CHICAGO, April 27, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Amazon.com (Nasdaq: AMZN), D.R. Horton (NYSE: DHI), Berkshire Hathaway (NYSE: BRK.B) and Masco(NYSE: MAS).
Today after the closing bell, Amazon.com (Nasdaq: AMZN) posted mixed results for its fiscal 1st quarter 2011. Quarterly revenues of $9.86 billion beat the Zacks Consensus Estimate of $9.5 billion, but EPS missed badly -- 44 cents per share as opposed to the 60 cents per share in the Zacks Consensus.
This marks the first negative earnings surprise for Amazon.com since the 2nd quarter of 2010. But today's number was a doozy -- a 36.36% negative surprise takes the four-quarter average to -11.59%. Further, analysts had drastically revised earnings estimates downward at the beginning of the quarter. Thus, AMZN stock -- which was already trading down in Tuesday's regular session by 1.68% to $182.30 -- took an initial hit in the after-market.
Increased spending on infrastructure and into growing markets has apparently taken a much bigger bite out of Amazon.com's bottom line in the quarter, but the beat on revenues looks to be a genuine silver lining. $9.86 billion not only easily topped the Zacks Consensus, but is 38% higher than the $7.13 billion posted in the year-ago quarter. And in a growth industry, figures like this can make up for a lot of perceived disappointment elsewhere.
This was not expected to be a strong quarter for Amazon. Costs were expected to hit profits harder (though clearly not by this much), Amazon has exposure to Japan's issues, among other things, but the growth in the company's top line is the positive takeaway from this mixed report. This may explain why AMZN shares are not bearing the brunt of a drastic sell-off in late trading today.
Guidance for the 2nd quarter is roughly in-line with the Zacks Consensus at this time. Amazon.com expects earnings of 57 cents a share on revenues of $8.74 billion. Amazon currently has a Zacks #3 Rank (Hold), which corresponds with a longer-term Neutral recommendation.
Home Prices Still Falling
It is existing home prices, not the volume of turnover that is important. The level of existing home sales is only significant relative to the level of inventories, since that provides a clue as to the future direction of home prices. If there is an excess inventory of existing homes, then it makes very little sense to build a lot of new homes.
It is the building of new houses that generates economic activity. It is not just about the profits of D.R. Horton (NYSE: DHI). A used house being sold does not generate more sales of lumber by International Paper (IP) or any of the building products produced by Berkshire Hathaway (NYSE: BRK.B) or Masco (NYSE: MAS). Turnover of used homes does not put carpenters and roofers to work. New homes do.
Existing home prices, on the other hand, are vital. Home equity is, or at least was, the most important store of wealth for the vast majority of families. Houses are generally a very leveraged asset, much more so than stocks. Using your full margin in the stock market still means you are putting 50% down. In housing, putting 20% down is considered conservative, and during the bubble was considered hopelessly old fashioned.
As a result, as housing prices declined, wealth declined by a lot more. For the most part we are not talking vast fortunes here, but rather the sort of wealth that was going to finance the kids' college educations and a comfortable retirement. With that wealth gone, people have to put away more of their income to rebuild their savings if they still want to be able to send the kids to college or to retire.
The decline in housing wealth is a very big reason why retail sales have been so weak. With everyone trying to save, aggregate demand from the private sector is way down. If customers are not going to spend and buy products, employers have no reason to invest to expand capacity. They have no reason to hire more workers.
People pulling money out of their houses was a big force behind what growth we had during the previous expansion. Mortgage equity withdrawal, also known as the "housing ATM," often accounted for more than 5% of Disposable Personal Income during the bubble, thus greatly lifting consumer spending. Since the bubble popped, people have been on balance paying off their homes (or defaulting on them through foreclosures).
The comparison of the next two charts shows how important housing wealth is to the middle class. The first graph includes home equity wealth, the second looks only at financial assets like stocks. The upper middle class (50 to 90% income brackets) had 26% of the total wealth in the country in 2007, and just 9.3% of the wealth in the form of financial assets. The value of non-financial assets, mostly home equity, has declined significantly since 2007, and with it the wealth of the middle class.
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