CWS Market Review – February 9, 2020

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” – Charles Mackay

I have to apologize for the newsletter being late. I was at the Money Show in Orlando. I had a great time and got to meet some subscribers.

What an event-filled week this has been! Let’s see, we had the Super Bowl, the Iowa Caucus, the impeachment vote, the State of the Union, the coronavirus news, the January jobs report and on Thursday, an all-time closing high for the S&P 500.

In addition to all that, we had a bunch more Buy List earnings reports. In this issue, I’ll run down them all. We also had some strange news with Intercontinental Exchange. I’ll break it down for you. I’ll also preview next week’s earnings report from Moody’s.

But first, let’s look at Friday’s jobs report.

Another Strong Jobs Report

I normally send out the newsletter just ahead of the monthly report. Thanks to this week’s delay, I can cover the report, and it was another good one.

For January, the U.S. economy created 225,000 net new jobs. The warm weather helped. Wall Street had been expecting 158,000 new jobs.

The unemployment rate ticked up 3.6%. The labor force participation rate rose to 63.4%. That’s the highest in seven years.

The U-6 Rate, which is a broader measure of unemployment, rose to 6.9% which is still very low.

The soft spot continues to be wages. To be fair, there has been some growth here, but I’d like to see more. In the last year, average hourly earnings are up by 3.1%. That’s more than inflation, but not much more.

Since the coronavirus started spreading, the odds for a Fed rate cut have bumped up. In fact, the futures market saw one coming as early as June. However, thanks to these jobs numbers, there’s been some rethinking. That’s probably why the market pulled back on Friday. In other words, good news is bad news because the Fed may not step in and rescue the market.

Now let’s get to our many earnings reports.

Earnings from Church & Dwight and Broadridge Financial Solutions

Let’s start with the two earnings reports we had last Friday, January 31. We’ll start with the good news. Church & Dwight (CHD) said they earned 55 cents per share for Q4 which matched Wall Street’s estimate. C&D also bumped up their quarterly dividend from 22.75 cents to 24 cents per share. This is their 24th annual dividend hike in a row.

For Q1, C&D expects earnings of 73 cents per share. For all of 2020, the company is looking for earnings of $2.64 to $2.69 per share. That’s an increase of 7% to 9% over 2019. This week, I’m lifting our Buy Below to $80 per share.

Now for the bad. Broadridge Financial Solutions (BR) reported earnings of 53 cents per share. That was 18 cents below estimates.

What happened? On the earnings call, the CEO said, “Event-driven activity came in significantly below our expectations, leading to a 5% decline in adjusted EPS in a seasonally small quarter. We now expect a lower level of event-driven activity to persist into the second half of fiscal 2020.”

The company stood by its forecast for this fiscal year (ending in June) for EPS growth of 8% to 12%, although now they confess it will be “at the low end.” That range had worked out to $5.03 to $5.22 per share. Now let’s say it’s $5.03 to $5.10 per share.

The stock dropped 8% after the earnings report, but I’m going to keep our Buy Below at $130 per share.

Check Point Software Beats Earnings

On Monday, Check Point Software (CHKP) reported Q4 earnings of $2.02 per share. That’s up from $1.68 one year ago. Check Point also beat estimates for $1.99 per share. Revenue rose 3% to $544 million which beat estimates of $542.5 million.

During Q4, Check Point bought back 2.9 million shares for $325 million. The company announced a $2 billion extension to the share buyback program. Check Point didn’t provide any guidance for 2020. I’m raising our Buy Below on Check Point to $125 per share.

Five Buy List Reports on Tuesday

Tuesday was an especially busy day with five Buy List earnings reports. Let’s start with Fiserv (FISV). For Q4, the company made $1.13 per share. That was a penny below expectations.

“2019 was a year of leadership and growth in which we took steps to transform an industry to better enable long-term, differentiated value for clients, associates and shareholders,” said Jeffery Yabuki, Chairman and Chief Executive Officer of Fiserv. “We delivered strong financial results including our 34th consecutive year of double digit adjusted earnings per share growth.” Fiserv earned $4.00 for 2019. The company sees 2020 earnings of $4.86 to $5.02 per share. I’m raising our Buy Below on Fiserv to $130 per share.

Cerner (CERN) made 75 cents per share for Q4. That beat by a penny. Cerner earned $2.68 per share for the year. For Q1, Cerner sees earnings of 69 to 71 cents per share. For 2020, they see $3.09 to $3.19 per share. That’s quite good. The stock gapped up 6% on Wednesday and made a new high. I’m raising our Buy Below to $85 per share.

