CWS Market Review – July 17, 2020

“Rapidly changing industries are the enemy of the investor.” – Mohnish Pabrai

Second-quarter earnings season has finally arrived. Over the next three weeks, earnings reports will dominate the news on Wall Street.

I’ll warn you now–most reports will be pretty ugly. Of course, it’s not really the fault of the companies. It’s not so easy to make a profit when the whole world, it seems, has been locked down.

We’ve already seen disappointing results from stocks like Netflix. Delta Airlines reported a staggering loss of $5.7 billion. Wells Fargo bombed its earnings report and slashed its dividend by 80%.

Since the start of this year, Wall Street has cut its estimate for Q2 earnings in half. The stock market, however, has held up much better, which suggests it sees this as a temporary problem. In fact, the S&P 500 recently got to a five-week high, and it’s not far from a four-month high.

We’ll also get the first of our Buy List earnings reports next week. Four reports are due on Wednesday and we’ll get another three on Thursday. I’m not expecting stellar results this season. Instead, I’m more concerned about how well our companies are managing themselves through this difficult time and I want to hear any guidance for the rest of this year.

Next Week’s Buy List Earnings Reports

Over the next three weeks, 22 of our 25 Buy List stocks will report their earnings results. Here’s an Earnings Calendar. I’ve listed each stock along with its earnings date and Wall Street’s current estimate.

Company Ticker Date Estimate Result
Check Point Software CHKP 22-Jul $1.43
Globe Life GL 22-Jul $1.58
Silgan SLGN 22-Jul $0.64
Stepan SCL 22-Jul $1.20
Danaher DHR 23-Jul $1.08
Eagle Bancorp EGBN 23-Jul $0.74
Hershey HSY 23-Jul $1.15
RPM International RPM 27-Jul $1.01
AFLAC AFL 28-Jul $1.06
Sherwin-Williams SHW 28-Jul $5.77
Cerner CERN 29-Jul $0.61
Intercontinental Exchange ICE 30-Jul $1.05
Stryker SYK 30-Jul $0.57
Church & Dwight CHD 31-Jul $0.63
Trex TREX 3-Aug $0.62
Disney DIS 4-Aug -$0.63
Ansys ANSS 5-Aug $1.16
Fiserv FISV 5-Aug $0.93
Becton, Dickinson BDX 6-Aug $2.06
Broadridge Financial Solutions BR 11-Aug $2.08
Middleby MIDD TBA $0.39
Moody’s MCO TBA $2.15

One footnote. RPM International (RPM) is one of our “off-cycle” stocks. RPM’s fiscal Q4 ended in May. With their Q4 reports, companies are allowed a little more time. That’s why RPM is reporting in July.

Seven of our Buy List stocks are due to report next week. The first four report on Wednesday.

Check Point Software (CHKP) got my attention in its last earnings report when it said that it had seen an uptick in cyber-attacks since the coronavirus made landfall. For Q1, the cyber-security firm earned $1.42 per share, which beat the Street by four cents.

The stock recently ran off a streak of closing higher nine days in a row (see the chart below). The share price has sailed above our Buy Below price, and it’s close to a new 52-week high. I’ll probably adjust it next week, but I want to see the earnings results first. It’s never a good strategy to chase after a stock. For Q2, Wall Street expects earnings of $1.43 per share.

Our three financial stocks are our three worst performers this year. Globe Life (GL) has been the least bad of the three. Shares of Globe Life not only lagged the market through the nasty bear months, but also has lagged during the rally.

Three months ago, GL had a pretty good earnings report. It beat earnings by two cents per share. At the time, the insurance company cut its full-year guidance. The original range was $7.03 to $7.23 per share. Globe Life cut that to a range of $6.65 and $7.15. Honestly, that’s not that bad. If Globe Life’s guidance is close to being correct, that means the stock is going for about 11 times this year’s earnings. Don’t throw in the towel on Globe Life.

Silgan Holdings (SLGN) is one of our new stocks this year, and it’s gotten off to a good start for us. SLGN has been trending upward lately. Through Thursday, Silgan is up close to 10% for us this year.

In April, the metal-container company had a pretty good earnings report. For Q2, Silgan sees earnings between 55 and 70 cents per share. That’s a pretty wide range. Wall Street expects 64 cents per share, which is almost certainly too low.

For the whole year, Silgan estimates earnings will range between $2.30 and $2.50 per share. That’s an increase from the previous range of $2.28 to $2.38 per share. Not many companies have raised guidance in this environment. I’m expecting good news from Silgan.

Three months ago, Stepan (SCL) reported Q1 earnings of $1.04 per share. That easily beat Wall Street’s consensus of 78 cents per share. I should add that Stepan is only followed by three analysts, so that’s not much of a consensus.

If you’re not familiar with Stepan, the company is a major manufacturer of specialty and intermediate chemicals that are used in a broad range of industries.

Although Stepan is classified with other specialty-chemical companies, it’s unique in the industry. Stepan doesn’t have a competitor or competitors to precisely match its businesses because its products have a specific focus. (Note this week’s epigraph.)

The CEO said that Stepan had a solid start to the year. Last quarter, Stepan paid out $6.2 million in dividends and bought back 260,605 shares for $7.2 million. The company has increased its dividend every year for 52 years. For Q2, the “consensus” is for earnings of $1.20 per share.

There are three more earnings reports on Thursday.

Danaher (DHR) is having another great year for us. Through Thursday, the stock is up over 23% this year. Earlier this year, Danaher closed its very big deal to buy GE’s biopharma business for $21.4 billion. That business is now called Cytiva. Last year, Danaher IPO’d Envista, its dental business. Wall Street expects earnings of $1.08 per share.

Eagle Bancorp (EGBN) has been one of our problem stocks this year. However, the earnings results have been fine. The problem is that Eagle’s legal bills have weighed on it. The important point is that the folks who caused the problems are no longer with Eagle.

Wall Street expects Q2 earnings of 74 cents per share which would be a big drop from the $1.06 per share Eagle earned in last year’s Q2. Even if Eagle’s earnings are a bust this year, the bank is currently going for 7.5 times last year’s earnings. The bank is not going out of business. It just needs to move past its scandal.

Last is Hershey (HSY). The chocolatier has badly lagged the market over the past three months. Part of that is simply because Hershey is a defensive stock. Much of the rally has been folks pouring out of defensive stocks and into tech shares.

I like Hershey, but I was disappointed with its last earnings report. Sales were flat, and earnings came in eight cents below the Street.

In January, the company said it expected full-year earnings between $6.13 and $6.24 per share. Hershey later withdrew that guidance, although the company said it stands by its long-run goal of growing EPS by 6% to 8%. For Q2, the consensus on Wall Street is for earnings of $1.15 per share.

Before I go, I want to make two adjustments to our Buy Below prices. Shares of Hormel Foods (HRL) have been improving lately. This week, I’m going to bump up our Buy Below price to $53 per share.

Shares of Ross Stores (ROST) have been sliding downward for the last few weeks. I think Ross may be one of the best bargains on our Buy List. I’m dropping our Buy Below to $92 per share. That’s not in any sense a downgrade. I simply want to the Buy Below to better reflect the current market environment.

That’s all for now. There’s not a lot in the way of economic reports next week. Most attention will be on earnings. On Wednesday, the existing-home sales report is due out. On Thursday, we’ll get another jobless-claims report. The last 17 in a row have topped one million. On Friday, the report on new homes 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 July 17th, 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.