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Brokerage Ratings Brokers initiate coverage, then upgrade or downgrade Recs range from buy to sell, with different jargon Sell recs are seldom issued Upgrades/downgrades.

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Presentation on theme: "Brokerage Ratings Brokers initiate coverage, then upgrade or downgrade Recs range from buy to sell, with different jargon Sell recs are seldom issued Upgrades/downgrades."— Presentation transcript:

1 Brokerage Ratings Brokers initiate coverage, then upgrade or downgrade Recs range from buy to sell, with different jargon Sell recs are seldom issued Upgrades/downgrades can whipsaw a stock’s price

2 Earnings Estimates Compiled from researchers and averaged for “consensus” expectations Major estimate firms are First Call, Zack’s; spreading outside U.S. Undershooting or surpassing consensus can whipsaw stock prices More important with growth stocks

3 U.S. SEC Documents Every U.S. company files quarterly reports—10Qs Yearly reports are 10Ks Numerous other required disclosures Available online Essential for deep research into company or sector Other nations have similar docs—see HK links on our Web site

4 Sites for Hong Research Stock exchange: Securities & Futures Commission: Trade Development Commission: Individual company sites Factiva for backgrounding on issues

5 More Hong Research Sites Stock exchange: Securities & Futures Commission: Trade Development Commission: Individual company sites Factiva for backgrounding on issues

6 Sites for U.S. Research (must register) Plug in the stock symbol or company name in each and go from there.

7 Scoping a Company What does the company do? What are its main competitors? Who runs the company? Who owns the company?

8 More Key Questions What analysts follow the company? What’s been happening to stock price? Is revenue growing? Earnings growing?

9 Yet More Key Questions Growth or value stock? Examine price- earnings, price-sales ratios. What’s the market cap? Insiders buying or selling? What is recent earns history?

10 It’s Not Over Yet What are earnings predictions? What are analysts recommending? Have brokers been upgrading or downgrading? Are short-sellers after it?

11 Still More Questions What are ratings on company bonds? Go to, enter ticker. Not all companies have debt outstanding. Examine ratios and look for any anomalies—changes over time, differences from competition. Examine latest financials to help get to these answers.

12 Examining Earnings Net earnings per share and revenue are key figures. Did they grow or shrink? Be alert to “pro-forma” figures. Comparisons always to year-earlier period. “Diluted” earnings numbers are the ones to cite. Read footnotes; be alert for “extraordinaries”. Don’t mindlessly follow the news release.

13 APPLIED MATERIALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended (In thousands, except April 30, April 29, April 30, April 29, per share amounts) 2000 2001 2000 2001 ---------------------------------------------------------------------- Net sales $2,190,031 $1,909,435 $3,912,221 $4,640,567 Cost of products sold 1,092,433 1,054,463 1,957,302 2,452,944 ---------- ---------- ---------- ---------- Gross margin 1,097,598 854,972 1,954,919 2,187,623 Operating expenses: Research, development and engineering 253,283 312,606 476,563 648,918 Marketing and selling 111,580 119,752 212,292 263,209 General and administrative 118,890 89,763 210,707 192,112 Non-recurring items(1) 40,000 58,414 40,000 58,414 ---------- ---------- ---------- ---------- Income from operations 573,845 274,437 1,015,357 1,024,970 Non-recurring income 68,158 -- 68,158 -- Interest expense 13,259 11,897 25,489 24,272 Interest income 41,072 53,408 78,992 112,546 ---------- ---------- ---------- ---------- Income before income taxes 669,816 315,948 1,137,018 1,113,244 Provision for income taxes 200,945 89,218 341,044 328,407 ---------- ---------- ---------- ---------- Net income $ 468,871 $ 226,730 $ 795,974 $ 784,837 ---------- ---------- ---------- ---------- Earnings per share: Basic $ 0.58 $ 0.28 $ 0.99 $ 0.97 Diluted $ 0.54 $ 0.27 $ 0.93 $ 0.93 Weighted average number of shares: Basic 805,142 811,354 801,940 810,897 Diluted 861,200 847,912 856,666 846,419 ---------------------------------------------------------------------- (1) The Company's reported results of operations for the second fiscal quarter of 2001 included a pre-tax restructuring charge of $58 million, or $0.05 per diluted share after tax, associated with the previously announced Voluntary Separation Plan, as well as other severance costs and facilities consolidations, including the closure of Etec's Tucson, Arizona printed circuit board equipment inspection business.

14 How the Wires Do It Applied Materials 2Q Net Before Items 32c/Share Applied Materials Inc. - Santa Clara, Calif. 2nd Quar April 29: 2001 2000 Sales $1,909,435,000 $2,190,031,000 Net income a 226,730,000 b 468,871,000 Avg shrs (basic) 811,354,000 805,142,000 Avg shrs (diluted) 847,912,000 861,200,000 Shr earns (basic) Net income a.28 b.58 Shr earns (diluted) Net income a.27 b.54 a. Includes a charge of $58 million pretax, or 5 cents a diluted share after tax, associated with the previously reported voluntary separation plan, as well as other severance costs and facilities consolidations. Excluding this net income was 32 cents a diluted share. b. Includes items. Excluding items, the company's ongoing net income was $459 million, or 53 cents a diluted sahre.

