Sammy Gompers wrote:
Can you point out where you discovered that 7 years (2016 - 2009 is 7 in case you cannot do the arithmetic) is a recent period but 8 years (2008 to 2016) is not?
Oh, the irony!
Sammy Gompers wrote:
Can you point out where you discovered that 7 years (2016 - 2009 is 7 in case you cannot do the arithmetic) is a recent period but 8 years (2008 to 2016) is not?
Oh, the irony!
ryan foreman wrote:
A couple thoughts.
In Agip's link it reads (in very fine print) that it is using operating earnings per share. I did a little google search and I'm warily accepting that operating earnings is earnings before interest and taxes. Therefore I'm guessing it does include stock based compensation. But its annoying because it is Non-Gaap. Its something made up by the investment banks and I can't find any standard for what is included (and excluded) in operating earnings.
To reconcile what I'm reading on earnings ( -2%) to the 14%, I see the difference as mainly share buybacks financed by debt. And in fact I do see that total corporate debt in the U.S. is near record highs and continuing to rise.
I'm not all negative on share buybacks. If debt is cheap to issue its reasonable for a company to take advantage of it. If a company doesn't see good profit from investing more, than buying back shares with that cash makes some sense. For highly profitable companies like Apple it does have some substance in avoiding taxes. But generally, buying back shares with debt is as gimmicky as it sounds. I think the -2% earnings estimate is the better number to follow.
Ryan,
I pulled Form 8-K for Microsoft Corporation (MSFT), the date of the report is July 19, 2016. In regards to stock buybacks, cash dividends and debt here are some interesting numbers. For the twelve months ending June 30, 2016, the company spent $15.9 Billion on stock buybacks and increased cash dividends by $1.1 Billion. However, during that same period short term debt increased by $8 Billion and long term debt increased by $12.9 Billion.
Microsoft is not alone, and this type of financing will prove to be imprudent and characteristic of this era.
Igy
Ryan,
In regards to MSFT, I forgot to mention, GAAP net income for the quarter ended June 30, 2016 was $20.6 Billion, down from the previous year of $22.1 Billion. Through the magic of accounting the non-GAAP number becomes a beat of $22.6 Billion.
Igy
Irony Mann wrote:
Sammy Gompers wrote:Can you point out where you discovered that 7 years (2016 - 2009 is 7 in case you cannot do the arithmetic) is a recent period but 8 years (2008 to 2016) is not?
Oh, the irony!
Oh the stupidity. World Class.
becuz wrote:
Irony Mann wrote:Oh, the irony!
Oh the stupidity. World Class.
Agreed. Sammy's basic math skills are severely lacking.
Ghost of Igloi wrote:
I pulled Form 8-K for Microsoft Corporation (MSFT), the date of the report is July 19, 2016. In regards to stock buybacks, cash dividends and debt here are some interesting numbers. For the twelve months ending June 30, 2016, the company spent $15.9 Billion on stock buybacks and increased cash dividends by $1.1 Billion. However, during that same period short term debt increased by $8 Billion and long term debt increased by $12.9 Billion.
Microsoft is not alone, and this type of financing will prove to be imprudent and characteristic of this era.
Igy
And now for the rest of the story...
Assets increased 11% y/y.
Good day!
Paul,
OK, lets look at the actual numbers rather than a percentage:
Assets increased by $19 Billion
Liabilities increased by $27 Billion
NOW, you know the rest of the story.
Igy
Goi,
Who says stock compensation is, or is not, included in non gaap earning metrics?
In a way you are being more optimistic than I am. You are suggesting there is some uniform standard of what non gaap is. But I don't think there is.
As I pointed out, Agip's link noted that its earning were based on "operating earnings" per share. What is "operating earnings"? Doing a google search I understand that it is generally EBIT and any other "one time" items. But notably, depreciation and amortization expenses are included in EBIT. And there seems to be wide agreement that theoretically stock compensation should be treated like deprecation and amortization. That is a non cash expense but ultimately an operating expense.
But I emphasize again that is all theoretical. Without any agreed upon standard any financial analyst could be free to exclude stock based compensation. So you might be right. I just don't know.
As far as the rise of corporate debt. In and of itself it would be crazy for some of these corporations not to run up debt given the low interest rates. I have no problem with that.
But where is the earnings growth? Its just not there based on the metric that I think investors should emphasize.
Ford is fascinating to me. They have actually had really good profits. They have been unique in paying down their debt and liabilities. They have reinvested into their business and don't have any share buyback program in place. Their pensions are almost fully funded and de risked now. Yet they have been punished for it. Its like the stock market is in a bizzaro world.
Ghost of Igloi wrote:
Paul,
OK, lets look at the actual numbers rather than a percentage:
Assets increased by $19 Billion
Liabilities increased by $27 Billion
NOW, you know the rest of the story.
Igy
The actual rest of the story is what they did with their increased debt. Without that information those numbers mean nothing.
Ryan,
You are correct in that non-GAAP is a number that is non-standardized so a company can include or exclude stock based compensation as an expense. Alphabet (GOOG) and Amazon use conservative accounting and I have not seen stock based compensation in anything other than an expense on non-GAAP. On the other hand, Salesforce (CRM) and LInkedIn ( LNKD) exclude stock based compensation as an expense on non-GAAP. Operating Earnings in my view is generally the higher of the non-GAAP or GAAP number, but generally without any add backs the non-GAAP will be higher. If you go back to my previous post on Dr. Kelley and compare his "operating earnings" included in the JP Morgan chart deck, for the most part they match the non-GAAP numbers reported by S&P. Interestingly, last quarter the Microsoft GAAP earnings were higher than non-GAAP since previous charges for restructuring were added back in. I am assuming costs were less than previous write-downs. Also of note is for that quarter the GAAP number was highlighted in the earnings reporting.
