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Warren Buffett told CNBC that he had dumped part to his International Business Machines Corp. (NYSE: IBM) holdings. Earlier in the week, Moody’s Investor Services downgraded IBM debt. CEO Ginni Rometty’s turnaround has never happened. The board needs to get a new chief executive before more of Wall Street abandons the company.
Buffett told CNBC:
I think if you look back at what they were projecting and how they thought the business would develop I would say what they’ve run into is some pretty tough competitors. IBM is a big strong company, but they’ve got big strong competitors too.He has to be referring to Amazon.com Inc. (NASDAQ: AMZN) and Microsoft Corp. (NASDAQ: MSFT) at the very least. They have trounced IBM in the cloud computing business. IBM’s artificial intelligence business, called Watson, is barely a shadow, at least insofar as the company will not break out its revenue. IBM’s quarterly revenue continues to fall. Sales of Rometty’s products and services cannot keep up with erosion in the company’s older line operations.
If the Buffett rebuke is not enough, according to 24/7 Wall St.:
After multiple analysts chimed in after earnings, now IBM is even taking a credit rating downgrade. Moody’s Investors Service has downgraded the senior unsecured rating of IBM to A1 from Aa3. Its rating outlook has now been changed to stable after having been negative.After multiple analysts chimed in after earnings, now IBM is even taking a credit rating downgrade. Moody’s Investors Service has downgraded the senior unsecured rating of IBM to A1 from Aa3. Its rating outlook has now been changed to stable after having been negative.
Moody’s does think IBM can grow what its calls its “strategic initiatives.” However, what the company will need to spend will weaken its financial position.In the first quarter of this year, IBM’s revenue fell 3% to $18.2 billion. Earnings fell 11% to $1.85 per share. Rometty said:“In the first quarter, both the IBM Cloud and our cognitive solutions again grew strongly, which fueled robust performance in our strategic imperatives,” said Ginni Rometty, IBM chairman, president and chief executive officer. “In addition, we are developing and bringing to market emerging technologies such as blockchain and quantum, revolutionizing how enterprises will tackle complex business problems in the years ahead.”
That is about what she has said for each quarter for over five years. It hasn’t helped.
McDonalds' STOCK HITS ALL TIME HIGH
Facebook, Inc. (NASDAQ: FB) reported first-quarter financial results after markets closed Wednesday. The social media giant said that it had $1.04 in GAAP-earnings per share (EPS) ($1.23 in non-GAAP EPS) and $8.03 billion in revenue, compared with consensus estimates from Thomson Reuters that called for $1.12 in EPS and $7.83 billion in revenue. The same period from last year had $0.77 in EPS and $5.38 billion in revenue.Keep in mind that Facebook is no longer reporting non-GAAP financial measures such as expenses, income, tax rate, and EPS.
During this quarter, daily active users (DAUs) totaled 1.28 billion on average for March 2017, which was an increase of 18% from last year. At the same time, monthly active users (MAUs) totaled 1.94 billion up 17%.Mobile advertising revenue constituted roughly 85% of advertising revenue for the quarter, up from 82% of advertising revenue in the first quarter of 2016.Capital expenditures for the first quarter of 2017 were $1.27 billion.On the books, cash and cash equivalents and marketable securities were $32.31 billion at the end of the first quarter of 2017 compared with $29.45 billion at the end of December 2016.
Mark Zuckerberg, Facebook founder and CEO, kept it short and sweet saying:We had a good start to 2017. We’re continuing to build tools to support a strong global community.Shares of Facebook closed Wednesday down 0.6% at $151.80, with a consensus analyst price target of $161.72 and a 52-week trading range of $108.23 to $153.48. Following the release of the earnings report, the stock was initially down 1.5% at $149.49 in the after-hours trading session
BUFFETT DUMPS IBM
There is no doubting the impact that the internet has had on everyday life, and the incredible change that it has brought to our society and the world as a whole. In most cases, the change has been a positive one, and since the availability and accessibility has become ubiquitous, it is a force to be dealt with every day.
One area that has been weakened by the internet is retail, as many people have come to trust transactions on the internet and shopping is fast and easy, and delivery in many cases is very cheap or free. Bankruptcies in the industry are piling up, and in 2017 alone such well-known companies as Payless, Wet Seal, The Limited and hhgregg have filed for protection.
