Various Items
Posted by Eddy Elfenbein on August 6th, 2021 at 5:17 pm

The stock market closed today at 4,436.52. That’s another all-time high.

I wanted to touch on a few issues that I couldn’t get to before.

Moody’s (MCO) said it’s buying RMS for $2 billion. RMS is a catastrophe risk management and modeling firm.

Ross Stores (ROST) said it will release its Q2 earnings on August 19.

Check Point Software (CHKP) expanded its share buyback program by $2 billion.

Barron’s printed an excerpt of Canaccord Genuity research on Cerner (CERN). Here’s a snippet:

We are raising our price target to $90, from $89. Cerner [a healthcare information-technology company] reported second-quarter results that beat estimates. It also updated 2021 guidance, with revenue growth maintained and adjusted EPS raised. For several years, Cerner has been refining and resizing its business. These efforts are beginning to take hold, with improved financial performance and new client wins, existing client extensions and expansions, and lower attrition. Longer term, the transformation efforts could accelerate revenue growth, as it is becoming clear that new processes are improving management’s ability to execute. Furthermore, there is continued opportunity for incremental R&D efficiencies. The company’s actions are clearly putting it in a better position to succeed.

July Jobs Report: +943,000
Posted by Eddy Elfenbein on August 6th, 2021 at 8:44 am

The jobs report for July is out and it’s a strong one. Last month, the U.S. economy created 943,000 net new jobs. According to Bloomberg, the consensus on Wall Street was for a gain of 870,000 jobs.

Private sector payrolls rose by 703,000. Government added 240,000 new jobs.

The unemployment rate ticked down to 5.4%. Average hourly earnings rose by 0.4%. The labor force participation rate increased to 61.7%.

June payrolls were revised to 938,000 from 850,000. May was revised to 614,000 from 583,000.

The unemployment rate for discouraged workers fell to 9.2% from 9.8%.

As has been the case for the past several months, leisure and hospitality led job creation, adding 380,000 positions, of which 253,000 came in bars and restaurants. The sector took the hardest hit during the pandemic but has been showing consistent gains during the economic reopening.

The unemployment rate for leisure and hospitality tumbled to 9% in July from 10.9% in June and compared to 25% a year earlier, though there are still about 1.8 million fewer workers than prior to the pandemic. Wages in the sector rose 1.2% month over month and are up 3.1% from a year earlier.

Education also showed strong gains, with 261,000 new hires. The BLS cautioned, however, that the pandemic has distorted the sector’s numbers and likely elevated the number for July.

Morning News: August 6, 2021
Posted by Eddy Elfenbein on August 6th, 2021 at 7:07 am

The Era of Cheap Natural Gas Ends as Prices Surge by 1,000%

Going for Broke in Cryptoland

U.S. Job Growth Seen Strong as Technical Factors Provide a Boost

CEOs and Central Bankers Talk Past Each Other on Inflation

U.S. Business Groups Urge Biden to Restart China Trade Talks

The Surprisingly Okay State of Consumer Debt

How Biden’s E.V. Plan Could Help Tesla and Squeeze Toyota

NBC Tries to Salvage a Difficult Olympics

Amazon Scores Big Win as India Court Stalls Future’s $3.4 Billion Retail Deal

Indonesia Just Had Its Biggest-Ever IPO

Alibaba Warns of Higher Taxes as China Crackdown Widens

China’s Antitrust Regulator Planning to Fine Meituan About $1 Billion

Huawei Reports Biggest Ever Revenue Drop as Consumer Growth Engine Stutters

A Harvard Deal Tries to Break the Charmed Circle of White Wealth

Banker to World’s Richest Families Builds a $3.6 Billion Fortune

Virgin Galactic to Sell Space Flight Tickets Starting at $450,000 A Seat

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Zoetis Earns $1.19 per Share for Q2.
Posted by Eddy Elfenbein on August 5th, 2021 at 11:16 am

This morning, Zoetis (ZTS) reported very good earnings for its fiscal Q2. Zoetis made $1.19 per share. That’s up 34% from last year and it beat estimates of $1.08 per share. Quarterly revenue rose 26% to $1.9 billion.

