Morning News: May 8, 2019
Posted by Eddy Elfenbein on May 8th, 2019 at 7:09 am

China Defaults Hit Record in 2018. 2019 Pace Is Triple That

Tariff War Renewed? How the U.S.-China Talks Could Play Out

Are Trump’s Tariffs Bolstering the U.S. Economy? Nope.

Eyeing IPO Riches, Uber Drivers Go On Strike in UK Ahead of U.S. Action

Google Says It Has Found Religion on Privacy

Lyft’s First Results After I.P.O. Show $1.14 Billion Quarterly Loss

Enbridge Seeking At Least Eight-Year Oil Shipping Commitments on Canada Mainline, Worrying Small Producers

JPMorgan Poised to Be First Foreigner to Get Majority in China Fund Venture

Bristol-Myers Sells $19 Billion of Bonds to Fund Celgene Purchase

McDonald’s Joins the Meatless Burger Trend in One of Its Biggest Markets

Amazon’s Latest Store Proves the Cashless Dream is Dead

GM Stock Could Be Undervaluing the Cruise Division

Nick Maggiulli: When Does Market Timing Work?

Jeff Carter: The Liquidity Premium

Howard Lindzon: Lindzanity – Episode 3 – Ross Hoffman From Mailroom to Board Room, Following Your Instincts, Salaries are Overrated and Betting on Yourself

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Broadridge Earns $1.59 per Share
Posted by Eddy Elfenbein on May 7th, 2019 at 7:30 am

Reaffirming Fiscal Year 2019 Guidance for Recurring Revenue Growth

Reaffirming Fiscal Year 2019 Guidance for Double-Digit EPS Growth

Raising Fiscal Year 2019 Closed Sales Guidance with Year-to-Date at Record $161 million

Broadridge Financial Solutions (BR) today reported financial results for the third quarter and nine months ended March 31, 2019 of its fiscal year 2019. Results for the three and nine months ended March 31, 2019 compared with the same period last year were as follows:

“After a solid third quarter, Broadridge is very well-positioned to deliver strong full-year results. In addition, we continue to make progress on key growth initiatives including next generation regulatory communications and adding clients to our industry-leading technology platforms,” said Tim Gokey, Broadridge’s President and Chief Executive Officer. “Our sales pipeline remains strong which, combined with our sales over the first three quarters of the year, positions us well for future growth.

“We are raising our full-year Closed sales guidance and reaffirming our fiscal year 2019 guidance for recurring revenue growth and EPS growth. Our ability to deliver double-digit adjusted EPS growth reflects the strength of the Broadridge business model and the growth of our recurring revenue. As we close out fiscal year 2019, we remain confident that we are on track to deliver long-term growth and achieve the three year objectives we laid out at our 2017 Investor Day,” Mr. Gokey added.

Net Earnings and Earnings per Share

For the third quarter of fiscal year 2019:

Net earnings increased 58% to $172 million, compared to $109 million for the prior year period.
Adjusted Net earnings increased 56% to $189 million, compared to $121 million for the prior year period.
Diluted earnings per share increased 61% to $1.45, compared to $0.90 for the prior year period.
Adjusted earnings per share increased 59% to $1.59, compared to $1.00 for the prior year period.

“After a solid third quarter, Broadridge is very well-positioned to deliver strong full-year results. In addition, we continue to make progress on key growth initiatives including next generation regulatory communications and adding clients to our industry-leading technology platforms,” said Tim Gokey, Broadridge’s President and Chief Executive Officer. “Our sales pipeline remains strong which, combined with our sales over the first three quarters of the year, positions us well for future growth.

“We are raising our full-year Closed sales guidance and reaffirming our fiscal year 2019 guidance for recurring revenue growth and EPS growth. Our ability to deliver double-digit adjusted EPS growth reflects the strength of the Broadridge business model and the growth of our recurring revenue. As we close out fiscal year 2019, we remain confident that we are on track to deliver long-term growth and achieve the three year objectives we laid out at our 2017 Investor Day,” Mr. Gokey added.

Morning News: May 7, 2019
Posted by Eddy Elfenbein on May 7th, 2019 at 7:16 am

A $400 Billion Wave of Japanese Cash May Be Heading Overseas

How the Rise of Developing Countries Has Disrupted Global Trade

Lagarde Issues New Trade Warning Amid ‘Unfavorable’ Trump Tweets

Trade Talks Are Foundering on Mistrust and Arrogance

Federal Reserve Warns as Risky Corporate Debt Exceeds Peak Crisis Levels

Anadarko Says It Now Favors Occidental Bid Over Chevron

Silicon Valley Is Coming For Your House

As IPO Looms, Uber Clings to Hard-Knuckled Tactics in Pursuit of Growth

BMW Profit Slumps on Weaker Markets, $1.6 Billion Provision

Vodafone Steps Up Fight for Liberty Deal With German Access Offer

Tyson Says Hog Disease Impact to Linger for Years

Kraft Heinz to Restate Financial Results Following Investigation

Joshua Brown: Charlie Munger on Commission-Based Brokers and Bankers

Cullen Roche: Three Things I Think I Think – Berkshire, Jobby Jobs and Chase Tweets

Roger Nusbaum: It’ OK To Be Skeptical & Is The Harvard Endowment Making A Huge Mistake?

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Good Day for Our Buy List
Posted by Eddy Elfenbein on May 7th, 2019 at 5:06 am

This will probably jinx us, but Monday was a very good day for our Buy List. While the S&P 500 fell 0.45%, our Buy List gained 0.41%. That’s a big outperformance for one day.

Our biggest winner was Continental Building Products (CBPX), which gained 6.6%. Our wallboard stock is an unusual one because its results have been good but the share price hasn’t done much. It’s almost like Disney up until a month ago.

Except for CBPX, there weren’t any outstanding gains on Monday. Instead, it seems like there was an unusual number of stocks that gained 1% to 2% for us. FactSet (FDS), Moody’s (MCO) and Smucker (SJM) all made new 52-week highs.

Morning News: May 6, 2019
Posted by Eddy Elfenbein on May 6th, 2019 at 7:02 am

Europe Is Reining In Tech Giants. But Some Say It’s Going Too Far.

Stocks Tumble as Trump Trade Threat Reverberates

Trump’s Tariff Threat Leaves Beijing Stalling on Next Talks

Fed Faces Tough Sell on Inflation Framework

Why A 60-65% Market Loss Would Be Run-Of-The-Mill

Occidental Ups Its Cash Offer for Anadarko

Warren Buffett’s Case for Capitalism

5 Insights from the 2019 Berkshire Hathaway Annual Meeting

Boeing Believed a 737 Max Warning Light Was Standard. It Wasn’t.

Facebook ‘Labels’ Posts By Hand, Posing Privacy Questions

SoftBank Has a Big Sprint Problem on Its Hands Without T-Mobile

Boeing Did Not Disclose 737 MAX Alert Issue to FAA for 13 Months

Michael Batnick: Animal Spirits, Re-Kindled: The Big Short

Jeff Carter: Does Culture Eat Strategy For Lunch?

Ben Carlson: How Compounding Works in the Stock Market, Investing Lessons from the Reigning Jeopardy Champ & 4 Overlooked Investment Decisions

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April 2019 NFP = +263K
Posted by Eddy Elfenbein on May 3rd, 2019 at 8:37 am

The April jobs report is out, and it’s a good one. The U.S. economy created 263,000 net new jobs last month. The report for February was revised higher by 23,000, and March was revised upward by 16,000.

The unemployment rate fell to 3.6%. That’s the lowest unemployment rate since December 1969. It’s the lowest peacetime jobless rate in 70 years.

Nonfarm payroll growth easily beat Wall Street expectations of 190,000 and a 3.8% jobless rate.

Average hourly earnings growth held at 3.2% over the past year, a notch below Dow Jones estimates of 3.3%. The monthly gain was 0.2%, below the expected 0.3% increase, bringing the average to $27.77. The average work week also dropped 0.1 hours to 34.4 hours.

Unemployment was last this low in December 1969 when it hit 3.5%. At a time when many economists see a tight labor market, big job growth continues as the economic expansion is just a few months away from being the longest in history.

CWS Market Review – May 3, 2019
Posted by Eddy Elfenbein on May 3rd, 2019 at 7:08 am

“Successful investing is anticipating the anticipations of others.” – J.M. Keynes

On Tuesday, the S&P 500 closed at yet another all-time high. The same day, our Buy List closed at a YTD high. We now have six stocks that are up more than 28% this year, including Disney, which just had its best month in nearly 20 years.

We had more Buy List earnings reports this week, and they were quite good. Fiserv beat by two cents. So did Intercontinental Exchange. Church & Dwight beat by four cents and rallied to a new high. Continental Building topped estimates by 24%.

Our one dud (and there’s always one each earnings season) was Cognizant Technology Solutions. The IT-outsourcer missed earnings and cut guidance, and the shares took a nasty fall. I’ll have all the details in a bit. But first, let’s survey some recent economic data.

We May Have Avoided an Earnings Recession

If all the earnings news wasn’t enough, the Federal Reserve got together this week and decided against changing interest rates. This wasn’t much of a surprise. In fact, the Fed may not be touching rates at all in the next few months. In the policy statement, the Fed kept the language saying the central bank will be “patient” regarding future rate increases.

In the post-meeting press conference, Chairman Jerome Powell was optimistic. He said, “Our outlook, and my outlook, is a positive one, is a healthy one, for the U.S. economy for the rest of this year.” I have to explain that in central-banker talk, that’s a jump for joy. Most central bankers are born dour, and it goes down from there.

I want to highlight some recent economic data because they back up Powell’s view. Last week, we got the initial report for Q1 GDP growth, and it came in at 3.2%. That’s pretty good. Over the last nine quarters, GDP has grown at its fastest pace in 12 years. We’ll get another CPI report next week, but the latest figures (through March) show that core inflation is running at 1.6%. That’s hardly a problem.

The April jobs report is due out later today. It may be out by the time you’re reading this. The other jobs numbers are encouraging. Jobless claims are up a bit, but that’s after hitting 50-year lows. Wednesday’s ADP payroll report showed a gain of 275,000 private payrolls last month. (I don’t place a high degree of faith in ADP’s figures, but it’s interesting to note.)

Earlier this week, we learned that the ISM Manufacturing report for April fell to 52.8. While that’s down, it still indicates that the factory sector is growing. Most importantly for us, this earnings season isn’t as bad as some folks had expected. About 75% of companies are beating expectations. We don’t have the full numbers in yet, but Credit Suisse had been expecting a Q1 earnings decline of 2.5%. Now they expect to see an earnings gain of 2.5% to 3%.

The takeaway is clear. All the doomsayers of a few months ago were overstating the case. The economy is still expanding, and markets are responding. Now let’s look at this week’s Buy List earnings.

Fiserv Earned 84 Cents per Share

After the bell on Tuesday, Fiserv (FISV) released a pretty good earnings report. This was a relief because the Q4 report wasn’t so hot. For Q1, the company made 84 cents per share. That’s an increase of 12% over last year. It also beat expectations by two cents per share. Quarterly revenues rose 5% to $1.43 billion. Free cash flow was $302 million, and adjusted operating margin came in at 31.9%. Those are nice numbers.

“We are off to a strong start to the year, with first-quarter internal revenue growth and sales ahead of our initial expectations,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “In addition to strong financial performance, we are well into integration planning and looking forward to completing the First Data acquisition in the second half of the year.”

In January, Fiserv said it’s going to merge with First Data in a major deal. The plans are moving ahead. The company sees the deal being completed in the second half of this year. On the earnings call, this is what Yabuki had to say about Q2.

Although we don’t provide quarterly guidance, it’s important to remind you that we had very high periodic revenue in last year’s Q2, which will create a difficult compare this year. As such, we anticipate the second quarter will be the low watermark for both internal revenue and adjusted EPS growth with strong acceleration into the back half of the year.

Due to the pending merger, Fiserv has suspended all stock buybacks. Fiserv reiterated its full-year earnings range of $3.39 to $3.52 per share. Fiserv is a buy up to $92 per share.

Four Buy List Earnings Reports on Thursday

We had four more Buy List earnings reports on Thursday, May 2. Let’s start with Church & Dwight (CHD), which reported before the opening bell. For Q1, CHD earned 70 cents per share, which was four cents better than Wall Street’s estimates, as well as CHD’s own guidance.

Q1 net sales rose 3.8% to $1.0447 billion. Organic sales rose by 4.5%. Global consumer products were up 5.2%. Of that, 2.7% was from volume while pricing added 2.5%.

First-quarter net sales grew 3.8% to $1,044.7 million. Organic sales grew 4.5% driven by global consumer-products growth of 5.2%, which was driven by volume growth of 2.7% and positive product mix and pricing of 2.5%. This was CHD’s fourth quarter in a row of organic sales growth topping 4%.

I was pleased to see gross margins increase by 20 basis points to 45.1%. Operating margins rose 120 basis points to 23.1%. The company reiterated its full-year EPS guidance of $2.43 to $2.47. That’s an increase of 7% to 9% over last year. For Q2, CHD expects earnings of 52 cents per share, which matches the Street. Church & Dwight remains a buy up to $75 per share.

Also on Thursday, Intercontinental Exchange (ICE) had a very good earnings report. (We love those pseudo monopolies!) For Q1, the NYSE owner made 92 cents per share. That was two cents more than Wall Street had been expecting. Their adjusted operating margin was 58%.

Q1 revenues were up 4% to $1.3 billion. The breakdown is that revenue for data and listings was $657 million. Revenue for trading and clearing was $613 million. Operating cash flow was $654 million. That’s up 14% from last year’s Q1. The company also noted that the blowup in bitcoin and other cryptos helped ICE acquire discounted assets in order to build its Bakkt platform.

Shares of ICE got off to a relatively slow start this year, but the stock has picked up over the past few weeks. The stock isn’t far from its all-time high, reached in December. Thanks to this week’s earnings report, I think there’s a good chance ICE can break out to a new high. I’m raising my Buy Below on ICE to $86 per share.

“Cognizant’s growth and performance in the quarter leaves room for improvement,” said Brian Humphries, Cognizant Technology’s CEO. Well, I’ll give him points for understated brevity. There’s no easy way to put it. Cognizant Technology Solutions (CTSH) had a terrible Q1.

Let’s look at the damage. For the first three months of this year, Cognizant made 91 cents per share. That was well below Wall Street’s forecast of $1.04 per share. The earnings report came out shortly before the closing bell, and the stock lost 7.7% in Thursday’s session.

Cognizant also cut its full-year forecast. Previously, the company expected EPS this year to be at least $4.40. Now they see it ranging between $3.87 and $3.95.

Where was the weakness? Apparently, the banking sector hasn’t been spending as much. The company’s Financial Services division, which makes up about one-third of its revenue, posted a sales decline of 1.7%. Karen McLoughlin, the company’s CFO, said, “Our revised full-year outlook reflects the first-quarter underperformance and expectations of slower growth in Financial Services and Healthcare for the remainder of 2019.”

I feel confident that Cognizant can manage its way through a difficult environment, but it will take some cost-cutting. For now, I’m dropping my Buy Below on Cognizant Technology Solutions to $70 per share.

After the bell on Thursday, Continental Building Products (CBPX) reported Q1 earnings of 42 cents per share. Expectations were for 34 cents per share. Net sales rose 4.5% to $122 million, and wallboard volume increased by 5.5% to 649 million square feet. We want to see that the company isn’t merely profiting from higher product prices but that they’re selling more units as well.

Continental’s profits were up 16.7% from a year ago. Operating income was up 11.3%. Earlier this year, the company had a malfunction at its Buchanan plant, which went offline for several weeks. That’s now been resolved.

These results are good news for a stock that hasn’t done well over the past few weeks. In fact, the last two earnings reports have been pretty good, but it hasn’t had much impact on the stock price. That may change soon. Buy up to $26 per share.

Three Buy List Earnings Reports Next Week

We have our final three Buy List earnings reports next week. You can see the complete Earnings Calendar. Three months ago, Broadridge Financial Services (BR) bombed its earnings report. For Q2, BR made 56 cents per share, which was 15 cents below estimates. Total revenues fell 6% to $953 million.

For its part, Broadridge didn’t alter its fiscal 2019 guidance. BR sees revenue growth of 3% to 5%, operating margins at 16.5% and EPS growth of 9% to 13%.

