CWS Market Review – November 6, 2020

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

What a news-filled week this has been! We had a presidential election, and they’re still counting the ballots. We may not know the winner for a few days. Wall Street doesn’t seem to mind. Over the last four days, the S&P 500 has gained more than 7.3%.

We also had a Federal Reserve meeting. As expected, the Fed didn’t alter interest rates. The October jobs report is due out later today, and, of course, there have been lots more Q3 earnings reports.

So far, none of our Buy List earnings reports has missed expectations. In fact, many of them have beaten by a lot. This week, Middleby trounced Wall Street’s consensus, and the shares jumped more than 17% in one day!

Broadridge Financial Solutions creamed estimates, and the stock rallied to a new 52-week high. Ansys gained more than 4% after its earnings report, and Trex also reported nice numbers.

In this week’s issue, I’ll go over all of our recent reports. I’ll also preview next week’s report from Disney. I should also mention that CWS Market Review turns 10 years old! We sent out our premiere issue on November 5, 2010. I can’t believe it’s been one full decade! Thanks to everyone for your support. Now, let’s jump right in.

More Buy List Earnings Reports

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 $1.39
Fiserv FISV 27-Oct $1.16 $1.20
Sherwin-Williams SHW 27-Oct $7.75 $8.29
Cerner CERN 28-Oct $0.71 $0.72
Church & Dwight CHD 29-Oct $0.67 $0.70
Intercontinental Exchange ICE 29-Oct $0.99 $1.03
Moody’s MCO 29-Oct $2.10 $2.69
Stryker SYK 29-Oct $1.40 $2.14
Broadridge Financial Sol BR 30-Oct $0.63 $0.98
Trex TREX 2-Nov $0.38 $0.41
Ansys ANSS 4-Nov $1.26 $1.36
Becton, Dickinson BDX 5-Nov $2.52 $2.79
Middleby MIDD 5-Nov $1.04 $1.34
Hershey HSY 6-Nov $1.72
Disney DIS 12-Nov -$0.71

There’s a lot of earnings to get to. Let’s start with Broadridge Financial Solutions (BR). Last Friday, the company reported fiscal Q1 earnings of 98 cents per share. That’s a huge beat. Wall Street had been expecting 63 cents per share.

The best news is that Broadridge increased its earnings guidance for this fiscal year. The company now expects earnings growth of 6% to 10%. The previous range was 4% to 10%. Last year, BR made $5.03 per share, so the new guidance works out to a full-year range of $5.33 to $5.53 per share.

“Broadridge reported strong first-quarter results, including 8% Recurring revenue growth and record first quarter earnings,” said Tim Gokey, Broadridge’s Chief Executive Officer. “Our continued growth highlights the long-term trends driving our business and the strength of our recurring-revenue business model. In addition, our strong cost actions helped drive significant margin expansion. This positive start to the fiscal year gives us additional confidence in our full-year guidance and enables us to increase our level of investment in our people, platforms and technology.

“We have updated our outlook to reflect our increased confidence in our full-year results. Our updated guidance now calls for recurring-revenue growth of 3-6% and Adjusted EPS growth of 6-10%,” Mr. Gokey added. “By investing now, we will be even better positioned to address our clients’ accelerating need for next-generation mutualization, resiliency and digital transformation.”

This is a quiet company that gets the job done. The stock rallied to a new 52-week high. We now have a 17% gain this year. Broadridge remains a buy up to $150 per share.

On Monday, Trex (TREX) said it made 41 cents per share for its fiscal Q3. That was three cents better than estimates. This stock has had a charmed year in 2020. For Q3, sales rose nearly 20% to $232 million.

Excluding some charges, Trex’s gross margins are running close to 40%. That’s very good. For Q4, the company didn’t provide any EPS guidance, but they see sales ranging between $210 million and $220 million. At the midpoint, that’s a 30% increase. For 2021, Trex expects double-digit sales growth (btw, they’re low-balling).

This earnings report is more good news. Trex also reinstated its share-buyback program. Through Thursday, we have a 77% gain this year in Trex. I’m lifting our Buy Below on Trex to $84 per share.

After the market closed on Wednesday, Ansys (ANSS) reported Q3 earnings of $1.36 per share. That beat the Street by 10 cents per share. The company said that growth in the Asia-Pacific region was particularly strong. Growth exceeded 10% in South Korea and Japan.

