• Eagle Bancorp Earns $1.17 per Share
    Posted by on January 16th, 2019 at 4:23 pm

    Our first Buy List earnings report is out! Eagle Bancorp (EGBN) reported Q4 earnings of $1.17 per share. That beat estimates by three cents per share. For the year, Eagle made $4.42 per share. That’s up from $3.35 per share in 2018.

    Long discussion from the CEO:

    “We are very pleased to report a continued trend of balanced and consistently strong financial performance,” noted Ronald D. Paul, Chairman and Chief Executive Officer of Eagle Bancorp, Inc. “Our net income in the fourth quarter represents ten years of quarterly increases in operating earnings dating back to the first quarter of 2009, a record of consistency rarely seen in public company financial performance. Our strong financial performance has resulted from a combination of steady average balance sheet growth, revenue growth, and very favorable operating leverage. Additionally, we have maintained solid asset quality over an extended period through disciplined risk management practices. These factors have combined to achieve a return on average assets of 1.90% for the fourth quarter of 2018, a return on average common equity of 14.82%, and a return on average tangible common equity ratio of 16.43%, while sustaining very strong capital levels.”

    Mr. Paul added, “For the fourth quarter of 2018, we experienced very strong average deposit growth which was invested at lower market interest rates, resulting in above average liquidity. This liquidity, which was invested at short term market rates, contributed to a decline in the net interest margin to 3.97% for the fourth quarter from 4.14% in the third quarter of 2018. Average deposit balances increased 7.2% for the fourth quarter 2018 over the third quarter 2018. We attribute the significant average increase to seasonality, market conditions and our well developed customer relationships leading to success in gathering core deposits. Steady growth in loan balances continued, increasing 3.8% on average for the fourth quarter of 2018 over the third quarter of 2018. Period end to period end, loan balances increased 2.1%, for the fourth quarter 2018 while deposit balances increased a very strong 9.4%. The higher liquidity position in the fourth quarter resulted in an average loan to deposit ratio of 99% as compared to 102% for both the third quarter of 2018 and the fourth quarter of 2017.” Mr. Paul added, “We consider average balances more indicative of our growth performance, since maintaining favorable averages translates to improved revenue. Growth in our average balance sheet combined with a continuing favorable net interest margin contributed to revenue growth increases of 3.5% in the fourth quarter 2018 over the fourth quarter of 2017 and by 1.0% over the third quarter of 2018. Also contributing to the decreased net interest margin for the fourth quarter was a 9 basis point decline in the yield on the loan portfolio to 5.60% versus 5.69% for the third quarter, as the quarter saw substantial payoffs of higher yielding loans. Fourth quarter loan payoffs were the highest of any quarter in 2018, and were due substantially to above average sales of condominium units financed by the bank. These are projects that are performing well resulting in more rapid pay-downs of construction loans. Notwithstanding the payoff of higher yielding loans, the Company’s loan portfolio yield continues to benefit from both higher general market interest rates and disciplined loan pricing and we believe that the yield on our loan portfolio continues to be superior to peer bank returns. Importantly, our credit quality remained very strong in the fourth quarter as the level of nonperforming assets was just 0.21% of total assets at December 31, 2018 and the annualized level of net credit losses to average loans was 0.05%.” Mr. Paul added, “The Company’s operating efficiency, another key driver of our financial performance, remained favorable.” For the fourth quarter in 2018, the efficiency ratio was 36.1%, as compared to 36.4% in the third quarter of 2018, and was 37.3% for the full year 2018.

    For the full year 2018 over 2017, average deposit growth was 11%, average loan growth was 12%, revenue growth was 8.4% and noninterest expense growth was 6.9%. The net interest margin for 2018 was 4.10% as compared to 4.15% for the year 2017, well above peer banking companies. Period end to period end, loan growth in 2018 was 9% and deposit growth was 19%.

