earnings updates

Lots of interesting earnings news --- several have reported so far and here are the highlights:

ILMN -- great numbers -- demand is very strong as they beat revenues by 8% and raised forward revenue estimates by about 6%. Cowen had worried that the quarter may not be as strong as usual so the stock sold off pre-report to the low to mid $80's. The stock has soared since to the $93 range. I sold some Sep 100 calls when the stock was $92 so I'm down a bit on the trade so far but remember the delta is low so I'm making more on the stock's rise than I am losing on the option's rise.

FLIR -- Prior to the report Axsys Tech reported blow out numbers. They are a smaller competitor so I think that got a few folks excited. FLIR's report was strong but the guidance wasn't as high as people were hoping for -- stock dropped double digits of course that only takes it back to where it was a few months ago. Business trends remain very strong -- I bought some more at $38. I will buy more if it drops.

CME -- interesting comments about the slowing volumes -- they claim its caused by certain trades not being profitable right now for various reasons that they believe are temporary. As the reasons lift, that should cause volumes to rebound. They are also working on introducing new products especially within fixed income. The NYMEX deal should close now that various issues have been renegotiated. I don't think energy is done with in terms of futures volumes.

AB -- when value is out of style it appears their value funds relative performance stinks. when growth is in style it appears their growth funds relative performance is great. consistency in that sense is cool -- clients know that Bernstein is going to provide style consistent results. Obviously having more exposure to value funds now than during the last downturn say 6 years ago is hurting results but they grew alternative assets under management; private client -- higher margin, more stickier business is a bigger % of revenues and profits now. if the market drops from here than AB will drop with it. that said there is nothing structurally wrong with AB.

LH -- a good and bad story that right now is hurting the stock. The good news is that the DNA testing and personalized medicine story is playing out -- continues to play out. That means good growth in testing volumes for the higher priced tests. They talked about testing for vitamin D deficiency as an important driver for volume growth. There is also the new ovarian cancer screen test.

The bad news is that there is less insurance coverage now than a few years ago. That means less of other people's money to spend and more money has to come from the patient.

Everyone looks at demographics and points to health care's secular trend. Yes its true that the older ages are the fastest growing age groups. Its also true that you can't pay for your medical bills using demographics -- they take cash. The main trend from the early 90's to about 2001 was increased insurance coverage -- not just enrollment growth but dollars available to pay doctor bills. Today its the opposite as enrollment is declining (see managed care stock prices) and copays and deductibles are rising -- I believe the peak was when the employee share of health care cost reached about 20% vs. the historical average closer to 33%.

My hope is that the good news outweighs the bad news over time but certainly this quarter it didn't. Quest Diagnostics, the main competitor, had better results but that was probably better in terms of expectations -- their absolute growth rates were similar.

CLB -- amazingly consistent -- they beat and raised slightly but the key is that incremental operating margins were 47% -- still well above this quarter's 27% (around there anyway). strong free cash flow, rising margins, mid teens revenue growth and its all available for a high teens PE ratio. That's not bad given the quality of the business. People are nervous about all things energy related. I am confident about CLB but regular energy is likely done for awhile -- commodity not rising anymore means its harder for E&P to grow earnings unless they are growing production.

so to me the answer is likely an oil services company like CLB, nat gas plays because the price of nat gas is so cheap on a btu basis; and a bet on electricity demand such as mxwl or WGOV, AZZ, EMR, or etc.

POWI -- so far that trade is looking horrible -- sell BLUD before a $4 increase in price and buy POWI before a $5 decline in price. Power integrations reported last week and they lowered guidance due to less visibility of orders this quarter. continue to think this is temporary and that longer term the number of apps using their tech is growing.

getting late -- time to call it a night. so far earnings season is OK for me but some big dogs are reporting in August. I am becoming more convinced that in the current environment you need to have the falling prices rising volume aspect like FLIR has and like AXYS might have; MXWL might have too. that's the strongest secular growth and probably the one whose investors underestimate.