For Q3, the company sees revenue between $1.195 billion and $1.245 billion and earnings of $1.40 to $1.56 per share. Wall Street expects $1.50 per share.

At this point, Disney’s (DIS) earnings report seems anti-climatic. The stock just finished up its best month in nearly two decades. The Avengers movie blew up at the box office. For the opening weekend, the movie did $1.2 billion. On top of that, the Disney+ announcement was very well received. For Q1, Wall Street expects earnings of $1.59 per share.

Shares of Becton, Dickinson (BDX) have been uncharacteristically weak lately. The stock lost more than 10% over a four-day period in mid-April. The next earnings report is due out on Thursday, May 9. For 2019, Becton expects revenues to grow by 5% to 6%, and they see EPS ranging between $12.05 and $12.15. For Q1, Wall Street expects earnings of $2.58 per share.

Before I go, I wanted to make two Buy Below adjustments. I’m raising my Buy Below on FactSet (FDS) to $287 per share. The stock has been doing very well for us lately. We’re now +37.2% in FDS this year. Earnings are due out in June. I’m also raising Cerner’s (CERN) Buy Below to $71 per share. The stock just touched a new 52-week high.

That’s all for now. Heads up: I’ll be hitting the road, so next week’s issue will be out on Sunday, May 12. There’s not much in the way of economic reports. Earnings reports will start to taper off. On Thursday, I’ll be on the lookout for the jobless-claims report. Then on Friday, the April CPI report is due out. I expect to see more signs of subdued inflation. 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: May 3, 2019
Posted by Eddy Elfenbein on May 3rd, 2019 at 7:05 am

Pig ‘Ebola’ Virus Sends Shock Waves Through Global Food Chain

Iran’s Oil Minister Warns That OPEC Collapse Is Likely

Euro-Area Inflation Accelerates After String of Upbeat Data

Hungary Added a ‘Slave Law’ to Meet Labor Shortages. It’s Not Working So Well.

Puerto Rico Seeks to Have $9 Billion in Debt Ruled Unconstitutional

Ginnie Mae Moves to Crack Down on Repeated Refinancings

Buffett Finally Embraces Amazon as Berkshire Acquires Stake

Tesla Ends ‘Spartan Diet’ and Seeks $2.3 Billion to Fund Expansion

Microsoft Rolls Out New Cloud Services for AI and Blockchain

Facebook Building Cryptocurrency-Based Payments System

Verizon is Trying to Sell Tumblr, the Blogging Site Once Worth $1.1 Billion

How a Lone Norwegian Trader Shook the World’s Financial System

Lawrence Hamtil: The “Pain” of Low-Volatility Investing

Cullen Roche: Whom Would I Nominate for the Federal Reserve?

Jeff Miller: The Future “Ain’t” What It Used To Be

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Morning News: May 2, 2019
Posted by Eddy Elfenbein on May 2nd, 2019 at 7:05 am

Euro-Area Factory Slump Eases in April as Italy Exceeds Estimate

Dalio Says Something Like MMT Is Coming, Whether We Like It Or Not

Capitalists Fear a Socialist Revolt

Facebook Set to Create Privacy Positions as Part of F.T.C. Settlement

How a Canadian Chain Is Reinventing Book Selling

The Most Valuable Company (for Now) Is Having a Nadellaissance

Apple’s Upbeat Forecast Pushes Market Value Back Toward $1 Trillion

Qualcomm Hangs on to Most Apple Gains After Earnings Report

Bombardier Says to Create Single Aviation Unit, Sell Non-Core Assets

How America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

Burger King Takes on McDonald’s With a Range of ‘Unhappy’ Meals

Where the Good Jobs Are

Nick Maggiulli: The Errors That I Don’t See

Roger Nusbaum: Don’t Let Retirement News Gloom Keep You Down

Howard Lindzon: Lindzanity – Episode 2 – Koyfin Founder Rob Koyfman

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Today’s Fed Statement
Posted by Eddy Elfenbein on May 1st, 2019 at 7:05 pm

No change on rates.

Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that economic activity rose at a solid rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Growth of household spending and business fixed investment slowed in the first quarter. On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.

Seems pretty anodyne to me, but for whatever reason, the market got a little nervous in the afternoon.