Posts Tagged ‘Fundamental Analysis’
U.S. Firms Build Up Record Cash Piles
U.S. companies are holding more cash in the bank than at any point on record, underscoring persistent worries about financial markets and about the sustainability of the economic recovery. The Federal Reserve reported Thursday that nonfinancial companies had socked away $1.84 trillion in cash and other liquid assets as of the end of March, up 26% from a year earlier and the largest-ever increase in records going back to 1952. Cash made up about 7% of all company assets, including factories and financial investments, the highest level since 1963.
While renewed confidence in corporate-bond markets has allowed big companies to raise a record amount of money, many are still hesitant to spend the cash on hiring or expansion amid doubts about the strength of the recovery. They are also anxious to keep cash on hand in case Europe’s debt troubles lead to a new market freeze. ”Cash is still king,” said Jeff Hand, chief operating officer at Ross Controls, a Troy, Mich., maker of pneumatic valves and other products that is holding more cash as it struggles to recover from a sharp drop in business last year. “We’re coming out of that, but the uncertainty is still there.”
The rising corporate cash balances could represent a longer-term behavioral shift in the wake of the deepest financial crisis in decades. In the darkest days of late 2008, even large companies faced the threat that they wouldn’t be able to do the everyday, short-term borrowing needed to make payrolls and purchase inventory. ”We just went through this liquidity crunch that’s made them realize the value of a dollar in hand,” said John Graham, an economist at the Duke Fuqua School of Business.
Even now, banks continue to pull back on lending. The Fed reported Thursday that net lending by the financial sector–including banks, credit unions and other lenders–was down 5.4% in March from a year earlier. The comfort of having cash on hand, though, comes at a high price companies may not be willing to pay for much longer. They are earning almost no interest on their holdings of cash, making it more difficult for them to achieve the returns shareholders typically expect from them. That will put pressure on companies to pare down the cash holdings eventually. “Stockholders don’t want them to keep sitting on cash at a zero return,” said Paul Kasriel, an economist at Northern Trust. ”They’re going to use it either to increase hiring and investment or to make payouts to shareholders in the form of dividends or share buybacks”, he said.
Earlier this week, retailer Target Corp. raised its quarterly dividend to 25 cents a share from 17 cents, saying that the company’s cash holdings were “well above the amount needed for optimal reinvestment in our core business.” When it reported results for its fiscal quarter ended May 1 on Monday, Philadelphia auto-parts and service retailer Pep Boys–Manny, Moe & Jack said it had $87.8 million in cash on its balance sheet, versus $21.3 million a year earlier.
But in a call with analysts Tuesday, Chief Financial Officer Ray Arthur suggested the company would soon be putting the money into capital investments. “I just wouldn’t plan on seeing $80 million or $90 million at the end of every quarter on our balance sheet,” he said. In a recent survey of company chief financial officers that Duke’s Mr. Graham conducted with CFO Magazine, he found that companies expect capital spending to increase by 9% over the next year, compared with 1.5% when he asked the question in December. They expect employment to grow by 0.7%, compared with the 1.4% drop they expected six months ago.
Cash has piled up at Hooker Furniture Corp., based in Martinsville, Va. The company has seen increasing demand for the upholstered furniture it makes in the U.S., which it has found usually leads demand for the other furniture it imports from China. Hooker is being cautious nonetheless. When it reported results Monday, the company said it had $38.7 million in cash and other highly liquid assets on its balance sheet in its fiscal quarter ended May 2, up from $26.2 million a year earlier. “We’re a fairly conservative company, and keeping our powder dry makes sense to use,” said Hooker Chief Financial Officer E. Larry Ryder. Mr. Ryder says he sees the cash as a sort of insurance fund to make sure he can buy the raw materials and other inventory he will need to meet demand if business picks up. The company has cut its inventories to $38.5 million from $47.1 million over the past year. “We don’t want to tie our cash up to the point that we don’t have the liquidity we need to accumulate inventory when we need it,” said Mr. Ryder.
Companies’ willingness to use their cash will play a major role in the strength of the recovery at a time when consumers need jobs to support their spending and many people are still trying to repair their finances. The Federal Reserve data showed households making some progress in paring down their debt, which fell at a 2.5% annual rate in the first quarter as credit remained tight and more homeowners defaulted on their mortgages. Household net worth– the value of houses, stocks and other investments, minus debts– rose for a fourth straight quarter as markets continued to rebound. At $54.6 trillion, though, it was still $11.3 trillion below its 2007 peak of $65.9 trillion.
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S&P 500 Snaps 2-Day Losing Streak
A wide range of U.S. stocks, including DuPont, Bank of America and Exxon Mobil, climbed Tuesday, indicating increased confidence in the U.S. economy, although continued worries about the European economy kept the gains in check.
The Standard & Poor’s 500 index rose 11.53, or 1.10%, to 1062.00, its first gain in three days. All of the measure’s sectors rose, with materials in the lead while the technology sector lagged.
DuPont led the Dow Jones’ gains with a jump of 1.40, or 4.1%, to 35.49, after the company’s finance chief reiterated DuPont’s earnings forecast for the next few years. Among the Dow’s other top performers, Bank of America climbed 50 cents, or 3.4%, to 15.33. Exxon Mobil advanced 1.94%, or 3.3%, to 61.24, lifted by an increase in crude-oil futures to nearly $72 a barrel.
McDonald’s climbed 1.63, or 2.4%, to 68.38. The fast-food giant’s global same-store sales rose 4.8% in May, exceeding some analysts’ views, although the company said it anticipates foreign-exchange rates, especially a weakening euro, to hurt earnings for the year.
