CWS Market Review – August 7, 2020

“I can calculate the motion of heavenly bodies, but not the madness of people.”
– Isaac Newton

On Thursday, the S&P 500 rallied for the fifth day in a row. The index is a little over 1% from a new all-time high. The Nasdaq is already at a new high. How’s this for action? Two months ago, the Nasdaq first broke 10,000. On Thursday, it closed over 11,100.

This was another busy week for our Buy List earnings. I have to say that we’ve had a very good earnings season. All of our stocks except one beat Wall Street’s estimates, and that one exception met expectations.

On Thursday, our Buy List closed at a new all-time high. I’ve been very impressed with our stocks. Middleby, for example, beat estimates, and the stuck jumped 16% in one day. Disney was expected to report a loss. Instead, the entertainment giant reported a profit, and the shares rallied 9% the next day.

Ansys just hit a new high. So did Church & Dwight. Trex, our best stock this year, beat earnings, guided above the Street and hit a new all-time high; and if that weren’t enough, the deck company also announced a 2-for-1 stock split. I’ll have all the details in a bit.

We had six Buy List earnings reports, plus one more from last Friday. There’s a lot to get to, so let’s jump right in.

Seven Buy List Earnings Reports

Here’s an updated look at our Earnings Calendar:

Company Ticker Date Estimate Result
Check Point Software CHKP 22-Jul $1.44 $1.58
Eagle Bancorp EGBN 22-Jul $0.74 $0.90
Globe Life GL 22-Jul $1.53 $1.65
Silgan SLGN 22-Jul $0.65 $0.85
Stepan SCL 22-Jul $1.20 $1.65
Danaher DHR 23-Jul $1.09 $1.44
Hershey HSY 23-Jul $1.13 $1.31
RPM International RPM 27-Jul $1.01 $1.13
AFLAC AFL 28-Jul $1.07 $1.28
Sherwin-Williams SHW 28-Jul $5.85 $7.10
Cerner CERN 29-Jul $0.61 $0.63
Intercontinental Exchange ICE 30-Jul $1.04 $1.07
Moody’s MCO 30-Jul $2.23 $2.81
Stryker SYK 30-Jul $0.55 $0.64
Church & Dwight CHD 31-Jul $0.63 $0.77
Trex TREX 3-Aug $0.65 $0.81
Disney DIS 4-Aug -$0.64 $0.08
Ansys ANSS 5-Aug $1.16 $1.55
Fiserv FISV 5-Aug $0.93 $0.93
Middleby MIDD 5-Aug $0.41 $0.55
Becton, Dickinson BDX 6-Aug $2.04 $2.20
Broadridge Financial Solutions BR 11-Aug $2.09

Let’s start with Church & Dwight (CHD). On Friday morning, the company reported very good earnings. For its fiscal Q2, the household-products company made 77 cents per share. That beat the Street by 14 cents per share. Quarterly sales grew by 10.6% to $1,194.3 million.

C&D now expects full-year sales growth of 9% to 10%. The initial outlook had been for 6.5% growth. The company also expects EPS to grow by 13%. That’s up from the initial range of 7% to 9%.

The CEO said this was an “extraordinarily strong quarter,” and I have to agree. The stock jumped 7% on Friday to reach a new all-time high. We’re now up 35% with CHD. This week, I’m raising my Buy Below on Church & Dwight to $100 per share.

While Church & Dwight is our #2 performer this year, Trex (TREX) is still in the #1 spot. The deck company had an outstanding quarter. For Q2, Trex reported earnings of 81 cents per share. That beat the Street by 16 cents per share.

Quarterly sales rose 7% to $221 million. Not bad for an economic lockdown. The company also had nice increases to its gross and EBITDA margins.

Now let’s look at guidance. For Q3, the company expects sales between $215 million and $225 million. The midpoint is a 13% increase over last year’s Q3. Wall Street had been expecting quarterly sales of $193.94 million.

Trex also announced a 2-for-1 stock split. This means that investors will get twice as many shares and the share price will fall in half. The split will happen on September 14. (The split will take effect the following day.)

On Monday, the shares reached a new high of $144.96. We now have a 54% gain with Trex YTD. This week, I’m raising our Buy Below on Trex to $150 per share. Once the split happens, that will fall to $75 per share.

Disney (DIS) was another surprise winner this week. It was pretty much assumed that the Mouse House was going to report a big loss for Q2. Instead, Disney surprised us with a small profit.

Earlier I said that if went into a lab and tried to design a company that had been more adversely impacted by the lockdown, it would be hard to top what Disney actually is. The company is movies, parks and sports. On top of that, it has a cruise line.

After the bell on Tuesday, Disney said it made a profit of eight cents per share for Q2. Wall Street had been expecting a loss of 64 cents per share.

The weak spot was revenue. For the quarter, Disney had $11.78 billion in revenue. That was below estimates for $12.37 billion. The only parts of Disney’s business that saw an increase in revenue were the direct-to-consumer and international businesses sectors.