“We achieved strong results once again this quarter with 22% operational revenue growth and 28% growth in adjusted net income, driven by our petcare parasiticides, key dermatology products, vaccines and diagnostics,” said Kristin Peck, Chief Executive Officer of Zoetis. “Our triple combination parasiticide Simparica Trio® continues exceeding our launch expectations and strengthening our overall position in this competitive market, and we remain very positive about further uptake of our petcare innovations in monoclonal antibodies and diagnostics.”

“We are raising guidance for revenue and adjusted net income for the full year to reflect our confidence in Zoetis and the underlying growth drivers of our business, even while we continue to expect more modest growth rates in the second half of 2021. We remain in a strong position to invest both internally and externally in the innovations, market expansion and direct-to-consumer promotions that can support future growth,” said Peck.

Zoetis divides its business into two segments, U.S. and International. The U.S. segment saw its revenues rise 22% to $1.0 billion. The International segment increased 31% to $924 million.

Now for the best news. Zoetis sees full-year revenue ranging between $7.625 and $7.7 billion. For earnings, the company now sees 2021 earnings between $4.47 and $4.55 per share.

This is the second time Zoetis has raised its earnings forecast this year. The original range was $4.36 to $4.46 per share. Three months ago, ZTS lifted it to $4.42 to $4.51 per share.

Continuing Claims Drop Below Three Million
Posted by Eddy Elfenbein on August 5th, 2021 at 10:50 am

This morning’s jobless claims report came in at 385,000. That’s pretty good. It’s down 14,000 from the prior week’s report. Importantly, continuing claims fell to 2.93 million. That’s the lowest since the pandemic began about 17 months ago.

The slide in continuing claims came as the total of those receiving benefits under all programs fell to just below 13 million, a reduction of 181,251, according to data through July 17 that reflected a drop in those receiving extended benefits. A year ago, that number was just shy of 32 million as enhanced unemployment benefits were directed to those displaced by widespread business lockdowns.

Also this morning, we learned that the trade deficit rose 46% over last year. The monthly deficit was $75.7 billion.

The jobs report comes out tomorrow morning. Dow Jones says consensus is for 845,000.

Morning News: August 5, 2021
Posted by Eddy Elfenbein on August 5th, 2021 at 7:10 am

Britain’s Central Bank Is Expected to Raise Inflation Forecasts as Analysts Look for a Stimulus Exit Plan

How A Little-Known G7 Task Force Unwittingly Helps Governments Target Critics

Biden Sets U.S. Goal for Clean Cars to Be Half of 2030 Sales

Senators Go Beyond Biden Plan to End Private-Equity Tax Break

Democrats See Chance to Reset Wall St. Oversight When Top Fed Official Steps Down

New Candidate for Top Bank Regulator Sees Risks in Crypto and Fintechs

Goldman Sachs Becomes S&P 500’s Biggest Bull

The Mystery of the Missing Workers, Explained

Robinhood Catches Its Own Meme Stock Spotlight With Wild 100% Surge

Twitter Is Stuck With Itself, Too

JAB’s Panera Bread to Join Coffee, Bagel Chains in New Unit

Weber Prices Below Expectations as Grill Maker Downsizes Its IPO

Casino Owner Vici Properties Buys MGM Growth Properties for $17.2 Billion

Singapore Banks Increase Dividends on Profit Beat, Outlook

Yes, You’re Paying About 15% More To Move This Year. Here’s Why

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Earnings from Miller Industries and Ansys
Posted by Eddy Elfenbein on August 4th, 2021 at 4:30 pm

After the bell, Miller Industries (MLR) said it had net sales of $181.2 million for Q2. That’s up 40.9% last year’s Q2. Comparisons with last year aren’t terribly useful due to the unusual environment.

For Q2, Miller’s net income rose to $6.5 million or 57 cents per share. That’s up from 51 cents for last year’s Q2. For the first half of the year, Miller has made 85 cents per share.

