Archive for July, 2017

• IBM Saves the Dow
  Eddy Elfenbein, July 26th, 2017 at 11:31 am

  The Dow Industrials is a price-weighted index. That means it’s calculated by adding up all 30 stocks in the index and dividing by a divisor. The divisor is carried each day in the Wall Street Journal.

  The current divisor is 0.14602128057775. To make it easier, every $1 in a Dow stock works out to about 6.848 Dow points.

  This morning, Boeing (BA), a Dow stock, is up about 8% which is around $16 per share. At the time I checked, BA was responsible for 115 points in today’s 117-point Dow rally. Boeing is now the highest-priced stock in the Dow which means it has the largest weighting.

  But Boeing is far from being the largest stock in the index by market cap. At last check, BA comes in 21st out of 30 in terms of market value. The Dow Industrials gets a lot of attention from the media, but it’s an anachronism. That’s why I prefer to follow the S&P 500.

• Morning News: July 26, 2017
  Eddy Elfenbein, July 26th, 2017 at 7:07 am

  The Brexit Slowdown Continues — Britain’s Economy Grew Just 0.3% In The Second Quarter

  U.K. to Ban Fossil-Fuel Cars by 2040 as Automakers Race to Adapt

  Dollar Rises From 13-Month Low Before Fed Decision

  US Regulators Just Dealt a Blow to the Most-Hyped Area in Tech Investing Right Now

  Facebook, Google And Others Are In A Lose-Lose Position With An Upcoming Congressional Net Neutrality Hearing

  AMD Earnings Give Investors What They Wanted — Now It Must Deliver on Servers

  Uber’s Latest Bid to Win Over Drivers: 24/7 Phone Support

  Hyundai Saw Its Net Profit Slashed, and it Has The US and China to Blame

  AT&T’s TV Drain Reveals Its Merger Motive

  Viacom CEO Considers Costly Scripps Networks Acquisition

  Taco Bell is Launching a Brilliant New Lyft Feature Called ‘Taco Mode’

  Snopes, in Heated Legal Battle, Asks Readers for Money to Survive

  Joshua Brown: You Have Five Choices

  Jeff Carter: Bitcoin Is A Teeny Market

  Howard Lindzon: Buying Time and the Road Kills

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• Express Scripts Earns $1.73 per Share
  Eddy Elfenbein, July 25th, 2017 at 4:11 pm

  After the closing bell, Express Scripts (ESRX) reported Q2 earnings of $1.73 per share. That beat Wall Street’s consensus by two cents per share. Earlier Express told us to expect Q2 results to range between $1.70 and $1.74 per share.

  Here are some highlights:

  Adjusted claims of 350.0 million, flat
  GAAP net income of $801.8 million, up 11%
  GAAP earnings per diluted share of $1.37, up 21%
  EBITDA of $1,824.1 million, up 1%
  EBITDA per adjusted claim of $5.21, up 1%
  Adjusted net income of $1,011.6 million, up 1%
  Adjusted earnings per diluted share of $1.73, up 10%
  Net cash flow provided by operating activities of $1,081.2 million, up 146%

  “We leverage the power and potential of our independent model to succeed in the areas of healthcare that patients and clients value most,” said Tim Wentworth, President and CEO, Express Scripts. “In just the past quarter, we launched two new ways to deliver more value directly to members at the point of sale, increased our ability to lower drug prices via a new group purchasing organization agreement, acquired a leading workers’ compensation benefits company, and introduced novel SafeGuardRx solutions to address complex, expensive illnesses. These are just a few highlights, but they underline the unique value of our flexibility, innovation and independence: only Express Scripts can partner with anyone in the supply chain at any time to deliver better value to patients, clients and shareholders.”

  “We are currently developing a multi-year, enterprise-wide initiative to transform our organization by the end of 2021,” added Eric Slusser, Chief Financial Officer. “We are investing to deliver an improved experience with better engagement and greater efficiency, which will evolve the way we do business with patients, providers and our clients. Based on our work to date, we estimate the initiative will deliver savings of approximately $550 million to $600 million annually by 2021. This initiative will also allow us to continue tackling the challenges plan sponsors face in an increasingly complex healthcare environment with an industry-leading cost position,” said Slusser.

  And now for guidance:

  The Company increased its guidance for 2017 adjusted earnings per diluted share from a range of $6.90 to $7.04 to a range of $6.95 to $7.05, which represents growth of 10% over 2016 adjusted earnings per diluted share results at the mid-point of the range.

  The Company expects total adjusted claims for the third quarter of 2017 to be in the range of 340 million to 350 million. Adjusted earnings per diluted share for the third quarter of 2017 is estimated to be in the range of $1.88 to $1.92, which represents growth of 8% to 10% over the third quarter of 2016.

  Wall Street had been expecting $1.89 per share for Q3, and $6.97 per share for all of 2017.