A new Jefferies research report sources an article from S&P Global Market Intelligence that looks at 10 companies that are the most at risk now to be one of the next to choose bankruptcy. While filing bankruptcy in of itself does not mean the company is gone forever, it does mean that shareholders and holders of the debt can be in for a long wait.
Here are the 10 companies cited in the article as being potential candidates to file for bankruptcy.
1. Sears Holdings Corp. (NASDAQ: SHLD) should come as no surprise, as the iconic retailer, which also owns Kmart, has been selling assets and closing store for years. The shares closed most recently at $10.43.
2. DGSE Companies Inc. (NYSE: DGSE) buys and sells jewelry and bullion products with individual consumers, dealers and institutions in the United States. The company markets its products and services through eight retail locations under various banners, including Charleston Gold & Diamond Exchange, Chicago Gold & Diamond Exchange and Dallas Gold & Silver Exchange. The stock closed trading most recently at $1.65 a share.
3. Appliance Recycling Centers of America Inc. (NASDAQ: ARCI) sells and recycles household appliances through a chain of company-owned retail stores under the ApplianceSmart name. Its shares closed most recently at $0.88.
4. Bon-Ton Stores Inc. (NASDAQ: BONT) operates department stores in the United States that offer brand-name fashion apparel and accessories for women, men and children, as well as cosmetics, home furnishings and other goods. As of January 18, 2017, it operated 266 stores, including nine furniture galleries and four clearance centers in 26 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates. The shares closed at $0.86.
5. Bebe Stores Inc. (NASDAQ: BEBE) designs, develops and produces women’s apparel and accessories under the bebe and BEBE SPORT brand names in the United States, Puerto Rico and Canada. The company provides a range of fashion separates, tops, dresses, active wear, outerwear and accessories for various wardrobe occasions, as well as jewelry, fragrances, shoes, handbags and optics. As of April 22, 2017, it operated 134 bebe retail stores, 34 bebe outlet stores, and bebe.com, an online store. The shares closed at $3.90.
6. Destination XL Group Inc. (NASDAQ: DXLG) operates as a specialty retailer of big and tall men’s apparel in the United States and England. Its stores offer sportswear and dresswear; shoes; accessories, such as belts, ties and socks; fashion-neutral items, including jeans, casual slacks, tee-shirts, polo shirts, dress shirts and suit separates; casual clothing; lifestyle products, comprising chairs, outdoor accessories, travel accessories, bed and bath products, and fitness equipment. The stock closed at $2.45.
7. Perfumania Holdings Inc. (NASDAQ: PERF) operates as a specialty retailer and distributor of fragrances and related beauty products in the United States. The company distributes designer fragrances to mass market retailers, drug and other chain stores, retail wholesale clubs, traditional wholesalers and other distributors. Shares closed at $1.05.
8. Fenix Parts Inc. (NASDAQ: FENX) engages in the auto recycling business in the United States and Canada. It is involved in recycling and reselling original equipment manufacturer (OEM) parts, components and systems. The stock closed at $1.00.
9. Tailored Brands Inc. (NYSE: TLRD) operates as a specialty apparel retailer in the United States, Puerto Rico and Canada. The company operates 1,667 stores under the Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank, Joseph Abboud, Moores, K&G,and The Tuxedo Shop @ Macy’s brands, as well as e-commerce sites and 39 retail dry cleaning, laundry and heirlooming facilities. The stock closed at $12.61.
10. Sears Hometown and Outlet Stores Inc. (NASDAQ: SHOS) engages in the retail sale of home appliances, lawn and garden equipment, tools and hardware in the United States. The stock closed at $3.25.
McDonald’s Corp. (NYSE: MCD) saw its shares hit a new high on Thursday, as analysts have chased the Golden Arches higher and higher after earnings. More than a dozen price target hikes have been seen in the wake of the McDonald’s quarterly report. This begs two questions: Have analysts become too bullish. And are they getting bullish too late in the cycle?
While McDonald’s had great earnings a week earlier, so far in 2017 the shares are up 18%, which makes them the fourth highest gainer of the 30 Dow Jones Industrial Average stocks. It is important to consider where analysts saw McDonald’s heading at the start of the year and compare that to high how high the stock has risen relative to those expectations.Note that McDonald’s generated a total return of only 6% in 2016 and closed at an unadjusted $121.72 share price on the last day of the year. Had it not been for a return of 6.3% in the final quarter of the year, its stock would have closed out flat for the year. What stands out now is that the Thomson Reuters consensus analyst price target was just $127.96 at the start of 2017, implying just 5.1% in upside, or an 8.2% gain if you added in the 3.1% dividend yield.
