Thursday, January 31, 2013

4 Billion More Reasons to Like UPS

There's at least one silver lining for UPS (NYSE: UPS  ) shareholders who are understandably miffed about the company's failed bid to acquire TNT Express. Thanks to the canceled deal, UPS now finds itself flush with cash. And it plans to pour billions of that treasure into share buybacks in 2013.

It's true that the delivery giant would rather have won the deal. Until just a few weeks ago, UPS was ready to fork over almost $7 billion for the Dutch delivery firm, which would have given it a huge presence in Europe. But regulators nixed the purchase on antitrust grounds, worried that it could unfairly lock out competitors like FedEx (NYSE: FDX  ) from the parcel delivery market. UPS will have to find another way to expand its global footprint.

Still, the canceled bid does free UPS to deliver tons of additional cash to shareholders now. That's why it's no surprise that the company just tripled its forecast for share buybacks in 2013, from $1.5 billion to now $4 billion. By comparison, it spent just $1.6 billion on share repurchases last year.

The company's holiday-quarter results also left UPS with plenty of financial flexibility. It generated $5.4 billion of cash flow in 2012, after accounting for capital expenditures of over $2 billion. Yes, operating margin ticked down by two-tenths of a percent, to 14.1%. But that still trounces FedEx's profitability, which has been trending at around 7% for the year.

And UPS saw solid volume growth, particularly in the U.S., where e-commerce activity is spiking. Overall, average daily package volumes rose by a healthy 500,000 packages in the quarter.

With major acquisitions off the table, shareholders can look forward to owning a greater piece of those solid business results as UPS draws down its pool of outstanding shares. And dividends will keep flowing as well. Shares yield close to 3% right now, on a high, but supportable, payout ratio of 64%.

UPS' management might not be happy about missing out on the TNT Express deal. But as far as second-best options go, shareholders have plenty of reasons to be pleased.

If you're looking for reasons to own some other great dividend payers, let me invite you to read the Fool's special report: "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so just click here and get your copy today.

Bernanke Keeping Foot on Stimulus Pedal

Ben Bernanke's term as chairman of the Federal Reserve expires one year from Thursday. Sometime between now and then, he's likely to take his foot off the gas pedal of financial stimulus that is helping to fuel the still-weak U.S. recovery and begin tapping on the brakes.

First appointed by President George W. Bush in 2006 and given a second four-year term as chairman by President Barack Obama, Bernanke hasn't signaled whether he'd like a third term as head of the nation's central bank if Obama pressed him to stay.

But speculation abounds that the former Princeton economics professor is ready to call it quits.

The central bank under Bernanke has kept interest rates ultra-low for more than four years.

At the same time, the Fed has effectively been printing money to buy hundreds of billions of dollars of mortgage-backed and U.S. Treasury securities, further holding down rates and pumping new money into the economy.

Many economists credit such policies for helping to keep the deepest U.S. downturn since the Great Recession from being far worse.

But the chief danger of such easy-money policies is inflation.

It's been tame so far, but at some point it's bound to roar back -- which is why a time will come for Bernanke and fellow Fed members to begin to unwind years of financial stimulus by halting the bond purchases and raising interest rates again.

No one knows just when -- but it probably won't be at the two-day Fed meeting that began in Washington today.

Instead, the Fed is expected to push on with its efforts to spur growth so long as economic inflation remains in check and unemployment stays so high.

Janet Yellen, the vice chairman of the Fed, is seen as most likely to be offered the top position by Obama if Bernanke retires.

Treasurys decline after 5-year note auction

SAN FRANCISCO (MarketWatch) � Treasurys fell Tuesday following an unimpressive auction of 5-year notes as investors also digested data showing a decline in home prices and weaker consumer confidence.

The Treasury Department sold $35 billion in 5-year notes 5_YEAR �at a yield of 0.889%, the highest auctioned yield since late March, when it was 1.04%.

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Bidders offered to buy 2.88 times the amount of debt sold, compared with an average of 2.84 times at the last six sales.

Indirect bidders, a group that includes foreign central banks, bought 39.7%, versus an average of 40.8% over the past six sales. Direct bidders, which includes domestic money managers, purchased another 16.8%, versus an average of 14.8% over the past six sales.

It was �a solid but not spectacular auction,� said George Goncalves, a bond strategist at Nomura Securities, who pointed out in a note that direct bidders had bought more than 30% of 5-year bonds in December�s auction.

Before the auction, Goncalves warned that Monday�s relatively strong auction of $35 billion in 2-year notes 2_YEAR could �cannibalize demand� for the 5-year note.

The broader bond market moved lower after the auction. Yields on 10-year notes 10_YEAR rose nearly 4 basis points to 2.00% in recent activity. Earlier in the day, the yield had been as low as 1.95%.

Click to Play Buffett wanted to buy NYSE in 2012

Billionaire investor Warren Buffett made a bid for the NYSE last year.

Bond prices move inversely to yields. A basis point is one one-hundredth of a percentage point.

Yields on 30-year bonds 30_YEAR �also advanced nearly 4 basis points to 3.18% in recent activity, after being as low as 3.13% earlier.

The boost in 10- and 30-year yields shows investors are already bracing for challenged auctions in those issues in the next few weeks, said Michael Pond, head of global inflation-linked research at Barclays.

�The auction was obviously a slight disappointment,� said Pond, adding that the market had been under pressure all day following the home sales and consumer confidence data.

On Wednesday, the Treasury will auction $29 billion in 7-year notes 7_YEAR . That auction, however, will have to contend with the release of GDP data and a statement from the Federal Open Market Committee at 2:15 p.m. Eastern time Wednesday. Read more on Fed meeting.

�The outlook for the 7-year auction is less constructive given the fact its proximity to the Fed will limit the time to square positions and thereby curtail more aggressive bidding,� said CRT Capital Group in a note.

Earlier, Treasurys faced headwinds from data showing November home prices declining in 10 out of 20 cities, but rising on the whole 0.6% after seasonal adjustments. Read more on November home prices.

Also, January consumer confidence fell well below analyst expectations as higher payroll taxes kicked in with the new year. Read more on January consumer confidence figures.

U.S. stocks closed mostly higher with the Dow Jones Industrial Average up 0.5%, S&P 500 Index SPX �up 0.5%, and the Nasdaq Composite Index COMP �down less than 0.1%. Read more on U.S. stocks.

FIO Plunges 17%: FYQ2 Beats; Q1 View Light, Slashes Year Rev View

Shares of enterprise server technology vendor Fusion-IO (FIO) are down $3.24, or 16%, at $16.85 in late trading after the company this afternoon reported fiscal Q2 revenue and earnings per share that topped analysts’ estimates, but projected this quarter’s, and the full year’s, revenue well below consensus.

Revenue in the three months ended in December rose 43%, year over year, to $120.6 million, yielding EPS of 13 cents.

Analysts had been modeling $120.3 million and 8 cents a share.

For the current quarter, the company sees revenue of $80 million versus the Street’s $137 million estimate.

For the full quarter, the company now projects revenue of $420 million to $440 million, growth of as much as 23%, year over year, which is down from a prior projection offered in October for revenue growth of 45% to 50%, and well below the $530 million the Street has been expecting.

CFO Dennis Wolf attributed the change in this year’s outlook to a deferral of purchases by large customers, stating,

Our two largest customers have purchased nearly half a billion from Fusion-io since 2010, representing robust adoption of our technology. There is a lot of potential with these key customers, and the change in our guidance reflects a two-quarter shift in the timing of their bulk purchases. A healthy pipeline for growth, fueled by new products and partnerships, as well as a solid financial position, with more than�$365 million�in cash and equivalents, will enable us to drive the business forward and create value for our shareholders.

Fusion competes with a variety of other technologies and vendors in the effort to improve server performance in data centers, including technologies from Intel (INTC). Although some of Mellanox Technologies‘s (MLNX) products could function as an alternate solution in some senses, Mellanox is a partner of Fusion’s.

Update: The two customers, of course, are Facebook (FB) and Apple (AAPL), though Fusion is carefully not to bandy their names about. In a conversation following the report, Fusion’s CEO David Flynn pointed out that where once those companies made up over 70% of revenue, when Fusion went public 7 quarters ago, they now are just over 50%, showing the company has already diversified away from its reliance on the two. He said the fact that both did not produce orders for Fusion in the expected time frame shows, in fact, that Fusion products have already produced more efficient data center operations for the companies, thus slowing their need for new technology purchases. At any rate, the smart money already understands all that, he said. “Our large shareholders understand our business.”

Fusion stock is off $3.36, or 17%, at $16.75 in late trading.

DOJ Asks FCC to Put Hold On Sprint/SoftBank Decision

The Department of Justice has written a letter to the Federal Communications Commission asking it to "defer action" on the agreement Sprint Nextel (NYSE: S  ) made with mobile operator SoftBank. That deal proposes selling 70% of Sprint to the Japanese company for $20 billion.