    Comparing asset yields and cost of funds for the full year of 2018 to the full year 2017, loan yields were up 37 basis points (from 5.17% to 5.54%), yields on earning assets were up 36 basis points (from 4.73% to 5.09%) and the composite cost of funds was up 41 basis points (from 0.58% to 0.99%). Importantly, our funding costs, while up in 2018 over 2017, continue to benefit from the substantial level of average noninterest deposits as a percentage of average total deposits of 33.4% in 2018. Additionally, the significant portion of the loan portfolio being variable and adjustable rate in a rising rate environment tends to mitigate the effects of higher cost of funds. Mr. Paul added, “Given the more competitive interest rate environment in 2018 for both loan rates and funding costs, coupled with a flatter yield curve and the Federal Open Market Committee’s (“FOMC”) four short term rate increases, the Company believes management of the net interest margin has been disciplined and effective.

  • Huge Deal: Fiserv Is Buying First Data
    Posted by on January 16th, 2019 at 9:16 am

    Fiserv (FISV) said it’s buying First Data (FDC) for $22 billion in an all-stock deal.

    Folks who own First Data will get 0.303 shares of Fiserv for each share of FDC they own. That values FDC at $22.74. This is a 22% premium to First Data’s closing price.

    Fiserv shareholders will own 57.5 percent of the combined company and First Data shareholders will own 42.5 percent. Fiserv offered 0.303 of its shares for each First Data share.

    Fiserv Chief Executive Officer Jeffery Yabuki will become CEO and chairman of the combined company.

    After the deal closes in the second half of 2019, the combined company’s adjusted earnings per share is expected increase by more than 20 percent in the first full year, the companies said.

    Fiserv looks to open down 6% today. From the WSJ:

    Fiserv, based outside of Milwaukee, sells systems to banks, credit unions and other financial institutions, including those related to electronic payment transactions. Atlanta-based First Data’s offerings include point-of-sale products for retailers, like credit-card machines and point-of-sales devices.

    The combined company plans to invest $500 million over five years, targeting risk management, merchant solutions and payment technologies. It would also generate significant incremental revenue, related to adding new value to bank merchant services, credit processing and other products, the companies said.

    The combined company would be able to trim $900 million in expenses over five years, driven by the elimination of duplicative corporate structures, streamlining technology infrastructure, operational efficiencies and other changes, Fiserv and First Data said.

    Fiserv also said they expect to report Q4 earnings on February 7. They look to report earnings of 84 to 85 cents per share. For the entire year, that’s earnings of $3.10 to $3.11 per share. For 2019, Fiserv expects to earn between $3.39 and $3.52 per share.

  • Morning News: January 16, 2019
    Posted by on January 16th, 2019 at 7:15 am

    The Supreme Court Just Handed a Big, Unanimous Victory to Workers. Wait, What?

    Bigger Gold Companies Still Aren’t Glitterati

    Goldman Says Rich People Will Drag Down the U.S. Economy by Spending Less

    Netflix Raises Prices on All of Its Subscription Plans

    What Wall Street Didn’t Like About Wells Fargo’s Earnings

    BofA Beats Profit Estimates on Higher Interest Income, Loan Growth

    Walmart Could Leave CVS Caremark Pharmacy Networks Amid Dispute

    Microsoft and Walgreens Team Up to Fight a Common Rival: Amazon

    Sears Chairman Prevails in Bankruptcy Auction for Retailer With $5.2 Billion Bid

    Snap Finance Chief Joins Executive Exodus

    Expecting a Huge Payout, Investment Banker Loses His New Job Instead

    How to Make Money Trading: Hack Into SEC, Peek at 157 Secret Earnings Reports

    Ben Carlson: Diversification is (Almost) Undefeated

    Nick Maggiulli: Beware the Gatekeeper

    Roger Nusbaum: If You Haven’t Done These 75 Things By 5am, You’re Not Doing It Right

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  • Sherwin-Williams Warns on Q4
    Posted by on January 15th, 2019 at 9:37 am

    We got a Buy List earnings warning this morning. Sherwin-Williams (SHW) said their Q4 earnings won’t be so hot. They had been expecting a sales increase in the mid-single digits. Now they say it will be 2%.

