CWS Market Review – October 23, 2020

“Pride of opinion has been responsible for the downfall of more men on Wall Street than any other factor.” – Charles Dow

Earnings season is finally here, and it’s shaping up to be a very good one for our Buy List. This week, we had six earnings reports, and five of them topped Wall Street’s expectations. The other one met expectations.

We also got a nice 11% dividend hike from Stepan. This is the 53rd year in a row that Stepan has increased its dividend. By the way, did you see the price spike in Eagle Bank? Our favorite little bank demolished Wall Street’s expectations. For Q3, Eagle earned $1.28 per share. The consensus on Wall Street had been for 81 cents per share. In the last month, Eagle has rallied 26%.

Silgan Holdings beat and raised guidance. Danaher had a solid earnings report, and the shares jumped to another new all-time high. We now have a 52% gain in Danaher this year.

Let’s keep the good news coming. In this week’s issue, I’ll sum up all of the recent earnings news. I’ll also preview the nine Buy List earnings reports we have coming next week. There’s a lot to get to, so let’s jump right in.

Six Buy List Earnings Reports this Week

Here’s an updated look at our Earnings Calendar.

Stock Ticker Date Estimate Result
Eagle Bancorp EGBN 21-Oct $0.81 $1.28
Globe Life GL 21-Oct $1.75 $1.75
Silgan SLGN 21-Oct $0.95 $1.04
Stepan SCL 21-Oct $1.40 $1.56
Check Point Software CHKP 22-Oct $1.53 $1.64
Danaher DHR 22-Oct $1.36 $1.72
AFLAC AFL 27-Oct $1.13
Fiserv FISV 27-Oct $1.16
Sherwin-Williams SHW 27-Oct $7.75
Cerner CERN 28-Oct $0.71
Church & Dwight CHD 29-Oct $0.67
Intercontinental Exchange ICE 29-Oct $0.99
Moody’s MCO 29-Oct $2.10
Stryker SYK 29-Oct $1.40
Broadridge Financial Sol BR 30-Oct $0.63
Trex TREX 2-Nov $0.37
Ansys ANSS 4-Nov $1.26
Becton, Dickinson BDX 5-Nov $2.52
Hershey HSY 6-Nov $1.70
Disney DIS 12-Nov -$0.71
Middleby MIDD TBA $1.02

Let’s start with Stepan (SCL). On Wednesday, the chemical company reported earnings of $1.56 per share for Q3, which beat Wall Street’s consensus of $1.40 per share. The company also raised its dividend by 10.9%, making it the 53rd annual dividend increase in a row. The quarterly dividend will rise from 27.5 cents to 30.5 cents per share. That makes the yield a little over 1%.

The company has three operating groups. Sales at the Surfactant unit rose 11% to $333.8 million. Polymer sales dropped by 14% to $116.7 million, and Specialty Products dropped by 17% to $14.0 million. The Surfactants have been a life-saver for Stepan this year. I guess during a pandemic everyone wants to keep their hands clean.

I’m lifting our Buy Below on Stepan to $120 per share.

Next up is Silgan (SLGN). The container company had a solid quarter. For Q3, Silgan made $1.04 per share. That’s up 37% over last year’s Q3. Wall Street had been expecting 95 cents per share.

The metal-containers business saw volume growth of 17% thanks to more folks eating at home. The closures business was helped by increased demand for household cleaning products. Their plastic-containers business had volume growth of 14%.

Best of all, Silgan raised its full-year guidance range to $2.92 to $2.97 per share. The previous range was $2.70 to $2.85 per share. Last year, Silgan made $2.16 per share.

For Q4, Silgan now expects earnings of 47 to 52 cents per share. They made 38 cents per share for last year’s Q4.

CEO Tony Allott said, “While we are still completing our annual budget process for 2021, at this time we anticipate overall operating earnings for the Company remaining at these strong levels.”

The stock dropped after the earnings report. Bank of America lowered SLGN to “neutral.” I’m not too worried. To reflect the price drop, I’m lowering our Buy Below to $40 per share.

