CWS Market Review – November 15, 2019

“The best stock to buy may be the one you already own.” – Peter Lynch

On Tuesday, I sent you a special update telling you about the deal to buy out Continental Building Products for $37 per share. This is great news for us, and it’s another nice winner for the Crossing Wall Street Buy List.

In this week’s issue of CWS Market Review, I’ll fill you in on the details. Or at least, the details that we have. The deal will probably take some time to commence. Alas, lawyers and regulators need to get involved.

That wasn’t the only good news for us. Disney said that its Disney+ service is off to a big start. They’ve already signed up 10 million subscribers. Shares of Disney popped 7.3% on Wednesday to reach a new 52-week high. I’ll have more on the Mouse in a bit.

The overall market continues to push through to new highs. The S&P 500 has now rallied 13 times in a seventeen-day stretch. Our Buy List is now up more than 26% on the year. We have three +50% winners, plus two more up over 40%. I’ll also have an update on Eagle Bancorp. But first, let’s look at our big win this week with Continental Building Products.

Continental Building Gets Bought Out for $37 per Share

After the closing bell on Tuesday, Continental Building Products (CBPX) said it’s going to be bought out for $37 per share.

The acquirer is Compagnie de Saint-Gobain S.A., a French multinational. The deal values Continental at $1.4 billion. I’m curious if someone released the news too early, because the shares shot up moments before the closing bell. The final trade was $35.75. That’s a gain of 11.65% for the day. Since early August, CBPX is up 62%.

Don’t expect CBPX to trade at $37 just yet. The companies need to jump over some regulatory hurdles before the deal is complete. Also, shareholders need to sign off on the deal. That shouldn’t be a problem. It’s already been unanimously approved by the company’s Board of Directors.

Unfortunately, the companies haven’t provided much in the way of details. This is from the press release:

Edward Bosowski, Chairman of Continental Building Products and Mr. Bachmann, stated, “Building on our successful accomplishments since 2013, we are pleased to reach this agreement with Saint-Gobain and to provide liquidity, certainty and compelling value to our stockholders. We believe our combined business will be better positioned to enhance our product offerings, customer relationships and operating platform. With our mutual focus on dedicated service to customers and operational excellence, we believe this transaction provides an opportunity to benefit all of our stakeholders.”

Under the terms of the agreement, the Company will be merged with and into a newly-formed subsidiary of Saint-Gobain and each issued and outstanding share of the Company’s common stock will be converted into the right to receive $37.00 per share in cash.

Here’s a cool factoid: Saint-Gobain was founded in 1665. Almost as an afterthought, Continental released its Q3 earnings. Sales fell 2.9% to $127.4 million. Wallboard volume rose by 4.6%, but lower prices caused the revenue decline. For Q3, CBPX earned 39 cents per share. That was two cents below estimates.

What to do now? Just sit tight with this stock. There’s no reason to sell. I’m raising our Buy Below to $37 per share. I want to hear more about a timetable for this transaction. I’m assuming it will be completed sometime in 2020.

Disney Gets 10 Million Subscribers for Disney+

Disney (DIS) did not start out well for us this year. In the March 22 issue of CWS Market Review, I even had a subheading titled “What’s Wrong with Disney?” My conclusion: nothing.

In March, I wrote, “I added Disney to the Buy List at the start of this year, and I’m not sorry I did. The stock, however, is down 1% for us. In fact, the stock is exactly where it was four years ago. I’m not concerned one bit.” The stock is up 36% since then.

Last Thursday, Disney reported very good results for Q3. The company made $1.07 per share, which was 12 cents better than expectations. Revenue also beat expectations.

Then on Tuesday of this week, Disney+ went live. On Wednesday, we learned that Disney has already added 10 million subscribers. As impressive as that is, remember that Disney+ only went live in the U.S., Canada and the Netherlands. The global rollout will last until 2021.

On Wednesday, shares of Disney jumped higher by 7.3% to reach a new 52-week high. That day, Disney accounted for 75% of the Dow’s gain. The company said its goal is to have 60 million to 90 million subscribers by 2024. I’m lifting our Buy Below on Disney to $152 per share.

