Brian Rogers
, T Rowe Price Equity Income Fund (
PRFDX
)'s portfolio manager, today released his third quarter portfolio
update. In the three months ended Sept. 31, 2012, Rogers sold out
nine stocks and bought nine new stocks for his $23 billion
portfolio. His largest new buys were: Computer Sciences Corp. (
CSC
), Australia and New Zealand Banking (
ANZBY
) and Cliffs Natural Resources (
CLF
).
Going into the third quarter, Rogers believed the U.S. economy
was growing slowly and steadily, Europe's debt crisis was
heightening caution among investors, and a soft Chinese economy
and U.S. fiscal uncertainty were reducing the appeal of risk, he
wrote in his second-quarter letter.
Rogers further noted a stabilizing U.S. economy and signs that
the Fed would continue its easing policy. Stock valuations
appeared attractive following sharp sell-offs in May and June,
and he planned to hold to his bottom-up approach instead of
divining how markets would react to macroeconomic events.
Computer Sciences Corp. (
CSC
)
Rogers purchased 5,728,300 shares of Computer Sciences Corp. for
an average of $28 per share in the third quarter. A year ago, he
sold out of a similarly sized position for an average of $32 per
share. Year to date the stock gained almost 27%.
Computer Sciences is an information technology company that
offers a wide variety of services and products for companies,
ranging from cloud computing to cyber security solutions.
Financially, the company has reported four consecutive years of
sales declines, from $16.7 billion in 2009 to $15.9 billion in
2012. Underperformance in fiscal year 2012 was due to "NHS
[National Health Service] write-offs and challenges managing our
cost structure, aligning our global organization and in executing
some of our MSS contracts," along with market headwinds in its
Federal business in Europe, the company's CEO said. He also said
the company is in a "turnaround situation" and taking the first
steps on that journey.
For full-year 2012, the company also reported fully diluted
earnings per share (
EPS
) loss of $27.38, a decrease from 2011 EPS of $4.51. The drop was
primarily due to $17.21 per share of goodwill impairment charges,
a $10.03 per share UK NHS charge, a $1.06 per share U.S. claims
settlement, and a $0.88 per share restructuring charge, and
several other expenses, offset by a lower tax rate.
CSC has a P/E ratio of 13, P/B ratio of 1.8 and P/S ratio of 1.3:
Computer Sciences' stock jumped almost 16% on announcement of its
most recent third quarter financial results. It had total revenue
of $3.96 billion, representing revenue growth of 1% year over
year on a constant currency basis and a decline of 2% year over
year on a reported basis. Its operating margin of 4.6% increased
by 16 basis points year over year and free cash flow improved by
$378 million to negative $25 million. At quarter end, it had cash
of $1 billion.
The results reflected a first step in the company's turnaround
initiatives, which includes a plan to cut costs by $1 billion
over the next 18 months.
Australia and New Zealand Banking (
ANZBY
)
Rogers purchased 5,851,000 million shares of Australian and New
Zealand Banking for an average of $25 per share. The stock has
gained 29% year to date.
Australia and New Zealand Banking's principal activities are the
provision of general banking services, hire purchase and general
finance, life assurance, property development, mortgage lending
and other financial services.
Australia and New Zealand's revenue has been increasing for the
last three years, after a significant decline in 2009, as has net
income. In its most recent full year, revenue increased to $34.9
billion from $26.9 million in 2010, and net income increased to
$5.8 billion in 2011 from $4.1 billion in 2010. ANZBY also has no
P/E ratio, a P/B ratio of 1.7 and P/S ratio of 1.8:
In 2011, the bank generated $19 billion of free cash flow, an
increase from $2.5 billion in 2010. It has cash of approximately
$444 billion in cash on its balance sheet, $86.2 billion in
long-term liabilities, and no long-term debt.
ANZBY reported first-half 2012 results on May 2012. For the six
months ended March 31, 2012, it had an underlying profit of $2.97
billion, adjusting for non-core items, a 5% increase from the
previous half and 6% from the previous period. Results were
driven by strong performance in Asia, Pacific, Europe and
America, and in Institutional and New Zealand. This was offset by
modest results in Australia affected by continued margin
pressure.
ANZBY CEO Mike Smith attributed weak results in Australia to
declining margins a structural shift since the financial crisis,
as well as declining demand for credit in Australian banking.
ANZBY has Tier 1 capital at 11.3% and Common Equity Tier 1 of
8.9%. Its return on equity increased to 15.9% from 15.9%n and it
increased its dividend 3% from 2011 to 66 cents.
Cliffs Natural Resources (
CLF
)
Rogers purchased 2.75 million shares of Cliffs Natural Resources
for an average of $42 per share. The company's stock has declined
almost 27% year to date.
Cliffs Natural Resources is a global mining and natural resources
company and major producer of iron ore and coal. It has iron ore
and coal mines in North America and two iron ore mining complexes
in Western Australia, as well as a 45% economic interest in an
Australian coal mine and a Canadian chromite project in
pre-feasibility stage.
CLF has a five-year annual growth rate of 11.1%, EBITDA growth
rate of 25.2 percent and free cash flow growth rate of 39.5
percent. It also has a P/E ratio of 4.7, P/B ratio of 0.8 and P/S
ratio of 0.8:
CLF reported second-quarter results for the period ended June 30,
2012 on July 25, 2012. The company's revenues decreased 10% year
over year to $1.6 billion, driven by lower year-over-year pricing
for its commodity products. Net income was $258 million, or $1.81
per diluted share, down from $409 million, or $292 per diluted
share the previous year, driven by a lower consolidated sales
margin, and the previous year's quarter having a significant
foreign currency hedging gain.
The company's consolidated sales margin decreased 39% to $449 due
to lower revenues and increased cost of goods sold from higher
costs for labor, mining and maintenance. Iron ore sales volumes
increased 13% year over year, driven by its Bloom Lake Mine
acquisition and expansion project in the Asia Pacific.
Higher iron ore sales partially offset the sales margin decrease,
but U.S. iron ore revenues per ton were down 13% year over year
on lower pricing for seaborne iron ore and changes in customer
mix. Asia Pacific iron ore sales jumped 39%, while revenue per
ton fell 32%; Eastern Canadian Iron Ore sales surged 41%, while
revenues per ton declined 28%.
For more of Brian Rogers' latest buys and sells at T Rowe Price,
see his portfolio. Also check out his undervalued stocks, top
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