For Immediate Release
Chicago, IL – May 28, 2010 – Zacks.com Analyst Blog features: Big Lots (BIG), Fannie Mae (FNM), Freddie Mac (FRE), Bank of America (BAC) and Tiffany & Company (TIF).
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Here are highlights from Thursday’s Analyst Blog:
Initial Claims Down, but Not Enough
We got some good news as Initial Claims for Unemployment Insurance fell by 14,000 last week to 460,000. However, it is not good enough. If one factors in the upward revision to the previous week’s number the decline is only 11,000, and that hardly makes up for the 28,000 (post revision) increase a week ago.
Since the week-to-week numbers can be noisy and volatile, it is generally better to look at the four-week moving average to get a better sense of the overall trend.
After a massive and steep decline starting in April of last year, and continuing through New Year’s, the trend of initial claims has become very erratic. This is starting to look like a replay of what happened after the last two recessions, when after a steep initial decline initial claims remained on a high plateau for a very long period of time. Those periods coincided with jobless recoveries.
The news on continuing claims was a bit more upbeat. Regular continuing claims fell by 49,000 to 4.607 million, and have been in a steep downtrend of late. A year ago they were at 6.4898 million, so over the course of the year we have seen a 29.1% decline.
However, regular continuing claims do not tell the whole story, not by a long shot. Regular claims are paid by the state unemployment insurance funds, and last for only 26 weeks. In April, 45.9% of all of the unemployed had been out of work for longer than that.
If benefits ended abruptly after six months, those people would not even afford to bu the basic of life at deep discounters like Big Lots (BIG). They would have no hope of paying their mortgages if they were homeowners, and would most likely either sell (putting more houses on the market, further depressing housing prices) if they still have positive equity in their homes. They could borrow against the equity in their homes, which was a common strategy in previous downturns, but with 24% of all houses “underwater” and another 4% with less than 5% positive equity, that option is not open to many.
That is especially true if you consider that the areas with the highest levels of unemployment are also generally those with the highest percentage of homes underwater. (Ironically, the places with the most underwater homes are in the desert, notably in Nevada and Arizona.)
Many would try to survive simply by not paying their mortgage and waiting for the sheriff to show up at the door, which in many areas of the country can take more than a year these days. While such a move might help those people to stretch their last few financial resources, it would hardly be good news for just about any firm in the mortgage complex, ranging from the wards of the state like Fannie Mae (FNM) and Freddie Mac (FRE) which would simply have much larger losses, to the major banks with big mortgage operations like Bank of America (BAC).
If we try to save money by cutting off extended benefits, it is likely that we will simply have to spend more money on losses at Fannie and Freddie, so the savings would be an illusion.
Tiffany Results, Guidance Sparkle
Tiffany & Company (TIF) recently posted stronger-than-expected first-quarter 2010 results buoyed by improved demands for luxury items worldwide. Tiffany’s sales were hit hard by the recent economic downturn, when consumers lowered their discretionary spends.
The quarterly earnings of 50 cents a share, excluding one-time items, rose more than twofold from 22 cents delivered in the prior-year quarter, and came well ahead of the Zacks Consensus Estimate of 36 cents.
Tiffany, a high-end jewelry designer, manufacturer and retailer, remains optimistic about fiscal 2010, and forecasts earnings in the range of $2.55 to $2.60 per share, up from its previous guidance range of $2.45 to $2.50. The current Zacks Consensus Estimate for fiscal 2010 is $2.49.
Net sales for the quarter jumped 22% to $633.6 million from the prior-year quarter, signaling the renewed demand for jewelry in the Americas , Asia-Pacific and European regions. Comparable-store sales soared 14%. In constant currencies net sales climbed 18% and comps grew 10% during the quarter.
Tiffany now anticipates total net sales for fiscal 2010 to rise by 11%.
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