Some Details on Eagle Bancorp’s Legal Issues

Shares of Eagle Bancorp (EGBN) plunged in July when the bank revealed its large legal bills surrounding unspecified actions. We assumed it had to do with local D.C. city council member, Jack Evans. Eagle couldn’t talk about it since it was an ongoing investigation.

This week, we finally got more details. The Washington Post got a confidential report on the matter. It seems that Evans was involved in a lot of shady dealing, and some of that involved Eagle. However, there don’t appear to be any accusations against the bank. Ron Paul, Eagle’s former CEO, is mentioned in the report, but Paul declined to comment due to health issues.

The allegations appear to be pretty shady stuff, but nothing that should impact the performance of the bank, outside of legal fees. Paul is no longer with Eagle, and the bank has moved on.

Susan Riel is the new CEO, and this is all she had to say about the mess:

“What we are told is that it may never get resolved. It may just go away and we might not get closure to it. We’ve talked to many people. We are working with a number of attorneys on it, and they have all the experience in the world — and that’s where we are,” Riel said. “We don’t know the answer to that question. I don’t think the government agencies know the answer to that question.”

Eagle is a buy up to $47 per share.

Three More Buy List Earnings Reports This Month

The earnings report from Continental Building was our final Buy List earnings report of this earnings season. Now we’re ready for the earnings reports from our stocks that have quarters ending in October. There are three such stocks on our Buy List.

Ross Stores (ROST) is due to report on Thursday, November 21. Traditionally, Ross likes to give very conservative guidance, which they almost always beat. Sometimes, by a lot.

The October quarter is ROST’s fiscal Q3, and the biggie is Q4 (meaning, November, December and January). For Q3, Ross said it expects comparable-store sales growth of 1% to 2% for Q3 and Q4.

Because of the trade war with China, Ross now sees Q3 earnings of 92 to 96 cents per share. That’s lower than what the Street had been expecting. For Q4, the biggie, Ross sees earnings of $1.20 to $1.25 per share. That adds up to full-year guidance of $4.41 to $4.50 per share. Last year, Ross made $4.26 per share.

Here’s a fact that would surprise a lot of investors. Since the beginning of 2008, Ross has narrowly outperformed Amazon (AMZN), which is some sort of Internet bookseller.

The last earnings report from JM Smucker (SJM) was a dud. The company is due to report on November 22. For the August quarter, comparable net sales fell 4%, and earnings fell 11% to $1.58 per share. That was 16 cents below expectations. Ouch.

What went wrong? The company was hurt by poor sales of its pet-foods business. Smucker owns Milk Bone and Meow Mix. In recent years, the company has been working to build up this business. That’s why they bought Ainsworth, but the competition has been stronger than they thought. Management has conceded the difficulties in this sector. Smucker’s coffee business was weak last quarter as well.

Previously, the company was expecting sales to rise by 1% to 2%. Now they expect sales to be flat to -1%. Smucker had been expecting full-year earnings of $8.45 to $8.65 per share. Now they see earnings of $8.35 to $8.55 per share. Wall Street expects earnings next week of $2.14 per share.

Hormel Foods (HRL) is due to report on November 26. This will be for their fiscal Q4. Like Smucker, this has been a tough year for Hormel. In May, the Spam people lowered their full-year guidance due to African swine fever and other issues. I think that rattled investors.

The August earnings report was a relief, and Hormel stood by its full-year forecast for earnings of $1.71 to $1.85 per share. Since Hormel has already earned $1.33 through the first three quarters, the guidance implies a range for fiscal Q4 of 38 to 52 cents per share. Hormel also sees full-year sales of $9.5 billion to $10 billion.

That’s all for now. There are a few key economic reports coming next week. On Tuesday, the housing-starts report is due out. On Wednesday, the Fed will release the minutes of its October meeting. The minutes could provide clues as to what the central bank currently thinks about the economy and interest rates. On Thursday, the existing-home sales report is due out. 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

Posted by on November 15th, 2019 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.