Disney (DIS) had another blow-out quarter. The company has signed up 26.5 million Disney+ subscribers. For Q4, Disney made $1.53 per share. That was nine cents more than expectations.

The stock has been knocked around some lately due to concerns that their parks business will be hurt over fears of the coronavirus. Nevertheless, Disney’s business is doing just fine. I’m keeping my Buy Below at $152 per share.

AFLAC (AFL) earned $1.03 per share which beat estimates by one penny. Currency exchange added two cents per share. AFLAC also increased its quarterly dividend from 27 cents to 28 cents per share. This is their 37th annual dividend increase in a row.

I like the duck stock a lot. For 2020, AFLAC is looking for earnings of $4.32 to $4.52 per share. That assumes an exchange rate of 109.07 yen to the dollar (which was the average for 2019). That’s pretty conservative guidance, as I expected. AFLAC is a buy up to $57 per share.

Globe Life (GL) may be our quietest stock but the insurance company just touched a new 52-week high. Globe Life had Q4 operating income of $1.70 per share. That was two cents below estimates, but guidance was pretty optimistic. For 2020, GL expects operating earnings of $7.03 to $7.23 per share. Wall Street had been expecting $7.18 per share. I’m raising our Buy Below to $115 per share.

Earnings from Becton, Dickinson and ICE

Two more reports on Thursday. Becton, Dickinson (BDX) was the dud this earnings season. The company actually beat earnings for Q3, $2.65 to $2.63 per share (the December quarter is BDX’s fiscal Q1). Currency-neutral earnings rose 2.5%. Tom Polen, the CEO, said, “In the first quarter, the BD team delivered solid results, in line with our expectations.”

The problem, however, is guidance. Three months ago, BDX gave us EPS guidance for this year of $12.50 to $12.65. The company now expects EPS between $11.90 and $12.10 per share. That’s a drop of 4.0% to 5.5% from last year.

The problem is that it will take the company longer to resolve the issues surrounding its Alaris infusion pump. Becton said it will work with the FDA and existing customers to work on a remediation plan.

Polen said: “As we look ahead to the balance of the fiscal year, we are focused on the resolution of the Alaris pump matter. We stand behind the safety of the Alaris System, which is used in the care of 70 percent of patients undergoing infusion therapy. Now, we need to take the necessary steps to meet the FDA’s expectations with respect to the Alaris System. We are committed to doing what is right for customers, patients and shareholders. You can expect that our purpose and values will always be at the core of who we are and how we work to resolve this situation moving forward.”

Shares of BDX fell 11.8% on Thursday. I’m dropping our Buy Below to $265 per share.

Intercontinental Exchange (ICE) certainly made a lot of news last week. The stock dropped 7.4% on Tuesday when The Wall Street Journal said ICE made an offer of more than $30 billion to buy eBay (EBAY), a former Buy List stock, by the way. Shares of eBay jumped on the news.

I was completely baffled by this news. Why would a stock-exchange company buy an online auction house?

Then, after the close on Thursday, ICE said actually, no they’re not in talks to buy eBay. Well, that was a relief!

Also on Thursday, ICE reported Q4 earnings of 95 cents per share. That matched expectations. I like to watch ICE’s data revenue. For Q4, that came in at $559 million which is about what I expected.

ICE also hiked its dividend by 9% to 30 cents per share. ICE remains a buy up to $100 per share.

Earnings Preview for Moody’s

Moody’s (MCO) will report its Q4 earnings on Wednesday, February 12. The ratings agency is already our #1 stock this year with a gain of 12.7%. Three months ago, Moody’s beat estimates by 15 cents per share. The key to Moody’s success is its Moody’s Analytics segment. Revenue there was up 13% last quarter.

The Q3 results were so good that Moody’s raised its full-year EPS guidance to $8.05 to $8.20. The previous guidance had been $7.95 to $8.15 per share. The shares touched a new high on Thursday. Moody’s has doubled for us in less than 14 months.

That’s all for now. The coming week should be much quieter. One big item will be Fed Chairman Jerome Powell’s testimony before Congress on Tuesday and Wednesday. Also on Wednesday, the next CPI report is due out. I’ll be curious to see if there was any significant inflation during January. Then on Friday, we’ll see the retail-sales report for January. 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 February 9th, 2020 at 4:30 pm


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.