    Sherwin now expects full-year earnings of $18.53 per share (that excludes merger-related costs). That’s below their previous guidance of $19.05 to $19.20 per share.

    Commenting on the preliminary results, Chairman, President and Chief Executive Officer John G. Morikis said, “Our performance in the fourth quarter was disappointing across the board relative to our outlook back in October. Consolidated revenue growth for the fourth quarter fell well short of our previous expectation, due in large part to weak sales growth by our North American stores in October and November. Store sales rebounded somewhat in December, but not enough to bring in the quarter. Sales for our Consumer Brands and Performance Coatings Groups also fell short of expectations. The revenue shortfall was the primary driver of the significant earnings per share miss in the quarter. Given the lower preliminary results for our fourth quarter, our full year preliminary adjusted net income per share is $18.53 per share, or about 3% below the midpoint of our previous guidance range. This full year 2018 adjusted earnings per share is an increase of approximately 23% over full year 2017 on a comparable basis.”

    At a quarterly rate, Sherwin now expects Q4 EPS of $3.55 which is down from the earlier forecast of $4.07 to $4.22. Shares of SHW are down about 5% this morning.

    Earnings are due out on January 31.

  • Morning News: January 15, 2019
    Posted by on January 15th, 2019 at 7:11 am

    China Is Losing The Trade War In Nearly Every Way

    German Growth Is Weakest in Five Years, in Latest Sign of Global Slowdown

    May Faces Worst Government Defeat in 95 Years in Brexit Vote

    German Court Throws Out Qualcomm’s Latest Patent Case Against Apple

    U.S. Steel Companies Face Downturn Despite Trump Claims of Revival

    U.S. Now Says All Online Gambling Illegal, Not Just Sports Bets

    Volkswagen, Ford to Announce Automotive Alliance

    How Fiat Chrysler Sped From Laggard to Leader in Detroit

    Is General Motors Ready to Take on Tesla?

    Market Turmoil Hurt Citi’s Revenue as ’18 Ended, Signaling Possible Trouble

    JPMorgan Misses Profit Estimates as Bond Trading Slumps

    PG&E Bankruptcy Tests Who Will Pay for California Wildfires

    In a Month You’ll Wish the Shutdown Were Only as Bad as Today

    Joshua Brown: What Are Your Thoughts: 45% in Twelve Days?

    Michael Batnick: These Are the Goods

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  • GuruFocus on Raytheon
    Posted by on January 14th, 2019 at 3:26 pm

    Here’s a sample:

    Global defense spending is forecasted to grow 3.2% per annum over the next four years. Raytheon is expanding its international presence and is aiming to increase the portion of total sales generated in international markets from its 2017 level of 35%. It is seeking to develop international sales opportunities for its Patriot missile defense franchise, with Sweden recently becoming the 16th country to use the system. Poland and Romania are also expected to place additional orders over the next several years.

    The company continues to invest in its cybersecurity segment. It was recently awarded a multiyear contract with a new customer in the Middle East and North Africa region to provide cybersecurity solutions and operational support. The company is building a significant cybersecurity portfolio through continued investments in an industry that is projected to grow 10.2% annually over the next five years.

    Read the whole thing.

  • Beware the Mega-Merger
    Posted by on January 14th, 2019 at 11:35 am

    The big news today is that Newmont and Goldcorp are getting hitched in a $10 billion deal. This is a biggie.

    This deal comes after Barrick and Randgold got together in a $5.4 billion deal. Make no mistake, today’s deal is a direct response to the former deal.

    As a very general rule of thumb, when the price of a commodity falls, that sparks consolidation in the industry. In other words, everyone starts to merge — and that’s exactly what’s happening.

    Beware of mega mergers. This is especially true for defensive ones. They’re doing these deals not because they want to but because they have to.

    People think M&A is some elevated science. It’s not. More often, the story goes something like this: Why did A buy B? Well, they really didn’t want to but they thought, if they didn’t, C was going to move in and buy B. So, A struck first, not realizing C probably felt the same way.

