Archive for October, 2017

  • First Estimate of Q3 GDP = +3.0%
    , October 27th, 2017 at 10:25 am

    This morning, we got the government’s first estimate of Q3 GDP growth, and it was 3.0%. That’s an annualized figure and it’s adjusted for inflation.

    Three percent is a good number, and Q2 was 3.1%. Still, I’m far from convinced that we’ve broken from our 2% trend in this recovery. In expansions, the economy has normally grown at 4% or more. Everything seems to have changed with the turn of the new millennium.

    With this recovery, we seem to have a very hard time stringing together three or four quarters in a row of above-trend growth.

    Here’s an unusual chart but I think it makes an important point. This is real GDP divided by a 3% trend line. In other words, if the line is rising, then the economy is growing by more than 3%. If it’s falling, it’s growing by less than 3%. (Don’t worry about the y-axis numbers.)

    What this shows is that starting in 2007, the entire trend of GDP changed. We used to expect 3% growth. Now that’s closer to 2%.

  • CWS Market Review – October 27, 2017
    , October 27th, 2017 at 7:08 am

    “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.” – Peter Lynch

    We’re now at the high tide of earnings season, and it’s been a good one for us. So far, we’ve had 13 Buy List earnings reports, and 12 have beaten Wall Street’s estimates.

    This week, we had nine earnings reports. I’ll summarize them all in this week’s newsletter. I’ll also preview five more earnings reports coming next week. There’s a lot to get to, so let’s dive right in.

    Sherwin-Williams Beat and Raised Guidance

    Let’s start with Tuesday. We had two earnings reports on Tuesday morning. The earnings report from Sherwin-Williams (SHW) is a bit confusing, so I’ll try to clear it up. For Q3, the company earned $3.33 per share, but that figure includes $1.42 per share in acquisition costs. That means Sherwin made $4.75 per share from continuing operations, which beat Wall Street’s estimate of $4.67 per share. Sherwin’s EBITDA from continuing ops is up 9.6% this year to $1.70 billion.

    Sherwin previously said to expect adjusted earnings between $4.80 and $5.20 per share. However, the company estimates that the hurricanes dinged last quarter’s sales by $50 million and EPS by 27 cents per share. Considering all that, this was a decent quarter.

    Now for guidance. SHW sees Q4 ranging between $1.97 and $2.27 per share. Adding back 98 cents in acquisition costs, that comes to $2.95 to $3.25 per share.

    For all of 2017, Sherwin expects earnings between $11.20 and $11.50 per share. Adding in costs, the range is $14.85 to $15.15 per share. That’s an increase of five cents per share at both ends from their previous guidance. Overall, this was a good quarter for Sherwin. The stock broke out to a new high on Thursday. This week, I’m raising my Buy Below on Sherwin-Williams to $417 per share.

    For Q3, Wabtec (WAB) earned 88 cents per share. That beat Wall Street’s estimate of 84 cents per share. I said before that I wanted to see signs of improvement here, and it looks like we got them. Some stats:

    Cash from operations was $40 million for the third quarter. For the first nine months of 2017, cash from operations decreased compared to the same period of 2016, mainly due to an increase in working capital.

    At Sept. 30, the company had cash of $228 million and debt of $1.9 billion. Total debt was 6 percent lower than at the end of the second quarter.

    Wabtec’s multi-year backlog rose 2% to a record $4.5 billion. Their 12-month backlog is up 5% to $2.2 billion, also a record.

    Wabtec now expects full-year revenue of $3.8 billion and EPS between $3.45 and $3.50 per share. That’s a reduction from their previous guidance of $3.55 to $3.70 per share, but I believe the newer figure includes a charge of 18 cents per share.

    Shares of WAB gapped up to $82 on Tuesday, but they pulled back to $76 later this week. I’m relieved by this report. The stock remains a buy up to $81 per share.

    In last week’s issue, I said that Express Scripts (ESRX) was due to report on Wednesday. I got that wrong. Express Scripts reported after the close on Tuesday. My apologies for the error.

