide, Inc. (NYSE: MWW) Raised to Outperform at Baird.

Reynolds American Inc. (NYSE: RAI) Cut to Market Perform at Wells Fargo.

Xilinx Inc. (NASDAQ: XLNX) Cut to Hold at Auriga.

Zynga Inc. (NASDAQ: ZNGA) Started as Underperform at Needham.

If you enjoyed the top analyst upgrades and downgrades, you can join our free email newsletter that includes analyst summaries each morning sent right to your inbox. We also cover top issues such as IPOs, special financial exclusives, mergers and more. Sign up in the box below.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Analyst Calls Tagged: AET, CBST, CVH, DFS, EXM, HFC, MO, MWW, RAI, XLNX, ZNGA

24/7 Wall St. Closing Bell (YUM, DMD, NLY, MS, UBS, AGU, CVS, RL, RAI, TWX, DIS, WYN, BWLD, CSCO, CZR, FFN, TNK, AKAM, NURO)

Paul Ausick — Wed, 08 Feb 2012 21:06:49 +0000

The US equity markets opened slightly higher this morning, but soon turned around and spent the rest of the morning lower before returning to about even by afternoon. Equities could close at or near where they opened today. The lack of a decision on the Greek debt swap deal is leading investors to exercise caution both in Europe and the US. If the new Greek deal is anything like the last dozen or so, it will send markets up as soon as it is announced; and once people have a chance to read the details, markets will turn south again. Crude is higher today, with WTI up 0.51% at $98.91/barrel and Brent up 1.24% at $117.67/barrel. Gold closed down -0.73% at $1,735.60/ounce.

The unofficial closing bells put the DJIA up about 6 points to 12,883.95 (0.04%), the NASDAQ rose nearly 12 points (0.41%) to 2,915.86, and the S&P 500 rose 0.22% or about 3 points to 1,349.97.

There were several analyst upgrades and downgrades today, including Yum! Brands Inc. (NYSE: YUM) cut to ‘neutral’ at Goldman Sachs; Demand Media Inc. (NYSE: DMD) cut to ‘underweight’ at Morgan Stanley; Annaly Capital Management Inc. (NYSE: NLY) cut to ‘market perform’ at FBR; Morgan Stanley (NYSE: MS) cut to ‘hold’ at Collins Stewart; and UBS AG (NYSE: UBS) cut to ‘sell’ at Deutsche Bank.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Agrium Inc. (NYSE: AGU) is up 2.16% at $82.95; CVS Caremark Corp. (NYSE: CVS) is up 1.18% at $43.59 after posting a new 52-week high of $44.08 earlier in the day; Ralph Lauren Corp. (NYSE: RL) is up 9.8% at $172.50 after posting a new 52-week high of $178.47 earlier today; Reynolds American Inc. (NYSE: RAI) is down -1.35% at $39.57; Time Warner Inc. (NYSE: TWX) is up 0.3% at $38.21 after posting a new 52-week high of $39.23 earlier today; Walt Disney Co. (NYSE: DIS) is up 0.95 at $41.34; Wyndham Worldwide Corp. (NYSE: WYN) is up 5.6% at $43.22 after posting a new 52-week high of $43.36 earlier today; and Buffalo Wild Wings Inc. (NASDAQ: BWLD) is up nearly 17% at $82.04 after posting a new 52-week high of $82.45 earlier today.

Our preview of tomorrow’s earnings releases is here. Also see our coverage of earnings for Cisco Systems Inc. (NASDAQ: CSCO) due after markets close today

Other standouts from today include the following stocks:

Ceasars Entertainment Corp. (NASDAQ: CZR) is up more than 70% at $15.32. The casino owner completed its IPO today, with 1.8 million shares going out at $9/share. We have some issues with this IPO.

FriendFinder Networks Inc. (NASDAQ: FFN) is up nearly 33% at $1.95. The adult dating site had no news today, so this must just be more halo effect from Facebook — or something else.

Teekay Tankers Ltd. (NYSE: TNK) is down more than -12% today at $3.98. The shipping company this morning priced a secondary stock offering of 15 million shares at $4/share.

Akamai Technologies Inc. (NASDAQ: AKAM) is up about 2% at $34.33. The internet company acquired a Canadian company today, and reports earnings after markets close today. We have more coverage here.

NeuroMetrix Inc. (NASDAQ: NURO) is down more than -17% at $0.95 after posting a new 52-week low of $0.94 earlier today. The medical device maker priced a secondary offering of 10.5 million shares at $1/share this morning.

