CWS Market Review – December 21, 2021

(This is the free version of CWS Market Review. I’m going to unveil our 2022 Buy List this Friday, December 24 in our premium issue. To see the new list, make sure you’re a premium subscriber. You can get the premium newsletter for $20 per month or $200 for the whole year.)

Oracle to Buy Cerner for $95 per Share

Great news for our Buy List. This week, Oracle (ORCL) said it’s going to buy Cerner (CERN) for $95 per share. This is a huge win for us.

Earlier, we knew that the companies had been discussing a potential deal, but that became official yesterday. This will be Oracle’s largest deal ever. The deal is all-cash and it includes Cerner’s debt.

The story initially broke in the WSJ on Thursday evening. Shares of Cerner had closed at $79.49 that day. The stock soared on Friday and eventually closed at $89.77. That was a gain of nearly 13%.

It’s even more impressive when you consider that Cerner had been rallying going into the announcement. As recently as December 1, shares of Cerner closed at $70.01 per share. If you include that, then the stock has gained close to 30% in a few weeks.

If you look closely, you can almost make out when the news broke:

The deal comes to $28.3 billion. While Oracle will pay $95 per share for Cerner, the stock will probably drift around in the low $90s until the deal closes. Once the lawyers get involved, it takes time to get the deal done.

There are also regulatory hurdles to deal with. There’s also the possibility that the deal will fall through. It’s unlikely, but it does happen. Sometimes shareholders revolt and enough of them can get their way. Until then, shares of Cerner will trade like a low-quality bond that will mature at some point at $95 per share.

From Bloomberg:

Oracle Chief Executive Officer Safra Catz said the acquisition should be “immediately accretive to Oracle’s earnings” on an adjusted basis in the first full fiscal year after closing and contribute “substantially more to earnings in the second fiscal year and thereafter.” The transaction is expected to close next year, the companies said.

Oracle, the second-biggest software maker by revenue, is best known for legacy database products. The company has struggled in recent years to gain ground in cloud computing, in which companies rent data storage and analytic power from large server centers, trailing far behind market leaders such as Amazon.com Inc. and Microsoft Corp.

The deal for Cerner gives Oracle a huge foothold in technology for the health care industry — a sector expected to spend $15.8 billion on cloud infrastructure and software by 2023, according to market researcher IDC — given Cerner’s robust user base, which includes many of the top U.S. hospital systems. And as Oracle moves more of Cerner’s systems onto its own cloud infrastructure, the company gains an important case study to help future sales.

This deal caught some people off guard because Cerner’s new CEO started only a few weeks ago. As much as I like Cerner, the stock had not been a terribly strong performer for us this year.

We added CERN to our Buy List in 2016. Since then, the company has performed well but the stock has been somewhat mediocre. Oracle had also been on our Buy List from 2011 to 2015.

FactSet Delivers Big Earnings Beat

This morning, we got an earnings report from FactSet (FDS). This is for its fiscal Q1 which ended in November. FactSet has been one of our best-performing stocks this year with a gain of 44% (including dividends).

The company reported fiscal Q1 earnings of $3.25 per share. That was up 12.8% over last year and it beat Wall Street’s forecast of $2.99 per share.

Quarterly revenues rose 9.4% to $424.7 million. Organic sales rose 9.1% to $423.2 million.

The key stat for FactSet is Annual Subscription Value (ASV) plus professional services. At the end of the quarter, that stood at $1.7 billion which is up from $1.6 billion a year ago.

Most importantly, the company reaffirmed its expectations for Fiscal 2022:

• Organic ASV plus professional services is expected to increase in the range of $105 million to $135 million over fiscal 2021.
• GAAP revenues is expected to be in the range of $1,705 million to $1,720 million.
• GAAP operating margin is expected to be in the range of 31% to 32%.
• Adjusted operating margin is expected to be in the range of 32.5% to 33.5%.
• FactSet’s annual effective tax rate is expected to be in the range of 14.5% to 15.5%.
• GAAP diluted EPS is expected to be in the range of $11.60 to $11.90. Adjusted diluted EPS is expected to be in the range of $12.00 to $12.30.

FactSet is also one of the newest members of the S&P 500. The stock gapped down this morning. At one point, shares of FDS were down 4.4%. Cooler heads prevailed and FDS later rallied. The shares were up today by 0.8%.

Nike Had to Cancel 130 Million Orders

Yesterday, Nike (NKE) reported very good earnings. The sneaker company made 83 cents per share which was 20 cents more than expectations. The stock rallied 6.15% today.

Despite the earnings beat, Nike has been experiencing weakness in China. Sales in North America have more than made up the difference.

The reason why I wanted to bring Nike to your attention is this amazing stat. Last quarter, Nike had to cancel 130 million units due to factory closures. The company said that those problems are being worked out.

Since the beginning of 1990, Nike has gained nearly 33,000%:

The Santa Claus Rally

Normally, I don’t place a great deal of faith in calendar effects and the stock market. After all, the stock market has been around for a long time. If you slice and dice the data long enough, you’re bound to find an oddball stat.

Still, I am impressed by the Santa Claus Rally. This is the phenomenon of the market performing well at Christmastime. The numbers are truly remarkable.

I’ve taken the entire history of the Dow Jones, which dates back from more than 125 years ago, and I’ve found that one-third of the stock market’s entire gain has come between December 22 and January 8.

Here are the numbers. The Dow has an average annualized gain (excluding dividends) of 7.85% per year. From December 22 to January 8, the Dow has an average gain of 2.82%. While that may not sound like a lot, it’s very large considering the short time span—it’s only about 5% of the year—and that’s an average of 125 years’ worth of data. For the rest of the year, the other 95%, the Dow has gained just 4.89% per year.

Here’s how the Dow has performed on average during the year:

Thank you, and I want to wish everyone a Merry Christmas and a happy and healthy holiday season. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

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Posted by on December 21st, 2021 at 7:44 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.