Igy
Baboon,
Stock buybacks and increasing dividend payments. See the earlier dialog posts. CEO bonus package based on stock performance.
Igy
ryan foreman wrote:
As far as the rise of corporate debt. In and of itself it would be crazy for some of these corporations not to run up debt given the low interest rates. I have no problem with that.
But where is the earnings growth? Its just not there based on the metric that I think investors should emphasize.
Ford is fascinating to me. They have actually had really good profits. They have been unique in paying down their debt and liabilities. They have reinvested into their business and don't have any share buyback program in place. Their pensions are almost fully funded and de risked now. Yet they have been punished for it. Its like the stock market is in a bizzaro world.
Ryan,
Ford did not need a government bailout. Conservatively managed company with high ownership still with the Ford family.
In regards to financing stock buybacks via low interest rates, the debt either is retired or is refinanced in the future. It will be a good idea if the stock remains above the purchase price and the debt can be retired or refinanced at the same or lower rate. It seems that these scenarios are unlikely at this stage of the economic cycle.
Igy
Ghost of Igloi wrote:
Baboon,
Stock buybacks and increasing dividend payments. See the earlier dialog posts. CEO bonus package based on stock performance.
Igy
Goober,
Those don't add up to $27B. Your calculator is defective.
MBA
Babson,
Sorry spell checker changed your handle. My apologies. Anyway they add up to $17 Billion. I guess that leaves $10 Billion for productive investment, which I don't believe includes the purchase of LinkedIn.
Igy,
BS, MA, CFP, CLU, ChFC
Though your position is obvious, some would argue that more than $10B is being used productively.
Babson,
Fair enough. My view is Microsoft is an example of how stock buybacks have been taken to the counterproductive extreme. Time will tell whether that view is correct.
Igy
U.S. stock futures edged lower on Thursday, as analysts said traders are staying on the sidelines ahead of a much-anticipated jobs report.
Twitter Inc. was among the big losers in premarket action, and a reading on weekly jobless claims is also likely to get attention.
S&P 500 futures fell by 5.3 points, or 0.3%, to 2,148, while Dow Jones Industrial Average futures shed 41 points, or 0.2%, to 18,160. Nasdaq-100 futures dipped by 10.75 points, or 0.2%, to 4,862.75.
Markets are "remaining very range bound ahead of this week's jobs report and the beginning of the Q3 earnings season," said Jasper Lawler, an analyst at CMC Markets, in a note.
The September release on U.S. nonfarm payrolls is due to arrive Friday morning, and third-quarter earnings season is expected to heat up next week.
On Wednesday, the S&P 500 closed 0.4% higher, while the Dow gained 0.6%, or 113 points. Each gauge snapped a two-day losing streak.
Other markets: Oil futures were down slightly, while European stocks edged lower. Asian markets closed higher. Gold futures declined modestly, as a key dollar index gained.
Economic news: A report on weekly jobless claims is scheduled to hit at 8:30 a.m. Eastern Time. Economists polled by MarketWatch forecast 256,000 claims.
After the market's close, G-20 finance ministers and central-bank chiefs are slated to take part in a working dinner in Washington, D.C. They are expected to talk about the main risks to the global economy, as well as ending secretive ownership of companies, according to a Reuters report.
The U.S. central bank needs help from other branches of government to raise interest rates, Federal Reserve Vice Chairman Stanley Fischer said late Wednesday.
Igy,
Fascinating article on the shiller CAPE - right now it is at 27, which is where crashes have generally occured. Very rare to have it this high.
The WSJ asked tho - well ok but that's using GAAP earnings. And the rules around GAAP earnings have changed over the years. In large ways. So the WSJ reran the CAPE using Commerce's measure of after tax corporate profits.
The result is that stocks are barely over their average valuations...the giant valuation spike disappears.
Just shows that measures like GAAP are not static and comparing them over time is a mistake. Probably price to sales is the only unchanging stat.
The consensus view regarding the market's valuation right now is that U.S. stocks overall are fairly or fully valued, but not grossly so. In other words, we are not in a bubble, but stocks are more likely to go down than up from here. For evidence, look at earnings multiples -- that is, the classic price-to-earnings ratio. The S&P 500's P/E, based on actual trailing earnings for the past 12 months, was 24.45 as of Sept. 30, according to Birinyi Associates (http://www.wsj.com/mdc/public/page/2_3021-peyield.html). This is considerably higher than its historical average in the teens, but is nowhere close to the stratospheric levels we saw during the tech bubble of 1999.
However, as one savvy market observer recently pointed out, "everything is relative." You have to look at the overall market environment and compare. Today's economic and financial environment is great for stocks: There's little to no inflation, super-low/zero/negative interest rates, solid corporate earnings and modest to moderate economic growth. Plus, there are very few viable alternatives to the U.S. stock market for investors, with bond yields at historic lows and international markets still struggling to grow. U.S. stocks may deserve a premium due to the current unique situation.