After the closing bell on Wednesday, Globe Life (GL) reported Q3 operating earnings of $1.75 per share. That matched Wall Street’s estimates.

Some of the details look quite good. ROE this year is running at 9.4%. Since the pandemic started, Globe has seen a big increase in Life claims.

In August, Globe Life resumed its share-repurchase program. During Q3, the company bought back 1.4 million shares for a total cost of $118 million. That’s an average share price of $81.79.

Globe Life sees full-year earnings of $6.84 to $7.00 per share. For 2021, GL expects earnings to range between $7.30 and $7.80 per share. Wall Street had been expecting $7.47 per share. There’s not much else to say. This is a good company that’s doing what I expected. The shares gained 2.8% on Thursday. Globe Life remains a buy up to $90 per share.

Eagle Bancorp (EGBN) may be the big star for us this earnings season. After the bell on Thursday, Eagle reported Q3 earnings of $1.28 per share. That crushed Wall Street’s estimate of 81 cents per share. For last year’s Q3, Eagle made $1.07 per share.

This was a very good quarter for Eagle. Most importantly, legal costs didn’t take a big bite out of earnings. Eagle’s assets topped $10 billion. The bank’s efficiency ratio, which is a measure of how well the bank is keeping a rein on expenses, is 38.1%. That’s quite good.

At the end of the quarter, book value per share was $37.96. For Q3, net legal expenses related to the investigation were $957,000. Nonperforming assets were 0.62% of total assets. Net interest margin came in at 3.08%.

The stock gapped up over 5% on Thursday. I’m cautiously raising our Buy Below on Eagle to $33 per share.

We had two more earnings reports on Thursday. Danaher (DHR) reported Q3 earnings of $1.72 per share. That’s up 62% from last year’s Q3. The consensus on Wall Street was for earnings of $1.36 per share.

This year’s results are impacted by the addition of Cytiva. That’s the new name for GE’s biopharma business, which Danaher bought last year. For Q4, Danaher expects revenue growth, excluding Cytiva, in the low-single digits.

Danaher’s CEO said, “We delivered outstanding third-quarter results, achieving double-digit revenue growth, over 60% adjusted EPS growth, and we more than doubled our free cash flow year-over-year.

The shares rose 3.3% on Thursday to reach another all-time high. I’m raising our Buy Below to $250 per share.

Check Point Software (CHKP) said it made $1.64 per share for Q3. That’s 11 cents more than Wall Street’s consensus. Quarterly revenue rose 4% to $509 million.

Gil Shwed, the CEO, said, “We executed well in the third quarter and delivered another successful virtual quarter. Revenues grew in all key areas, with security subscriptions growing by 10%, and EPS grew by 14% year over year. We saw expanded customer adoption of Quantum Network Gateways, CloudGuard, Infinity Total Protection and Beyond the Perimeter (BTP) – endpoint and mobile security solutions.”

The cyber-security firm said it’s seen an increase of coronavirus vaccine-related hacks. Back-to-school domains has also been a major theme for the bad guys.

For Q4, Check Point expects earnings to range between $2.00 and $2.18 per share and revenues to be between $525 million and $575 million. Shwed said that given the higher level of uncertainty, the company needed to have a guidance range that’s wider than normal.

The Street’s consensus was for $2.09 per share on revenues of $555 million. Check Point remains a buy up to $133 per share.

Nine Earnings Reports Next Week

Next week is going to be very busy with nine Buy List stocks scheduled to report earnings. Three stocks are due to report on Tuesday, October 27.

AFLAC (AFL) is usually pretty good at giving guidance, but they held off this time for obvious reasons. The duck stock had a solid Q2. AFLAC earned $1.28 per share which was 21 cents ahead of estimates. The CEO did say that AFLAC is committed to defending its dividend streak of 37 consecutive annual hikes. For Q3, Wall Street expects earnings of $1.13 per share. AFLAC should be able to top that.

Fiserv (FISV) is having a rare off-year for us. Since it’s been such a strong stock for so long, I’m willing to give it some leeway.