Miller is now going for less than 11 times its 2019 earnings.

Jeffrey I. Badgley, Co-Chief Executive Officer of the Company said, “We are encouraged by our strong performance in the second quarter as our operations continued to normalize towards pre-pandemic levels. For the second quarter, sales increased 40.9% to $181.2 million as demand trends continued to improve across all of our markets. In addition, our operations are beginning to see the benefits of our enterprise software upgrades completed in the first quarter and we do not anticipate any significant disruptions to our business operations as we work to implement further system improvements across our network. Despite favorable demand conditions and improving industry dynamics, our operations continue to be impacted by supply chain disruptions and limited availability of freight transportation across our network, as well as increased employee turnover and difficulties in hiring new workers. While we anticipate these headwinds to continue, we are leveraging all available resources to ensure we can meet customer demand.”

Mr. Badgley continued, “With industry dynamics such as vehicle miles traveled continuing to improve, we are encouraged by the favorable demand backdrop as evidenced by our healthy order rates and strong backlog. Despite the challenges faced in our domestic export shipping operations, customer demand in our international business is strong. As we move into the second half of the year, the industry backdrop continues to improve and we are well positioned to capitalize on all growth opportunities. Lastly, our financial position and strong cash generation grant us the financial flexibility to drive the business forward and deliver for our customers.”

This report is a big relief. I’ve been a believer in Miller even as the stock has gone down. The company is clearly profitable. I’m a little concerned about the 44% jump in cost of operations.

Ansys (ANSS) said it had Q2 earnings of $1.85 per share. Expectations had been for $1.56 per share. Operating cash flows was $118.9 million.

Nicole Anasenes, Ansys CFO, stated, “Our outstanding performance was highlighted by 25% ACV growth in the second quarter, driving our first half 2021 ACV growth to 16%. Given the strength and momentum in our core business year-to-date, coupled with our sales pipeline, I am confident in our ability to achieve our increased full-year 2021 guidance.”

For Q3, Ansys sees earnings of $1.22 to $1.39 per share on revenue of $400 million to $425 million. For the whole year, Ansys now sees earnings ranging between $6.85 and $7.15 per share on revenue of $1.84 to $1.89 billion. That’s an increase from their previous forecast for earnings between $6.69 per share and $7.10 per share.

Robinhood Soars and Is Halted
Posted by Eddy Elfenbein on August 4th, 2021 at 12:35 pm

Robinhood (HOOD) went public last Thursday. The shares were halted today after they rose 65%. The stock didn’t do so well on its first day of trading. It closed higher but not with the huge pop some were expecting. Until yesterday when HOOD then rose 24%, that is. The shares were halted today due to high volatility.

This morning’s ADP jobs report showed a gain of 330,000. That was well below estimates of 653,000. The official government report is due out on Friday.

We have two more earnings reports coming after today’s close. Ansys (ANSS) and Miller Industries (MLR) are due to report.

Morning News: August 4, 2021
Posted by Eddy Elfenbein on August 4th, 2021 at 7:20 am

Reality Bites: China’s Meddling Cools But Can’t Reverse Hot Commodity Prices

Big Economic Challenges Await Biden and the Fed This Fall

Markets Primed for Powell Second Term at Risk From Surprise Pick

SEC’s Gensler Signals Pathway for a Bitcoin ETF With Tough Rules

After Months of Avoiding the Vaccine Issue, Companies Begin to Mandate

CDC Says Travelers Should Avoid Greece, Ireland Regardless of Vaccine Status

Ex-Enron Trader Discovers Greed Is Good—for the Environment

Facing Severe Droughts, Developers Seek to Reuse the Water They Have

Amazon Faces Wider Fight Over Labor Practices

Robinhood Surges More Than 24%, Blows Past $38 IPO Price

Square’s $29 Billion Bet on Afterpay Heralds Future for ‘Buy Now, Pay Later’ Trend

Apple, Affirm to Join on Buy Now, Pay Later for Canadian Purchases

Toyota, Honda Beat Profit Estimates But Are Wary of Extended Chip Crunch

CVC Buys 10% Stake in Spain’s La Liga for $3.2 Billion

Tencent Boss Loses $14 Billion in Rout, More Than Jack Ma

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CWS Market Review – August 3, 2021
Posted by Eddy Elfenbein on August 3rd, 2021 at 6:49 pm

This is the free version of CWS Market Review. If you have a chance, please sign up for our premium newsletter for $20 per month or $200 for the whole year.