    Obviously, the big issue with Express is the loss of Anthem as a client. Still, things are going well for Express. The pharmacy-benefits manager reported Q3 earnings of $1.90 per share which was three cents better than estimates.

    Express also nudged up its 2017 range from $6.95 – $7.05 per share to $6.97 – $7.05 per share. The midpoint represents 10% growth over last year. For Q4, Express expects $2.03 to $2.11 per share. Express Scripts is doing well. I still like the stock but there are a lot of challenges ahead of them.

    AFLAC Raised Its Dividend for the 35th Year in a Row

    On Wednesday, AFLAC (AFL) beat earnings, raised guidance and increased its dividend for the 35th year in a row. Then on Thursday, the stock touched a new all-time high. Not bad.

    The duck stock reported Q3 operating earnings of $1.70 per share. (Remember, with insurance stocks, we always want to look at operating earnings instead of net.) That number includes an after-tax benefit of four cents per share. Also, the yen/dollar exchange rate knocked off seven cents per share last quarter.

    AFLAC raised its quarterly dividend by two cents to 45 cents per share. This is the 35th year in a row in which AFL has raised its dividend. Going by Thursday’s close, the new dividend yields 2.15%. AFLAC also raised full-year guidance to $6.75 to $6.95 per share. That’s a big increase over the previous range of $6.40 to $6.65 per share. Those numbers don’t include the impact of the yen.

    The CEO said that if the yen averages between 110 and 115 to the dollar, then they expect Q4 earnings between $1.42 and $1.66 per share. On Thursday, AFL got to a new all-time high of $85.70 per share. For now, I’m keeping our Buy Below at $86 per share.

    We had five more reports on Thursday. First up was Axalta Coating Systems (AXTA). The company earned 26 cents per share for Q3. That’s down from 33 cents per share last year, but it beat estimates by two cents per share. If you recall, a few weeks ago, the company pared back its Q3 guidance due to the hurricanes. To be fair, that’s not a reflection of Axalta’s business execution.

    Axalta provided guidance on several metrics except EPS. For 2017, they see net sales growth of 6% to 7%, adjusted EBITDA of $870 million to $900 million and diluted shares outstanding of 246 million. Despite the difficulties Axalta faced, these are good numbers. I’m keeping our Buy Below price at $33 per share.

    We got our first earnings miss this season, and it was from Cerner (CERN). The company earned 61 cents per share instead of the 62 cents expected by Wall Street. If a miss had to come from somebody, I guess it can be from our #1 stock this year.

    So what happened? Cerner blamed it on several large contracts that were expected to be signed in Q3 but were pushed to Q4. I’m not at all worried about a miss of one penny. I’m writing this to you before the market opens on Friday, but shares of CERN got hit by 7% in Thursday’s after-hours market. Of course, that’s traders being traders. Don’t let the selling rattle you. Cerner is doing just fine.

    For Q4, the company expects revenue between $1.3 billion and $1.35 billion and EPS between 60 and 62 cents. They also provided some preliminary numbers for 2018. Cerner sees 2018 sales between $5.5 and $5.7 billion. The midpoint is a 9% increase over this year. For EPS, Cerner sees $2.52 to $2.68. That midpoint would be an increase of 7% over this year. Wall Street had been expecting $2.78 per share.

    Expect to see a short-term hit, but remember that Cerner has been a big winner for us this year. I still like this company a lot.

    Microsoft Crushes Earnings Again

    After the closing bell on Thursday, Microsoft (MSFT) reported fiscal Q1 earnings of 84 cents per share. That easily beat Wall Street’s estimate of 72 cents per share. This was a very good report; Mr. Nadella and his team continue to deliver outstanding results.

    Let’s dig a little deeper. Total revenue came in at $24.5 billion, nearly $1 billion more than expected. Revenue from Microsoft’s intelligent cloud business rose 14% to $6.92 billion. The Street had been expecting $6.70 billion. Revenue from Azure rose 90%. Gross margins at Microsoft’s cloud business are running at 57%. That’s very good.

