• Morningstar on Ingredion
    Posted by on February 10th, 2017 at 7:11 pm

    This Morningstar analyst has nice things to say about Ingredion (INGR). Here’s a sample:

    Ingredion (INGR) is benefiting from secular drivers of growth in ingredients, including health and wellness trends (removing salt, fat, sugar, and sodium and reducing calories and raw material costs); demographics (growing urban populations and more women working in developing markets); and more snacking and demand for processed and convenience foods in developed markets.

    The investment case is built on specialty ingredients’ growing share (26% of sales) at the expense of low-value-added, or core, ingredients (74% of sales), which are barely growing and are much less profitable. We think the specialty segment has an operating margin of 30% and generates 47% of EBIT, while the core segment has an 11.5% margin and generates 53% of EBIT. By 2020, we expect specialty will generate 32% of sales and 54% of operating profit, accounting for three fourths of the increase in Ingredion’s operating profit over 2016-20. Because Ingredion’s acquisition strategy is focused on expanding the specialty segment, specialty’s share of sales and profit is likely to be higher than that achievable from organic growth alone.

  • CWS Market Review – February 10, 2017
    Posted by on February 10th, 2017 at 7:06 am

    “Do you know the only thing that gives me pleasure?
    It’s to see my dividends coming in.” – John D. Rockefeller

    Here are some stats to show you just how calm this market has been. The S&P 500 has now gone 83 days in a row without a 1% drop. We’ve gone 43 days without a 1% move of any kind. The distance between the daily high and low has been less than 1% for the last 38 days running. That’s longest such streak in more than 40 years.

    A calm market is usually a good market, and on Thursday, the S&P 500 closed at 2,307.87, yet another all-time high. Since the Friday before the election, the index has vaulted 10.7%. Since the bull market that began nearly eight years ago, the S&P 500 Total Return index has quadrupled. The rally is officially a four-bagger.

    Overall, this has been a good earnings season. Interestingly, the WSJ noted that half of the earnings calls this season have mentioned President Trump. I’m happy to say that our Buy List continues to do well. This week, Fiserv rallied after its earnings report. Intercontinental Exchange raised its dividend by 18%. Cognizant Technology jumped 5% on Wednesday after the company beat earnings and initiated a dividend.

    This week’s CWS Market Review will be all about earnings. I’ll go over our recent earnings news, plus I’ll also highlight next week’s earnings reports. Let’s get to it.

    ICE Beats and Raises Dividend

    We’re now in the back half of earnings season, but we still have a few more Buy List stocks left to report. On Tuesday of this week, Intercontinental Exchange (ICE) reported Q4 earnings of 71 cents per share. That was two cents better than estimates. Quarterly revenue rose 30.1% to $1.14 billion, which matched estimates.

    The stock-exchange operator said:

    “Amidst a volatile and dynamic environment, we delivered our eleventh consecutive year of record revenue.” ICE Chairman and CEO Jeffrey C. Sprecher continued: “Despite the challenges of market volatility driven by geopolitics, we achieved our objectives by working closely with our customers across trading, risk management and data to again deliver strong revenue growth, margin expansion and double-digit profit increases. We are excited about collaborating with our customers in 2017, given the range of ways we are working to serve their evolving trading, listing, data and risk-management needs.”

    Scott A. Hill, ICE CFO, added: “In the first year of our integration of Interactive Data, we surpassed our synergy target and met our ambitious revenue-growth target while expanding margins. We also generated record operating cash flow of $2.1 billion in 2016, which enabled us to reduce our debt by approximately $1 billion, announce our third double-digit increase in our dividend, and increase our share repurchases for 2017. Our strategy, execution, and disciplined capital allocation have led to significant value creation and future growth opportunities.”

    ICE’s full-year EPS rose from $2.43 to $2.78. This was their eleventh straight year of record revenues and earnings. I like this company a lot. ICE also raised their quarterly dividend from 17 to 20 cents per share. True, the stock hasn’t had much in the way of yield, but it’s nice to see the board reward shareholders. For 2017, the company sees revenues adjusted for currency rising by at least 6%.