Stay tuned for Thursday. We have noted the following events on the schedule (all times Eastern):

8:30 a.m. – New unemployment benefits claims
10:00 a.m. – Wholesale trade report
10:30 a.m. – EIA weekly natural gas storage report
1:00 p.m. – Treasury 30-year bond auction
4:30 p.m. – Federal Reserve balance sheet and money supply

Paul Ausick

Filed under: 24/7 Wall St. Wire Tagged: AGU, AKAM, BWLD, CSCO, CVS, CZR, DIS, DMD, FFN, MS, NLY, NURO, RAI, RL, TNK, TWX, UBS, WYN, YUM

Top Earnings Previews For Wednesday (AKAM, CSCO, CSC, ENB, GRPN, IM, ICE, LVLT, MCO, NWSA, PNG, PAA, PRU, RL, RAI, S, TWX, VICL, V, WFM)

Administrator — Tue, 07 Feb 2012 18:30:51 +0000

We are entering into the last waves of the normalized quarterly earnings reports for companies with December 31 quarter-end dates, and we are entering the first waves of the earnings reports from companies with off-normal quarter-ends. Wednesday is going to be another busy day with many earnings.

The earnings previews are for the following: Akamai Technologies, Inc. (NASDAQ: AKAM); Atmel Corporation (NASDAQ: ATML); Cisco Systems Inc. (NASDAQ: CSCO); Computer Sciences Corporation (NYSE: CSC); Enbridge Inc. (NYSE: ENB); Groupon Inc. (NASDAQ: GRPN); Ingram Micro Inc. (NYSE: IM); IntercontinentalExchange Inc. (NYSE: ICE); Level 3 Communications Inc. (NASDAQ: LVLT); Moody’s Corporation (NYSE: MCO); News Corp. (NASDAQ: NWSA); PAA Natural Gas Storage L.P. (NYSE: PNG); Plains All American Pipeline L.P. (NYSE: PAA); Prudential Financial Inc. (NYSE: PRU); Ralph Lauren Corporation (NYSE: RL); Reynolds American Inc. (NYSE: RAI); Sprint Nextel Corporation (NYSE: S); Time Warner Inc. (NYSE: TWX); Vical Inc. (NASDAQ: VICL); Visa Inc. (NYSE: V); and Whole Foods Market Inc. (NASDAQ: WFM).

We have compiled earnings preview on each company using Thomson Reuters consensus estimates and added color on each if applicable. Some are market moving, some are sector moving, and some are just interesting for traders to watch around the earnings reports.

Akamai Technologies, Inc. (NASDAQ: AKAM) has estimates of $0.40 EPS and $311.26 million in revenues.

Atmel Corporation (NASDAQ: ATML) has estimates of $0.09 EPS and $401.5 million in revenues. Growth is gone, but it still screens as value.

Cisco Systems Inc. (NASDAQ: CSCO) has estimates of $0.43 EPS and $11.23 billion in revenues. Preliminary preview notes are available.

Computer Sciences Corporation (NYSE: CSC) has estimates of $0.58 EPS and $3.98 billion in revenues. As a reminder, CSC has warned on earnings. This one shows up as a value stock in all sorts of investor screens but it is a value trap.

Filed under: 24/7 Wall St. Wire, Calendar, Earnings Tagged: AKAM, CSC, CSCO, ENB, GRPN, ICE, IM, LVLT, MCO, NWSA, PAA, PNG, PRU, RAI, RL, S, TWX, V, VICL, WFM

Investors Quit Smoking As 2012 New Year Resolution (MO, LO, RAI, PM)

Administrator — Tue, 03 Jan 2012 13:59:00 +0000

It was not that long ago that Altria Group Inc. (NYSE: MO) was removed from our 2012 Model Dividend Portfolio. Our take was that the metrics of the domestic tobacco industry were changing to where the only way that earnings can grow is if cigarette companies start raising prices at a faster pace than the case volumes are falling. This is the only way that Altria and other can grow that dividend. We may be early by a year, but the reality is that we would not become excited about Altria unless shares were to come back down to $27 or even $26 before giving it a visitation again.

We did not substitute Reynolds American Inc. (NYSE: RAI) nor Lorillard, Inc. (NYSE: LO) for Altria in the dividend portfolio because of the industry woes being present. As far as Philip Morris International, Inc. (NYSE: PM), it has other issues like currencies to deal with, as well as having a lower dividend rate and even some nations increasing their legal actions against tobacco.

apparently Barron’s feels the same in the concerns. We expected the cover story this last weekend to be about all of the outlooks for a better 2012 or something more broad. Instead, the cover story was “Up In Smoke” with the note that Altria’s prospects are low with the cigarette sector outlook being bad and with Marlboro losing market share as cheaper brands are winning out.