    Two years ago, Nadella set a goal for the company of $20 billion in cloud revenue by 2018. They’re very close to hitting that now. At the time Nadella set the goal, Microsoft was doing a little over $6 billion in cloud revenue. This week, I’m raising our Buy Below on Microsoft to $85 per share.

    Also on Thursday, Stryker (SYK) reported Q3 earnings of $1.52 per share, two cents better than estimates. That’s an increase of 9.4% over last year. For Q4, they expect $1.92 to $1.97 per share. Wall Street has been expecting $1.93 per share. Stryker sees full-year earnings in the range of $6.45 to $6.50 per share. Forex costs will be about 10 cents per share for the year. SYK was up nicely in Thursday’s after-hours trading.

    Lastly, we also got an earnings report from CR Bard (BCR). I wasn’t sure if they were planning on reporting this season because the merger with BDX should happen soon.

    This was another good report for Bard. For Q3, BCR earned $3.02 per share which was seven cents more than expectations. This is Bard’s last earnings report as an independent company. The company also raised its full-year range to $11.86 to $11.90 per share. That’s an increase of 15 cents to the low end.

    Thanks to the rally in BDX, the buyout price for BCR is up to $329.47 per share (based on Thursday’s closing price). The original buyout price in April was $317.

    Six Buy List Earnings Reports Next Week

    On Tuesday, Halloween, Fiserv (FISV) is set to report. The company missed earnings last time, which is very rare for them. Their full-year 2017 guidance is still $5.03 to $5.17 per share, which is an increase of 14% to 17% over last year. Wall Street is looking for $1.31 per share for Q3.

    On Wednesday, Cognizant Technology Solutions (CTSH) and Ingredion (INGR) are scheduled to report. This summer, Cognizant raised its guidance. For Q3, they see earnings of at least 94 cents per share, and full-year earnings of at least $3.67 per share. They should be able to reach both. The stock is up 33% YTD.

    Last month, Ingredion gave us a 20% dividend increase. The company sees full-year earnings of $7.50 to $7.80 per share. Wall Street expects $2.02 per share for Q3. They should beat that.

    Shares of Intercontinental Exchange (ICE) have drifted lower recently. This may come to an end on Thursday when ICE reports earnings. In their last report, ICE missed by a penny, but it was their 17th-straight quarter of revenue growth. The consensus on Wall Street is for Q3 earnings of 70 cents per share.

    I’m also going to mention Becton, Dickinson (BDX) which reports on Thursday. This will be for the fourth quarter of their fiscal year. Three months ago, BDX said they expect quarterly earnings of $2.33 to $2.38 per share.

    Full-year earnings should be between $9.42 and $9.47 per share. Not including currency, that would be $9.70 to $9.80 per share.

    On Friday, Cinemark (CNK) and Moody’s (MCO) will report earnings. In August, one of Cinemark’s competitors bombed its earnings report, so traders feared the same for CNK. Instead, Cinemark missed by just a penny per share. I’ll note that concession revenue per person, which is the real moneymaker, rose by 8.9%. There have been a lot of stories about low sales at the box office for Hollywood. Wall Street expects 35 cents per share.

    In July, Moody’s reported very good earnings, plus they raised guidance. For Q2, the ratings company earned $1.51 per share which was a 16% increase over last year. That beat expectations by 17 cents per share. Quarterly revenues were up 8% to $1 billion, and operating income rose 12% to $457.5 million.

    More importantly, Moody’s raised its full-year guidance range to $5.35 to $5.50 per share. The previous range was $5.15 to $5.30 per share. The consensus is for Q3 earnings of $1.37 per share.