    One troubling item is that the SEC may sue ICE for the way it handled a trading glitch in 2015. The company is firm that it did not break the law, but the news rattled traders as the stock dropped 4.8% on Wednesday. I’m concerned but not overly worried. This week’s results clearly show us that ICE is a well-run enterprise. ICE remains a buy up to $61 per share.

    Cognizant Heeds Activist’s Advice

    On Wednesday, Cognizant Technology Solutions (CTSH) said they made 87 cents per share last quarter. That was one penny more than estimates. For the year, Cognizant made $2.55 per share.

    The IT outsourcer offered Q1 guidance of 83 cents per share, and full-year guidance of $3.63 per share. Both were a bit below expectations, but not much.

    But the most important news is that Cognizant said they reached an agreement with Elliott Management. Elliott is an activist investment group, which means they like to take a large position in a company and then advocate for changes to boost the stock.

    In November, Elliott sent a letter to Cognizant outlining ways they could help their stock. At the time, I noted that many of Elliott’s criticisms were, to my ears, compliments. They claimed CTSH was too conservative; they have too much cash and too little debt. I remember reading the letter and thinking, “yes, exactly why I like them!”

    Cognizant has now agreed to some of Elliott’s proposals. They’re going to add three new board members from Elliott. Cognizant also plans to return $3.4 billion to shareholders over the next two years. CTSH currently has a bank account of more than $2 billion. Next quarter, they plan to start a dividend of 15 cents per share.

    Traders were happy, which is obviously what Elliott was going for. The stock jumped nearly 5% on Wednesday. Over the last five days, the shares have gained 12.2%. This week, I’m lifting my Buy Below on Cognizant to $61 per share.

    Also on Wednesday, Axalta Coating Systems (AXTA) reported earnings of 28 cents per share. That was one penny below estimates. Quarterly revenues rose 2% to $1.03 billion, which was a little better than estimates. In constant currency, sales rose 5.6%.

    Despite the miss, this was a decent quarter for Axalta.

    “Axalta’s 2016 financial period ended on a strong note, with fourth-quarter net sales and operating performance slightly exceeding the expectations set in October, driven by volume and favorable product mix. For the full year, we also met our key objectives in terms of financial and operating performance, despite a somewhat greater foreign-currency headwind,” said Charles W. Shaver, Axalta’s Chairman and Chief Executive Officer. “We are proud of the progress we made this year, including achieving positive growth in a tough global economy, successfully executing on our M&A strategy, meeting our leverage target ahead of plan and improving productivity through our Axalta Way initiatives. Key milestones were also met in new product technology introduction, refinancing our capital structure and progressing our product-globalization and commercial-excellence objectives. We look forward to ongoing momentum in each of these areas in 2017.”

    For 2016, Axalta made $1.10 per share. The company didn’t provide EPS guidance, but they laid out some expectations for 2017:

    Adjusted EBITDA of $930 to $980 million
    Free cash flow of $440 to $480 million
    Diluted shares outstanding of 246 to 249 million

    There’s really not a lot to say, except that Axalta continues to do well. The stock dropped a bit on the news but quickly made it back.

    Fiserv Jumps on Optimistic Guidance

    After the bell on Wednesday, Fiserv (FISV) reported Q4 earnings of $1.16 per share, which matched the Street’s consensus. For the year, the company made $4.43 per share.

    The details were pretty good. I was especially pleased to see an increase in operating margins.

    Adjusted operating margin expanded 140 basis points to 32.1 percent in the fourth quarter and 50 basis points to 32.2 percent for the full year, compared to the prior-year periods.

    Free cash flow increased 8 percent to $1.08 billion for the full year, compared to the prior year. Cash distributions from StoneRiver of $151 million in 2016 related to the sale of a business interest have been excluded from the company’s free cash-flow results.

    Sales performance increased 22 percent in the fourth quarter and 21 percent for the full year compared to the prior-year periods.

