Wednesday, February 1, 2012

Altria's Ever-Shrinking Window : BTI, ITYBY.PK, MO, RAI

It's probably foolish to think that smoking will ever go away entirely. The health risks have long been decided, but people have their vices and smoking has long been among them. That said it seems like governments around the world are on the same page when it comes to reducing the number of places people can smoke, and increasing the cost of doing so. That suggests an ever-shrinking window for Altria (NYSE:MO), but investors can likely wring a great deal of cash flow for many years to come.

Year-End Results Come in as Expected
Altria's earnings are often a mess, but the company's fundamental performance was more or less in line with expectations. Revenue net of excise tax rose 5%, as weaker cigarette volumes were offset by better performance in smokeless tobacco.

Margins and profits continue to stay reasonably healthy. So-called operating company income (on an adjusted basis) rose almost 9%, and the company's share count continues to shrink. By segment, cigarette earnings before interest and tax grew almost 14%, while smokeless tobacco earnings grew about 4%.

Still Fighting for Share
The tobacco "pie" isn't getting any larger in the United States, so maintaining brands is critical. To that end, Altria is having mixed success. The 3% adjusted decline in cigarette volume this quarter basically matched the industry, but key brand Marlboro's share slipped very slightly. Altria is still the 800-pound gorilla in the U.S., though, with roughly half the market and well more than Reynolds American (NYSE:RAI) and Lorrilard (NYSE:LO).

The story is a little different with smokeless tobacco, where Altria saw nearly 10% volume growth. As smoking becomes increasingly stigmatized, more and more smokers are shifting to smokeless tobacco. It's also not hurting Altria that the U.S. government is making it increasingly difficult to export smokeless tobacco into the country, leaving only very few companies like Swedish Match with the willingness and ability to compete.

Pushing for Growth
What can Altria do to make more money? Much is made of the price inelasticity of vice products like tobacco, but that's really not true. There's always a price-point where people cut back or switch brands.

At the same time, there's arguably not much slack left in the company from an operational perspective. That suggests to me, then, that the company's best option is to pressure its supply change - pushing on companies like Universal (NYSE:UVV) for better leaf tobacco pricing, and companies like Glatfelter (NYSE:GLT) for better pricing on filters and packaging.

The Bottom Line
For companies like Philip Morris International (NYSE:PM), British American Tobacco (AMEX:BTI) and Imperial Tobacco (OTCC:ITYBY) there's still some international growth potential as improving economic conditions allow smokers in emerging markets to upgrade their tobacco options. At the same time, a lot of emerging markets heavily regulate or product their markets, so it's not exactly a profitable free-for-all.

In many respects, Altria is like a royalty trust. There isn't going to be much market growth, but the company can reap a meaningful amount of earnings and cash over the coming decades, assuming that the federal government (whether through lawsuits or health regulations) allows them to. That leaves Altria as a reasonable, though not particularly cheap, income play.

Energy Stock APC Approaching Buy Point Anadarko consolidating, but 200-day moving average should hold any pullbacks

Anadarko Petroleum Corporation (NYSE:APC) – This major independent oil and gas exploration and production company, with operations primarily in the United States, the deepwater of the Gulf of Mexico, and Algeria, is in a consolidation that began early last year.

After a $4 billion settlement with BP (NYSE:BP), the focus can now shift to APC’s top-tier exploration and development portfolio. Earnings are estimated to be $2.95 in 2011 and $3.05 in 2012. Recent developments in the supply of natural gas should help the company’s bottom line.

The stock has been consolidating within a massive “V” formation with a bottom at under $60 and a neckline at $84. The 200-day moving average at $75 should hold any pullbacks, and so that is the preferred buy point. A breakout through the neckline at $84 has a target of $110.

Trade of the Day – Anadarko Petroleum Corporation (NYSE:APC)

Pic of the Day

Sovereign Debt Crisis When? Martin Armstrong

Sovereign Debt Crisis When?

click here to read in pdf

Jay Taylor: Turning Hard Times Into Good Times

1/31/2012: Sound Money and National Sovereignty for the U.S., Israel & the World

The Impending Undeclared Default Of 5 Major US Banks: Jim Sinclair

The following interview with Ellis Martin of covers in detail the impending undeclared default of 5 major US banks this week by the International Swaps and Derivatives Association.

This even has the potential to cause a second financial crisis that would require significant financial intervention. If you have time to spare, listen to this interview. If you don’t have time to spare, listen to it anyway.