    That’s all for now. I’m going to be on the road next week. I hope to get the newsletter out at the regular time, but it may be delayed a day or two. I can’t say yet. Next week we will have more earnings news. There will also be a Fed meeting on Tuesday and Wednesday. Don’t expect any movement on interest rates. At least, not yet. Also, the big jobs report will be out next Friday. The unemployment rate is currently at a 16-year low. 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

  • Morning News: October 27, 2017
    , October 27th, 2017 at 6:05 am

    Nordic-Style Designs Sit at Heart of French Labor Plan

    It’s Going to Stay a Yellen Fed No Matter Who Gets the Job

    How to Profit From Behavioral Economics

    What Worries? Big Tech Companies Post Glowing Quarterly Profits

    Wall Street Loves Electric Cars, America Loves Trucks

    Amazon Threat Causes Shakeout in the Health-Care Industry

    A CVS-Aetna Deal Is Logical But Also a Stretch

    Activist Investors Torpedo $20 Billion Clariant, Huntsman Merger

    SUVs Come to the Rescue for VW

    Celgene, Bristol-Myers Drop on Poor Earnings as Big Pharma Takes It on the Chin

    Comcast and Charter Lost a Ton of Cable Customers Last Quarter

    Zenefits Founder Parker Conrad Will Pay $500,000 to Settle SEC Charges Alleging He Misled Investors

    Howard Lindzon: The Cloud Bubble!

    Jeff Carter: Should You Own Your Data?

    Mark Hines: Stock Exchange: Do Not Invest In Bitcoin, Trade It!

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  • Axalta Earns 26 Cents per Share
    , October 26th, 2017 at 1:28 pm

    Axalta Coating Systems (AXTA) reported earnings of 26 cents per share.

    Axalta Coating Systems Ltd. on Thursday reported third-quarter net income of $54.9 million, after reporting a loss in the same period a year earlier.

    The Philadelphia-based company said it had profit of 22 cents per share. Earnings, adjusted for one-time gains and costs, were 26 cents per share.

    The results beat Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of 23 cents per share.

    The high-performance coating system maker posted revenue of $1.1 billion in the period, which matched Street forecasts.

  • Morning News: October 26, 2017
    , October 26th, 2017 at 7:05 am

    A Chinese Puppet Show for Markets

    Saudi Crown Prince Backs Extending OPEC Cuts Into 2018

    ECB Tapering: The Beginning of The Beginning of The End for Quantitative Easing

    Yellen Wonders If Fed Inflation Credibility Dented on Her Watch

    Trump Is Betting That Claims He’s Helping Out Big Banks Won’t Stick

    Everything to Know About President Donald Trump’s New Drone Program

    Hurricanes Dent Profits at Insurance Giant Munich Re

    Tesla Muzzling Model 3 Buyers

    New Uber Visa Credit Card From Barclays Coming Next Week

    Walgreens to Shutter Almost 600 Rite Aid Stores as Part of Megadeal

    McDonald’s Puzzles Chinese Customers With Name Change

    Amazon Key is Silicon Valley at its Most Out-of-Touch

    Ben Carlson: Bull & Bear Market Volatility Look Very Different

    Roger Nusbaum: Retire On Less Than One Bitcoin a Month!

    Cullen Roche: Beware of Extremist Bond Calls

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  • AFLAC Earns $1.70 per Share
    , October 25th, 2017 at 4:36 pm

    AFLAC (AFL) just reported Q3 operating earnings per diluted share of $1.70. Wall Street had been expecting $1.63 per share.

    A few items. That includes an after-tax benefit of four cents per share. Also, the yen/dollar exchange rate knocked off seven cents per share last quarter. So, excluding the impact of the weaker yen, operating earnings per diluted share rose 1.7% to $1.77.

    In July, the duck stock said to expect Q3 earnings to range between $1.51 and $1.69 per share. That assumes the yen averages between 105 and 115.

    AFLAC also raised their quarterly dividend by two cents to 45 cents per share.

    The company is also raising its full-year forecast.