    Fiserv expects its internal revenue to grow between 4% and 5%, and EPS to range between $5.03 and $5.17. That would be a growth rate of 14% to 17%. Wall Street had been expecting $4.97 per share. The shares rallied on the news, and FISV is close to another all-time high.

    Cerner Earns 61 Cents per Share

    On Thursday afternoon, Cerner (CERN) reported Q4 earnings of 61 cents per share. That matched Wall Street’s consensus. A few weeks ago, the company told us to expect Q4 earnings between 60 and 62 cents per share. For the year, Cerner made $2.30 per share, which is up from $2.11 per share in 2015.

    The company’s “systems sales” were down sharply but they made up it for with strong numbers from their “support, maintenance and services.”

    Now for guidance. For Q1, Cerner sees earnings between 57 and 59 cents per share. For the year, they expect earnings between $2.44 and $2.56 per share. That compares with Wall Street’s consensus of 59 cents and $2.56 per share. Frankly, I was hoping to see better numbers here. This week, I’m lowering my Buy Below on Cerner to $55 per share.

    Three Buy List Earnings Reports Next Week

    We have three Buy List earnings reports coming next week.

    On Tuesday, Express Scripts (ESRX) is due to report. The pharmacy-benefits manager has been attacked recently by Andrew Left, a noted short-seller. I should caution you that Left isn’t known for subtlety. He compared Express to John Gotti. (Seriously.)

    In any event. I think Left is off base. Express Scripts said they expect 2016’s earnings to come in between $6.36 to $6.42 per share. That means Q4 earnings should range between $1.84 to $1.90 per share. The Street expects $1.87 per share.

    On Friday, Moody’s (MCO) will report. Three months ago, the credit-ratings agency reported an earnings increase of 21%. I was pleased to see the firm recently settle with the government regarding its behavior during the financial crisis. For Q4, Moody’s said they expect EPS to range between $1.03 and $1.13. I think they can make more than 4% per share for this year.

    On Friday, we’ll also get a report from JM Smucker (SJM). It’s an early bird from the January reporting cycle. Smucker will actually report before some of the laggards from the December cycle like Wabtec (WAB) and Cinemark (CNK). The upcoming earnings report will be Smucker’s fiscal third. In November, the company easily beat estimates. SJM now sees full-year earnings (ending in April) coming in between $7.60 and $7.75 per share, “with a bias toward the middle to high end of the range.”

    That’s all for now. Stay tuned for more earnings reports next week. On Wednesday, we’ll get the CPI report for January. Inflation continues to be tame, but I’m curious if we see any cost pressures. We’ll also get reports on retail sales and industrial production. The last IP report was very good. It was the best in two years. 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: February 10, 2017
    Posted by on February 10th, 2017 at 7:01 am

    China’s Exports Rebound Sharply as Global Demand Grows

    Worries Grow Over Euro’s Fate as Debts Smolder in Italy and Greece

    Oil Jumps as IEA Sees Record OPEC Cuts Compliance, Rising Demand

    Consumer Watchdog Faces Attack by House Republicans

    The Trump Administration Is Expected to Delay the ‘Fiduciary’ Rule for 180 Days

    Reckitt Finalizes Deal to Buy Mead Johnson for $16.6 BIllion

    Plan For $10 Billion Chip Plant Shows China’s Growing Pull

    Activision Blizzard Posts Record Quarterly Revenue

    Twitter Rethinks Ad Strategy in Effort to Translate User Growth Into Additional Revenue

    Aon to Sell Benefits Outsourcing to Blackstone for $4.3 Billion

    Disney Tightens Euro Disney Grip in Deal With Saudi’s Alwaleed

    Viacom C.E.O. Sets a New Course, Focusing on Flagship Brands

    Don’t Sell Disney Because of ESPN

    Jeff Miller: Stock Exchange: Is Your Trading Skillful Or Just Lucky?

    Roger Nusbaum: Turns Out MLPs Are Risky

    Be sure to follow me on Twitter.

  • Morning News: February 9, 2017
    Posted by on February 9th, 2017 at 6:54 am

    Can Golf Diplomacy Help Abe Score Win-Win on Trade And Defense?

