Archive for January, 2017

• Morgan Upgrades CR Bard
  Eddy Elfenbein, January 4th, 2017 at 7:16 am

  Good news yesterday for CR Bard (BCR). The stock was upgraded by the folks over at Morgan Stanley. It’s about time!

  Higher growth, insulation from macro headwinds and potential upside from tax reform and balance sheet suggest there is a lot that can go right for Bard in 2017…

  Diversified and insulated growth should be coveted this year. Bard revenue growth accelerated over 300 bps in ’16 to 7% organic growth on the back of new products and emerging markets, but we see durability into 2017 above 6%. The hallmark of Bard’s growth is that it is never reliant on any one product or division and continued product cadence in ’17 is likely. We see continued share gains in Surgical (Phasix), penetration in Oncology (PICCs ex US), and broader emerging market (EM) growth as likely adding more than half of the 6.2% growth rate. As for leverage to the bottom line, our view throughout ’16 has been one where Bard will provide preferential drop through to EPS above 10% as top line growth reaches and exceeds 6%. We saw this EPS inflection beginning in 1Q16 and expect it to continue in ‘17 where our model embeds ~12% underlying EPS growth. Our new $260 price target is based on ~20x our ’18e EPS of $12.94, which reflects a ~10% premium to the NTM S&P P/E vs.

  In October, Bard said they see 2016 profits ranging between $10.23 and $10.28 per share.

  (Courtesy Ben Levisohn at Barron’s.)

• Morning News: January 4, 2017
  Eddy Elfenbein, January 4th, 2017 at 7:16 am

  Euro-Area Economy Ended Year With Fastest Growth Since 2011

  Euro-Area Inflation Outpaces Expectations as Oil Surges

  Why Finland is Ahead Of The US With Guaranteed Income

  China Said to Consider Options to Back Yuan, Curb Outflows

  Best Economic Forecasters Lay Out 2017 Calls

  U.S. banks Gear Up To Fight Dodd-Frank Act’s Volcker Rule

  Trump Is Bringing In The Big Guns to Roll Back Free Trade

  Why Trump Tariffs on Mexican Cars Probably Won’t Stop Job Flight

  Don’t Count Out Seasonal Patterns to Predict Rates

  Tesla Keeps Missing Forecasts: What This Means For Model 3

  Toshiba Shares Recover From Early Plunge on Accounting Report

  Equifax, TransUnion Settle CFPB Claims of Deceptive Marketing

  Airlines, Now More Proactive on Weather, Allow Fliers to Shift Own Travel Plans

  Coming to Carnival Cruises: A Wearable Medallion That Records Your Every Whim

  Roger Nusbaum: 2016: The Good, The Bad & The Ugly

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• Alliance Data Announces New Stock Repurchase Program
  Eddy Elfenbein, January 3rd, 2017 at 4:57 pm

  Disco!

  Alliance Data Systems Corporation (ADS), a leading global provider of data-driven marketing and loyalty solutions, today announced that its board of directors has approved a new stock repurchase program to acquire up to $500 million of the Company’s common stock during 2017. The new repurchase program replaces the existing program, which expired at the end of 2016.

  Repurchases will be financed through free cash flow. The Company expects to maintain moderate levels of debt over the course of the repurchase program, providing flexibility to pursue tuck-in acquisitions, portfolio purchases and/or international loyalty coalition program expansions.

  “We are pleased to announce our new share repurchase program as it underscores the confidence we have in our business model, our financial performance, and prospects in 2017 and beyond,” said Charles Horn, chief financial officer of Alliance Data. “We will opportunistically repurchase our stock, while maintaining ample liquidity to support the future growth of the business, as well as continuation of a quarterly dividend initiated in the fourth quarter of 2016.”

  Under the repurchase program the Company is authorized to repurchase shares in open market purchases as well as in privately negotiated transactions from time to time through December 31, 2017. Stock purchased as part of this program will be held as treasury stock. The repurchase program’s terms will comply with SEC Rule 10b-18, and the program is subject to market conditions, applicable legal requirements, contractual obligations, and other factors. The repurchase program does not obligate the Company to acquire any specific number of shares and may be suspended or terminated at any time.

• Hempton on Valuation Analysis
  Eddy Elfenbein, January 3rd, 2017 at 12:32 pm

  Here’s a very good post by John Hempton on valuation analysis. Here’s a key bit:

  This is a general quality of investment analysis. Proper valuations are far more art than science. DCF valuations – especially of something growing near or above the discount rate are famously sensitive to assumptions. The right comparison is to the Hubble Telescope: move direction a fraction of a degree and you wind up in another galaxy.

  —

  By contrast there are some things for which a proper valuation should be done and can be done.

  If you own a regulated utility what you really own is a regulated series of cash flows with regulatory risk around them.

  An accurate valuation is part-and-parcel of the analysis – because it delineates what you own.

  —

  The battle here is to work out what the salient details are. Sometimes they are whether young people will continue drinking Red Bull. Sometimes they are working out a technological change.

  In rare cases they are working out valuation.

  Mostly valuation is simply about bounding a margin of safety. And most of that involves understanding the business anyway.

  This is a reason why I tell investors not to rely on stock screeners. The big winners in your portfolio won’t be stocks that go from a 13 P/E to a 17 P/E. Rather they’ll be ones that increase their “E” by 10 fold.

• “Risks Remain in this Market”
  Eddy Elfenbein, January 3rd, 2017 at 12:27 pm

  One of the staples of the financial media is telling us that “risks remain in this market.” There are several different ways of spinning this. You can get a key quote from some muckety muck. See “Summers Says Markets Underestimating Risks of Trump Presidency.”

  My problem with these stories is that they sound as if they’re saying something sober and judicious when they’re really saying very little. Of course, there are risks in every market.

  Risk involves two components: the chance that something will happen and the fallout from what does happen. Last year was a perfect example of risky things happening but not having the expected impact. Brexit and Donald Trump were expected to lose at the polls. In both cases, a win was expected to bring disaster to follow. Both happened and markets took them in stride.

  People tend to view the market as a running back darting downfield, avoiding tackles and sprinting toward the end zone. That’s a fun but flawed metaphor. Instead, the market synthesizes events. It’s more like a giant scale that’s constantly weighing new information. There are always risks, but the question is, how important (i.e., heavy) are they?

• The Cyclicals are Out Front
  Eddy Elfenbein, January 3rd, 2017 at 11:46 am

  The stock market is starting 2017 on the right foot. The S&P 500 has been as high as 2,263.88 this morning. However, the underlying currents of the market are quite different. Cyclical stocks like Materials and Energy are doing very well, while defensive sectors like Healthcare and Income are pretty flat. (As I write this, the Energy Sector has made an abrupt U-turn and has given back much of its gains.)

  This morning, the ISM Manufacturing Index came in at a healthy 54.7. Wall Street had been expecting 53.8. The ISM has been trending higher over the past few months. Tomorrow we’ll get the minutes from the Fed’s last meeting which is the one where they raised interest rates. Then on Friday is the December jobs report.

• Morning News: January 3, 2017
  Eddy Elfenbein, January 3rd, 2017 at 7:28 am

  Finland’s Basic Income Experiment Starts – Really, It’s Testing The Laffer Curve For Poor People

  Pound Drop Boosts U.K. Manufacturing, Pushes Up Factories’ Costs

  Analysts Can’t Seem to Agree on Whether China’s New Yuan Basket Will Be More or Less Volatile

  Solar Could Beat Coal to Become the Cheapest Power on Earth

  OPEC Dismisses American Shale Oil

  Paris Eyes Luring 20,000 Bankers From London Amid Brexit Rupture

  With Trump, an Economic Feast With Surprises on the Menu

  Jain Finds His Second Act as Ex-Deutsche Bank Chief Joins Cantor

  Euronext Offers to Buy Unit of London Stock Exchange for $536 Million

  Growing a Different Apple

  Indonesia Penalizes JPMorgan for `Underweight’ Call

  Twitter’s China Boss Kathy Chen Quits After Eight Months

  Another Madoff Legacy: Ways for Investors to Keep Ponzi Profits

  Josh Brown: Our Obligation

  Howard Lindzon: Information Overload or Filter Failure

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• Morning News: January 2, 2017
  Eddy Elfenbein, January 2nd, 2017 at 6:08 am

  German Factory growth Reaches Close to Three-Year High in December

  French Employees Can Legally Ignore Work Emails Outside of Office Hours

  Mexicans Are Outraged Over a Big Hike in Gas Prices on Jan. 1

  India’s Demonetization And Interest Rates – Now SBI Cuts By 0.9%

  China’s New Rules on Yuan Transfers Are Not Capital Controls

  The Most Popular Investor Picks for Emerging Markets in 2017

  What U.S. Tech Giants Face in Europe in 2017

  Google Makes So Much Money, It Never Had to Worry About Financial Discipline—Until Now

  Apple partner Wistron Seeks to Expand India Smartphone Parts Plant

  Hyundai, Kia Forecast Sales to Rebound on Capacity, Models

  Samsung, Hyndai Motor See Growing Uncertainties in 2017

  Tesla: Buying The Experiment

  Deutsche Bank Flew and Fell. Some Paid a High Price.

  Jeff Miller: Santa Rally Trumped?

  Josh Brown: In 2016 I Learned That…

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