Best. Earnings. Season. Ever.

We’re in the midst of second-quarter earnings season and so far, it’s looking quite good for U.S. corporations. That’s not what was expected only a few months ago. At the beginning of the year, Wall Street was expecting pretty weak earnings growth for Q2.

How wrong they were.

We now have more than half the earnings reports from the S&P 500 and profits are on track to grow 90% over last year’s Q2. Of course, last year’s Q2 was a terrible time for the economy, so that’s growth coming off a very low base. Throughout this entire year, expectations have been consistently ratcheted higher and we’re still beating those higher forecasts.

A few weeks ago, Wall Street was expecting earnings growth of 65.4%. We’re beating that by about 25%. So far, 89% of reports have beaten Wall Street’s consensus. That’s the highest “beat rate” since they started tracking it more than 25 years ago.

I should explain that most of the time, companies are expected to beat expectations. The normal beat rate is around 60% to 65%. I find it darkly funny how often a stock will drop sharply after merely meeting expectations. Q2 earnings are currently coming in 16.6% above expectations. For context, the long-term average is about 4%.

Q2 will most probably mark the highpoint in earnings growth, but earnings are still expected to grow. For Q3, Wall Street currently expects earnings to grow by 29.6% over last year’s Q3. For Q4, the current estimate is for 21.2%. The broader trend is clear—slowly, things are getting back to normal, but we still have a long way to go.

Policymakers in Washington are coming upon a major turning point for the economy. On one hand, things have markedly improved over the past year. Still, there are lots of folks who have been left behind. Now we have a growing threat from new strains of the virus. Fortunately, the mortality rate is far lower than what it had been.

At the same time, the government is rolling back its massive aid to people who have been hurt during the pandemic. In March, President Biden signed a $1.9 trillion aid program. The White House has said that it doesn’t need more stimulus programs and that more lockdowns are off the table.

The Federal Reserve is most likely discussing when they’re going to pull back on their economic support. The Fed is currently buying $120 billion worth of bonds each month. I suspect that they’re going to gradually taper that back. In fact, the tapering could start before the end of the year. The Fed has its big Jackson Hole conference in a few weeks. In past years, the central bank has used Jackson Hole to announce major policies.

The key is jobs. By my rough estimate, I’d say that the economy is about seven to eight million jobs away from full employment. We’ll soon learn a lot more. This week is Jobs Week which means there are several key economic reports that lead up to Friday’s release of the official jobs report.

On Monday, the ISM Manufacturing Index was down to 59.5 but that’s still pretty good. Tomorrow we’ll get the ADP private payrolls report. I’ll caution you that it’s not always a good barometer for the government jobs report. The consensus is for a gain of 653,000 private sector jobs.

On Thursday, we’ll get another jobless-claims report. The data here tends to bounce around a lot. That’s why many economists follow the four-week average. Expectations are for 385,000. The pandemic low is 368,000.

On Friday morning, the government will release the official numbers for the July jobs report. Wall Street economists are expecting a massive gain of 835,000 new jobs and for the unemployment rate to drop to 5.7%. That’s a bold forecast and it would be very good news if it were correct. If we see a strong jobs report, that would be very good for the market and it could signal that the Fed will start to taper its monthly bond buying.

Moody’s Blowout Earnings Report

We’ve had some very strong earnings results from our Buy List stocks. For non-subscribers, I wanted to share one stock with you in particular. Moody’s (MCO), the credit-ratings people, knocked it out of the park for Q2. As I like to say, the only thing better than owning an outright monopoly is owning a pseudo monopoly, and that’s what Moody’s is.

For Q2, Moody’s earned $3.22 per share. That crushed Wall Street’s estimate of $2.74 per share. That’s a huge earnings beat. When any earnings report comes out, one stat I like to follow is a company’s operating profit margin, especially compared with its competitors. That’s usually a good sign of a healthy company. For Q2, Moody’s operating margin was over 55%. That’s quite good.

For the quarter, total revenue rose 8% to $1.6 billion. Moody’s business is divided into two units. There’s Moody’s Investors Service (MIS) and Moody’s Analytics (MA). For Q2, revenue at Moody’s Investors Service was up 4% to $980 million while Moody’s Analytics saw revenue jump 15% to $573 million. I’m particularly a fan of MIS. The operating margin in that division was over 64% last quarter. I also like the recurring revenue at MA. That’s now running at 93% of the division’s total revenue.

I also like that Moody’s is actually reducing its share count. Lots of companies buy back shares, then turn around and give shares to executives for their bonuses. That keeps the share count the same. Not so for Moody’s. During Q2, Moody’s bought back 1.1 million shares for a total cost of $371 million. The average price was $329.44 per share. At the same time, Moody’s issued 200,000 new shares.

The best news is that Moody’s first half was so strong that the company raised its full-year guidance. The company now sees full-year earnings between $11.55 and $11.85 per share. The old range was $11.00 to $11.30 per share. This is MCO’s second increase in guidance this year. The original range was $10.30 to $10.70 per share.

We now have a 30.6% gain this year in Moody’s. We first added Moody’s to our Buy List in 2017. Since then, the stock is up 302% for us, not including dividends.

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Good News! Clorox Plunged 9.5%

One of the best ways to invest in stocks prudently is to follow good companies and wait until they drop. Sometimes the drop is warranted, but many times it’s not. Even if the lower share price is deserved, well-run companies move to fix whatever the problem is.

That’s why I was pleased to see shares of Clorox (CLX) get clobbered today. Shares of the bleach stock fell more than $19 to close at $164 per share. That’s a loss of more than 9%. At one point, it was down more than 12% on the day. This was Clorox’s worst day in 20 years. Actually, shares of Clorox have been weak for several months. Clorox hit its all-time peak a year ago this Thursday when CLX traded at $239.87.

Since then, it’s lost more than 30%. That gets my attention. First, let’s take a step back and look at how strong this stock has been over the long run. Since its low in October 1990, shares of CLX are up more than 4,500%, and that includes the stock’s recent downturn.

Last year, Clorox made $7.36 per share. That’s nearly double what it made in 2009. Clorox is an excellent example of a consumer staple stock. For investors, that means that its earnings tend to grow steadily higher each year. Contrast that with a cyclical like a homebuilder or an energy stock where its yearly profits can swing wildly depending on broad economic factors. But Clorox consistently churns out the earnings.

It’s not that defensive stocks are in any way better than cyclicals. It’s really a matter of understanding what you own and realizing where we are in the cycle. Lately, defensive stocks have been on the out and cyclicals stocks are in.

When investors get scared, they rush to defensive stocks like Clorox. When the pandemic broke last year, during a particularly scary stretch in February and March, shares of Clorox gained more than 20% while the S&P 500 lost 25%. During the pandemic, hand sanitizer was in heavy demand. Today, retailers can’t give it away.

In today’s earnings report, Clorox said it made 95 cents per share for its fiscal Q4. That was well below consensus of $1.36 per share. It gets worse. Clorox also said it expects to make between $5.40 and $5.70 per share for the current fiscal year (ending in June). Wall Street had been expecting $7.67 per share.

So what went wrong? Clorox blames higher costs. Hmmm.

I’m not about to jump on Clorox just yet, but it’s on my radar. If the price stays low and the company is able to overcome its cost problems, then Clorox could be a very attractive stock.

Let me also stress that I never try to buy at the bottom. Stocks can always go lower than you think. I’m find with not joining in until the first 10% or 20% move has passed. I’d rather be confident that the business has improved.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

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