    “Having completed the first nine months of the year, I am pleased with the company’s overall results. We believe those results, combined with our outlook for the remainder of 2017, well-position Aflac for another year of solid financial performance. We continue to expect increased spending in the fourth quarter in support of initiatives designed to drive future growth. I am extremely pleased that we are upwardly revising our 2017 operating earnings per diluted share outlook from a range of $6.40 to $6.65 to a higher range of $6.75 to $6.95, both of which exclude the impact of the yen. If the yen averages ¥110 to ¥115 to the dollar for the fourth quarter, we would expect operating earnings, a non-GAAP measure, to be approximately $1.42 to $1.66 per diluted share in the fourth quarter, making full-year operating earnings approximately $6.62 to $6.86 per diluted share.”

  • CR Bard Earns $3.02 per Share
    , October 25th, 2017 at 4:24 pm

    CR Bard (BCR) reported Q3 earnings of $3.02 per share. Wall Street had been expecting $2.95 per share.

    Timothy M. Ring, chairman and chief executive officer, commented, “After over 110 years of operations, with 54 years as a public company, we believe this to be our last quarterly report as a stand-alone company, as we expect the merger with Becton, Dickinson and Company (“BD”) to be completed before the next reporting cycle. I want to thank our employees and directors for their tireless work and commitment to excellence over the years. I also want to thank our investors for their outstanding support. We believe the merger with BD will create a unique combination that will deliver meaningful benefits for customers and patients and provide long-term shareholder returns.”

    Also in conjunction with the third quarter results, the company is increasing its 2017 reported revenue guidance and increasing its adjusted diluted earnings per share guidance. For the full year 2017, net sales are forecasted to increase between 5.5 percent and 6 percent on an as-reported basis. The company is maintaining its prior full-year constant currency revenue guidance. Full year 2017 diluted earnings per share, after adjusting for amortization of intangibles and certain items that affect comparability between periods are projected to be between $11.85 and $11.90, representing growth between 15 percent and 16 percent compared to full year 2016 results.

    The previous range was $11.70 to $11.90 per share

  • Healthcare Inflation Fades
    , October 25th, 2017 at 3:54 pm

    Here’s an interesting stat I just noticed. For the first time since 1981, healthcare inflation is running less than core inflation.

    I don’t know what’s driving this.

  • New Home Sales Boom
    , October 25th, 2017 at 10:36 am

    For this morning’s new home sales report, economists had been expecting a drop of 0.9%. Instead, new home sales were up 18.9%. That’s the largest increase in 25 years.

    Sales of newly built single-family homes rose 18.9 per cent from the previous month to an annualised pace of 667,000 homes, the US Census Bureau said. That compared with economists expectations for a 0.9 per cent drop to 555,000, according to a Thomson Reuters survey.

    That was the biggest monthly increase since January 1992 and marks the highest level in 10 years. Compared with a year ago, new home sales were up 17 per cent.

    The increase was boosted by an increase in home sales in the Northeast and Southern US, where they climbed 33.3 per cent and 25.8 per cent respectively. The latter was battered by a string of hurricanes. In the Midwest they climbed 10.6 per cent and in the West the rose a more subdued 2.9 per cent.

  • Morning News: October 25, 2017
    , October 25th, 2017 at 7:07 am

    Pound Reverses Decline as U.K. Economy Grows More Than Forecast

    Michael Bloomberg: Brexit is Stupidest Thing Any Country Has Done Besides Trump

    Yellen Finds Unlikely Advocate at White House: Trump

    Senate Kills Rule On Class-Action Suits Against Financial Companies

    Puerto Rico Lays Out Energy Future With Tesla, Privatization

    Amazon Launches ‘Business Prime’ to Bring Quick Delivery to Work

    Square, the Twitter Boss’s Other Company, Could Pass It In Value

    Toyota Scales Back Mexico Production Plans

    Chipotle’s New Normal: Working Hard to Sell Burritos

    McDonald’s Traffic Grows Again, Solidifying CEO’s Turnaround

    Why Sears Ended a Century-Old Partnership With Whirlpool

    AMD Shares Plunge 12% on Concerns About Future Sales

    Howard Lindzon: The Facebook Monopoly?

    Josh Brown: As Good As It Gets? & QOTD: Einhorn on Equity-Subsidized Business Models

    Michael Batnick: I Don’t Think That Means What You Think it Means

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