The DOJ letter dated Jan. 28 states that it, along with the Federal Bureau of Investigation, and "with the concurrence of the Department of Homeland Security," need more time in which to review the pending buyout for any� "national security, law enforcement, and public safety issues."

The request does not give an expected date for the completion of the law enforcement agencies' review.

Ball Corp. Hikes Dividend by 30%

Ball Corporation (NYSE: BLL  ) has announced a hefty raise in its quarterly dividend. The company is to pay out $0.13 per share, a 30% improvement over the previous disbursement. The new dividend is to be paid March 15 to shareholders of record as of the end of March 1.

In the press release announcing the move, the firm quoted its CFO Scott Morrison as saying that:

This dividend increase returns value to our shareholders while maintaining financial flexibility, and reflects management's expectations of continued improved performance by the company.

Ball Corporation is to release its Q4 and fiscal 2012 results in a conference call Thursday morning.

Is Facebook growing fast enough?

An earlier version of this column misstated Facebook�s quarterly revenue. The report has been corrected.

CHAPEL HILL, N.C. (MarketWatch) � Facebook Inc.�s revenue is growing at a fast pace. But it isn�t growing fast enough to support the social network�s current stock price.

Facebook FB released its latest quarterly earnings after the close on Wednesday � reporting quarterly revenue of $1.59 billion. That brought revenue for all of last year to $5.1 billion. See: Facebook�s results beat estimates

That�s a big number, for sure, and certainly seems impressive.

To understand why I nevertheless believe that it�s not good enough, it�s helpful to review a back-of-the-envelope calculation of Facebook�s valuation that I introduced in a column immediately after the company went public last May at $38 per share. Follow full coverage of Facebook�s quarterly results and conference call.

Click to Play Does Facebook have its mojo back?

Facebook shares are up sharply after Raymond James upgrades the stock based on signs of solid growth in its mobile ad business. (Photo: Getty Images)

That calculation required just three inputs:

  • Facebook�s revenue growth rate over its first five years as a publicly traded company. I assumed that it would be the same as the average of all U.S. IPOs between 1996 and 2005 � 212% cumulatively, or 25.6% on an annualized basis (after excluding spinoffs and buyouts).

  • Facebook�s price-to-sales ratio in five years� time. I assumed it would be the same as Google�s is today GOOG �� which is a quite generous assumption, since Google�s price-to-sales ratio is nearly four times larger than the overall market�s.

  • The rate of return Facebook investors would require to hold the stock for the five years after its IPO. Generously, I assumed the market�s long-term average return of 11%. If I had assumed a higher return number, then the outcome of my analysis would have been an even lower fair value today.

Armed with these three otherwise generous inputs, calculating a fair price for Facebook was a matter of simple math: As I reported last May, that price was $13.80. Read previous column: Facebook�s stock should trade for $13.80.

How can Facebook overcome this awful fate? Since investors won�t be happy earning less than 11% per year, and since it�s unreasonable to expect the company�s price-to-sales ratio in 2017 to be markedly higher than Google�s is today, the only realistic way for Facebook to overcome my dismal price target is for its revenue growth rate to be far higher than 25.6% per year through 2016.

Getty Images Enlarge Image Facebook CEO Mark Zuckerberg

Yet the company has not shown that it can maintain this much higher revenue growth rate.

To be sure, it might on the surface seem otherwise. The company�s revenues for calendar 2012 were 37% higher than in 2011.

But, according to Jay Ritter, a finance professor at the University of Florida who is one of academia�s leading experts on IPOs, the typical pattern is for a post-IPO company�s revenue growth rate to decline over its first several years after going public.

To average 25.6% over its first five years after coming to market, therefore, a company�s revenue growth in its first couple of years needs to be above that rate.

Consider, for instance, the average revenue growth rate over the first three years after a company comes to market. According to Ritter, this three-year growth rate was 36.7% per year for the same sample of IPOs that produced a five-year annualized growth rate of 25.6%.

So Facebook�s revenue growth over this past year is almost precisely in line with the rate that was the basis of my back-of-the-envelope calculation.

How, then, is Wall Street able to persuade itself that Facebook should be trading at its currently high price? As far as I can tell, by assuming Facebook deserves to have a sky-high price-to-sales ratio � not just now, but also well into the future.

Consider, according to FactSet, the consensus estimate of Facebook�s revenues in calendar 2015 � the furthest year out for which a consensus estimate is provided. That consensus is $10.5 billion�not that far off of what was implied by my back-of-the-envelope calculation.

Assuming that consensus is on target, and assuming Facebook�s price-to-sales ratio in 2015 will be the same as Google�s is today, then Facebook�s market cap at the end of 2015 would be around $52 billion. That�s some 25% lower than where the company�s market cap stands today.

Don�t like the conclusions of my calculations? Be my guest and go through the exercise yourself, employing any of the standard valuation metrics. And use your calculations to subject Facebook�s latest quarterly earnings report to a smell test.

My hunch is that if you do so, you will not be running out to buy Facebook stock afterward.

Click here to learn more about the Hulbert Financial Digest.

JDS Uniphase Rises 7% on FYQ2 Beat, In-Line Q3 Rev View

Shares of fiber optics component vendor JDS Uniphase (JDSU) are up 85 cents, or almost 7%, at $13.25 in late trading after the company this afternoon reported fiscal Q2 revenue and earnings per share that topped consensus expectations and projected revenue this quarter in line with consensus.

Revenue in the three months ended in December rose 4.9%, year over year, to $429.4 million, yielding EPS of 18 cents.

Analysts on average had been modeling $422.7 million and 14 cents.

Gross porfit margin, on a non-GAAP basis, rose from 47.1% a year earlier, and 45.8% in the prior quarter, to 48%. Operating margin rose from 9.8% a year earlier and 9.2% in the prior quarter to 11.3%.

For the current quarter, the company sees revenue in a range of $405 million to $425 million, roughly in line with, to slightly above, the consensus of $413 million.

JDS management will host a conference call with analysts at 5 pm, Eastern time, and you can catch the webcast of the call here.

Shares of competitor Finisar (FNSR) are up 61 cents, or 4.3%, at $14.78.

XLF: Just Can’t Short Financials Enough

XLF: just can’t short it enough

For an indication of how quickly investor sentiment is changing look no further than the financial sector. Just a few days ago, money was pouring into the financial sector on the assumption that the lagging
sector was finally poised to perform in a recovering market.

Today, as stock prices tumble on fears of European economic contagion, the primary proxy for the financial sector, the Select Sector Financial�SPDR (XLF) is appearing on the “hard to borrow list” that highlights securities that are heavily shorted, according to analytics service Trade Alert, which maintains lists of those shares that are hard to borrow kept by various investment banks.

In essence, when a security is placed on the hard to borrow list it means that anyone who wants to�short the security will have trouble because so many people have already done the trade. In recent trading, XLF was down 2.25% at about 16.

(Note that as a substitute, you can go long FAZ (FAZ), the bear ETF, which is up 63 cents, or 5.4%, today at $12.28.)

Wednesday, January 30, 2013

Dow Defying: BP, Wal-Mart Rise Despite Doing Their Worst

Well, that’s done it.

The 2% plunge in the Dow has failed to dent the shares of BP (BP), of all things, which had traded down sharply since the April 20 explosion on one of its contracted drilling rigs currently spilling crude into the Gulf of Mexico.

BP shares are currently up 41 cents, or 0.8%, at $50.60. Not that there’s any good news on the spill and its aftermath: the Gulf coast of Louisiana has “masses of oil lurking offshore” reports WSJ, and The Financial Times’s Anna Fifield reports Congress today questioned two representatives from contractor Transocean (RIG), which runs the Deepwater Horizon under contract.

Further hearings this week and in coming weeks will bring BP executives in front of the House Energy and Environment and the Investigations subcommittees.

Among other surprise gainers, Wal-Mart (WMT) is up 67 cents, or 1.25%, at $54.41 after the company yesterday settled a California suit charging it with dumping hazardous waste at stores across the state. Wal-Mart agreed to pay $28 million and to change procedures about how it gets rid of fertilizers, pesticides and other substances.

Hmmmm. Crude spilling, hazardous substance dumping � it’s a good day to have big problems.

New Oriental Education Misses Q2 Estimates

New Oriental Education & Technology (NYSE: EDU  ) posted Q2 results that disappointed the market. The China-based company posted a loss of just under $9 million, or $0.06 per diluted share, compared with a profit of $7.5 million the same quarter the year before. Analysts had forecast negative EPS of around $0.04 for the latest quarter. Net revenues advanced strongly, by 30% to $166 million, but the market expected a slightly higher figure.

Meanwhile, New Oriental Education reported that total student enrollments grew by 7% year over year to roughly 505,000. The number of schools and learning centers also advanced, to 744 from Q2 2012's 726.