Intel was among the Dow’s few decliners with a drop of 13 cents, or 0.6%, to 20.18, on Nasdaq. Susquehanna Financial Group cut its investment rating on the chip maker’s stock to neutral from positive, citing signs of weakness in the personal-computer market.
The Nasdaq Composite slipped 3.33, or 0.15%, to 2170.57, its lowest close since Feb. 10. Weighing on the measure, Amazon.com slid 3.18, or 2.6%, to 118.83, eBay declined 14 cents, or 0.7%, to 21.69, and Google was off 74 cents, or 0.2%, to 484.78, all on Nasdaq. Bank of America Merrill Lynch cut its 2011 estimates on those stocks and several others in the technology sector, citing the U.S. dollar’s climb, among other factors.
Amazon was also hurt by competitive concerns after Apple Chief Executive Steve Jobs said Monday that iBooks, the e-reading application on its iPad tablet computer and soon coming to the iPhone and iPod Touch, has helped it capture a 22% share of e-book sales–an area previously dominated by Amazon’s Kindle e-reader. Still, Apple (Nasdaq) gave back 1.61, or 0.6%, to 249.33.
The action followed reassuring comments from Federal Reserve Chairman Ben Bernanke that the U.S. economy will continue to recover, although not at a pace strong enough to bring unemployment down quickly. The Fed chief said the U.S. recovery probably began sometime late last summer and that consumer spending and business investments appear to be taking over from the fading government stimulus in lifting the economy.
However, investors remained concerned about Europe’s sovereign-debt issues, especially after Fitch Ratings cautioned that the U.K.’s fiscal challenge is “formidable” and warrants a faster pace of deficit reduction than was outlined in the April 2010 budget issued by the previous Labour government.
Uncertainty over the oil spill in the Gulf of Mexico also continued to weigh on the market.
“Our view has been that we’re going to probably have to suffer the whole summer before the market participants will look at it and say things have settled down over there” in Europe as well as with the oil spill, said Linda Duessel, equity-market strategist at Federated Investors. “All this uncertainty has to be suffered as we make our way though the summer months.”
Goldman Sachs cut its investment ratings on offshore drillers Transocean, Diamond Offshore and Noble with a prediction the six-month deep-water drilling moratorium becomes 12 months. The moratorium affects an estimated 20% of global capacity, the firm wrote, which is likely to keep pricing under pressure. Meanwhile, reports that Diamond was dealing with another oil leak in the Gulf of Mexico only created more uncertainty. Transocean tumbled 2.84, or 5.8%, to 46.33, while Diamond Offshore declined 2.27, or 3.8%, to 56.94, and Noble dropped 39 cents, or 1.4%, to 27.34.
Dollar General rose 60 cents, or 2.1%, to 29.83. The discount retailer’s fiscal first-quarter earnings jumped 64% as shoppers responded positively to new brands of merchandise, such as Hanes underwear, and while the company also improved global sourcing to reduce product costs. Dollar General also boosted its earnings target for the year.
ConAgra Foods rose 44 cents, or 1.8%, to 24.44, after the packaged-foods company said it would sell its operations that make dehydrated and fresh vegetable products to Olam International, a Singapore-based company, for $250 million.
Corning climbed 1.05, or 6.6%, to 17.05. Bernstein upgraded its investment rating on the stock to outperform from market perform, saying Corning’s scratch and shatter-resistant panels for laptops and phones could become Corning’s second-biggest business after LCD panels.
Tellabs (Nasdaq) declined 44 cents, or 6.5%, to 6.37. Morgan Stanley cut its investment rating on the shares of the company, which designs and markets equipment for communications-services providers, to equal weight from overweight. In making the downgrade, the firm said it believes AT&T is planning a “relatively quick transition away” from Tellab’s 8860 multi-service router.
American depositary shares of ABB edged up 46 cents, or 2.8%, to 16.73. Standard & Poor’s Ratings Services upgraded its credit rating on the Swiss engineering giant by one notch, saying the company’s performance is proving to be more resilient to the challenging market conditions than the ratings agency previously expected.
Motorola eked out a gain of 9 cents, or 1.4%, to 6.66. The telecommunications-equipment company raised the maximum debt it will repurchase by $100 million, to $500 million, as it has seen solid response to a pair of tender offers.
Tenet Healthcare fell 31 cents, or 6.1%, to 4.80. CRT Capital Group noted the company’s consideration of a deal with Australian hospital operator Healthscope “has pushed investor trust in management to new lows,” even though Tenet already dropped pursuit of the company. “Our concern at this juncture is that investors now have no clear understanding of management’s future strategy,” and are uncertain about Tenet’s hospitals’ ability to generate meaningful cash flows, the firm added.
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G-D Bless America
By this I mean, of course, none other than the US Dollar. Oh Mighty One!! Bestow your blessings on our fluctuating currency, for ’tis to be majestically and majically going up again against all fundamental odds. It’s been very hard to follow, much less to invest by. As these lines are written the US Dollar Index Futures have been going upwards nicely, breaking their previous daily downwards movement which could hardly be called a trend. The strong upward trend is confirmed today with the gap up that was caused by good world-wide news over the weekend. This trend is not expected to end soon. But, as I always have written when addressing the Dollar, any upwards trend is only a correction of the long-term downwards pattern that has plagues the Dollar since the start of this current Depression. Check out the chart to enlighten you to the short-term facts and the strong possibility that this short-term trend pattern will continue for some time to come.
This is the way the Chart looks:
