Check Point Beats by a Penny
Posted by Eddy Elfenbein on July 24th, 2019 at 10:33 am

We have three earnings reports today. Cerner (CERN) and Torchmark (TMK) report after the close, but Check Point Software (CHKP) reported this morning. For Q2, the cyber-security firm earned $1.38 per share. That beat Wall Street’s consensus by one penny per share. Revenues rose 4% to $488 million which matched expectations.

“Second quarter results were driven by 13 percent growth in our security subscriptions revenues, which included our advanced threat prevention and our CloudGuard family of products,” said Gil Shwed, Founder and CEO of Check Point Software Technologies. “We continued to expand our product offerings during the second quarter with the introduction of new technologies which included Malware DNA, a new artificial intelligence-based engine that accelerates zero-day threat prevention, and CloudGuard Log.ic, providing threat protection and context-rich security intelligence.”

Now for guidance. For Q3, Check Point sees EPS ranging between $1.36 and $1.44 on revenue of $480 to $500 million. For the entire year, CHKP projected earnings between $5.85 and $6.25 per share, and revenue between $1.94 and $2.04 billion.

Morning News: July 24, 2019
Posted by Eddy Elfenbein on July 24th, 2019 at 7:18 am

The Old Rules for Building Wealth Are Obsolete

Justice Department to Open Broad, New Antitrust Review of Big Tech Companies

‘We’re Full,’ Car Dealers Say as Auto Sales Slow After a Long Boom

Nissan to Report 90% Plunge in Profit & Nissan to Cut Over 10,000 Jobs Globally

More Proof That Ford Will Eat Tesla’s Lunch in the Next Two Years

Deutsche Bank Sinks to $3.5 Billion Loss as Overhaul Costs Hurt

Coca-Cola Hits All-Time High as New Products Shine

Visa Reports Earnings Results Above Expectations

Snap Back?

Amazon Is Teaming Up With a Real Estate Broker. How Scared Should Zillow Be?

Dish Agrees to $5 Billion Deal for Wireless Assets

Equifax’s $700 Million Settlement: How to Get Your Share

Nick Maggiulli: Eating Your Own Cooking

Michael Batnick: Auto-Correct

Ben Carlson: You May Have Longer Than You Think to Invest For Retirement

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Smucker Raises Dividend
Posted by Eddy Elfenbein on July 23rd, 2019 at 6:46 pm

Press release:

The J. M. Smucker Company (SJM) today announced that the Board of Directors has approved an increase in the quarterly dividend from $0.85 to $0.88 per common share, an increase of four percent. The dividend will be paid on Tuesday, September 3, 2019, to shareholders of record at the close of business on Friday, August 16, 2019. This represents the Company’s eighteenth consecutive year of dividend growth.

Sherwin-Williams Rises on Good Earnings
Posted by Eddy Elfenbein on July 23rd, 2019 at 11:00 am

Shares of Sherwin-Williams (SHW) are up nicely this morning. The company reported Q2 earnings of $6.57 per share. That was 20 cents higher than expectations.

For the quarter, consolidated net sales rose 2.2% to $4.88 billion. Net sales in stores open more than a year rose by 4.3%. Sherwin stood by its full-year EPS guidance of $20.40 to $21.40 per share.

Commenting on the second quarter, John G. Morikis, Chairman and Chief Executive Officer, said, “Sherwin-Williams delivered record results in net sales, EBITDA, profit before taxes and net operating cash in the second quarter, overcoming uneven demand in end markets outside the U.S. and persistently challenging selling conditions in North American architectural paint markets. Gallon growth in our North American paint stores and continued progress on our pricing initiatives in all segments combined to drive consolidated adjusted gross margin to 44.9% and support our continued investments in solutions for our customers. We also continued to effectively manage costs, which combined with the gross margin improvement, drove a 15% year-over-year increase in adjusted earnings per share. We expect gross margins to continue to improve in the second half of the year, driven by continued volume growth and lower projected year-over-year raw material pricing.

“All three of our segments increased profit and margin year-over-year. In The Americas Group, we generated sales growth in all end markets in our North American paint stores, led by high single digit growth in residential repaint. We leveraged the sales growth to expand segment margin by 50 basis points to 22.2%. We’ve opened 20 net new stores year to date, and our professional painting contractor customers continue to report solid backlogs and project pipelines going forward. In our Consumer Brands Group, our growth initiatives with our largest partners in North America are performing well and more than offset softer demand in some international markets. Adjusted segment margin improved 490 basis points to 20.3%, driven by sales growth and good cost control. Performance Coatings Group sales declined in the quarter mainly related to softer demand in some end markets in Asia and Europe. Despite the sales decline, adjusted segment margin increased 150 basis points to 15.5% – evidence of our good cost control and that our recent pricing actions are gaining traction to offset raw material inflation.