The company also provided top line guidance for its current quarter. It anticipates taking in total net revenues of $212 million to $221 million. It did not provide an an estimate for net profit.

This Breakout Stock Could Deliver Double-Digit Gains by Mid-2013

About a month ago, I recommended traders consider buying Israeli soda-maker, Soda Stream International (Nasdaq: SODA). At the time, the stock was trading around $40.50. Shares have since soared to about $52.70 for a 22% gain in a few short weeks.  

I've now spotted another international beverage company that has equally strong potential to bring traders double-digit returns in a short time. The stock is of Mexican beverage firm, Fomento Economico Mexican (NYSE: FMX), or FEMSA.

It is the holding company for a number of profitable food and beverage operations, including Coca-Cola FEMSA, of which it owns more than a 50% stake. Coca-Cola FEMSA is the world's largest bottler of Coke products with 37 bottling plants across nine countries in Latin America. Having a major stake in Coke products is good news for the Mexican holding company. On a per capita basis, Mexicans are the world's largest consumers of Coca-Cola.

FMX also has the beer industry covered. The company owns a 20% stake in Dutch brewer, Heineken.

And for those who get the late-night munchies after a few too many drinks, they can head to Mexico's largest and fastest growing convenience store chain OXXO -- also operated by FMX.

There are currently about 1,000 OXXO convenience stores in Mexico. In the third quarter of 2012, the company opened 178 new stores. In the coming years, FMX plans to continue aggressive expansion, opening about 1,000 new outlets per year.

FMX's stake in the food and beverage markets gives it exposure to the consumer and retail sectors. Just recently, the company expanded its repertoire even further. In November, FMX bought a 75% stake in the leading Mexican pharmacy business, Farmacias YZA. The deal is expected to be finalized in the first quarter of 2013. The addition of the drugstore chain should present new growth streams for FMX.

With a diverse business model, in several revenue-generating sectors, FMX looks like a resilient, recession-proof stock that should bring shareholders gains well into the foreseeable future.

At present, the stock is on a tear.

Shares have been on a major uptrend for the past two years. In early 2012, the stock traded around $66. Since this time, shares have formed an accelerated uptrend line and have almost doubled to date. The stock is currently trading about $1 from its all-time high near $109.

In November, shares broke through a small shelf of resistance near $97.34. In the process, they bullishly broke an ascending triangle pattern. During November and December, the stock continued to rise.

Shares encountered slight resistance around $102, but did not stall for long. In early 2013, the stock blasted past $102 resistance, bullishly breaking a second small ascending triangle in the process.

Shares have been unstoppable ever since. With no historical resistance in sight, the stock could surge. According to some industry analysts, FMX could go as high as $121. At current levels, this target represents 12% returns.

The bullish technical outlook is supported by strong fundamentals. Due to increasing product demand, driven by Mexico's growing middle class, analysts' expect the company's revenue in the fourth quarter of 2012 to rise 3.1% to $4.3 billion from $4.2 billion in the comparable year-ago period. For full-year 2012, revenue is expected to increase 28.6% to $18.8 billion from $14.6 billion last year.

The earnings outlook is similar. In the next five years, the company's income is expected to increase by 14.3%. In the shorter term, earnings in the fourth quarter of 2012 are projected to rise nearly 18% to $1.27 from $1.08 in the comparable year-ago period. With rising product demand, analysts expect full-year 2012 earnings will increase 23% to $3.72 compared with $3.03 last year.

In addition, the company offers a reasonable forward annual dividend of about 1.3%, or $1.40 per share.

Given the strong fundamental outlook, backed by bullish technicals, I plan to go long on the Mexican beverage company.

Risks to consider: FMX is the world's largest bottler of Coca-Cola products. Rising raw materials and packaging costs could impact the company's future profit margins. However, to compensate for increased material costs, FMX could likely marginally raise prices without alienating consumers. The company is well diversified and should continue to grow into the foreseeable future.

> Buy FMX at the market price. Set stop-loss at $101.97, slightly below current support. Set initial price target at $121 for a potential 12% gain by mid-2013.

Is AO Smith Going to Burn You?

There's no foolproof way to know the future for AO Smith (NYSE: AOS  ) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.

A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can, at times, suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like AO Smith do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is AO Smith sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. AO Smith's latest average DSO stands at 69.7 days, and the end-of-quarter figure is 74.6 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does AO Smith look like it might miss its numbers in the next quarter or two?

The numbers don't paint a clear picture. For the last fully reported fiscal quarter, AO Smith's year-over-year revenue grew 10.2%, and its AR grew 15.5%. That looks OK. End-of-quarter DSO increased 4.8% over the prior-year quarter. It was up 1.6% versus the prior quarter. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

Looking for alternatives to AO Smith? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

  • Add AO Smith to My Watchlist.

Checking an Important, Overlooked Metric at Ethan Allen Interiors

It takes money to make money. Most investors know that, but with business media so focused on the "how much," very few investors bother to ask, "How fast?"

When judging a company's prospects, how quickly it turns cash outflows into cash inflows can be just as important as how much profit it's booking in the accounting fantasy world we call "earnings." This is one of the first metrics I check when I'm hunting for the market's best stocks. Today, we'll see how it applies to Ethan Allen Interiors (NYSE: ETH  ) .

Let's break this down
In this series, we measure how swiftly a company turns cash into goods or services and back into cash. We'll use a quick, relatively foolproof tool known as the cash conversion cycle, or CCC for short.

Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both.

To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Ethan Allen Interiors for the trailing 12 months is 136.6.

For younger, fast-growth companies, the CCC can give you valuable insight into the sustainability of that growth. A company that's taking longer to make cash may need to tap financing to keep its momentum. For older, mature companies, the CCC can tell you how well the company is managed. Firms that begin to lose control of the CCC may be losing their clout with their suppliers (who might be demanding stricter payment terms) and customers (who might be demanding more generous terms). This can sometimes be an important signal of future distress -- one most investors are likely to miss.

In this series, I'm most interested in comparing a company's CCC to its prior performance. Here's where I believe all investors need to become trend-watchers. Sure, there may be legitimate reasons for an increase in the CCC, but all things being equal, I want to see this number stay steady or move downward over time.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Because of the seasonality in some businesses, the CCC for the TTM period may not be strictly comparable to the fiscal-year periods shown in the chart. Even the steadiest-looking businesses on an annual basis will experience some quarterly fluctuations in the CCC. To get an understanding of the usual ebb and flow at Ethan Allen Interiors, consult the quarterly-period chart below.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

On a 12-month basis, the trend at Ethan Allen Interiors looks good. At 136.6 days, it is 8.5 days better than the five-year average of 145.1 days. The biggest contributor to that improvement was DIO, which improved 13.8 days compared to the five-year average. That was partially offset by a 6.6-day increase in DPO.

Considering the numbers on a quarterly basis, the CCC trend at Ethan Allen Interiors looks OK. At 140.6 days, it is little changed from the average of the past eight quarters. Investors will want to keep an eye on this for the future to make sure it doesn't stray too far in the wrong direction. With quarterly CCC doing worse than average and the latest 12-month CCC coming in better, Ethan Allen Interiors gets a mixed review in this cash-conversion checkup.

Though the CCC can take a little work to calculate, it's definitely worth watching every quarter. You'll be better informed about potential problems, and you'll improve your odds of finding underappreciated home run stocks.

Looking for alternatives to Ethan Allen Interiors? It takes more than great companies to build a fortune for the future. Learn the basic financial habits of millionaires next door and get focused stock ideas in our free report, "3 Stocks That Will Help You Retire Rich." Click here for instant access to this free report.

  • Add Ethan Allen Interiors to My Watchlist.

Trading Ford in a low-volatility environment

With earnings season getting to the midway point, most of the numbers have been OK. The market has not taken off, but it has not fallen out of bed either. We are in what I call a low-volatility environment, and the U.S. equity market has not seen that since last January when it climbed out of the second or third European Crisis. There have been so many I cannot remember anymore.

Mostly, a low-volatility environment is due to the nature of the underlying securities. The market is not really going anywhere fast today. This does not mean realized volatility cannot pick up, but for now it is relatively muted. That calls for different kinds of positions. The S&P 500 at a 4% 10-day realized volatility is a different animal than the SPX at a 20% realized volatility.

What I do not want is net-short volatility exposure at this level. I like the idea of collecting time decay when I sell options, but the lower long-term volatility levels are not a sale yet. This is a question of current conditions and fitting an option trade to them.

If you follow this column at all you will notice the last five trading ideas have worked out nicely. For most option trades, you need a bailout of sorts if things go wrong. The biggest impediment to trading options is running out of time with the position before the market catches up to the plan. A way to get around this is a variation of a time spread. We used this in the Financials ETF (XLF) and Apollo Group (APOL) trades so far in 2013. Not much really has changed except now we have a small uptick in shorter term IV, so let's use it.

The best financial innovation in 2012 was the launch of the laddered weekly products that have expirations four weeks out, every week, on some of the more active names. What this expiration cycle does is create new opportunities for investors who like to write options against positions but don't want the extended hold time of a standard expiration cycle. The trade example I am going to show to illustrate the advantages of these new products uses Ford F �and could not be executed until recently because the products did not exist.

This example is relatively simple. Earnings came out today, and the company is still doing well but sees headwinds in Europe. The nice thing about the market is it usually discounts the current news that day, so F is cheaper because of it. Ford is down around .75 (as on Jan. 29, 2013). I still think it is a cheap stock, but it could get cheaper in the short term, so here is the trade:

Sell the Ford Feb 8 Weekly 12.5 put for .08

Buy the Ford Jun 12 put for .48

Keep the ratio 1:1, and the trading plan is simple. If Ford gets weaker, no problem, simply roll out of weekly put into the next strike down. Remember the put will decay rapidly and even if Ford trades 12.5, the position will still win and the idea would be to sell the next weekly put one strike lower.

Continue on until your long June put is financed by selling puts just out of the money every week.

There are a few other options on this, but that is the general idea. The weeklys will provide the time decay flexibility the position requires and the investor does not have to get short volatility to do it. The key here is the risk is very small to get started and that is the best way to learn to invest with options.

Europe stocks steady ahead of U.S. Fed call

LONDON (MarketWatch) � European stock markets on Wednesday traded close to the flat line, as investors remained cautious ahead of a keenly watched announcement from the U.S. Federal Reserve and U.S. growth data.

The Stoxx Europe 600 index XX:SXXP �slipped 0.1% to 290.10, taking a breather after rising on Tuesday to the highest closing level since February 2011.

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Shares of Imperial Tobacco Group PLC UK:IMT � ITYBY �were among the biggest decliners in the index, off 3.5%, after the firm issued a profit warning for the first half of the year because of pressure from the European market. See: Imperial Tobacco warns on profit due to Europe

Shares of Hennes & Mauritz AB SE:HMB �HNNMY �gave up 2.3%, as the fashion retailer posted quarterly sales growth below expectations. See: H&M continues expansion despite net profit drop

Roche Holding AG CH:ROG �shed 1%, even as the Swiss drug maker reported a 2% rise in full-year net profit and raised dividends 8%. See: Roche 2012 profit edges up on U.S., EM sales

Reuters Hennes & Mauritz shares drop after the fashion retailer reports a decline in full-year profit.

Investors trained their attention on the U.S. Federal Reserve, due to conclude a two-day policy-setting meeting later in the day.

The central bank was widely expected to maintain its aggressive easing strategy and keep buying bonds to the tune of $85 billion a month. A statement is expected at 7:15 p.m. London time, or 2:15 p.m. U.S. Eastern. See: Fed to press ahead with bond buying

At 1:30 p.m. Eastern time, the Commerce Department will release its estimate for U.S. gross domestic product in the fourth quarter. See: What GDP means to stock trading this week

Among country-specific indexes in Europe, Germany�s DAX 30 index DX:DAX �gained 0.1% to 7,856.03, with Deutsche Bank AG DE:DBK �DB �up 1.9%.

France�s CAC 40 index FR:PX1 �rose 0.1% to 3,788.75, while the U.K.�s FTSE 100 index UK:UKX �was marginally higher around 6,340.31.

Valero Energy Outruns Estimates Again

Valero Energy (NYSE: VLO  ) reported earnings on Jan. 29. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Valero Energy beat expectations on revenues and crushed expectations on earnings per share.

Compared to the prior-year quarter, revenue was unchanged and GAAP earnings per share increased significantly.

Margins grew across the board.

Revenue details
Valero Energy tallied revenue of $34.70 billion. The four analysts polled by S&P Capital IQ predicted sales of $32.49 billion on the same basis. GAAP reported sales were 0.7% higher than the prior-year quarter's $34.45 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $1.88. The 15 earnings estimates compiled by S&P Capital IQ predicted $1.18 per share. GAAP EPS of $1.83 for Q4 were much higher than the prior-year quarter's $0.08 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 6.4%, 440 basis points better than the prior-year quarter. Operating margin was 4.7%, 420 basis points better than the prior-year quarter. Net margin was 2.9%, 280 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $29.72 billion. On the bottom line, the average EPS estimate is $0.77.

Next year's average estimate for revenue is $130.71 billion. The average EPS estimate is $5.02.

Investor sentiment
The stock has a four-star rating (out of five) at Motley Fool CAPS, with 4,337 members out of 4,523 rating the stock outperform, and 186 members rating it underperform. Among 1,129 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 1,097 give Valero Energy a green thumbs-up, and 32 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Valero Energy is outperform, with an average price target of $37.81.

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Tuesday, January 29, 2013

Amazon Q4 Misses Estimates, but Shares Rise

Amazon.com (NASDAQ: AMZN  ) has reported mixed results in its Q4 and 2012 report. For the quarter, the company's net sales grew 22% on a year-over-year basis to $21.3 billion; however, net profit declined over that same time frame. It dropped 45% to $97 million, or $0.21 per diluted share.

Although analysts had been expecting substantially higher numbers in both metrics -- $22.3 billion in the top line and $0.28 in EPS -- the retailer's stock nevertheless jumped in after-hours trading. It was up by more than $20, or 8%, to $280.63.

For the full year, net sales grew 27% to $61.1 billion, while the bottom line came in at loss of $39 million ($0.09 diluted EPS). Those figures for 2011 were $48.1 billion and a profit of $631 million ($1.37 diluted EPS).

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Top Housing Markets in 2013


We've been talking about the housing rebound for a while now, and there's no doubt that the market really picked up momentum last year. Now market tracker Zillow is predicting a 3.3% increase in the U.S. housing market in 2013, but the big picture is what will be changing.

Some cities are sure to see huge surges in home values, and these are likely going to be the cities that took the biggest hits when the housing bubble burst. Other cities, meanwhile, will see values fall.

But if this seems like a bad thing, it's not. Actually, it signifies recovery, Zillow's chief economist Stan Humphries told the Street:

“Real estate has returned to a more-normal condition of lots of small, local markets instead of one big national one.”

Zillow compiled a list of major U.S. cities that are likely to see home values grow the most through 2013. The cities include ones that have lost the most value during the recession, ones that allow non-judicial foreclosure (where long court processes are not required), and ones where many homeowners owe more than their homes are worth.

And California is the place to look.

Here are the top five cities expected to post gains this year:

5. Los Angeles, California

Since 2006, L.A. Homes lost roughly 38%, according to Zillow. Today, they still haven't fully recovered, with an average value of $414,900 compared to 2006's $619,200.

But this year will be a solid year for L.A. home values. Zillow predicts a 7.3% gain in housing prices over the year.

4. San Francisco, California

San Francisco also has the potential to gain 7.3% this year. Though home values are still 26% under the 2006 peak on average, prices have been gaining.

The area also has a lot of economic potential due to its large technology sector. Major tech companies in the area attract people with jobs, and many of these new employees are also potential homeowners.

3. Phoenix, Arizona

This city was hit hard during the recession, with median home values falling a whopping 56% from 2006 levels.

But the turnaround has been promising; since the end of the summer in 2011, homes have gained 27% in value.

A number of homeowners are underwater, owing more than their homes are worth, and because of this they're unable to sell, resulting in a shortage of homes on the market. This has been pushing up prices as demand gains, and Zillow predicts another 8.5% in gains this year.

2. Sacramento, California

Zillow estimates 11.9% in home value gains this year for Sacramento. The city was hit almost as hard as Phoenix during the recession, with values falling 52.3%.

California expects a budget surplus for this year – the first after years of major budget issues – and since Sacramento is the state's capital, this puts the ball in the city's court.

1. Riverside, California

Riverside saw home values plummet 70% during the recession. But that bust couldn't break the city, as it's now ranked as the top market for growth this year.

Home prices will likely jump 12.5% this year in Riverside, Zillow says, as prices and buying continue the rally that began just over a year ago.

 

5 Smart Social Security Strategies

Social Security has gone from being a minor supplement for workers who had already made their own arrangements to save for their old age to the key financial support for tens of millions of retirees. With so much riding on your benefits, you can't afford to make any mistakes with your Social Security.

Yesterday, I looked at why it's so difficult to make a smart Social Security decision and touched on some of the issues you need to consider in making your choice. Today, let's go into more detail with some concrete ideas on how to manage your Social Security benefits.

Tip 1: Claiming early benefits while you're still working is usually a bad idea.
Many people believe you should claim Social Security as early as possible, even if you're still working. But if you haven't reached full retirement age, your annual Social Security benefits will get reduced by $0.50 for every dollar of annual earnings above $15,120. Even if you're scheduled to hit full retirement age, your benefits will still get reduced by a third of your earnings above $40,080 for the year.

