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Automatic Data Processing, D.R. Horton, Plum Creek Timber, Masco and SIRIUS XM Radio

^{Published on 2010-12-02 15:50:25 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: Automatic Data Processing (NYSE: [ ADP ]), D.R. Horton (NYSE: [ DHI ]), Plum Creek Timber (NYSE: [ PCL ]), Masco (NYSE: [ MAS ]) and SIRIUS XM Radio Inc. (Nasdaq: [ SIRI ]).

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Here are highlights from Wednesdaya™s Analyst Blog:

ADP Sees 93,000 Jobs Added

The Automatic Data Processing (NYSE: [ ADP ]) employment survey was much better than expected in November. It shows that private sector employment rose by 93,000 in October, above consensus expectations for a 58,000 increase. Also, the October numbers were revised to a gain of 82,000 jobs rather than the original estimate of a gain of 43,000 jobs.

ADP, as the largest payroll processing firm in the country, is in a very good position to look at the state of the job market. This is evidence of an economy that is growing, but still slow pace, but starting to accelerate. While it is nice to see a better than expected increase, and so far this year the ADP report has consistently been more pessimistic than the BLS report (due out Friday morning), it is not even close to the level we need to make a serious dent in the vast army of the unemployed.

Small businesses, defined as those with fewer than 50 employees rose a total of 54,000 jobs in the month. Medium sized firms, those with between 50 and 499 employees, gained 37,000 jobs while large firms with 500 or more employees gained just 2,000 jobs. Large businesses are a relatively small share of total employment in the country, accounting for just 17.512 million out of a total of 107.219 million private sector jobs in the country. Small business is the largest source of employment at 48.391 million, followed by medium businesses at 41.316 million.

Look for BLS to Be Higher

Given the recent relationship between the ADP numbers and the BLS numbers, dona™t be shocked if the BLS shows an increase in private sector jobs of about 165,000 or so. That would be a nice positive surprise, but still not enough to make a serious dent in the unemployment rate, particularly if the participation rate starts to rise. The Federal government is through laying off Census workers, so they will no longer be a factor. State and Local governments have been under severe fiscal strain, however, and are likely to be laying off people.

No Federal Support Expected

The new GOP majority in the House is going to be less inclined to provide financial assistance to the State and Local (S&L) governments. After all, such aid made up about one third of the ARRA or stimulus plan, that they criticized in the election.

Since S&L are legally not allowed to run operating deficits, they either have to raise taxes or cut spending. Raising taxes is less politically popular right now than cutting spending. For the most part cutting spending at the state and local level will mean laying people off. The State and Local cutbacks are a major source of ade-stimulusa that offsets the stimulus from the ARRA on the Federal side.

From the point of view of the overall economy and aggregate demand, it really doesna™t matter if the spending is coming from the Federal government or the State government. (It does matter on a couple of other levels, but not in terms of total demand in the economy.) Thus, the total amount of stimulus in the economy is much less than is commonly believed. Even so, there is going to be a lot less of it going forward than we have had over the last two years.

In Summation: Encouraging

This was an encouraging report. We need to be adding large numbers of private sector jobs, and 93,000 a month is not enough, but at least is getting into the right area code of where we need to be.

The key problem remains in the Construction sector, and that is not likely to turn around until the housing situation is resolved. As long as there is a big inventory overhang of existing homes, there is no real reason to build more new homes. People who are far behind in their mortgage payments are likely to lose their houses to foreclosure, and those houses will come on to the market at depressed prices, which will make it hard for the homebuilders to compete.

Those homes are not included in the inventory of existing homes for sale, and still there were 10.5 months worth of supply on the market in October at the current sales rate for existing homes. That was roughly the same months of supply we saw during the 2007-08 plunge in housing prices.

When construction workers go back to work, they start to spend on other things, thus stimulating employment in other parts of the economy. New home building provides jobs not only from the homebuilders like D.R. Horton (NYSE: [ DHI ]) and the direct subcontractors, but also jobs in other parts of the economy as well, such as lumberjacks and demand for lumber from Plum Creek Timber (NYSE: [ PCL ]) rises, and demand for plumbing fixtures from Masco (NYSE: [ MAS ]) increases.

Well, at least historically that is how we have tended to come out of recessions. That just is not happening this time around. If the traditional way of getting the economy going is not going to work due to the collapse of the housing bubble, we need to find an alternative.

The best available alternative in my mind would be additional federal spending, particularly on infrastructure projects. Those jobs require much of the same skillsets needed for housing construction jobs. Yes, the deficit is a long-term problem, but we should not let that deter us from using more stimulus to get the economy going. After all, there is no way that we will get the long-term budget deficit problem under control if we have unemployment stuck near double digits for the foreseeable future.

People working equals people paying income and payroll taxes. Besides, it is not like there is a shortage of worthwhile projects in restoring the countrya™s increasingly dilapidated infrastructure. Unfortunately, we are likely to see cuts in such spending going forward, not increases.

SIRIUS XM Achieves a Milestone

Satellite radio services provider SIRIUS XM Radio Inc. (Nasdaq: [ SIRI ]) has recently achieved a milestone, touching the 20-million subscriber base -- a historic high. The company, which was facing bankruptcy just a year ago, is now steadily moving towards stability.

SIRIUS XMa™s business depends to a large extent upon automakers. The sale and lease of vehicles equipped with satellite radios is the most important source of revenues for both the XM and SIRIUS satellite radio services.

Improving U.S. economic conditions have resulted in the recovery of auto sector sales together with better-than-expected consumer spends enabling the company to reach the summit. SIRIUS XM owns an extensive satellite network covering the whole of the U.S. that streams audio content over 130 channels. After Comcast, the company is now the second largest entertainment subscription services provider in the U.S.

SIRIUS XM declared that despite facing a severe economic turmoil and competitive pressure, it acquired the last 10 million subscribers faster than the first 10 million. The company now expects to add 1.3 million net subscribers in 2010, much higher than its previous prediction of 1.1 million. Importantly, this is the fourth time that management has raised its subscriber guidance for 2010.

During the third quarter of 2010, SIRIUS XM reported great improvement with respect to several operating metrics. Average revenue per user was $11.81 compared to $10.09 in the year-ago quarter. Conversion rate was 48.1% compared to 46.2% in the year-ago quarter.

Average self-pay monthly churn rate was 1.9% compared to 2% in the year-ago quarter. Subscriber acquisition cost was $59 compared to $69 in the prior-year quarter. Customer services & billing expenses per subscriber were $1.02 compared to $1.01 in the year-ago quarter.

Standard & Poora™s (S&P) declared that it has put its ratings for SIRIUS XM on credit watch for a possible upgrade. S&P has currently assigned a aBa Corporate Credit rating for SIRIUS XM.

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