The big success story is Disney’s streaming service. I guess it helps that everyone is stuck at home! If you add up all the subscription services, Disney now has over 100 million paid subscribers. Disney+ is up to 57.4 million.

Revenue for their Parks, Experiences and Products business was down a staggering 85%. Disney’s Media Networks was only down 2%. As a result of the lockdown, Disney took a $3.5 billion hit to its operating income.

The shares rallied 9% on Wednesday. I’m raising our Buy Below on Disney to $140 per share.

Middleby (MIDD) is our star this earnings season. On Wednesday, the company reported earnings of 55 cents per share. That was well above estimates for 41 cents per share. Net sales fell 38%.

CEO Tim Fitzgerald said, “Our solid financial performance was a result of successfully reducing our cost structure and maintaining strong levels of profitability across all three of our business segments, despite revenue decreases.”

I expect more improvement from Middleby. Fitzgerald also said, “As we progressed through the month of July, business activity across all of our foodservice segments demonstrated continual improvement. In particular, we have seen strong demand from quick-serve and pizza restaurants, as well as in the healthcare, convenience stores, and retail categories.”

The shares rallied 16.3% on Wednesday. The stock is up 139% from its March low. I’m raising my Buy Below to $106 per share.

We had two more reports after the close on Wednesday. First up is Ansys (ANSS). For Q2, the company reported revenue of $389.7 million and earnings of $1.55 per share. That crushed Wall Street’s estimate of $1.16 per share.

Ajei Gopal, the president and CEO, said, “Q2 was a very strong quarter for Ansys, with revenue, operating margins and earnings exceeding the high end of our financial guidance. I’m excited that during the quarter we closed both the largest deal in our 50-year history as well as our largest sales agreement for new business. These results demonstrate the strength and resilience of our business and give us confidence for the future.”

Ansys now has a backlog of $846 million. That’s up 18% from a year ago.

For Q3, Ansys expects earnings of $1.10 to $1.34 per share on revenue between $347 million and $377 million. Wall Street had been expecting $1.41 per share on revenue of $376.4 million.

For the full year, Ansys sees earnings ranging between $5.75 and $6.35 per share on revenue of $1.570 billion to $1.645 billion. That’s an increase from the previous range of $5.61 to $6.23 per share. Wall Street had been expecting $5.93 per share on revenue of $1.59 billion.

Ansys gained 3% on Thursday and broke out to another new high. We now have a 22.5% gain with Ansys this year. I’m lifting our Buy Below to $325 per share.

Fiserv (FISV) reported Q2 earnings of 93 cents per share. That matched Wall Street’s view. It’s a drop of 4% compared with a year ago. Fiserv’s earnings report is a little complicated because of the recent merger with First Data. Adjusted revenue fell 12% to $3.22 billion.

During the quarter, Fiserv bought back 5.7 million shares of stock for $550 million. Fiserv said it expects EPS to grow by at least 10% this year. For context, Fiserv made $4.00 per share last year. This would be Fiserv’s 35th year in a row of double-digit adjusted earnings growth.

Fiserv is down 11.5% for us this year. It remains a buy up to $107 per share.

Finally, we have Becton, Dickinson (BDX). On Thursday, the company said it made $2.20 per share for its fiscal Q3. Even though that’s a drop of 28%, it’s still well above Wall Street’s consensus of $2.04 per share.

Becton also said it expects earnings for this year to come in between $9.80 and $10.00 per share. Since Becton has already made $7.41 for the first nine months of this fiscal year, the new range implies earnings of $2.39 to $2.59 per share for the current quarter. Wall Street had been expecting $3.08 per share.

I’m not pleased with this guidance. The shares dropped over 8% in Thursday’s trading. For now, I’m keeping our Buy Below at $265.

Earnings Preview for Broadridge Financial

We have one more earnings report left this earnings season. Broadridge Financial Solutions (BR) is scheduled to report its fiscal Q4 earnings on Tuesday, August 11 before the market opens.

Broadridge’s last earnings report wasn’t so hot, and the one before that was terrible. For this fiscal year, which ended on June 30, Broadridge expects overall revenue growth to be at the low end of its range of 3% to 6%. For EPS, BR expects growth of 5% to 7%.

Let’s do some math. Last year, the company made $4.66 per share, so the current earnings range means they expect full-year earnings between $4.89 and $4.99 per share. Since BR has already made $2.88 per share in the first nine months of this fiscal year, that implies Q4 earnings of $2.01 to $2.11 per share. Wall Street expects $2.09 per share.

Broadridge is up 10% for us this year.

That’s all for now. Second-quarter earnings season is basically over for us, but we also have some important economic reports scheduled for next week. On Wednesday, the consumer-inflation report comes out. So far, inflation has been well contained. Let’s hope that continues. On Thursday, the jobless-claims report comes out. Then on Friday, we’ll get the next report on retail sales. The report for June was pretty good. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

P.S. Join me for a webinar on Friday, August 7 at 4 pm ET. Eric Falkenstein will be joining me. We’ll talk all things market. It should be a good discussion. You can register here.

Posted by on August 7th, 2020 at 7:08 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.