“For the third quarter, we anticipate our consolidated net sales will increase by a low single digit percentage compared to last year’s third quarter. For the full year 2019, we expect our consolidated net sales will increase two to four percent compared to the full year 2018. We are updating our full year 2019 diluted net income per share guidance to be in the range of $16.14 to $17.14 per share as a result of the $.79 per share charge related to the tax credit investment loss. Diluted net income per share in 2018 was $11.67 per share, including a charge of $4.15 per share for acquisition-related costs and charges for non-operating expenses of $2.71 per share. We are reaffirming our full year 2019 adjusted diluted net income per share guidance to be in the range of $20.40 to $21.40 per share, excluding acquisition-related costs and charges for non-operating expenses, compared to $18.53 per share for the full year 2018 on a comparable basis.”

Morning News: July 23, 2019
Posted by Eddy Elfenbein on July 23rd, 2019 at 7:16 am

Globalization Isn’t Dying, It’s Just Evolving

UBS CEO Warns of ‘Dangerous’ Bubbles Spurred by Central Banks

Cash Is King When It Comes to Credit Card Rewards

Did the FTC Go Soft on Facebook?

What the Equifax Data-Breach Settlement Means for You

Beijing Auto Buys Stake in Daimler, Deepening Their Alliance

AB InBev Brews Up Elderflower Ale and Canned Cocktails for Growth

Bird Is Said to Raise New Funding at $2.5 Billion Valuation

Alibaba Welcomes U.S. Small Businesses to Sell Globally on Its Platform

Huawei First-Half Revenue Up About 30% Despite U.S. Ban

Microsoft’s $1 Billion Investment in AI Startup Is Good News for Nvidia

Microsoft Will Pay Out $26 Million in Settlement Over Hungarian Bribery Scheme

Lawrence Hamtil: Compendium of Low Volatility Articles

Jeff Carter: Wait Or Go

Jeff Miller: Stock Exchange: Models Gone Wild

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Bloomberg Appearance
Posted by Eddy Elfenbein on July 22nd, 2019 at 10:00 am

Here’s my appearance on Bloomberg from Friday. I’m introduced at 1:30:45.

RPM International Earns $1.24 per Share
Posted by Eddy Elfenbein on July 22nd, 2019 at 9:11 am

Good news for RPM International (RPM). The company made $1.24 per share for its fiscal Q4. That was 10 cents more than estimates.

“We are very pleased with our significant earnings leverage for the quarter, which was bolstered by our 2020 MAP to Growth operating improvement plan, the benefits of which are beginning to be realized. Also contributing to the bottom line were recently implemented price increases and stabilizing raw material cost inflation. These gains were partially offset by continuing increases in costs for distribution and labor,” stated RPM chairman and CEO Frank C. Sullivan.

“Sales grew organically by 3.5%, while acquisitions contributed 1.9%. This sales growth was offset by unfavorable foreign exchange of 2.6%. Sales in North America, our largest market, were slowed by some of the wettest spring months on record, which caused delays in painting and construction projects. In addition, conditions in Europe, our second largest market, remained soft. Despite these challenges, our operating units were able to drive top-line growth and gain market share,” stated Sullivan.

This was a very good quarter for RPM. Net sales rose by 2.8% to $1.6 billion. The company also sees 2020 earnings of $3.30 to $3.42 per share.

Morning News: July 22, 2019
Posted by Eddy Elfenbein on July 22nd, 2019 at 7:26 am

Sawdust Might Be One Answer to the World’s Plastic Problem

Millions of Barrels of Iranian Oil Are Piled Up in China’s Ports

Brexit May Have Already Triggered U.K. Recession, Niesr Says

Chinese Buyers Seek Tariff Exemptions for U.S. Farm Goods

Chinese Money in the U.S. Dries Up as Trade War Drags On

Batman and AT&T: A New Dynamic Duo?