Barron’s take… Altria could fall 15%, and with shares having been around $30.00 that could take the stock back under $26.00.

Altria shares are trading down 3.3% at $28.67 after a $29.65 close on Friday. Apparently investors are giving up on smoking for a new year resolution as well.

If you want to gain access to the 2012 Model Dividend Portfolio, simply sign up in the box below for our morning email list to hear about analyst upgrades and downgrades, moves from Warren Buffett and other top gurus, and other key features from the 24/7 Wall St. staff.

JON C. OGG

Filed under: Consumer Goods, Corporate Governance, Dividend, Shareholder Issues, Tobacco Tagged: LO, MO, PM, RAI

Investors Risk Chasing Yield Too Much In Tobacco Dividends (MO, T, RAI, LO, PM)

Administrator — Wed, 21 Dec 2011 19:01:48 +0000

The continued rise in tobacco stocks is certainly cheered by tobacco stock investors who own the stocks for the high dividends. The problem is that there seems to be a phantom premium now being built into tobacco stocks for new investors buying now. It is starting to look and feel a lot like investors are in a classic “chasing yield” strategy right now.

Altria Group Inc. (NYSE: MO) has now hit a new adjusted high and shares have even crossed above the $30.00 threshold. When we recently questioned how safe these tobacco dividends were earlier in December, Altria shares were around $28.65. When we eliminated the tobacco sector from our 24/7 Wall St. 2012 Model Dividend Portfolio, the admission was that it might be a tad soon but that the share price was getting ahead of the underlying fundamentals.

Our take is that Altria would become very attractive again if it was to get closer to $25.00. Admittedly, that might be closer to $26.50 now that investors have proven willing to invest in Altria above $30.00. Altria’s 5.6% yield now compares to a dividend yield north of 6% for telecom giant AT&T Inc. (NYSE: T).

The tobacco sector is still a safe haven to hide in during market sell-offs, but the longer-term risk/reward is reaching above our parameters for investors with a 5-year or longer horizon.

We have not added Reynolds American Inc. (NYSE: RAI) nor Lorillard Inc. (NYSE: LO) as replacement stocks for Altria in the Model Dividend Portfolio. Again, if the share prices come back down then our interest may increase. The good news is that Philip Morris International, Inc. (NYSE: PM) still has a safe dividend and it has plenty of income coverage to hike in the future. The international tobacco play has “only” a 4.1% dividend yield and it has extreme currency risks. The last hike was a large one from $0.64 to $0.77, and even if the company made the sale nominal jump to $0.90 per quarter it would be paying out less than 70% of its expected income per share.

Our belief is that the domestic tobacco market has too many headwinds in the future, but none of the threats are legal cases. The biggest fear is that Joe Public has finally made a healthier move and more smokers are dropping out of the population. Some die, but some quit.

Over the last month we have read about price hikes being passed down to distributors. After all, it isn’t really as if the stores can substitute out Joe Camel for the Marlborough man or vice versa. Lorillard was shown to be passing on a $0.06 per pack hike, while a nickel hike was coming from Altria and Reynolds. What if the government or distributors argue that there is price collusion happening? Too many price hikes may eventually at some point drive away more smokers. States, cities, and counties keep turning to tobacco sales for higher taxes as well.

Investors should be at least concerned that the only way to grow earnings is by price hikes to keep juicing up the dividends. Case volumes keep shrinking and operating costs and tobacco crop prices ultimately can only be cut so much. There are only so many ways to diversify for growth as well. Smokeless tobacco has been one push, and the non-tobacco “e-cigs” are another…

We still maintain that the endless tobacco dividend hike game is yet entirely over. At the current pace, we could easily see one more annual dividend hike or maybe even two. Altria’s quarterly dividend went from $0.38 to $0.41, Reynolds went from $0.53 to $0.56, and Lorillard has now had four quarters of a $1.30 payout. These dividends are now all under 6% because the share prices have risen enough.

When we eliminated tobacco from the 2012 Model Dividend Portfolio, we noted, “Our admission is a simple and humble one: we may be too early on this call. You have been hearing about the death of the tobacco industry for years.” Tobacco is here today and will still be here tomorrow.

The biggest fear for investors is that some time in the next year or two it could be the time that one of the tobacco giants says “We cannot afford to hike our dividend this year, but we hope to next year.” If investors ever fear that to be the case, then that will mark the end of the tobacco run.

Except for Lorillard, the stocks are above the consensus analyst price targets: Altria’s target is $29.00 with a share price above $30.00 and Reynolds American’s share price is $41.71 versus a target price of $40.75.

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JON C. OGG

Filed under: Dividend, Tobacco Tagged: LO, MO, PM, RAI, T