CFO Maria Shields said, “We reported a record third-quarter balance of deferred revenue and backlog of $880 million, an increase of 35% over the third quarter of 2019. Additional financial highlights reflecting the resiliency of our business model included ACV growth, which continues to be comprised of a high level of recurring sources at 78% for the quarter and 81% for the first nine months of the year.”

Now let’s look at guidance. For Q3, Ansys expects revenues between $542.3 million and $582.3 million and earnings between $2.36 and $2.67 per share. That’s a pretty wide range. For all of 2020, Ansys sees revenues between $1,610.0 million and $1,650.0 million, and earnings between $6.09 and $6.40 per share.

The stock gained 4.2% on Wednesday. Ansys remains a buy up to $340 per share.

We had two more earnings reports on Thursday morning. Middleby (MIDD) had an outstanding quarter. The company reported earnings of $1.34 per share. Wall Street had been expecting $1.04 per share. If you’re not familiar with Middleby, the company makes kitchen equipment for hotels and restaurants. Think big ovens and grills, and stuff with conveyer belts.

The stock got demolished during the market wipeout in February and March. Gradually, Middleby has worked its way back. This last quarter was a solid one for Middleby. Tim FitzGerald, CEO of Middleby said, “We delivered record cash flows, improved profitability, and enhanced our capital structure for the long-term.”

On Thursday, the stock jumped 17.1%. Middleby is a good example of how our buy-and-hold philosophy bails us out. I’m sure many nervous investors sold out near the low. We held on, and the shares have nearly tripled from their March low. This week, I’m lifting my Buy Below price to $133 per share.

Also on Thursday, Becton, Dickinson (BDX) said it made $2.79 per share for its fiscal Q4. Revenues increased 4.4% to $4.784 billion. Revenues inside the U.S. increased by 7.4%, while revenues from outside the country rose by just 0.5%. For the year, Becton made $10.20 per share.

I have to confess that I haven’t been pleased with Becton’s performance this year. One silver lining has been Becton’s work on the coronavirus. Recently, Becton’s rapid Covid-19 test was approved for Europe. That’s very good news, because the region has had trouble keeping up with the need for tests.

For next year, Becton expects sales growth in the high-single to low-double digits. The company sees earnings coming in between $12.40 and $12.60 per share. That’s growth of 21.5% to 23.5%. Becton remains a buy up to $250 per share.

Earnings Preview for Hershey and Disney

We have two reports remaining. Hershey (HSY) is due to report later today. Three months ago, the chocolate folks said they wouldn’t be providing financial guidance for Q3. I certainly understand.

For Q2, sales fell 3.4%, but Hershey earned $1.31, which beat the Street by 18 cents per share. The company said it expects accelerated sales growth during the back half of this year. Hershey also expects pricing and cost management to drive margin expansion.

For Q3, Wall Street expects Hershey to earn $1.72 per share. Look for an earnings beat.

I’ve said that if I were to custom-design a company to be harshly impacted by the coronavirus, it would be hard to top Disney (DIS). The company makes films. It’s deep into sports and travel. As if that weren’t not enough, they have a cruise line.

Three months ago, Disney stunned the world by reporting a profit for its Q2. Not a big one, but it was a profit nonetheless. For Q2, the Mouse House earned eight cents per share. Wall Street had been expecting a loss of 64 cents per share.

The weak spot was revenue. For the quarter, Disney had $11.78 billion in revenue. That was below estimates for $12.37 billion. The only parts of Disney’s business that saw an increase in revenue were the direct-to-consumer and international-businesses sectors.

The big success story is Disney’s streaming service. I guess it helps that everyone is stuck at home! If you add up all the subscription services, Disney now has over 100 million paid subscribers. Disney+ is up to 57.4 million.

Revenue for their Parks, Experiences and Products business was down a staggering 85%. Disney’s Media Networks was only down 2%. As a result of the lockdown, Disney took a $3.5 billion hit to its operating income.

The success of Disney+ lies in the company’s recent reorg. I’m sure Disney looks at Netflix and wonders why they can’t have an earnings multiple like them. Solution: organize yourself to be more like them. We’ll see. In any event, Wall Street expects Disney to report a Q3 loss of 71 cents per share.

That’s all for now. I expect that the election will be resolved by next week. Fortunately, the stock market doesn’t appear nervous. Next Wednesday is Veteran’s Day. Wall Street is open, although many government offices will be closed. On Thursday, we’ll get another jobless-claims report. Also on Thursday, the CPI report is due out, and we’ll get an update on the federal budget. 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 November 6th, 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.