15 How AP Wrote It Up Applied Materials misses Wall Street expectations by a penny 05/15/2001 17:16 SANTA CLARA, Calif. (AP) - Applied Materials Inc., the world's largest manufacturer of chip- making equipment, reported Tuesday a "severe decline" in earnings during the second quarter and missed Wall Street expectations by a penny. For the three months ended April 29, the company's net income was $269 million, or 32 cents per diluted share, excluding one-time items. That's down 41 percent from $459 million, or 53 cents per share, for the same period a yea ago. Analysts surveyed by Thomson Financial/First Call predicted earnings of 33 cents per share. In the first quarter, the Santa Clara-based company warned it was being pinched as the U.S. economic downturn hurt its customers. As part of a cost-cutting effort, the company said it would offer severance packages to up to 1,000 employees, reduce its temporary work force, defer raises and shut down for five days in the second quarter. "Our business continued to experience a severe decline during the second quarter as decreased demand for electronic goods resulted in reduced capital equipment investment by semiconductor manufacturers," said James C. Morgan, Applied's chairman and chief executive. Net sales were $1.91 billion, down 30 percent from $2.73 billion in the same period a year ago, the company said. Applied Materials closed Tuesday at $49.89, up 20 cents, on the Nasdaq Stock Market. It was at $49.95 in after-hours trading.

16 Digging Deeper Examine operating earnings. Probe into extraordinary items and other adjustments. Have inventories built up? Have accounts receivable built up? Look at ROE, others. Compare to industry, peers.

17 APPLIED MATERIALS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS(2) October 29, April 29, (In thousands) 2000 2001 ------------------------------------------------------------------- --- ASSETS Current assets: Cash and cash equivalents $ 1,647,604 $ 1,977,310 Short-term investments 2,580,435 2,563,077 Accounts receivable, net 2,351,379 1,614,911 Inventories 1,503,751 1,649,122 Deferred income taxes 549,108 543,405 Other current assets 206,870 305,611 ------------ ---------- -- Total current assets 8,839,147 8,653,436 Property, plant and equipment, net 1,366,782 1,549,206 Other assets 339,801 343,924 ------------ ---------- -- Total assets $ 10,545,730 $ 10,546,566 ------------ ---------- --

18 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 94,676 $ 112,900 Current portion of long-term debt 11,621 4,652 Accounts payable and accrued expenses 2,268,608 1,798,452 Income taxes payable 384,806 187,257 ------------ ------------ Total current liabilities 2,759,711 2,103,261 Long-term debt 573,126 566,427 Deferred income taxes and other liabilities 108,545 124,744 ------------ ------------ Total liabilities 3,441,382 2,794,432 ------------ ------------ Stockholders' equity: Common stock 8,125 8,131 Additional paid-in capital 1,930,212 1,779,956 Retained earnings 5,185,181 5,970,018 Accumulated other comprehensive income/(loss) (19,170) (5,971) ------------ ------------ Total stockholders' equity 7,104,348 7,752,134 ------------ ------------ Total liabilities and stockholders' equity $ 10,545,730 $ 10,546,566 ---------------------------------------------------------------------- (2) Amounts as of April 29, 2001 are unaudited. Amounts as of October 29, 2000 are from the October 29, 2000 audited financial statements.

19 Digging SEC Documents 8K: A report disclosing unexpected but material news for shareholders. 10Q -- A quarterly report to the SEC. It must be filed within 45 days after the close of the fiscal quarter. For example, a 10Q for a quarter ending Dec. 31 must be filed by Feb. 15. 10K -- Annual report. This report is the only one to contain audited financial statements and is the most comprehensive source of disclosures that companies generally make. PRE 14A or DEF 14A -- Preliminary and definitive proxy- solicitation statement. A document sent to all shareholders in anticipation of the company's annual stockholders meeting. The document seeks investor approval of the company's directors, accounting firm, and any proposals brought up by the company or shareholders. It also discloses how much top executives were compensated in the past year and how many shares and options they own in the company. (Source: Wall Street Journal)

20 Clues “Extraordinaries” every quarter. A new accounting firm. Changes in revenue recognition. Partnerships and related parties. Accounting for acquisitions, “goodwill”. Changes in pension-plan accounting. Revolving-door executives. Postponement of filing statements.

21 Now You’re Ready Use your research to ask smart questions. Work your sources—if you don’t have ‘em, get ‘em. Get beyond the PR people, tour the plant. Make sure your bases are covered—use the source grid. Remember that foreign companies can trade as “ADRs” and GDRs on other exchanges!

22 Diversify Your Sources Publicists Analysts Traders Regulators Bankers Elected officials Lobbyists Competitors Academic experts Consultants Think-tanks People affected Corporate executives Workers, labor groups

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