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TANKS SENT INTO THE BALTICS
United Parcel Service Inc was stung by the rapid shift to e-commerce this past holiday season as higher costs from a glut of package deliveries hurt the bottom line. The Atlanta based carrier posted higher sales in its fourth quarter, but profit margins fell as its home deliveries outpaced its more profitable business to business segment. UPS pledged to spend $4 billion this year, a 33% increase from 2016 as it tries to keep up cith consumers' shift to online shopping. E-commerce brings challenges, it certainly brings great opportunities UPS chief Executive David Abney said Tuesday. UPS said 55% of shipments in the quarter were to residential addresses, including 63% of all deliveries in December. The company is trying to offset the added costs of those deliveries with new routing systems that optimize routes and bundling orders to be delivered on certain days. UPS reported a loss of $239 million for the quarter, compared with a profit of $1,33 billion a year earlier.
JANUARY NEWSLETTER 2
AT&T MISSES EARNINGS FORECAST
UPS BATTLES COST FROM E-COMMERCE
Apple Inc. (NASDAQ: AAPL) is scheduled to report its fiscal first-quarter financial results on Tuesday after the markets close. The consensus estimates from Thomson Reuters call for $3.22 in earnings per share (EPS) and $77.38 billion in revenue. In the same period of last year, the consumer electronics giant posted EPS of $3.28 and $75.87 billion in revenue.
24/7 Wall St. also has put together a preview for all the Dow companies reporting this coming week.
Apple is among the most visible and popular brands in the world. It has become so large that it is the largest nongovernmental company, and it has a cash trove that is larger than the treasuries of most nations.
Despite all the positive sentiment that most analysts have surrounding Apple, one issued a call that was not in line with the general consensus. Earlier this month, Barclays downgraded Apple to an Equal Weight rating from Overweight and lowered the price target to $117 from $119. The good news here for the Apple bulls is that this downgrade has a lot of a valuation ring to it, even if some fundamental issues were brought up.
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There is a fear that iPhone sales will prove to be lackluster during this year. Barclays also pointed to the lack of major issues to move the needle in 2017. What is really being said here, particularly in light of such a close analyst target price, is that Apple is going to be dead money. Not all analysts agree with Barclays, but some other recent analyst calls express some of the same concerns.
Prior to the release of the earnings report, a fair number of other analysts weighed in on Apple:
Bernstein reiterated an Outperform rating.
Credit Suisse reiterated an Outperform rating with a $150 price target.
Piper Jaffray reiterated an Overweight rating with a $155 price target.
JPMorgan also reiterated an Overweight rating.
RBC Capital Markets reiterated an Outperform rating with a $125 target.
Baird reiterated an Outperform rating with a $133 price target.
Cowen reiterated an Outperform rating.
Macquarie has an Outperform rating with a $148 price target.
Merrill Lynch has a Buy rating with a $140 price target.
Morgan Stanley reiterated an Overweight rating with a $148 price target.
Goldman Sachs reiterated a Buy rating with a $133 price target.
So far in 2017, Apple has outperformed the broad markets, with the stock up 5.3%. Over the past 52-weeks, the stock is up nearly 30%.
Shares of Apple closed Friday at $121.95, with a consensus analyst price target of $133.40 and a 52-week trading range of $89.47 to $122.44.
APPLE SERVICES GROW
Apple Inc. (NASDAQ: AAPL) reported fiscal first-quarter financial results after markets closed on Tuesday. The iPhone giant posted $336 in earnings per share (EPS) and $78.4 billion in revenue, versus consensus estimates from Thomson Reuters that called for $3.22 in EPS and $77.38 billion in revenue. The same period from last year had $3.28 in EPS and $75.87 billion in revenue.
The company reported its segments as:
The iPhone segment shipped a total of 78.29 million units for total revenue of $54.38 billion, an increase of 5% in units and 5% in revenue year over year.iPad shipped 13.08 million units for $5.53 billion in revenue, a decrease of 19% in units and a decrease of 22% in revenue from the same period last year.The Mac segment shipped 5.37 million units for a total of $7.24 billion in revenue, with units rising by 1% and revenue rising by 7%.Services revenues rose 18% year over year to a total of $7.17 billion in revenue.
Other Products had revenues that totaled $4.02 billion which was down 8% from last year.
In terms of guidance for the fiscal second quarter, the company is calling for revenues in the range of $51.5 billion to $53.5 billion with a gross margin between 38% and 39%. The consensus estimates are calling for $2.09 in EPS and $53.94 billion in revenue for the coming quarter.
Apple’s board of directors has declared a cash dividend of $0.57 per share of common stock, which will be payable on February 16, for shareholders of record on the close of February 13.
Tim Cook, CEO of Apple, commented:
We’re thrilled to report that our holiday quarter results generated Apple’s highest quarterly revenue ever, and broke multiple records along the way. We sold more iPhones than ever before and set all-time revenue records for iPhone, Services, Mac and Apple Watch. Revenue from Services grew strongly over last year, led by record customer activity on the App Store, and we are very excited about the products in our pipeline.
