For Immediate Release
Chicago, IL – November 5, 2010 – Zacks.com Analyst Blog features: Amazon.com (AMZN), Wynn Resorts (WYNN), Netflix (NFLX), Baidu.com (BIDU) and SIRIUS XM Radio Inc. (SIRI ).
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Here are highlights from Thursday's Analyst Blog:
Stocks With Nose-Bleed PEs
Stocks are hitting new 2-year highs both in the United States and in Europe. As the rally off the March 2009 lows pushes stocks to new levels, some investors are starting to ask: are stocks too expensive now? Overall, the S&P 500 index doesn't look very expensive. It is trading at about 15x forward estimates. Historically, the index has averaged a trailing P/E of about 15 since 1920. It is, however, well off the low valuations of March 2009.
So, the current S&P 500 is not "cheap" and it's not "expensive." It is within the range of the average valuation for the index.
P/Es Over 50 Make a Comeback
Part of the fear about stocks now being too expensive comes from some prominent companies now trading well above the overall S&P 500 average. Lots of investors follow these companies.
Out of the S&P 500, 12% of companies are now trading at 25x forward estimates or higher. These stocks would be considered "expensive" by historical standards.
Out of the expensive stocks, 18 companies in the S&P 500 are trading with forward P/Es of 50 or higher. This list includes some investor favorites such as Amazon.com AMZN trading with a P/E of 67 and Wynn Resorts WYNN at 68 times forward estimates.
Looking outside of the S&P 500, you can find some other investor favorites also trading with nose-bleed forward P/Es such as Netflix (NFLX) at 61 and Baidu.com (BIDU), the Chinese Internet search engine, with the sky-high P/E ratio of 76.
Don't Ignore Valuations
There have always been some "expensive" stocks. But two years after the worldwide stock market crash, are nose-bleed level P/Es a sign of some irrational exuberance starting to percolate in equities or that healthy risk has returned?
As this rally picks up speed, investors should be watcyhing P/E ratios for signs of overheating. While overall, stocks aren't expensive right now, the P/E ratio has only been moving one way the last several months: higher. And some individual stocks may simply be too hot to handle.
SIRIUS XM Strong, but Stock Falls
SIRIUS XM Radio Inc. (SIRI ) posted highly encouraging financial results for the third quarter of 2010. These were the combined effects of double-digit growth in revenue, a record high net addition to its pay-radio services, and a meaningful improvement in average revenue per user (ARPU).
Quarterly net income was $67.6 million or an income of a penny per share compared to a net loss of $151.5 million or a loss of 4 cents per share in the prior-year quarter. Third quarter EPS of 1 cent was ahead of the Zacks Consensus Estimate of break-even.
Quarterly total revenue of $717.5 million was an improvement of 16% year over year and was also above the Zacks Consensus Estimate of $712 million. This was primarily due to increase in subscriber base, higher sale of "Best of" programming, and rate increases to the company's multi-subscription and Internet packages.
Quarterly total operating expenses were $574.5 million compared to $552.3 million in the year-ago quarter. Operating income in the third quarter was $143.1 million compared to an operating income of $66.4 million in the year-ago quarter. Quarterly adjusted EBITDA was a record high $169.7 million compared to $106.1 million in the prior-year quarter.
During the first nine months of 2010, SIRIUS XM generated $291.1 million of cash from operations compared to $253.1 million in the year-ago period. Free cash flow (cash flow from operations less capital expenditures) in the same period was $33.7 million compared to $35.8 million in the year-ago period.
At the end of the third quarter of 2010, SIRIUS XM had $316.3 million cash & cash equivalents and $2,668.6 million of outstanding debt compared to $383.5 million cash & cash equivalents and $2,813.6 million of outstanding debt at the end of fiscal 2009. At the end of the third quarter of 2010, debt-to-capitalization ratio was 0.91 compared to 0.97 at the end of fiscal 2009.
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AMAZON.COM INC (AMZN): Free Stock Analysis Report
BAIDU INC (BIDU): Free Stock Analysis Report
NETFLIX INC (NFLX): Free Stock Analysis Report
SIRIUS XM RADIO (SIRI): Free Stock Analysis Report
WYNN RESRTS LTD (WYNN): Free Stock Analysis Report
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