CWS Market Review – May 1, 2020

“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world.” – This Week’s Fed policy statement

After a terrible March, April turned out to be the best month for the S&P 500 in more than 33 years. The index added $2.8 trillion in market value. On Wednesday, the S&P 500 closed at a seven-week high.

Here’s one for data fans. On Thursday, the S&P 500 closed at 2,912.43. That’s a retracement of 59.96% between the market’s recent intra-day high and intra-day low.

Despite the resurgent market, the economic pain continues. This week we learned that the U.S. economy shrank by 4.8% in Q1, only part of which was affected by the stay-at-home orders. Digging into the numbers shows, not surprisingly, that the consumer was the big drag. In a few weeks, we’ll get the Q2 GDP report, and it may show a decline of 30% or 40%. Maybe more.

This week’s consumer-confidence report showed the biggest drop in over 45 years. On Thursday, the jobless-claims report came in at 3.839 million. That’s terrible, and it’s the fourth weekly decline in a row. In the last six weeks, the combined figure is 30 million.

The economic response has been unprecedented. The Federal Reserve’s balance now stands at $6.7 trillion. In the post-war era, the Federal Government has borrowed, on average, 2.1% of its GDP each year. This year, Uncle Sam will borrow 20.6% of GDP—ten times the average.

(Well, I’m Mr. Happy Sunshine this issue, aren’t I?)

I do have some good news for us. In this week’s issue, we’ll look at earnings. We had eight Buy List stocks report earnings this week, and I’m happy to say that all eight of them beat Wall Street’s forecast. Later on, I’ll preview seven more Buy List earnings reports that are on tap for next week. After that, I promise the earnings reports will cool off. Let’s jump right into the earnings parade.

Eight Buy List Earnings Reports

Here’s the updated earnings calendar:

Company Ticker Date Estimate Result
Stepan SCL 21-Apr $0.78 $1.04
Eagle Bancorp EGBN 22-Apr $0.92 $0.70
Globe Life GL 22-Apr $1.71 $1.73
Silgan Holdings SLGN 22-Apr $0.50 $0.57
Hershey HSY 23-Apr $1.71 $1.63
Check Point Software CHKP 27-Apr $1.38 $1.42
Cerner CERN 28-Apr $0.70 $0.71
AFLAC AFL 29-Apr $1.10 $1.21
Sherwin-Williams SHW 29-Apr $3.95 $4.08
Church & Dwight CHD 30-Apr $0.77 $0.83
Intercontinental Exchange ICE 30-Apr $1.24 $1.28
Moody’s MCO 30-Apr $2.22 $2.73
Stryker SYK 30-Apr $1.69 $1.84
Trex TREX 4-May $0.61
Disney DIS 5-May $0.88
ANSYS ANSS 6-May $0.80
Becton Dickinson BDX 7-May $2.36
Danaher DHR 7-May $1.01
Fiserv FISV 7-May $0.99
Broadridge Financial Solutions BR 8-May $1.72
Middleby MIDD TBA $1.36

Let’s start with Check Point Software (CHKP), which reported on Monday. The cyber-security firm reported Q1 earnings of $1.42 per share. That beat the Street by four cents per share. It’s also up from $1.32 per share one year ago. Revenue rose 3% to $486 million.

This has been a busy time for cyber-security. Check Point has seen a “dramatic rise” in the number of cyber-attacks related to the coronavirus. Check Point said, “On average, over 14,000 coronavirus-related cyber-attacks occur each day with a daily 20,000 peak in April. Since January 2020, 68,000 coronavirus-related domain names were registered, and we identified malicious domains at double the rate of others.”

What kind of lowlife would use this crisis as an excuse to scam people? I’m glad there are folks like Check Point out there. I’m keeping our Buy Below on CHKP at $110 per share.

After the closing bell on Tuesday, Cerner (CERN) reported Q1 earnings of 71 cents per share. The company told us to expect 69 to 71 cents per share.

Quarterly revenues rose 2% to $1.41 billion. That was slightly below the company’s expectations. Cerner cited travel restrictions implemented by the company in response to the pandemic.

This is a really solid company. For Q1, Cerner had operating cash flow of $284 million and free cash flow of $160 million. Cerner has a total backlog of $13.47 billion.

Now for guidance.

For Q2, Cerner sees revenue between $1.34 billion and $1.39 billion. For all of 2020, Cerner expects revenue between $5.55 billion and $5.70 billion. That’s down from the prior range of $5.725 billion to $5.975 billion.

Cerner expects EPS of 60 to 64 cents per share for Q2 and $2.78 to $2.90 for the full year. The latter forecast is down from a range of $3.09 to $3.19.

It’s not as strong as I like, but it’s completely understandable in this environment. I’m keeping our Buy Below at $70 per share.

On Wednesday, Sherwin-Williams (SHW) reported Q1 earnings of $4.08 per share. That beat estimates of $3.94 per share. Sales rose 2.6% to $4.15 billion.

The company lowered its full-year range to $16.46 – $18.46 per share with acquisition-related costs of $2.54 per share. The previous guidance was $19.91 to $20.71 per share with acquisition costs of $2.79 per share. I’m hesitant to complain about lowered guidance. At least Sherwin is giving us guidance. Many others have withdrawn theirs completely.

Shares of SHW gained about 6% on Wednesday. Sherwin remains a solid buy up to $590 per share.

Also on Wednesday, AFLAC (AFL) reported Q1 earnings of $1.21 per share. Forex dinged them for a penny per share. Wall Street had been expecting $1.10 per share.

The duck stock has decided to withdraw earnings guidance for this year. The CEO added, “we will continue to provide color on the drivers of our earnings and any trends that we see for the remainder of the year.”

I was particularly curious to see AFLAC’s earnings because the stock had been punished so severely during March. Frankly, the business simply isn’t that volatile. Fortunately, shares of AFLAC are on the upswing. The stock is now up 60% from its low of six weeks ago. AFLAC remains a buy up to $42 per share.

On Thursday, Moody’s (MCO) earned $2.73 per share. That beat expectations by 51 cents per share. This was a great quarter for MCO. Drilling down some, I see that Moody’s Investors Service had revenue growth of 19% and Moody’s Analytics was up 5%.

Moody’s pared back its full-year EPS guidance. Previously, they had expected EPS between $7.80 and $8.40. Now they see it ranging between $7.25 and $7.85. Moody’s is up 2.7% this year for us, which is quite good in this market. I’m lowering our Buy Below on Moody’s to $263 per share.

Also on Thursday, Church & Dwight (CHD) said it made 83 cents per share for Q1. That beat by six cents. Previously, the company had told us to expect 73 cents per share, so they’re running ahead of their own plans. Q1 sales grew 11.5% to $1.17 billion.

Church & Dwight actually benefited from the coronavirus outbreak, especially brands like Arm & Hammer and some hygiene products. Like many others, CHD withdrew its full-year forecast. I’m lowering my Buy Below to $76 per share.

Intercontinental Exchange (ICE) made $1.28 per share. That beat by four cents. For Q1, ICE had operating cash flow of $520 million, and free cash flow was $434 million.

CFO Scott A. Hill said, “In the first quarter we generated record revenues, record operating income and double-digit earnings per share growth, which enabled us to return over $850 million to stockholders through our dividend- and stock-buyback program.”

ICE gave several guidance metrics for Q2 and 2020, but none was EPS. I’ll highlight that ICE expects data revenue to be in a range of $565 million to $570 million. ICE remains a buy up to $100 per share.

Stryker (SYK) reported adjusted earnings of $1.84 per share. That beat estimates by 15 cents per share. Net sales rose 2% to $3.6 billion. Stryker said that earnings were “significantly negatively impacted” by the coronavirus. The company has decided to forgo any guidance for this year. Stryker remains a buy up to $200 per share.

Seven More Buy List Earnings Reports Next Week

We’re heading into the back end of earnings season. We have seven of our stocks due to report next week.