Since claiming early benefits reduces your monthly benefit for the rest of your life, accepting reductions for work earnings almost never makes sense. You're better off waiting and claiming higher benefits later.

Tip 2: Two strategies for spousal benefits.
If you're married, you may be entitled to claim Social Security either on your own work record or on your spouse's. Specifically, once you reach full retirement age, your spouse can claim a spousal benefit once you file for your own benefit.

But if you'd prefer to defer your own benefit until a later date to increase your monthly payment, you can immediately suspend your benefit. That still allows your spouse to receive Social Security based on your work record, but it lets your own benefit grow as if you had done nothing.

If you have a substantial work history of your own, claiming spousal benefits while letting your own benefit grow can be a no-brainer, amounting to essentially free money. Consider: If you're entitled to spousal benefits of $1,000 or your own full retirement age benefit of $1,000, you might think it doesn't matter which one you choose. But by taking spousal benefits while deferring your own benefit until later, you can collect that same $1,000 while gradually boosting your own later payment by as much as 32%.

Tip 3: Consider survivors.
Keep in mind that if you're married or have minor children, your Social Security goes on after your death. For spouses, a spousal benefit that was half of your monthly payment will become a survivor benefit that pays the full payment amount.

That means you have to consider both your and your spouse's life expectancies to get your analysis correct. Leave your spouse out, and you could end up taking benefits earlier than you should to maximize family income.

Tip 4: Don't forget investing.
You'll find a lot of analysis of Social Security that considers break-even scenarios using only total payments received. But if you don't need the money right away, you can still take it and invest it. The greater the return you can get, the more it shifts optimal solutions toward taking benefits earlier.

The problem, of course, is that investing is riskier than the certain return of delaying Social Security. PIMCO Total Return Bond (NYSEMKT: BOND  ) and iShares Core Total US Bond ETF (NYSEMKT: AGG  ) have performed well on a total-return basis. But their yields are fairly low, and many investors fear rising rates in the future as causing trouble for bond investments.

Meanwhile, throughout the 2000s, retirees relied on Bank of America (NYSE: BAC  ) , General Electric (NYSE: GE  ) , and US Bancorp (NYSE: USB  ) for strong returns and lucrative dividend income, with all three appearing on the Dividend Aristocrats list because of their long track record of rising payouts. But the financial crisis forced all three of them to cut their dividends. Even though their stocks have recovered to some extent, their experience is a good example of how counting on investing to replace higher benefits is a dangerous proposition.

Tip 5: Don't forget taxes.
Finally, be sure to keep taxes in mind in claiming. As your income goes up, more of your benefits get taxed. That opens the doors to tax-management strategies, such as doing conversions to Roth IRAs during your career in order to keep income levels during retirement lower. Roth distributions don't count as income for applying the Social Security tax test, and so paying conversion taxes might end up saving you a bundle in taxes on your Social Security.

Keep fighting
You've worked hard for Social Security, so make sure it works hard for you. By taking advantage of these strategies, you can make sure that you get as much as you can in Social Security benefits.

Of the stocks hit by the financial crisis, US Bancorp has done a good job of recovering. But to figure out whether US Bancorp is a buy today, you'll want to get the best information you can find. To get it, I invite you to read our premium research report on the company today. Click here now for instant access!

Is Now the Best Time to Buy These Stocks Yielding up to 12%?

They're a staple of most high-yield portfolios. Just about every income investor has at least a few thousand dollars invested in this group.

There are good reasons for their popularity. These businesses throw off enormous amounts of cash. By law, they have to pay at least 90% of net income as distributions. That means they are dividend powerhouses. Yields of more than 6% are commonplace... I've seen a few paying more than 12%. And you can find some that pay monthly.

  I'm talking, of course, of real estate investment trusts -- REITs.

But it's been a long road for these income favorites.

Between May 2008 and March 2009, the S&P 500 dropped 43%. That was a relative walk in the park compared to the 63% loss in the REIT asset class.

I was keenly aware of this drop. About a year before it started, I had visited my broker.

I was just about to head out to the World Series of Poker in Las Vegas for the summer and knew I wouldn't have time to watch over my investments. The subprime crisis had started to make the headlines, and I was a little worried about what other shoes might fall.

I wanted to buy a few certificates of deposit (CDs), which were still paying reasonable amounts back then. He suggested some funds with a slug of real estate in them.

I said, "I'm not high on real estate. I have a mortgage on my house, so effectively I'm already leveraged in real estate."

He told me not to worry about it. If I lost money in real estate, they'd just rebalance my portfolio at the end of the year and put even more of my money in real estate for the next year.

I didn't know whether to laugh or cry.

Needless to say, looking back I am happy with my decision not to put money into my broker's suggestion. But here's the good news. Many REITs have come back strong, outpacing the broader market. That was all except for office REITs, which lagged thanks to rising office vacancies amid massive layoffs.

Now I've uncovered a chart that says it may be an opportune time to start locking in high yields on this specific niche of the REIT market. Take a look:
 

The chart shows the vacancy rates of office space in the United States. That's a metric by which office-focused REITs live and die.

The real-estate data specialist Reis Inc. was predicting the office-vacancy rate might reach 19.3%. Luckily, it never got that high. In fact, the vacancy rate plateaued at 17.6% during the second half of 2010. And now it appears to be dropping -- finally.

It's still too early to call an office real-estate rebound. But we have to be very close to the tipping point. And with that in mind, I'm starting to add select high-yield office REITs to my real money "Daily Paycheck" portfolio.

> I think now is the time to start locking in high yields and the chance for capital appreciation in a space that's been hated for years.

[Note: I added 175 shares of one office REIT to my real-money "Daily Paycheck" portfolio earlier this month. As usual, I'll reinvest the dividends, which will lead to higher checks.

VMware Beats on Q4, Will Cut 900 Positions

VMware (NYSE: VMW  ) reported encouraging Q4 and 2012 earnings yesterday,�but tempered this by announcing job cuts.

The quarterly tally was $1.3 billion in revenue and a net profit of $206 million ($0.47 per diluted share), which was above analyst expectations. Those figures were roughly 22% and 3% higher, respectively, on a year-over-year basis.

Those percentage figures matched the full-year numbers, with revenue advancing to $4.6 billion and the bottom line coming in at $746 million ($1.72 diluted EPS).

However, the company expects lower revenue growth this year. It anticipates the top line will be $5.23 billion-$5.35 billion for 2013, which is several tens of millions shy of previous analyst expectations.

In an SEC filing, the company announced job cuts that will affect around 900 employees, which would be about 6.8% of the company's total work force. VMware expects to take a charge of $70 million-$80 million for the layoffs and said the exit of certain lines of business and the consolidation of facilities would result in another charge of $20 million-$30 million. The company said it expects the "streamlining" plan that includes the layoffs and consolidation to be done by the end of 2013.

According to The Wall Street Journal, the cuts will come in units that develop the company's slower-growing products and overall the company plans to boost its head count by around 1,000 during the course of this year.

link

3 Stocks Set to Soar

There are plenty of strategies for picking stock winners, from finding low-P/E stocks to seeking companies selling at a discount to their future cash flows. But what if we could whittle down our list of prospects beforehand, to find those whose engines are just getting warmed up?

Using our investor-intelligence database at Motley Fool CAPS, I screened for stocks that investors marked up before their share prices rose over the past three months. My screen returned just 153 stocks when I ran it, no doubt reflecting the market's turmoil during that time, and included these recent winners:

Stock CAPS Rating July 27, 2012 CAPS Rating Oct. 29, 2012 Trailing-13-Week Performance
Tempur-Pedic*****62.3%
Federal Signal*******38.8%
Financial Engines*****36.9%

Source: Motley Fool CAPS Screener; trailing performance from Oct. 26 to Jan. 25. CAPS rating out of 5.

While this screen might tell us which stocks we should have looked at three months ago, we'd rather find the stocks that we ought to be looking at today. I went back to the screener and looked for stocks that were just bumped up to three stars or better, sport valuations lower than the market's average, and haven't appreciated by more than 10% in the past month.

Of the 35 stocks the screen returned, here are three that are still attractively priced but that investors think are ready to run today:

Stock CAPS Rating Oct. 26, 2012 CAPS Rating Jan. 25, 2013 Trailing-4-Week Performance P/E Ratio
Darden Restaurants (NYSE: DRI  ) *****3.2%13.1
MainSource Financial Group (NASDAQ: MSFG  ) *****6.2%9.5
Pinnacle West Capital (NYSE: PNW  ) *****5.5%15.9

Source: Motley Fool CAPS Screener; trailing performance from Dec. 28 to Jan. 25. CAPS rating out of 5.