On the books, cash, cash equivalents, and marketable securities totaled $60.5 billion at the end of the quarter, versus $67.2 billion at the end of the previous fiscal year.
Shares of Apple closed Tuesday at $121.35, with a consensus analyst price target of $133.40 and a 52-week trading range of $89.47 to $122.44. Following release of the earnings report, the stock was up 2.7% at $124.67 in the after-hours trading session
Los Angeles, with 1.735 million Mexican immigrants, which is 13.3% of its total population, faces major changes if the Trump Administration implements some of its plans to build a wall between the two countries and to deport as many as 11 million people. The city has more Mexican immigrants than any other in the United States by far.
The LA workforce could be decimated if tens of thousands of people have to leave, as the civilian labor force of the city is 5.1 million workers. And, with unemployment at 4.7%, LA could face a radical need for workers if a large number of immigrants left. With an unemployment total of only 239,000, finding replacement workers would be nearly impossible. Businesses that lose immigrants will have nowhere to turn for replacements.
The opening of lots of jobs would seem like a good thing to reach full employment levels in LA. The problem is that sub-5% unemployment is “full employment” according to most economists, since people moving from one job to another are out of work for a few weeks. Other unemployed people include those who quickly leave the workforce altogether.
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The labor shortage would be acute in certain parts of the economy that employ large numbers of immigrants. According to the American Community Survey:
Mexican immigrants were much more likely to be employed in service occupations (31 percent); natural resources, construction, and maintenance occupations (26 percent); and production, transportation, and material-moving occupations (22 percent) than the overall foreign- and native-born populations.
There is no precedent for a large American city that has been quickly stripped of so much of its workforce. For LA, the consequences could be terrible.
APPLE TO RELEASE EARNINGS
Earnings season always has a chance of bringing some rather unexpected surprises. That was certainly the case for Verizon Communications Inc. (NYSE: VZ) in January after it missed on earnings estimates. It turns out that the collateral damage spilled over into AT&T Inc. (NYSE: T) as well, but now AT&T with its own earnings report has recovered and is only down about 1% from before Verizon’s report.
What investors have to consider when weighing AT&T versus Verizon is how each company wants to align itself ahead. Are these carriers and distributors or are they content and advertising plays? The answer is some of each, but each company is taking a different path, and it means that earnings might be harder to predict down the road.
With Verizon missing earnings, now there is reported to be merger interest with Charter Communications Inc. (NASDAQ: CHTR). This would be a game-changer because Charter had a market cap of close to $95 billion before its shares popped 6%. Verizon shares were down another 1.5% on the reports, and that gave a $199.9 billion market cap. With shares right at $49 as of this report, that is down from above $52 prior to its earnings disappointment.
On top of Charter, Verizon has already acquired AOL. It is still evaluating what it plans to do in the Yahoo! Inc. (NASDAQ: YHOO) acquisition. Investors often welcome accretive mergers, but when companies become too diversified, sometimes it makes the acquirers much more difficult to evaluate. One more issue to consider after looking at the post-earnings research reports is that Verizon shares may have seemed to be overly punished.
AT&T has completed its acquisition of DirecTV, and this actually gives it even more dividend support. But after making acquisitions south of the U.S. border, now AT&T remains interested in acquiring Time Warner Inc. (NYSE: TWX). What matters here is that Time Warner’s market cap is $74 billion, versus $255 billion for AT&T.
As far as how these companies stack up against each other, here are some basic notes:
AT&T’s yield is currently just over 4.7%, and it is valued at 14 times expected 2017 earnings per share.
Verizon’s yield is also right at 4.7%, but it is now valued at less than 13 times expected 2017 earnings per share.
Verizon is in the Dow Jones Industrial Average, and AT&T was removed to make room for Apple.
Verizon is also the top yield in the Dogs of the Dow strategy.
It remains hard to judge how AT&T and Verizon are going to morph in the years ahead. Owning content comes with risks. Owning distribution comes with risks as well, with so many connectivity options on the market. What seems to be happening here is that these historic wireless, infrastructure and distribution giants are looking for ways to be relevant whether cord cutters continue their ambitions or not.
Then there is how fast 5G will progress. The new verdict seems to be that the 5G roll-out may not be anywhere nearly as fast as many consumers would like to see. In fact, many communities may not have 5G for another five years or so.
Verizon shares were last seen down 1.5% at $49.05, and almost 14% lower than its 52-week high of $56.95. AT&T shares were up 0.4% to $41.55, but down almost 5.5% from its 52-week high of $43.89.
LA POSSIBLE LABOR SHORTAGE
The US Army will send tanks this week to countries on the Russian frontier in the largest such deployment since he Cold War, a step aimed at reassuring America's European allies that Washington remains committed to their defense. Some of the M1A2 Abrams main battle tanks useed in drills in northern Poland will be transported to the Baltic States of Latvia, Estonia and Lithuania where they will remain until a new North Atlantic Treaty Organization deterrent force is operational in the spring