Trex (TREX) is scheduled for Monday. Trex has become our third-best performer this year. In February, the deck-maker beat earnings by 10 cents per share, and the underlying numbers were very strong.

In March, Trex assured investors that it has plenty of cash to ride out the storm, and it doesn’t have any supply-chain issues. The shares have bounced 70% off their March low.

For 2020, Trex expects “strong double-digit sales growth.” They expect sales of $200 million for Q1 which is an 11% increase over last year. The analyst consensus is for Q1 earnings of 61 cents per share. Look for a good report.

Disney (DIS) reports on Tuesday. This will be an interesting report because the travel industry hasn’t merely slowed down: it’s come to a standstill. On the other hand, Disney’s new streaming service has been doing quite well. The current consensus is for earnings of 88 cents per share. Disney is a terrific company.

Three months ago, Ansys (ANSS) reported Q4 earnings of $2.24 per share. Wall Street had been expecting $1.98 per share. The company makes simulation software for engineers. Whenever you see a designer working with a 3-D model on a computer screen, there’s a good chance they’re using Ansys software.

For Q1, Ansys sees revenues ranging between $300 million and $320 million and earnings between 75 and 88 cents per share. For the year, Ansys sees revenues between $1.64 billion and $1.70 billion and EPS between $6.19 and $6.71. We have a small profit in Ansys this year.

Becton, Dickinson (BDX) had a dud earnings report for the December quarter. Actually, the earnings were good. It was guidance that was a problem. Previously, BDX gave EPS guidance for this year of $12.50 to $12.65. The company now expects EPS between $11.90 and $12.10 per share.

What happened? Apparently, it will take the company longer to resolve the issues surrounding its Alaris infusion pump. Becton said it will coordinate with the FDA and existing customers to work on a remediation plan.

Despite the lowered guidance, the shares have held up reasonably well. Analysts expect quarterly earnings of $2.36 per share.

Danaher (DHR) is our second-best performing stock this year. It’s amazing how consistent this stock has been. The company withdrew its financial guidance, but it did say that it expects revenue growth of 3% for Q1. The now-canceled guidance was for earnings of $1.06 to $1.09 per share.

Danaher’s CEO said, “While we had a good start to the year, we saw a meaningful slowdown in demand toward the end of the quarter, particularly in our more instrument-oriented businesses, as the Covid-19 pandemic spread worldwide.” Analyst consensus is for $1.02 per share.

Like Danaher, Fiserv (FISV) has been an outstanding stock for us over the years. Last year, the company made $4 per share. In March, Fiserv said it expects to have greater synergies from its First Data acquisition. The company also stood by its previous guidance of 6% to 8% internal revenue growth and adjusted EPS growth of 23% to 27%.

CEO Jeffery Yabuki said, “We remain comfortable with our outlook for the full year based on the diversity and resilience of our business along with our current view of the market.” By the way, Yabuki has taken a 100% pay cut to his base salary. Wall Street expects Q1 earnings of 99 cents per share.

Broadridge Financial Solutions (BR) was our best-performing stock for April. BR gained over 22% for us last month. The company is scheduled to report on Friday, May 8. The last earnings report was a big miss. Broadridge earned 53 cents per share which was 18 cents below estimates.

The CEO said, “Event-driven activity came in significantly below our expectations, leading to a 5% decline in adjusted EPS in a seasonally small quarter. We now expect a lower level of event-driven activity to persist into the second half of fiscal 2020.”

Broadridge stood by its forecast for this fiscal year (ending in June) for EPS growth of 8% to 12%, although now they confess it will be “at the low end.” That range had worked out to $5.03 – $5.22 per share. Now let’s say it’s $5.03 to $5.10 per share.

I told you I had a lot of earnings this week.

That’s all for now. Next week will have more earnings news, but on Friday, we’ll also get a look at the jobs report for April, and it will be an ugly one. Unemployment may shoot as high as 12% or 13%. We’ll get a preview of the jobs report on Wednesday when ADP releases its payroll report. There will be another jobless-claims report on Thursday. 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

Posted by on May 1st, 2020 at 7:08 am


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.