You can run your own version of this screen over on CAPS; just remember that the data's dynamically updated in real time, so your results may vary. That said, let's examine why investors might think these companies will go on to beat the market.

Darden Restaurants
A persistently weak economy is pushing casual-dining chains to offer value meals like the popular "2 for $20" promotions at TGI Friday's, DineEquity's (NYSE: DIN  ) Applebee's, and Brinker International's�Chili's. DineEquity, in particular, saw net income triple to $58.7 million as a result of strong performance at Applebee's, and while the GAAP profits were largely a result of converting to a fully franchised business model, the chain still enjoyed a 2% increase in same-store restaurant sales.

That's forcing the hand at Darden Restaurants to join suit as Red Lobster, Olive Garden, and LongHorn Steakhouse suffered a collective 2.7% decline in comps last quarter, with Olive Garden's 3.2% decline being the worst. During the conference call, management suggested the sub-$15 price point was where it was aiming.

It won't be easy to turn things around as the fast-casual niche dominated by Panera Bread�and Chipotle Mexican Grill�offer good food at reasonable prices in a setting that offers faster service than tableside. But recognizing you have a problem is the first step in correcting it, and Darden shows it understands what it needs to do to compete.

MainSource Financial Group
Midwest regional banks like MainSource Financial Group have been burning up the stock charts as a wave of mortgage refinancing has bolstered gains made in loan origination. MainSource saw profits surge 21% last quarter as mortgage banking income rose while it was able to lower loan loss reserves because of an improving asset quality profile. Nonperforming assets, including troubled debt restructurings, dropped to 2.09% of total assets, an 84-basis-point decline from last year and 10 basis points below where they stood in the prior quarter.

Like Darden, MainSource still faces a difficult operating environment, as it expects loan growth to be minimal amid a low-interest rate environment, but with problem loans also expected to decline further, it should be able to build on the gains already made.

Pinnacle West Capital
Although Pinnacle West Capital sounds like it could also be a Midwest regional bank, it's actually an Arizona utility operator, and it hasn't performed nearly as well as the financial institutions. Last quarter, cool weather was the main reason the 4% earnings drop contributed to a $0.17-per-share decline in EPS. Averaging only 103 degrees in the quarter, temps were milder than normal and were 3 degrees below what was recorded in the same period in 2011. (This East Coast boy would easily have been running his air conditioner full tilt regardless.)

While Pinnacle also increased its customer count by 1.2%, which should help generate higher revenues in the future, Arizona, New Mexico, and Nevada have been hit by an actual freeze this month, with temperatures plunging at night to as low as 19 degrees. It could signal some weakness in the coming quarter's results even if the long-term outlook remains positive.

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Monday, January 28, 2013

CenterPoint Energy Lifts Dividend

CenterPoint Energy (NYSE: CNP  ) announced that it has raised its quarterly dividend. The payout is $0.2075, up from the $0.2025 that was paid in the four preceding quarters. The new disbursement will be paid March 8 to shareholders of record as of the end of Feb. 15.

The company pointed out that it is continuing a streak of such raises. In its announcement, it quoted CEO David McClanahan as saying that "for the eighth consecutive year, CenterPoint Energy is increasing its dividend." He added: "This demonstrates a strong commitment to our shareholders, and it shows the confidence the board of directors has in our ability to deliver sustainable earnings and cash flow."

Can UGI Meet These Numbers?

UGI (NYSE: UGI  ) is expected to report Q1 earnings around Jan. 31. Here's what Wall Street wants to see:

The 10-second takeaway
Comparing the upcoming quarter to the prior-year quarter, average analyst estimates predict UGI's revenues will grow 25.4% and EPS will grow 36.4%.

The average estimate for revenue is $2.12 billion. On the bottom line, the average EPS estimate is $1.05.

Revenue details
Last quarter, UGI tallied revenue of $1.13 billion. GAAP reported sales were 8.3% higher than the prior-year quarter's $1.04 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Last quarter, EPS came in at -$0.13. GAAP EPS were -$0.13 for Q4 versus -$0.20 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Recent performance
For the preceding quarter, gross margin was 40.3%, 700 basis points better than the prior-year quarter. Operating margin was -2.1%, 150 basis points worse than the prior-year quarter. Net margin was -1.3%, 90 basis points better than the prior-year quarter.

Looking ahead

The full year's average estimate for revenue is $7.28 billion. The average EPS estimate is $2.54.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 130 members out of 137 rating the stock outperform, and seven members rating it underperform. Among 52 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 50 give UGI a green thumbs-up, and two give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on UGI is buy, with an average price target of $34.33.

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  • Add UGI to My Watchlist.

Sterling Slides Against Dollar

The pound continued its slide against the dollar on Monday following last week's disappointing U.K. economic data, while the euro nudged lower against the dollar and European stocks hovered within a tight range.

Sterling fell to a fresh five-month low of $1.5712, while the euro rose to a near 14-month high of �0.8552. It wasn't just last Friday's gross domestic product figures, which showed a bigger drop than expected in the fourth quarter, that weighed on the currency.

"Future Bank of England Governor Carney's comments in Davos over the weekend were the latest excuse to add to GBP shorts," said RBC Capital Markets.

Speaking at the World Economic Forum in Switzerland, Mark Carney signaled that he will place emphasis on growth in his new job and is willing to see higher inflation for a longer period of time in order to support the economy, the Daily Telegraph reported on Monday on its website.

Meanwhile, Europe's regional equity indexes failed to find any support from a positive finish on Wall Street on Friday, when the S&P 500 closed above 1500 for the first time since 2007.

"The rally which has propelled equities higher in recent weeks shows some signs of abating this morning as we are seeing retail investors starting to rein in their appetite for risk," said Mike McCudden, head of derivatives at stockbroker Interactive Investor. "Furthermore, with corporate earnings thin on the ground today, investors are struggling to find the drivers in the short term which will push equities on to new highs and may well take this opportunity to bank some profits."

Corporate news was in short supply on Monday. Shares in Ireland-based airline Ryanair slipped, despite the company raising its full-year guidance and posting a better-than-expected third-quarter net profit. Market participants pointed out that the shares had a good run into the results, and were trading at highs not seen since 2007.

Among London's mid caps, general retailers were under the cosh after Morgan Stanley downgraded the sector to "cautious" from "in line," noting that consensus earnings forecasts are around 10% too high.

At around midday, U.S. futures pointed to a largely flat open on Wall Street, where durable goods orders and pending home sales are at 0830 ET and 1000 ET, respectively. Earnings from Yahoo and Caterpillar will also be in focus.

Write to Michele Maatouk at michele.maatouk@dowjones.com

A Key Earnings Report in Cardiac Medical Devices

Earnings season is off and running, and that means many golden opportunities to check in with the most important stocks in the health care industry.

With new U.S. health care policies going into effect, pressures from European austerity pressuring sales in the Old World, and large but often uncertain opportunities presented in developing markets, there's a lot of noise to distract investors from company-specific dynamics at work.

In the following video, health care bureau chief Brenton Flynn tries to cut through the noise and offers some of his key takeaways from last week's St. Jude Medical (NYSE: STJ  ) earnings report.

One of the key drivers of cardiac medical devices is the obesity epidemic. Investors looking to invest in that trend might consider a look at the stocks behind newly approved pharmaceuticals for obesity. One of those stocks is Arena Pharmaceuticals. While the future looks bright for the company, there are still plenty of obstacles ahead. In our brand new premium research report on Arena Pharmaceuticals, we walk investors through the must know opportunities and threats facing the company. Since key news can develop quickly, we're also including a full year of updates for those who sign up. Click here now to learn more.

Hasbro Announces Preliminary 2012 Results, Job Cuts

In its preliminary 2012 results released today, Hasbro (NASDAQ: HAS  ) expects that it will post revenue of around $4.1 billion for the full year, down from 2011's $4.3 billion. Net profit is expected to come in at $2.73-$2.75 per diluted share, excluding Q4 restructuring charges. That's down from the $2.82 of the previous year.

The company added that it will reduce its workforce by roughly 10% this year. It expects to take a $20 million-$30 million charge for this and other cost-saving measures.

Hasbro will provide fuller details of its fiscal 2012 and Q4 earnings in a conference call scheduled for Feb. 7.

See Spot Swim: Remedial Lessons Put Pooches in the Pool

While it may seem intuitive that most doggies know how to paddle, some need a little instruction. WSJ's Geoffrey Fowler attends a canine swimming class.

PACIFICA, Calif.�Most doggies can paddle on their own. Lady had to go to school first.

Lady, a 90-pound mastiff-and-shar-pei mix, was having the kind of weight gain and lower-back problems that could be helped by pool exercise. But her owner, Laura Burry, wasn't sure Lady could swim. "She likes puddles, but has never really gotten into the water," says Ms. Burry. "She is not too adventurous."

