Earnings Success Does Still Exist

Ockham expects that the stock market’s short-term ride will continue to be a rocky one. Corporate profits are plunging for many solid companies, but this is not the case for all. There are still certain companies that are profiting in these difficult times. For investors, there is a real danger in becoming too pessimistic right now. Markets will inevitably revert to their norms and equity valuations have become undeniably appealing, especially for companies that are thriving despite the “Great Recession”. We ended this week’s Enterprising Investor’s Guide newsletter with: “We will continue to recommend companies that are growing sales and earnings (there are still some out there) and companies whose balance sheets have gobs of cash and little debt.” In this post, we review some of the companies that fit the criteria of being managed effectively through the downturn.

IBMTo start, IBM (IBM) announced excellent earnings today. IBM has been quietly and diligently plugging away in the shadows of other Tech giants such as Google (GOOG) and Apple (AAPL). The company managed to boost quarterly profits 17% year-over-year and recorded $8.93 per share in earnings for the full year. What’s more, instead of cautiously guiding for the year ahead in light of what is widely expected to be a trying year, IBM raised its guidance. Analysts expected to see IBM earn approximately $8.75 for fiscal 2009, but the company expects to earn a minimum of $9.20. Whether this confidence is well-founded or foolish remains to be seen but we would like to see more companies be so bullish regarding the year ahead. IBM also has nearly $13 billion in cash on hand should a compelling strategic acquisition materialize in 2009. IBM’s top competitor HP (HPQ)–another company showing strong performance of late–is starting to reap the benefits of its merger with EDS.

Abbott LabsHealthcare companies are often seen as recession-resistant because, for most consumers, it is not a discretionary expenditure but one of necessity. Abbott Labs (ABT) just finished a very successful fiscal 2008. In the last quarter, earnings and revenue results were in-line at $1.06 per share on $8 billion in sales. These results are both double-digit percentage gains from the previous year and were boosted by strong sales in the Humira, Niaspan, and the TriCor/TRILIPIX franchises. The company just completed its acquisition of Advanced Medical Optics, strengthening its medical device unit. Furthermore, the company issued upbeat guidance that foresees another year of double-digit gains in earnings and sales for fiscal 2009.

United TechnologiesUnited Technologies (UTX) recently reported growth in the last quarter. UTX grew earnings at an eight percent clip during this time (slightly above consensus estimates) and issued guidance for the coming year that was in-line with analyst estimates. When taking away the effect of a strengthening dollar, sales would have risen three percent as well. The company managed to squeeze profits from its aerospace division offsetting results from Otis Elevator which fell 14% and Carrier Heating and Cooling which dropped by seven percent.

Finally, could there possibly be any good news from the financial sector these days? You have to look for it but Hudson City Bancorp (HCBK) reported record earnings of $124.3 million for its most recent quarter. HCBK lived up to the title of “Best-Managed Bank of 2008″ which was recently awarded it by Forbes. The bank is managed the old-school way, offering competitive yields on deposits and maintaining closing costs and mortgage rates that among the best in the industry. It is a top 25 bank by asset size and its base of operations is in the New York metropolitan area. The company also increased its dividend by a penny to 14 cents per share. In these days of relentless bad news out of the financial sector, this company is a breath of fresh air.

Hudson City BancorpObviously, this is not an exhaustive look at any one of these companies, but it is a reminder that if you keep your eyes open there are companies doing the right things and strengthening even in a nasty economy. These are just some of the companies that have reported so far this week. We will be very interested in the results later today of EBAY (EBAY) (who had a great holiday season) and Apple (APPL) (who always offers conservative earnings guidance only to beat it later).

About Ockham Research 645 Articles

Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

We utilize this straightforward approach to value over 5500 securities, with key emphasis given to the study of individual securities' price-to-sales, price-to-cash earnings and other historical valuation ranges. Our long term value investing methodology is powered by the teachings of Ben Graham and it has proven to be very adept at identifying stock prices that are out of line with fundamental factors.

Ockham Research provides its research in a variety of forms and products including our company specific reports, portfolio analytics tools, newsletters, and blog posts. We also offer a white labeling research solution that can give any financial services firm their own research presence without the time and cost associated with building such a robust coverage universe of their own.

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