Intel, Kraft Foods, Bristol Myers, Wal-Mart and Target

CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: Intel Corp. (Nasdaq: [ INTC ]), Kraft Foods (NYSE: [ KFT ]), Bristol Myers (NYSE: [ BMY ]), Wal-Mart (NYSE: [ WMT ]) and Target (NYSE: [ TGT ]).

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Here are highlights from Tuesdaya�s Analyst Blog:

Intel Boasts Big Numbers

Intel Corp. (Nasdaq: [ INTC ]), the world's largest chipmaker, easily outperformed earnings estimates in its 2nd quarter of 2010, reported after the bell but preceding the company's conference call scheduled for 5:30pm ET. Intel posted earnings of 51 cents per share, beating the Zacks Consensus Estimate of 43 cents in what the company is calling its "best quarter ever."

With revenues of $10.8 billion in the quarter and a gross margin of 67%, Intel (and its shareholders) have sufficient reason to crow about the results. Even though both analysts and traders of INTC stock had been very cautious leading up to the earnings announcement, its 2nd quarter numbers are impressive any way you look at them. Intel's EPS is 18.6% higher than the 43 cents per share it reported in the first quarter, and 183% higher than its 2nd quarter 2009 posting of 18 cents per share. Over the past 4 quarters, Intel has averaged a positive earnings surprise of 18%.

And this follows Intel's May investor meeting, after which estimates for the quarter and fiscal 2010 were ratcheted up 16.2% and 10.7%, respectively. The Zacks Consensus Estimate for fiscal 2010 is currently at $1.87, but we might expect a few upward revisions in the near term, especially as Intel expects a full-year gross margin at 66%, nearly at the impressive 2nd quarter levels.

Intel has been carrying a Zacks #3 Rank (Hold) rating and a Neutral recommendation, based largely on very few estimate revisions over the past 30-60 days and no noticeable change in consensus estimates over that time period. Taking into account Intel's strong performance and depending on how analysts view its forward outlook, we may expect some near-term upward momentum in estimate revisions.

Trade Deficit Gets Even Worse

What really drove the increase in the trade deficit this month was the non-oil goods side. That deficit rose to $32.31 billion from $27.78 billion in April and $22.38 billion a year ago, increases of 16.3% and 44.4%, respectively. The rise is most likely related to the strength of the dollar in recent months as a result of the crisis in Europe. This is the principal transmission mechanism for the trouble on that side of the pond to affect the U.S. economy.

The trade deficit really is a much bigger problem than is the fiscal deficit. It is the trade deficit that is responsible for our being deep in debt to the rest of the world, not the budget deficit. That is something that cannot be argued, it is simply an accounting identity.

For every dollar of goods and services we buy that is more than the amount of goods and services we sell abroad each month, we have to either be selling off assets or going into debt by that amount, dollar for dollar. This month, we effectively sold off Kraft Foods (NYSE: [ KFT ]); if the deficit is the same size next month, we will effectively sell off Bristol Myers (NYSE: [ BMY ]). How much longer before we dona�t have anything left? Actually it is mostly T-bills and notes that are being sold abroad, but the key point is that it is the trade deficit, not the budget deficit, that drives how far we are in hock to the rest of the world.

Think about it this way: during WWII, our budget deficits were far larger as a percentage of GDP than what we are running right now. If it were budget deficits that drove us to be in hock to the rest of the world, we would have owed just about everything to the rest of the world at the end of the war. That was not the case; we emerged from the end of the war as by far the worlda�s biggest creditor, not the worlds largest debtor -- like we are now.

The strength of the dollar in recent months is not a good thing. We need for the dollar to slowly fall in value relative to other major currencies. Yes, that would result in higher inflation, but right now, more inflation would be a good thing -- the economy is on the edge of deflation. Deflation would raise real interest rates and make it impossible for many debtors to be able to repay their loans, leading many of them to default. Deflations lead to depressions, and need to be avoided at all costs.

The problem is that every country in the world wants to be a net exporter. Unfortunately, unless new trade routes are opened to Mars, that cana�t happen. For too long, the U.S. consumer has been the buyer of last resort, sucking up the excess production of the rest of the world.

We have benefited from lower prices for most tradable goods. All the stuff that stocks the shelves of Wal-Mart (NYSE: [ WMT ]) and Target (NYSE: [ TGT ]) would have been much more expensive, and the Wal-Mart shoppers worse off if it were not for cheap imports from abroad. However, it has also meant fewer jobs, most notably in manufacturing in this country. It has been a party that the country has been putting on the credit card. Ia�m not sure exactly where the limit is on the card, but I think we must be getting close to it.

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Intel, Kraft Foods, Bristol Myers, Wal-Mart and Target