In August, Fiserv reported Q2 earnings of 93 cents per share. That matched Wall Street’s view. Fiserv said it expects EPS to grow by at least 10% this year. For context, Fiserv made $4.00 per share last year. This would be Fiserv’s 35th year in a row of double-digit adjusted earnings growth. It’s currently down 13% this year.

Fiserv is down 11.5% for us this year. Wall Street expects earnings of $1.16 per share.

Sherwin-Williams (SHW) has been a surprise winner for us this year. The stock has more than doubled off its March low.

The paint folks creamed estimates for Q2. Sherwin also raised its full-year range to $19.21 to $20.71 per share, which includes $2.54 per share in acquisition-related amortization expense. The previous range was $16.46 per share to $18.46 per share, including a $2.54 per share acquisition-related amortization expense.

For Q3, the company sees net sales up or down in the low single digits. The consensus on Wall Street is for $7.75 per share.

Cerner (CERN) is due to report next Wednesday. For Q3, the healthcare-IT firm expects revenue to range between $1.35 billion and $1.40 billion, and they expect full-year revenue between $5.45 billion and $5.55 billion. The latter range is a downgrade from their previous guidance.

For earnings, Cerner expects Q3 to range between 70 and 74 cents per share. For the whole year, they see earnings between $2.80 and $2.88 per share. The previous range was $2.78 to $2.90 per share.

Over the last few months, shares of CERN have traded in a fairly wide range that seems to center on $68 to $72 per share, or thereabouts.

We have four more earnings reports due out on Thursday. Let’s start with Church & Dwight (CHD). The household-products company is managing itself well during the pandemic. Sales last quarter rose by 10.6% to $1.19 billion. The CEO said this was an “extraordinarily strong quarter,” and I have to agree. C&D now expects full-year sales growth of 9% to 10% and EPS growth of 13%. Wall Street is looking for earnings of 67 cents per share.

Intercontinental Exchange (ICE) made headlines recently with its $11 billion purchase of Ellie Mae, a mortgage-services provider. This is a big deal.

The key to understanding ICE’s business is that it’s all about data. It’s a good business to be in. Their operating margin is usually about 60%.

The company doesn’t provide EPS guidance, but ICE did say it expects Q3 data revenue between $575 million and $580 million. The consensus on Wall Street is for EPS of 99 cents.

Moody’s (MCO) had an outstanding quarter for Q2. The ratings agency earned $2.81 per share which beat estimates by 60 cents per share.

In fact, the results were so good that Moody’s significantly raised its earnings guidance. Moody’s now sees full-year earnings of $8.80 to $9.20 per share. That’s up from the previous forecast of $8.15 to $8.55 per share.

For Q3, Wall Street expects Moody’s to earn $2.10 per share. I think it will be a lot more.

Stryker (SYK) had a tough quarter during Q2. Earnings dropped by two thirds, but the company still made a profit, and it beat estimates.

Stryker is in a tough spot since the business environment is so poor for them. Still, it’s a solid and well-run outfit. For the long term, I’m not worried about Stryker. In fact, the shares recently made a new all-time high. The consensus for Q3 is for $1.40 per share. If that’s right, it’s a profit drop of more than 25%.

Broadridge Financial Solutions (BR) tends to be one of our quieter stocks, but don’t overlook it. In August, we saw a nice earnings beat from them. I especially like the recurring revenues numbers.

For the new fiscal year, which ends on June 30, Broadridge expects earnings growth of 4% to 10%. Since the company made $5.03 per share last year, breaking out the math, that implies earnings this year between $5.23 and $5.53 per share.

Broadridge also recently hiked its dividend for the 14th year in a row. The earnings report is due out on Friday. Wall Street expects earnings of $1.02 per share.

That’s all for now. Lots more earnings next week, but there will also be some key economic reports. On Monday, the existing-home-sales report is due out. On Tuesday, we’ll get the report on durable goods. Wednesday will be our first look at Q3 GDP growth. The annualized number could be over 30%. It will most likely by the highest on record. 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

P.S. I’m hosting an after-market call this Tuesday with Professor Nicole Boyson of Northeastern University. Please join us. You can register at this link.

Posted by on October 23rd, 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.