  • Q4 2018 Earnings Calendar
    Posted by on January 14th, 2019 at 11:16 am

    Over the next few weeks, 20 of our 25 Buy List stocks will report Q4 earnings. Here’s a list of reporting dates, Wall Street’s consensus estimates and actual reported results.

    Company Ticker Date Estimate Result
    Eagle Bancorp EGBN 16-Jan $1.14 $1.17
    Signature Bank SBNY 17-Jan $2.80
    Stryker SYK 29-Jan $2.15
    Danaher DHR 29-Jan $1.27
    Check Point Software CHKP 30-Jan $1.63
    Sherwin-Williams SHW 31-Jan $4.14
    AFLAC AFL 31-Jan $0.94
    Hershey HSY 31-Jan $1.27
    Raytheon RTN 31-Jan $2.88
    Cerner CERN 5-Feb $0.63
    Church & Dwight CHD 5-Feb $0.58
    Disney DIS 5-Feb $1.57
    Becton, Dickinson BDX 5-Feb $2.62
    Torchmark TMK 5-Feb $1.56
    Cognizant Technology Solutions CTSH 6-Feb $1.07
    Broadridge Financial BR 7-Feb $0.71
    Fiserv FISV 7-Feb $0.87
    Intercontinental Exchange ICE 7-Feb $0.91
    Moody’s MOC 15-Feb $1.70
    Continental Building Products CBPX 21-Feb $0.59
  • Morning News: January 14, 2019
    Posted by on January 14th, 2019 at 7:17 am

    Stocks Fall, Bonds Climb as China Data Disappoints

    Saudis Set for $11 Billion Asset-Sale Blitz After Slow Start

    Fintech Firms Want to Shake Up Banking, and That Worries the Fed

    Malaysia Blames Goldman Sachs for Stolen Billions

    Newmont to Buy Goldcorp in $10 Billion Mega Gold-Mining Deal

    The Next American Car Recession Has Already Started

    Electric Vehicles Are in the Spotlight at Detroit’s 2019 Auto Show

    Cadillac Takes Aim at Tesla With SUV Priced Below Model X

    PG&E Plans Bankruptcy Filing, CEO to Exit as Fire Costs Rise

    Gin’s Journey in Britain, From ‘Mother’s Ruin’ to a Hipster Drink

    Hedge-Fund-Backed Media Group Makes Bid for Gannett

    ACWA Plans to Make Solar Panels as Part of SoftBank and Saudi Fund’s $200 Billion Project

    Ben Carlson: Are Market Moves Happening Faster?

    Jeff Miller: Will Corporate Earnings Results Change the Message of the Markets?

    Howard Lindzon: Open Source Software – An Undeniable Megatrend

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  • Another Tame CPI Report
    Posted by on January 11th, 2019 at 11:19 am

    This morning, the government said that consumer prices fell 0.1% in December. That’s the first drop in nine months. Over the course of 2018, inflation rose by 1.9%.

    The “core rate,” which excludes food and energy, rose by 0.2% last month. Over all of 2018, core inflation rose by 2.2%. The data confirms what the market has been saying — inflation is not a problem. Gasoline prices fell 7.5% last month after dropping 4.2% in November.

    December’s inflation readings were in line with economists’ expectations. The Federal Reserve, which has a 2 percent inflation target, tracks a different measure, the core personal consumption expenditures (PCE) price index, for monetary policy.

    The core PCE increased 1.9 percent year-on-year in November after rising 1.8 percent in October. It hit 2 percent in March for the first time since April 2012.

    A sharp decline in oil prices amid an oversupply and slowing global economic growth is keeping overall inflation in check. Lower oil prices are also filtering through to core inflation via cheaper airline tickets.

    While the Fed has forecast two rate hikes this year, moderate inflation pressures likely support recent statements by several policymakers, including Chairman Jerome Powell, for caution about raising interest rates this year.

    Here’s a look at the real Fed funds rate, based off core inflation.