McDonald’s has rallied above that consensus target handily in 2017. 24/7 Wall St. tracked some of the core upgrades and price target hikes that have been seen since the earnings report. Some are mere summaries, but some contain more detail.
.Goldman Sachs raised McDonald’s to Buy from Neutral on May 3. The firm’s new price target is $153, compared with a $141.23 prior closing price.On May 2, McDonald’s saw Citigroup raise its target price to $141 from $130.Back on April 28, Merrill Lynch reiterated its Buy rating and raised its target price to $165 from $160. The firm sees more aggressive value at the stores, greater product innovation and plans to leverage technology investments.Argus raised its Hold rating to Buy on April 27. That came with a new price target of $158. The Argus call talked up increased revenue expectations from new promotional offers and revenue drivers from mobile ordering and payments.
On April 26, Stephens maintained an Overweight rating and raised its price target to $155 from $140. The firm sees same-store acceleration as the top surprise, but it also was surprised to see that the mobile ordering and pay testing had reached more than 400 restaurants already.SunTrust Robinson Humphrey raised its target price to $155 from $139 on April 26 as well. This call noted the momentum in all segments and the turnaround is gaining velocity.ALSO READ: Value or Value Trap: Meet the 21 S&P 500 Stocks Valued Under 10 Times Earnings
On April 26, BTIG reiterated its Buy rating and raised its price target from $137 to $156. The firm talked up the store modernization program and the expanding digital capabilities as potentially leading to same-store sales growth for multiple years.Also on April 26, RBC Capital Markets raised its target price to $155 from $145. RBC cited a multifaceted turnaround, and now the firm sees McDonald’s as more attractive than other restaurant peers, with a long-term growth and strong free cash flow story coming into focus.Barclays reiterated its Overweight rating on April 26 too, but it raised its target to $155 from $139.
Canaccord Genuity maintained its Hold rating, but it raised the price target to $145 from $125 due to higher same-store sales and impressive quarterly results.Morgan Stanley maintained an Equal Weight rating, but its target of $140 was followed by noting “a Grand Mac of a quarter” and being “that place where comps taste so good.”
McDonald’s shares closed up 0.57 at $143.43 on Thursday, after hitting an all-time high of $143.67. Its market cap is now $117 billion, and the consensus analyst target price from Thomson Reuters is $151.22.
RETAILTORS GOING BANKRUPT
RENTERS GROWING IN THE SUBURBS
MAY NEWSLETTER 2
The number of renters is growing faster in the suburbs of 19 of 20 U.S. cities than in the cities themselves, according to a recent report from researchers at RENTCafé. The reason should not be a big surprise: rents are lower.In 18 of 20 metro areas, renting in the suburbs is cheaper than renting in urban areas. RENTCafé calculated that a suburban renter saves about one month’s worth of rent on average every year (11%). The two exceptions are St. Louis ($12 a month cheaper in the city) and Phoenix (no difference).Interestingly, St. Louis is one of four cities where renter numbers have risen by more than three times between 2011 and 2015, the five-year period covered by the RENTCafé study. Other cities where suburban renter growth was at least triple urban renter growth were Atlanta, Riverside, and Boston.
Here’s RENTCafé’s list of 10 metro areas, along with the net gain in suburban renters and the percentage increase in the five-year period covered by the study.
Atlanta: net gain of 56,000; up 26%
Phoenix: 37,500; 23%
Riverside: 60,500; 23%
Tampa: 33,500; 18%
Dallas: 52,600; 17%
Minneapolis: 28,300; 15%
Detroit: 23,000; 14%
Miami: 56,800; 14%
Denver: 16,700; 14%
Houston: 19,600; 13%
In the Atlanta suburbs, for example, RENTCafé reports an average rent of $1,006. According to the Zumper National Rental Report for April, a one-bedroom apartment in the city of Atlanta has a median rent of $1,330.
Zumper also reports that the most expensive U.S. city for one-bedroom rentals is San Francisco, followed by New York, San Jose, Boston and Los Angeles. In four of those cities rents are down year over year in May: San Francisco, down 5.3%; New York, down 5.5%; San Jose, down 7.0%; and Boston, down 3.5%. Rent in Los Angeles rose 0.5% year over year.