    Is A Strong Or Weak Dollar Good For The U.S.? The $16 Trillion Question

    What You Need To Know About Denied RALs & Other Tax Refund Loan Questions

    The Unanswered Question in Trump’s Announcement of a $7 Billion Intel Investment

    Snapchat Parent’s IPO Filing Omits Monthly Data

    Iger Tries Hard to Tease Disney’s On-Demand Sports Service to Soothe ESPN Worries

    Judge, Citing Harm to Customers, Blocks $48 Billion Anthem-Cigna Merger

    Boeing Wins $13.8 Billion Wide-Body Jet Order From Singapore Air

    Infosys Founders Said to Question Payments for CEO, Executives

    Nokia Seeks t Buy Finnish Telecom Firm Comptel for $370 Million

    New York Times Offers Free Spotify Service to Boost Subscribers

    Whole Foods to Shrink Store Count for First Time Since Recession

    The World According to a Free-Range Short Seller With Nothing to Lose

    Josh Brown: This Is What We’re Dealing With

    Cullen Roche: The Biggest Myths in Investing, Part 4 – Indexing is Average

    Be sure to follow me on Twitter.

  • Fiserv Earns $1.16 per Share
    Posted by on February 8th, 2017 at 4:12 pm

    After the bell, Fiserv (FISV) reported Q4 earnings of $1.16 per share which matched the Street’s consensus. For the year, the company made $4.43 per share.

    Adjusted operating margin expanded 140 basis points to 32.1 percent in the fourth quarter and 50 basis points to 32.2 percent for the full year compared to the prior year periods.

    Free cash flow increased 8 percent to $1.08 billion for the full year compared to the prior year. Cash distributions from StoneRiver of $151 million in 2016 related to the sale of a business interest have been excluded from the company’s free cash flow results.

    Sales performance increased 22 percent in the fourth quarter and 21 percent for the full year compared to the prior year periods.

    The company repurchased 11.9 million shares of common stock for $1.20 billion in 2016, which included 2.6 million shares of common stock for $265 million in the fourth quarter. The company announced a new 15 million share repurchase authorization in the quarter and had 20.5 million remaining shares authorized for repurchase as of December 31, 2016.

    Fiserv expects its internal revenue to grow between 4% and 5%, and EPS to range between $5.03 and $5.17. That would be a growth rate of 14% to 17%. Wall Street had been expecting $4.97 per share.

  • Earnings from Axalta and Cognizant
    Posted by on February 8th, 2017 at 10:54 am

    We had two more Buy List earnings reports this morning. Axalta Coating Systems (AXTA) reported earnings of 28 cents per share which was one penny below estimates. Quarterly revenues rose 2% to $1.03 billion, which was a little better than estimates. In constant currency, sales rose 5.6%.

    Despite the miss, this was a decent quarter for Axalta.

    “Axalta’s 2016 financial period ended on a strong note, with fourth quarter net sales and operating performance slightly exceeding the expectations set in October, driven by volume and favorable product mix. For the full year, we also met our key objectives in terms of financial and operating performance, despite a somewhat greater foreign currency headwind,” said Charles W. Shaver, Axalta’s Chairman and Chief Executive Officer. “We are proud of the progress we made this year, including achieving positive growth in a tough global economy, successfully executing on our M&A strategy, meeting our leverage target ahead of plan, and improving productivity through our Axalta Way initiatives. Key milestones were also met in new product technology introduction, refinancing our capital structure, and progressing our product globalization and commercial excellence objectives. We look forward to ongoing momentum in each of these areas in 2017.”

    The company doesn’t provide EPS guidance, but here are the numbers they’re expecting for 2017:

    • Net sales growth of 1-3% as-reported; 4-6% ex-FX, including acquisition contribution of 2-3%
    • Adjusted EBITDA of $930-980 million
    • Interest expense of ~$150 million
    • Income tax rate, as adjusted, of 22-24%
    • Free cash flow of $440-480 million
    • Capital expenditures of ~$160 million
    • Depreciation and amortization of ~$335 million
    • Diluted shares outstanding of 246-249 million

    The stock is currently down about 1.6%.