So Ms. Burry, a 24-year-old student, brought Lady to the Rex Center, a canine-swimming facility just south of San Francisco. Here, teacher Ellen Davison strapped a red life preserver around Lady's neck, guided the dog into the heated pool and gave her a lesson.

Lady

"Many dogs do not know how to swim, despite what you may think," says Ms. Davison. Some panic at first in the water, "just like a little kid would do," says Ms. Davison, who has been teaching dog swimming for three years.

Others need help because of disabilities such as arthritis, she says. Certain breeds, like bulldogs, sometimes just sink.

After a series of accidental dog deaths, officials in Colorado's Department of Agriculture recently proposed one of the first laws mandating dog "personal flotation devices" for kennels with pools. They also suggested requiring lifeguards.

Cesar Millan, the dog-training star of television show "Leader of the Pack," says his bulldog needed help learning to swim because its body wasn't naturally balanced for flotation. He had the pup trained by older Labradors, which are "like Michael Phelps" in the water, he says. "The dog must learn to relax," says Mr. Millan.

Enlarge Image

Close Geoffrey A. Fowler/The Wall Street Journal

Six-year-old Lady at a swimming lesson with instructor Ellen Davison.

Other dog owners are turning to professional help. Over the last decade, dozens of canine-swimming centers have opened across the U.S. Introductory swimming classes, usually one-on-one, typically cost $50 to $70 per half-hour.

New York City's Water4Dogs facility offers lessons in a heated 18-by-16-foot pool for dogs with injuries, dogs that need to lose weight and dogs getting ready for summer. "A lot of these New York City dogs have Hamptons homes with pools or homes on the beach," says Jean Marie Cooper, Water4Dogs' senior therapist.

A window on one side of the pool lets owners watch their dogs' strokes underwater. Water4Dogs also offers dog-birthday pool parties.

South San Francisco resident Vindy Chiu signed up her 6-year-old dog, Turbo, for swimming classes because she feared the white Eskipoo had inherited her apprehensions about water.

"I don't really swim, so I had never taken him to get acclimated to water," says the 37-year-old office manager. During beach trips, Turbo would run from waves. "I wasn't sure if he was scared of water or just didn't know how to approach it."

A class at the Rex Center helped both Turbo and Ms. Chiu. "They are not throwing them in the water�they start with baby steps," she says. "It made me feel really good."

About 20 minutes into his lesson, Turbo could make it back and forth across the pool on his own, Ms. Chiu says. He demanded a chicken treat as reward for each lap. After class, Turbo napped for hours.

The goals of dog-swimming lessons are more remedial and therapeutic than competitive. There is only one dog stroke, the paddle.

While the paddle is intuitive, some dogs need a little help figuring out how much to kick. When Elaine Rothenhaus brought her yellow Labrador Bella to a swimming lesson, the puppy took to the water fearlessly, but her rear side kept sinking.

"I thought, oh wow she really doesn't know how to swim, despite what everyone thinks," says Ms. Rothenhaus. Everyone, she says, included her husband, who had questioned the necessity of lessons.

When the instructor strapped a flotation device around Bella's waist, everything got better. "After a few more times, she figured out she had to kick her back legs," says Ms. Rothenhaus, 42. Several classes later, Bella no longer requires a flotation device, she says.

One occupational hazard for instructors: Nervous dogs sometimes have accidents. At Water4Dogs, they call such incidents AFRs, for accidental fecal release. The Rex Center in California, where health regulations require pools to be drained after such incidents, fines owners $300 for each mishap. Instructors say owners can usually avoid them by taking their dogs for a walk before class.

Like any older dog learning a new trick, Lady's first steps into the pool were tentative. Swimming instructor Ms. Davison, dressed in a black surfing body suit, held Lady in her arms as they backed rear-legs first into a pool.

Panting heavily, Lady wouldn't even accept duck-flavored treats, so Ms. Davison massaged her in the water.

"Her face looks so concerned," said owner Ms. Burry.

"She is pretty scared right now, which is typical," Ms. Davison replied.

As Ms. Davison pulled Lady deeper into the water and she started to kick her legs, Ms. Burry encouraged the dog from the side of the pool. "Oh my gosh, she is swimming!" she said.

Ms. Davison carried the dog farther and farther out into the pool and then encouraged Lady to swim to her owner. By the end of the lesson, Lady could make it about halfway across the pool.

How was Lady feeling after class? "That was the best time I had ever!" said Ms. Burry, speaking for Lady in a high-pitched voice.

Each dog is different, so Ms. Davison says she must rely on instinct. "The dog will pretty much always run the session," she says. "Once they do a lap on their own, their little head or chest will puff out as if they were saying, 'I just did this!' "

"A lot of it has to do with the [human] clients," says Ms. Davison. "You have to be aware of their emotions and how they are taking the whole thing, especially if their dog is struggling in the water."

Ms. Davison says she has received requests for cat-swimming lessons, but hasn't yet taken on feline clients. "I'd need to do some more research on that," she says.

Write to Geoffrey A. Fowler at geoffrey.fowler@wsj.com

Is ABIOMED Going to Burn You?

There's no foolproof way to know the future for ABIOMED (Nasdaq: ABMD  ) or any other company. However, certain clues may help you see potential stumbles before they happen -- and before your stock craters as a result.

A cloudy crystal ball
In this series, we use accounts receivable and days sales outstanding to judge a company's current health and future prospects. It's an important step in separating the pretenders from the market's best stocks. Alone, AR -- the amount of money owed the company -- and DSO -- the number of days' worth of sales owed to the company -- don't tell you much. However, by considering the trends in AR and DSO, you can sometimes get a window onto the future.

Sometimes, problems with AR or DSO simply indicate a change in the business (like an acquisition), or lax collections. However, AR that grows more quickly than revenue, or ballooning DSO, can, at times, suggest a desperate company that's trying to boost sales by giving its customers overly generous payment terms. Alternately, it can indicate that the company sprinted to book a load of sales at the end of the quarter, like used-car dealers on the 29th of the month. (Sometimes, companies do both.)

Why might an upstanding firm like ABIOMED do this? For the same reason any other company might: to make the numbers. Investors don't like revenue shortfalls, and employees don't like reporting them to their superiors.

Is ABIOMED sending any potential warning signs? Take a look at the chart below, which plots revenue growth against AR growth, and DSO:

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. FQ = fiscal quarter.

The standard way to calculate DSO uses average accounts receivable. I prefer to look at end-of-quarter receivables, but I've plotted both above.

Watching the trends
When that red line (AR growth) crosses above the green line (revenue growth), I know I need to consult the filings. Similarly, a spike in the blue bars indicates a trend worth worrying about. ABIOMED's latest average DSO stands at 45.7 days, and the end-of-quarter figure is 46.2 days. Differences in business models can generate variations in DSO, and business needs can require occasional fluctuations, but all things being equal, I like to see this figure stay steady. So, let's get back to our original question: Based on DSO and sales, does ABIOMED look like it might miss its numbers in the next quarter or two?

The numbers don't paint a clear picture. For the last fully reported fiscal quarter, ABIOMED's year-over-year revenue grew 26.9%, and its AR grew 21.4%. That looks OK. End-of-quarter DSO decreased 4.4% from the prior-year quarter. It was up 7.4% versus the prior quarter. Still, I'm no fortuneteller, and these are just numbers. Investors putting their money on the line always need to dig into the filings for the root causes and draw their own conclusions.

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Top Stocks For 1/28/2013-8

Crown Equity Holdings Inc. (OTCBB:CRWE) announced recently that its subsidiary company, Crown Tele Services Inc. is still moving forward after dissolving its joint venture with Communication Expert Corporation and will gradually start rolling out its internet based voice and video service IP-PBX solutions next year.

The cornerstone of Crown Tele Services Inc. strategy is to meet the highest standards when it comes to delivering VoIP (Voice over Internet Protocol) communication solutions specifically designed to meet the market needs.

Commenting on the venture, Kenneth Bosket, president said, “We are still excited with this opportunity to expand our footprint in this valuable market. The demand for internet-based voice and video services is growing exponentially and our new subsidiary Crown Tele Services Inc. has launched its new website and intends to emerge as a service provider of choice.”

According to ABI Research, the latest global business VoIP services forecasts show that the value of the overall market, which includes VoIP integrated access, SIP trunking, hosted IP-PBX/IP Centrex and managed IP-PBX services, is set to double over the next five years, to exceed $20 billion by 2015.

Crown Equity Holdings Inc., together with its digital network, currently provides electronic media services specializing in online publishing and Web sites, which bring together targeted audiences and advertisers that want to reach them. Crown Equity Holdings Inc. offers internet media-driven advertising services, which covers and connects a range of marketing specialties, as well as search engine optimization for clients interested in online media awareness.

