A Penny Saved
“A penny saved is a penny earned” is a phrase often attributed to Benjamin Franklin, who wrote in his 1737 Poor Richard’s Almanack, “A penny saved is two pence clear.” Close enough. The U.S. Mint said in its annual report that each penny costs 3.69 cents to make. Even though the U.S. Mint has stopped making pennies, they will not go away anytime soon due to the fact that there are about 250 billion pennies in circulation, according to the American Banking Association. There will be a real cost to consumers just for rounding transactions to the nearest nickel, though it is estimated to be only about $6 million. Pennies really.
Pennies may be declining in importance, but they can matter in corporate earnings reports. Beating (or missing) earnings per share estimates by a penny may not matter for a company such as Lowe’s, which lowered forward earnings guidance for the year by about $0.03 per share, but saw its stock price rise by 4% yesterday. It may matter more for a highly valued technology stock, such as Nvidia, where a penny beat or miss in earnings per share may move the valuation more significantly. However, forward guidance is typically much more important. Nvidia# reported Q3 earnings per share of $1.30 last night. This was 4 cents per share, or 3%, ahead of expectations. Revenue also came in ahead of estimates and the forward guide was positive. The report allayed fears of a near-term AI bubble that had taken the wind out of many AI stocks during the past couple of weeks. As a result, NVDA is indicated up about 5% in pre-market trading this morning.
In for a penny, in for a pound
On the retail earnings front, Target# posted a third-quarter sales decline and cut the top end of its full-year earnings guidance. This comes after roughly four years of stagnant sales and three quarters of declining sales comparisons. In the most recent quarter, Target noted that traffic dropped by 2.2% and the average transaction amount fell by 0.5% as cautious customers slow purchases. Target said Wednesday that it is launching an experience with OpenAI, which allows customers to shop Target’s app within ChatGPT. Maybe an AI-related strategy will help, but the company is also spending an additional $1 billion to remodel stores and figure out its strategy.
Walmart delivered a strong third quarter this morning, beating earnings expectations by 2 cents and raising guidance for the fiscal year. Total revenue rose 5.8% year over year while e-commerce sales jumped 27%. Sales are expected to increase about 5% for the full year with a strong finish expected in the fourth quarter. That all sounds good, except trading at a rich 35x forward earnings, the stock is indicated flattish this morning.
Home improvement retailers told a mixed tale this week. Lowe’s# reported Q3 EPS of $3.06 per share, ahead of expectations and up about 6% over the prior year. Revenue increased 3% driven partly by an 11% pickup in online sales and continued growth in professional project sales. Full year earnings guidance came in slightly light by $0.03 per share versus expectations, but LOW stock rallied 4% yesterday. This came a day after competitor Home Depot# missed earnings expectations for the third quarter by 10 cents per share. Home Depot also reduced its guidance for the full year and expects sales to be down about 5%. HD dropped by 6% after the report. Pennies matter.
Staying with housing, U.S. foreclosure filings climbed in October to 36,766. While the numbers are still small, the persistent rise in foreclosures may be a sign of cracks in the housing market. That number was 3% higher than September and a 19% jump from October 2024, and marked the eighth straight month of annual increases, led by Florida, South Carolina and Illinois. At the peak of the last major recession, more than 4% of mortgages were in foreclosure. Today, less than 0.5% are. In addition, 4% of mortgages are delinquent now, but at the peak of the financial crisis, almost 12% were. While not concerning yet, it is a trend that bears watching.
My Two Cents
The U.S. has discontinued several coins and currencies over the years, so the loss of the penny is survivable. The U.S. half-cent was discontinued in 1857 due to declining purchasing power and the rising cost of copper to produce it. The $2 bill was around from 1862 until 1966 when it was temporarily discontinued, but it was re-issued in 1976. Of course, the $100,000 bill featuring Woodrow Wilson is no longer printed, but is worth a bit more than one bitcoin at recently deflated bitcoin rates. As Fed Chairman Powell said recently, the Fed is navigating by the stars amid cloudy skies. December’s expected interest rate cut is now no longer a foregone conclusion. For now, a four cents per share earnings beat from Nvidia and a positive near-term outlook are enough to turn equity markets toward a positive opening today. According to the Federal Reserve, the typical household has $60 to $90 in neglected coins at home. It may be worth checking your coin collection, because a 1943 Lincoln wheat penny could be worth up to $250,000 according to the Professional Numismatists Guild. A penny saved could actually be worth a lot of coin.
Bo Derek turns 69 today, singer Joe Walsh turns 78, and former President Joe Biden turns 83.
Christopher Crooks, CFA®, CFP® 610-260-2219