Fukushima was a blip; uranium fundamentals stronger than ever

The meltdown at the Fukushima Daiichi nuclear plant last March had uranium investors fleeing for the exits. While the nuclear fuel used to make yellowcake had enjoyed something of a renaissance (after tanking in 2008-09 due to the financial crisis) in the runup to the earthquake and tsunami that rocked Japan, all that changed in the aftermath of the quake.

Uranium stocks and the uranium price plunged after the seriousness of the accident at Fukushima became apparent, although the price remained above lows reached in early 2010. The misery for uranium investors continued when Germany, Belgium and Switzerland announced they would phase out nuclear reactors.

While uranium stocks have moved up in recent weeks, with market leader Cameco for example climbing from $18 to near $24, uncertainty in the sector remains.

Addressing that uncertainty, Uranium Energy Corp. CEO Amir Adnani presented a picture of uranium and nuclear energy missing from last year’s headlines.

Speaking at last week’s Roundup event in Vancouver, Adnani’s primary message is that despite Fukushima, the fundamentals for uranium haven’t changed, and the outlook is bullish.

Adnani is an informed and passionate speaker. What follows is a summary of his key points and slides. Thanks to Uranium Energy Corp. for sending us the presentation.

1. On the outlook for nuclear energy: People in the West take the availability of electricity for granted, but 1.5 billion, or 20% of the world’s population, are without it. There is no credible alternative to nuclear power, therefore nuclear energy is still in the energy mix.

2. On the shelving of Germany’s nuclear program: Germany had planned even before Fukushima to phase out nuclear reactors. Germany represents just 3% of global nuclear capacity. (more)

What Is a Good Credit Score – Understanding Credit Ratings & Ranges

When it comes to your credit, it’s important to know how you stack up. Do you have good credit? Excellent credit? Poor credit? How can you find out?

In most cases, the easiest way to determine the health of your credit is to look at your credit score, a numerical value that reflects a mathematical analysis of your debt, your payment history, the existence of liens or other judgments, and other statistical data collected by the credit bureaus. In other words, your credit score is the compact, simplified version of your entire credit history, all rolled up into one tidy three-digit number.

Why Do You Need Good Credit?

The importance of having good credit can’t be understated. From helping you get a loan, to qualifying you for a great job, good credit simply makes life easier and less expensive.

In the eyes of lenders, employers, insurance agents, and a host of other people and entities, your credit score represents how responsible and even how ethical you are. For example, lenders look at your credit score to determine not only your ability, but your willingness to repay a loan. Insurance companies view an individual with a good credit score as someone who is trustworthy and less likely to commit insurance fraud. Employers look at credit scores as a way to determine whether a candidate will be a dependable new employee.

A bad score, however, can prevent you from being able to purchase a home, work in certain industries, and will wind up costing you a bundle in higher interest rates and fees. However, if you understand what hurts your credit score, you can make an effort to fix bad habits and improve your credit rating.

The Three Major Credit Agencies

Experian, Equifax, and TransUnion

There are three major credit agencies that provide consumer credit information (including credit scores) to the majority of interested parties: Equifax, Experian, and Transunion. Each reporting agency collects information about your credit history from a variety of sources, including lenders, landlords, and employers, as well as other sources. These includes public records, current and past loans, your payment history, and other data. They then rate your performance using a proprietary scoring system to come up with a credit score.

Because each agency may access different information and has its own formula for calculating your creditworthiness, it is not uncommon for someone to have three different credit scores.

Understanding Credit Scores

Your credit score is a three-digit number that, without context, may mean very little to you. Here is a breakdown of how lenders, insurance agencies, and employers all view your credit score:

Excellent Credit: Credit Score Above 800

If your credit score is above 800, you have an exceptionally long credit history that is unmarred by things such as late payments, collections accounts, liens, judgments, or bankruptcies. Not only do you have multiple established lines of credit, but you have or have had experience with several different types of credit, including installment loans and revolving lines of credit. You generally have a stable work history, usually with one company.

Simply stated, you are an A+ borrower in the eyes of all lenders big and small, and will have no trouble securing a loan of your choosing. Be prepared to receive the very best interest rates, repayment terms, and lowest fees available. Insurance companies love people like you because they know that you’ll pay your premiums on time and do not pose any risk of insurance fraud. Plus, prospective employers love you too because you have shown yourself to be responsible and are less likely to steal from the company or commit fraud.

Very Good Credit: Credit Scores Between 750 and 800

If your credit score is between 750 and 800, you have a long and distinguished credit history that shows a responsible payment history and the ability to handle multiple types of credit responsibly. As a matter of fact, for the most part, you are regarded in the same standard as borrowers with excellent credit history, with the exception that you may have a higher debt-to-income ratio.