Crown Equity Holdings Inc. announced in June of this year its 1- 10 forward stock split, as well as in August announcing that the company had surpassed One Million dollars (1,000,000) in sales.

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American Video Teleconferencing Corp. (Pink Sheets:AVOT) is pleased to announce that American Video has hired a French speaking geologist to search the archives of the Quebec Department of Mines for Rare Earths showings not on a current computer file. American Video believes the rare earths industry is where it wants to maintain a very strong focus and is looking to expand its holdings.

The 17 elements that are classified as “rare earth” are becoming an increasingly important part of our daily lives. Rare earth metals are the life blood of modern computers, batteries and alternative energies. For example, there are nearly ten pounds of the rare earth element, lanthanum, in every Toyota Prius engine. In addition, rare earth elements are vital to military technology. Contrary to the name, rare earth metals aren’t particularly rare and can be found in most any continent. In recent weeks the US government has made important steps to increase production of these metals, as they will play an important part in President Obama’s overhaul of U.S. energy.

As neither the Federal nor Quebec Governments have carried out any air borne surveys in this area, American Video will seek a contractor to do an air borne Mag-EM radiometric survey. This survey will cover its present holdings and the immediate surrounding area looking for future acquisitions. American Video is pleased to be working in the Province of Quebec as it is rated the number one jurisdiction in the world to carry out mineral exploration. The Quebec Government gives a rebate up to 45% for property expenditures.

Rare-earth metals include terbium, which finds use in flat-panel TVs and high-efficiency fluorescent lamps, and neodymium, key to the permanent magnets in high-efficiency electric motors. Rare-earth metals are not indeed rare. The series of nonferrous metals is common in the environment. According to Design Chain Associates, most rare-earth metals are as common as copper, and even the rarest is more common than gold. Part of the market pressure on rare-earth metals comes from new demands that green technologies has prompted. The market, including electric- and hybrid-vehicle motors and wind turbines, requires magnets.

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Center Bancorp Inc. (Nasdaq:CNBC) announced that for the fourth quarter of 2010, it intends to establish an additional loan loss provision of approximately $1.4 million pretax, on various non-performing assets. In addition, the Corporation expects to record the remaining $1.4 million unrecognized income tax benefit related to a previously disclosed internal entity structure realignment and liquidation of subsidiary companies, commenced in the fourth quarter of 2006.

Center Bancorp, Inc. is a bank holding company which operates Union Center National Bank, its main subsidiary.

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The Law Office of Abe Shainberg investigated the Board of Directors of Center Financial Corporation (Nasdaq:CLFC) for possible breaches of fiduciary duty and other violations of state law in connection with their attempt to sell the Company to Nara Bancorp, Inc. (�Nara Bancorp�). Under the terms of the proposed transaction, Center Financial shareholders will receive a fixed ratio of 0.7804 of a share of Nara Bancorp common stock in exchange for each share of Center Financial common stock they own.

Center Financial Corporation operates as the holding company of Center Bank, which offers financial services for small to medium sized business customers in Southern California.

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Central Garden & Pet Co. (Nasdaq:CENT) announced the appointment of Lori Varlas as Senior Vice President, Chief Financial Officer and Secretary, effective December 1, 2010. Ms. Varlas will report to William E. Brown, Central’s Chairman and Chief Executive Officer, and will be based at the company�s headquarters in Walnut Creek, California.

Central Garden & Pet Company is a leading innovator, marketer and producer of quality branded products for the lawn & garden and pet supplies markets.

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Sunday, January 27, 2013

How (and When) to Snag Cheap Fares

When is the best time to get the best value on airfare? It's the most-asked question travelers pose, and as spring break approaches, it helps to know that a recent study puts the average answer for a domestic trip at roughly seven weeks.

"Of course, a million caveats apply," says Jeff Klees, chief executive of CheapAir.com, an airfare-shopping engine. "If you're more flexible on your travel dates and time, you can get away with waiting closer to the time to travel."

In a study of "every possible trip combination" over 11,000 routes, CheapAir dissected more than 560 million fare-search records from 2012's 366 days. "For any given flight, the actual best time to buy might vary, depending on the market, the time of year, the day of week and other factors," Mr. Klees says.

But the short answer is 49 days before your departure for domestic flights, while the sweet spot for international flights is 81 days.

Enlarge Image

Close Augusto Costhanzo

Airlines will vary fare prices based on availability and preference. A typical flight from Los Angeles to Chicago could carry as many as 20 possible price points when the ticket is purchased. If the flight is wide open, all price points will be available.

As fewer seats become available, fares switch to higher levels and if the carrier sees flights filling briskly, it will spike the prices.

"You'll see crazy fares that are literally five times as much as what you would normally pay for a flight," Mr. Klees says.

Of course, if you want to sit in first or business class, plan to pay a premium for it no matter when you buy the ticket. Ditto if you want a seat in the first 10 rows of coach and, increasingly, if you want more leg room.

What's the priciest day to buy a ticket? The day before you fly, with the second worst, two days in advance and the No. 3 spot, three days ahead of time. That pattern sticks through 11 days out, underscoring the need to buy tickets as soon as you can.

The real trick to getting cheap fares is to travel during the so-called shoulder season, according to Anne Banas, executive editor ofSmarterTravel.com. The industry ranks travel into three seasons, high, low and shoulder. High, of course, is when the kids are out of school and the weather is great, or summer, while low is during the depths of winter, when fewer people are traveling, with the exception of the holidays.

"The best time to travel is in the middle of all that, spring and fall when prices are discounted, the weather is mostly decent and seasonal places and events are still open," she says.

Because spring break tends to spread out over a four- to six-week period in March and April, Ms. Banas says there are still deals to be found. It's Easter week, which this year falls on March 25-31, that's tricky.

Though she warns to watch for blackout dates on some packaged deals, she has seen offers to St. Croix in the U.S. Virgin Islands with $300 airfare credit if you book six nights or more and similar airfare credits for the Bahamas. The Atlantis, the biggest resort on Paradise Island in the Bahamas, has a $69-per-adult, per night deal plus other bonuses, though there are booking deadlines.

The best way to find an airfare deal that you consider a value is to track it closely. There are tools on websites such as Kayak.com, AirfareWatchdog.com and TripAdvisor.com that will do the legwork for you. And CheapAir has a price-drop payback offer that will pay the difference, as a travel voucher, if the price of your exact itinerary goes down.

Here's a quick primer on when to find the best deals.

Start early. Once you've got your plans in mind, even if you haven't decided if you can actually afford it, start tracking prices. That will give you a feel for the market conditions.

If you see a great ticket price, be ready to pounce on it. Many times price cuts are short-lived, like 24 to 48 hours.

If you're traveling during peak travel periods�and Easter week is one of them�give yourself more time. Those are likely to fill up fast with prices rising along the way. Best bet: Travel after Easter week.

As with any air travel, be flexible. Sunday and Friday flights are going to cost you more than a Tuesday or Wednesday. But during peak holiday travel like Thanksgiving, price will vary based on timing, Mr. Klees says. Last year, travelers flying Monday through Friday of the holiday week saved $114 over those who booked a Wednesday to Sunday flight.

Another caveat: CheapAir's recommendations come from an in-depth analysis of what happened last year. The industry is long known for its penchant to shift pricing gears at any moment, reacting to the economy, rising fuel prices and declining travel demands.

Write to Jennifer Waters at jennifer.waters@dowjones.com

—Jennifer Waters is a columnist for MarketWatch. Read more at marketwatch.com.

Federated Investors Misses on Revenues but Beats on EPS

Federated Investors (NYSE: FII  ) reported earnings on Jan. 24. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Federated Investors missed estimates on revenues and beat expectations on earnings per share.

Compared to the prior-year quarter, revenue increased and GAAP earnings per share increased significantly.

Gross margins dropped, operating margins grew, net margins increased.

Revenue details
Federated Investors reported revenue of $244.8 million. The seven analysts polled by S&P Capital IQ expected to see sales of $253.8 million on the same basis. GAAP reported sales were 13% higher than the prior-year quarter's $216.4 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at $0.44. The nine earnings estimates compiled by S&P Capital IQ forecast $0.40 per share. GAAP EPS of $0.44 for Q4 were 22% higher than the prior-year quarter's $0.36 per share.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 74.2%, 60 basis points worse than the prior-year quarter. Operating margin was 34.0%, 540 basis points better than the prior-year quarter. Net margin was 20.3%, 320 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $257.9 million. On the bottom line, the average EPS estimate is $0.43.

Next year's average estimate for revenue is $1.05 billion. The average EPS estimate is $1.79.

Investor sentiment
The stock has a four-star rating (out of five) at Motley Fool CAPS, with 293 members out of 312 rating the stock outperform, and 19 members rating it underperform. Among 101 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 96 give Federated Investors a green thumbs-up, and five give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Federated Investors is hold, with an average price target of $21.73.

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