    Cognizant Technology Solutions (CTSH) said it made 87 cents per share last quarter, which beat estimates by one penny. For the year, Cognizant made $2.55 per share.

    They company offered Q1 guidance of 83 cents per share, and full-year guidance of $3.63 per share. That’s a bit below expectations.

    But the more important news is that the company has reached an agreement with Elliott Management. They’re adding three new board members from Elliott. Cognizant also plans to return $3.4 billion to shareholders in the next two years. The company currently has a bank account of more than $2 billion. They also plan to start a dividend of 15 cents per share in Q2.

    The stock is up about 4% today.

  • Morning News: February 8, 2017
    Posted by on February 8th, 2017 at 7:09 am

    IMF Revives Greek Euro-Exit Warning Amid Deadlocked Bailout Talks

    Bonds Face Worst Loss Since 2013 as India Signals End to Easing

    Chinese FX Reserve Crosses Risky Line in Sand

    Oil Prices Fall On Bloated U.S. Fuel Inventories, Stalling China Demand

    Saudi Aramco Picks Moelis to Advise on Biggest IPO

    Dodd-Frank Rollback May Fall Short of G.O.P. Hopes

    Why Silicon Valley Wouldn’t Work Without Immigrants

    German Automakers Step Up to Silicon Valley Challenge

    Why Some Investors May Boycott Snapchat’s IPO

    Maersk Slumps as It Unveils Second Loss Since World War II

    Japan’s Sharp May Begin Construction on $7 Billion Plant Before June 30

    This Japanese Billionaire CEO Expects to Benefit from Trump’s Deregulation

    Oreo Maker Mondelez’s Sales, Profit Miss Estimates

    Jeff Carter: The Series B Investor

    Howard Lindzon: The White House is Spamming Me and Apple is Planning on Leaving Planet Earth

    Be sure to follow me on Twitter.

  • Should the S&P’s Quiet Streak Affect Your Investing Strategy?
    Posted by on February 7th, 2017 at 7:09 pm

  • Apple Surges to Two-Year High
    Posted by on February 7th, 2017 at 3:54 pm

    I was on CNBC’s “Trading Nation” this afternoon. True story. I was in the green room at the DC studio. I heard a voice behind me say, “nice tie.” It was Howard Dean.

    I said, “it’s from Vermont!”

    He said, “really?”

    I told him I was kidding. He said it didn’t look like a Vermont tie.

    Anyway, here’s my tie and me on Apple.

  • IntercontinentalExchange Beats and Raises Dividend
    Posted by on February 7th, 2017 at 11:21 am

    Good news this morning from IntercontinentalExchange (ICE). The stock exchange operator reported Q4 earnings of 71 cents per share, which was two cents better than estimates. Revenues rose 30.1% to $1.14 billion, which matched estimates.

    “Amidst a volatile and dynamic environment, we delivered our eleventh consecutive year of record revenue,” said ICE Chairman and CEO Jeffrey C. Sprecher. “Despite the challenges of market volatility driven by geopolitics, we achieved our objectives by working closely with our customers across trading, risk management and data to again deliver strong revenue growth, margin expansion and double-digit profit increases. We are excited about collaborating with our customers in 2017 given the range of ways we are working to serve their evolving trading, listing, data and risk management needs.”

    Scott A. Hill, ICE CFO, added: “In the first year of our integration of Interactive Data, we surpassed our synergy target and met our ambitious revenue growth target while expanding margins. We also generated record operating cash flow of $2.1 billion in 2016, which enabled us to reduce our debt by approximately $1 billion, announce our third double digit increase in our dividend, and increase our share repurchases for 2017. Our strategy, execution, and disciplined capital allocation has led to significant value creation and future growth opportunities.”

    ICE also raised their quarterly dividend from 17 to 20 cents per share. For 2017, ICE sees revenues adjusted for currency rising by 6%.