In the eyes of lenders, insurance companies, and employers, you’re just as good as anyone with excellent credit and, for the most part, will receive the same red carpet treatment. However, in some cases, you may end up paying a little more in interest. But ultimately, having very good credit will qualify you for some of the best deals in town.

Good Credit: Credit Scores Between 700 and 750

Having good credit means that you have built a solid credit history by working hard to keep your accounts in good standing – however, there may be a late payment or two somewhere in your past. Things happen sometimes, but they are nothing you can’t handle. You might have had a collections account reported, but you’ve paid it. And you know you have some extra credit card debt, but you’ve made strides to get it under control.

Generally, lenders will have no issues loaning money to someone like you. Your good credit score will land you competitive interest rates and low origination fees, though certainly not as good as you could have gotten with a few more points on your score. You’ll also have no trouble getting an insurance policy for just about any need, but you should expect your premiums to be somewhat higher than for those with excellent or even very good credit.

Furthermore, your credit score should not have any negative effect on your ability to get hired, though some employers may pass you by for an equally qualified candidate with a better score. (more)

Oil Service Companies Hit By Dry Gas Drilling Cuts : BHI, CRR, HAL, RES

Several oil services companies have reported a negative impact from the reduced spending on dry gas plays in the onshore United States. This will remain a continuing problem for many oil service companies in 2012.

Dry Gas Drilling Cuts
Carbo Ceramics (NYSE:CRR) manufactures and sells ceramic and resin coated sand proppant used during the hydraulic fracturing of a horizontal well. The company reported revenues of $158.1 million in the fourth quarter of 2011, up 32% from the same quarter of last year.

Although growth of this magnitude should be enough to satisfy the investor base, many were expecting higher sales, and the shares fell 20%. Also contributing to the decline, was commentary by the management of Carbo Ceramics at the time of the earnings release. The company said that a shift to liquids drilling during the fourth quarter of 2011 led to a 70% sequential drop in proppant sales in the Haynesville Shale. Sales of proppant also fell short due to logistical problems in the company's distribution system as a result of this shift in drilling activity.

RPC (NYSE:RES) also turned in strong growth in the fourth quarter of 2011, reporting double digit percentage increases in revenue and net income. Despite this growth, the management of RPC expects revenues in the first quarter of 2012 to decline sequentially, due to a shift from dry gas to liquids drilling in the U.S.

"We're going to be moving in the basins which typically aren't quite as service intensive," said Ben Palmer, the CFO of RPC. The company hopes that margins will be higher on these lower revenue service jobs.

Why Worry?
One company that doesn't seem worried about a cutback in dry gas drilling is Halliburton (NYSE:HAL), which reported earnings on Jan. 23, 2012. The company is one of the largest oil service operators active in North America, with $14.4 billion in revenues in 2011.

Halliburton also experienced the decline in drilling of dry gas plays in its service area in the fourth quarter of 2011. The company believes that the equipment leaving these areas will move to areas that produce crude oil and liquids, and help support demand in 2012.

"It is clear to us that the strength of liquids demand will provide a cushion to equipment coming out of the dry gas basins. We also believe that there will be a net overall increase in rig count in 2012," said David Lesar, CEO of Halliburton.

Baker Hughes (NYSE:BHI), which also has a dominant position in the onshore North American region, is relatively optimistic as well regarding activity in North America in 2012. The company disclosed its rig count outlook for 2012, and expects the overall rig count to be flat through the end of 2012, with any decline in dry gas drilling offset by an increase in liquids rich basins. Baker Hughes expects growth in the international rig count and estimates 11% growth here in 2012.

The Bottom Line
Although some operators are suffering the impact of a decline in dry gas drilling in North America, the largest oil service companies appear to be cushioned from this so far. Investors have to decide whether this will be the case for the balance of 2012 before buying into this stock price sell off.

Chart of the Day - Yum Brands (YUM)

The "Chart of the Day" is Yum! Brands (YUM), which showed up on Monday's Barchart "All Time High" list. Yum Brands on Monday posted a new all-time high of $63.83 and closed up 1.32%. TrendSpotter has been Long since Oct 27 at $54.39. In recent news on the stock, Barron's on Jan 29 ran a favorable article on Yum Brands focused on the company's bright future in the emerging markets. Yum is earning about 45% of its $12.5B in revenue from China last year and 42% of its operating profit. KFC is now the largest fast-food chain in China. Yum Brands, with a market cap of $28 billion, is the one of the world's largest restaurant companies, with restaurants around the world and restaurant chains including KFC, Pizza Hut and Taco Bell.