How to Prepare for Retirement If You’re Worried About Social Security

Hyundai Motor Lays out U.S. Recovery Plan, Places Hope on New SUV Models

Fire Forces Philadelphia Energy Solutions to File for Bankruptcy Again

Halliburton Profit Beats on International Demand for Oilfield Services

‘Lion King’ Remake Becomes Disney’s Latest Box-Office Smash

Equifax Settlement in Data Breach Will Cost at Least $650 Million

Joshua Brown: Elizabeth Warren’s Banking Sector Napalm

Ben Carlson: The Work Required to Behave in the Markets

Howard Lindzon: Momentum Monday – It’s Always Something….

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RIP: @Nonrelatedsense
Posted by Eddy Elfenbein on July 19th, 2019 at 4:54 pm

I didn’t know the Tweeter known as @Nonrelatedsense, but I interacted with him many times. I’m deeply saddened to learn of his passing. He was a great addition to the sometimes-raucous arena we call Finance Twitter.

Jason Zweig added in the WSJ:

That’s never been clearer than it was a few days ago, when the person behind the @Nonrelatedsense account died, prompting an outpouring of love and grief in the financial quadrant of Twitter known as FinTwit. (Although I know who he was and where he worked, I’m honoring the wishes of his family and friends to preserve his anonymity.)

Those who followed him, even without meeting him in real life, felt as if we had lost one of our smartest friends.

NRS tweeted more than 117,000 times—an inimitable mix of investing insights, snarky quips, nature photographs and cocktail recipes. He exchanged what had to be thousands of direct messages with dozens, perhaps hundreds, of people who sought his opinions. (I was among them.)

NRS was blunt, cynical, often profane, but seldom cruel—even though he saw clearly that the business model of many financial companies is to pile up mountains of fees from a blizzard of flim-flam and gibberish. A financial adviser obsessed with mutual funds and income-oriented investments, he could smell baloney in a single sniff—and as soon as he detected it, he mocked it.

At the same time, his tweets and messages were infused with skeptical wisdom and profound uncertainty about how much anyone can ever know (“your confidence in this thesis is far too high to be credible”).

“I only knew him through his Twitter identity,” Cliff Asness, co-founder of AQR Capital Management in Greenwich, Conn., which manages $194 billion in assets, told me this week. “But it was very clear he was very knowledgeable about finance, a great wit and committed to the truth.”

Jason was kind enough to add me to his list of Tweeters who provide “witty but informative market takes.”

CWS Market Review – July 19, 2019
Posted by Eddy Elfenbein on July 19th, 2019 at 7:08 am

“Sometimes the hardest thing to do is to do nothing.” – David Tepper

Second-quarter earnings season has arrived. There’s been a blizzard of earnings reports this week, and even more are coming next week.

This week, three of our Buy List stocks reported Q2 earnings. We had good news from Signature Bank and Danaher, and we had very bad news from Eagle Bank. (Actually, I think the market dramatically over-reacted on Eagle. I’ll explain it all in a bit.)

We also have ten Buy List earnings reports coming next week. That may be a record. In this week’s issue, I’ll preview them all. There’s a lot to get to, so let’s jump into this week’s earnings.

Three Buy List Earnings Reports this Week

Let’s start with the bad news. On Thursday, Eagle Bancorp (EGBN) had a terrible, horrible, no good, very bad day. For the June quarter, the bank earned $1.08 per share. That was four cents below expectations.

However, the big news was the news that Eagle said that its legal bill jumped in the second quarter due to “investigations and related document requests and subpoenas from government agencies.” What’s this all about?

In their SEC report, Eagle specified “the Company’s identification, classification and disclosure of related party transactions; the retirement of certain former officers and directors; and the relationship of the Company and certain of its former officers and directors with a local public official.”

All this sounds fishy but the bank made it clear that this will not materially impact its results. Also, the bank isn’t under any regulatory restrictions. One problem is that due to the nature of the legal issues, Eagle can’t say very much. I suspect this is connected to local Washington, DC political scandals. The problem is that it’s combined with an earnings miss. Also, there were flimsy (in my opinion) allegations of impropriety a few years ago.

On Thursday, the stock got nailed for a 26.75% loss. Still, digging through the numbers, Eagle didn’t do that bad, especially considering the tough environment for interest rates.

Let’s run through some numbers. Eagle now has assets of $8.7 billion which is a 10% increase over last year. Average total loans grew by 11% and average deposits grew by 10%. For the quarter, net interest margin was 3.91%. That’s down 24 basis points from a year ago. I was pleased to see Eagle’s efficiency ratio improved to 38.04% compared with 38.55% a year ago.

This was a difficult quarter for Eagle but I’m not nearly as upset by this news as Wall Street is. What happened is that a four-cent earnings miss translated to a 1,430-cent share price reduction. This is a giant over-reaction.

Thanks to the selloff, shares of Eagle are now going for just over eight times next year’s earnings. That’s a good deal. The dividend yield is up to 2.25%. I’m not giving up on Eagle. This week, I’m lowering our Buy Below price on Eagle to $43 per share.

Now let’s look at some good news. On Thursday, Danaher (DHR) reported adjusted earnings of $1.19 per share. That’s an increase of 3.5% over last year. It was also above Danaher’s own range. The company told us to expect Q2 earnings of $1.13 to $1.16 per share. Quarterly revenues rose by 3.5% and non-GAAP core revenues rose by 5.5%. For the quarter, operating cash flow came in at $1.2 billion and non-GAAP free cash flow was $1.0 billion.

Let’s look at guidance. For Q3, Danaher sees earnings ranging between $1.12 and $1.15 per share. For the full year, the company now sees earnings between $4.75 and $4.80 per share. That’s an increase of three cents to the lower end.

Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “We are very pleased by our strong start to 2019, with our team’s execution driving another quarter of 5.5% core revenue growth. We believe that recent investments in innovation and commercial initiatives contributed to share gains in many of our businesses. Combined with solid operating margin expansion and cash flow generation, the strength of our results is a testament to our team and the power of the Danaher Business System.”

Joyce added, “We continue to make progress on our anticipated acquisition of GE Biopharma and the planned initial public offering of our Dental business, which will be called Envista. Both transactions remain on track relative to our previously indicated expectations. We are excited about the opportunities ahead, and we believe the combination of our differentiated portfolio and our team’s DBS-driven execution positions us well to continue our strong performance through 2019 and beyond.”

Three months ago, Danaher lowered its full-year range down from $4.75 to $4.85 per share. That was due to share dilution for the GE Biopharma deal. That deal should close sometime in Q4. This revised guidance nearly brings us back to the original forecast.

Sometime in the second half of this year, Danaher will IPO Envista Holdings, their dental business. The ticker symbol will be NVST. Shares of DHR hit a new 52-week high on Thursday. Danaher remains a buy up to $150 per share.

Also on Thursday, Signature Bank (SBNY) reported Q2 earnings of $2.72 per share. That was one penny more than expectations.

Signature seems to have a nasty habit of plunging after each earnings report so it’s nice to see the shares gain some ground after this report.

The details are pretty good. Total assets rose 8.1% to $48.88 billion. For the quarter, average assets are up 9.4% from a year ago. Deposits rose 7.3% to $37.54 billion. Net interest margin came in at 2.75%. That’s down 20 basis points from a year ago. That’s not great, but it’s certainly respectable for this environment.

I’m happy to say that Signature is almost done with its taxi medallion mess. The bank went into this in a big way, but then thanks to ride-sharing apps, the medallions plunged in price. That left the bank holding a bunch of bum loans. Last quarter, Signature sold off $46.4 million in medallion loans. That leaves them with $18.8 million in non-performing medallion loans plus $43.8 million in repo-ed medallions. It was a costly mistake, but the issue is basically behind them.

This week, I’m raising my Buy Below on Signature Bank to $130 per share. Now let’s look at all the earnings reports coming next week.

Ten Buy List Stocks Due to Report Next Week

Here’s the updated Earnings Calendar:

RPM International (RPM) will report its fiscal Q4 results before the market opens Monday, July 22. The company’s fourth quarter ended in May. The company owns a broad selection of well-known brands like Rust-Oleum.

RPM got off to a rough start for us this year, but things have improved lately. The April earnings report was very encouraging. (Incidentally, this is why we hold our positions for the entire year. Our strategy gives good stocks a chance to rebound.)

I am concerned about the currency issue. That’s a big one for RPM. For fiscal Q4, RPM sees earnings ranging between $1.12 and $1.16 per share. That sounds about right. RPM has increased its dividend every year for the last 45 years. I’m expecting #46 in October.

Earlier I mentioned the big drop in shares of Eagle Bank. That’s nothing compared to what happened to Sherwin-Williams (SHW) last fall. Shares of the paint company dropped 26% in just a few weeks. That was scary but we held on and the stock has rallied back impressively.

Sherwin’s last earnings report was a bit light but the key is that they didn’t alter their full-year forecast. The company still sees 2019 earnings ranging between $20.40 and $21.40 per share. For Q2, Wall Street expects $6.37 per share.

Sherwin also settled a 19-year legal battle over lead paint. I can’t speak to the merits of the claim, but the settlement was in Sherwin’s favor.

We have three earnings reports on Wednesday.

First up is Cerner (CERN) which is having an outstanding year for us. For Q2, Cerner expects earnings of 63 to 65 cents per share on revenue of $1.41 to $1.46 billion.

For all of 2019, Cerner sees earnings of $2.64 to $2.72 per share. That’s up from the previous guidance of $2.57 to $2.67 per share. Earlier this year, Cerner reached an agreement with Starboard Value to start paying a dividend and increase its buyback authorization by $1.5 billion.

For Q1, Check Point Software (CHKP) had a decent earnings report. The cyber-security firm earned $1.32 per share. That beat estimates by one penny per share. CEO Gil Shwed said, “We had good results in the first quarter with 13 percent growth in our security subscriptions including advanced solutions for Cloud and Mobile as well as SandBlast Zero day threat prevention.”

The problem was that guidance was light. Check Point said it sees Q2 revenues coming in between $474 million and $500 million. For earnings, CHKP sees EPS ranging between $1.32 and $1.40. Frankly, I had expected more. The stock has pulled back since the spring. I’ll be curious to hear what CHKP has to say.

Torchmark (TMK) is probably the most boring stock on our Buy List, and it’s having a very good year for us. The last earnings report was quite good. Net income as an ROE was 12.9%. Net operating income as an ROE, excluding net unrealized gains on fixed maturities, was 14.7%. For Q2, Wall Street expects $1.65 per share.

Thursday will be a very busy day for us. Five of our Buy List stocks are due to report.

Let’s start with AFLAC (AFL). The duck stock has been rallying well for us lately. For Q1, AFLAC earned $1.13 per share. That beat the Street by seven cents per share.

The supplemental insurer expects to buy back between $1.3 billion and $1.7 billion in shares this year. AFLAC recently raised its dividend for the 36th year in a row. For 2019, AFLAC is standing by its previous guidance for earnings of $4.10 to $4.30 per share. That assumes the yen trades at ¥110.39 to the dollar. For Q2, Wall Street expects $1.07 per share.

Last year was Fiserv’s (FISV) 33rd year in a row of double-digit earnings growth. I think they have a good shot at #34. The company made $3.10 per share last year so they need to hit $3.41 per share this year. For 2019, Fiserv has given us a range of $3.39 to $3.52 per share. I’ll be curious to see if they raise guidance next week.

Of course, the big news for Fiserv is the planned merger with First Data. This is a massive deal. Fiserv expects it to be completed later this year.

Jeffery Yabuki, Fiserv’s CEO, warned that Q2 “will be the low watermark for both internal revenue and adjusted EPS growth.” Wall Street expects earnings of 81 cents per share. The stock gapped up to a new high on Thursday.

Hershey (HSY) has been another strong stock for us lately. The Q4 earnings weren’t that good, but Q1 was a big improvement. For all of 2019, Hershey expects EPS of $5.63 to $5.74. The chocolate stock is up 37.6% for us this year. For Q2, Wall Street expects $1.17 per share.

In April, Raytheon (RTN) crushed estimates. The Tomahawk-maker earned $2.77 per share for Q1 which beat the Street by 30 cents per share.

Raytheon is doing especially well with cyber-security and its intelligence and information unit. For 2019, RTN sees earnings between $11.40 and $11.60 per share and sales of $28.6 billion to $29.1 billion. Earlier this year, Raytheon hiked its dividend by 8.6%. That was its 15th annual dividend increase in a row. For Q2, the consensus is for $2.64 per share.

For Q2, Stryker (SYK) expects earnings between $1.90 and $1.95 per share. For the full year, Stryker sees earnings between $8.05 and $8.20 per share. The shares are up 34.3% for us this year.

That’s all for now. There will be lots more reports next week. On Tuesday, the report on sales of existing homes will be released. Then on Wednesday, the report on sales of new homes comes out. Thursday is durable goods and jobless claims. Then on Friday, we’ll get our first look at Q2 GDP. The economy grew by 3.1% during the first three months of the year. It may have grown at half that rate for the second quarter. 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