• Is it Time for Bitcoin?
  Eddy Elfenbein, July 25th, 2017 at 12:40 pm

  From MarketWatch:

  Cullen Roche of Orcam Financial Group echoed much of Richter’s view.

  “As a speculative instrument it’s an interesting bet on its widespread acceptance as a medium of exchange, but we should be very clear that we are speculating when we buy bitcoin,” he said. “In this sense it is more akin to something you might gamble on as opposed to something you prudently invest in. Not an inappropriate endeavor, but probably not one that should be an excessive portion of anyone’s asset allocation.”

  Eddy Elfenbein of the Crossing Wall Street blog agreed on the idea of rolling the dice, and actually didn’t rule it out for himself.

  “I’d buy bitcoin as a fun bet, but it still has a long way to go,” he said. “If a currency moves 15% a day, then it’s not a currency.”

• Wabtec Misses and Guides Lower
  Eddy Elfenbein, July 25th, 2017 at 10:33 am

  This morning, Wabtec (WAB) became our latest stock to report earnings and it turned out to be our latest disappointment. For Q2, the freight services company earned 75 cents per share which included five cents per share due to the “net effect of the restructuring and transaction expenses and the interest expense benefit.” Wall Street had been expecting 94 cents per share.

  For all of 2017, Wabtec now expects sales of $3.85 billion and EPS between $3.55 and $3.70. That’s a reduction from their April forecast of $3.95 to $4.15 per share.

  Raymond T. Betler, Wabtec’s president and chief executive officer, said: “We remain confident in our future growth opportunities, even as we manage aggressively through our short-term challenges. In transit, we have a record and growing backlog, with significant projects in all major markets around the world, and we are making meaningful progress in the Faiveley integration, with margins improving during the year. In freight, our backlog has now increased for three consecutive quarters, and demand appears to be stable in our key markets. Finally, we continue to invest in our balanced growth strategies, including new products and acquisitions, around the world.”

  The shares are down about 11% this morning.

• Morning News: July 25, 2017
  Eddy Elfenbein, July 25th, 2017 at 7:04 am

  For China’s Global Ambitions, ‘Iran Is at the Center of Everything’

  German Business Climate Hits Record as Economy Proves Robust

  Alphabet Shares Tank as Wall Street Freaks Over Rising Traffic Costs

  Michael Kors to Buy Jimmy Choo in $1.2 Billion Deal

  LedgerX Just Gave Us Another Way to Bet Against Bitcoin

  Halliburton Sees Drillers `Tap the Brakes’ on Shale Boom

  SoftBank Reportedly Seeking Uber Stake Valued at Billions

  Bill Gates Backs Uber Freight Rival

  Johnson & Johnson’s Pricey Best-Selling Drug Will Have to Face a 35% Cheaper Rival

  Sports Retailer Stocks Fall as Hibbett Posts Gloomy Outlook

  The Chipotle Corporate Sabotage Theory Returns

  Stada Board Recommends Acceptance of Improved Takeover Bid

  DuPont Beats on Strong Demand in Agriculture Business

  Michael Batnick: The Topic Is Gold

  Roger Nusbaum: Markets Continue to Melt (Higher!)

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• RPM International Earned $1.02 per Share
  Eddy Elfenbein, July 24th, 2017 at 1:04 pm

  This morning, RPM International (RPM) had a dud of an earnings report. The company made $1.02 per share for its fiscal Q4 which was 16 cents below Wall Street’s consensus. Quarterly net sales rose 4.6% to $1.49 billion.

  “We took additional cost reduction measures in the fourth quarter to position RPM to a return to double-digit earnings growth in fiscal 2018. We were pleased with solid organic growth in both our industrial and specialty segments during the fourth quarter, which we expect to continue as we enter into fiscal 2018. Organic growth across our consumer businesses was down 1.0%, principally due to lower results at our Kirker nail enamel business, the negative impact of a very rainy start to the spring season for home improvement sales and a difficult comparison to our prior-year quarter in which organic growth across RPM’s core consumer product lines increased 9.9%,” stated Frank C. Sullivan, RPM chairman and chief executive officer.

  “The consolidated revenue increase, particularly in a growth-challenged economic environment, was mitigated somewhat on leverage to the bottom line as a result of higher raw material costs during the quarter, including shortages and availability issues in a couple of key product lines. Also, a significantly higher tax rate in the fourth quarter this year versus last year reduced earnings per share on a comparative basis by $0.12.

  Now for guidance:

  “Based upon the growth expectations above, we anticipate earnings per share for fiscal 2018 to be in the range of $2.85 to $2.95 per share. Throughout the year, it will be important to keep in mind the variability of our year-over-year quarterly comparisons, in particular, our tax rate is estimated to be in line with fiscal 2017, but may fluctuate quarter-to-quarter. Related to this, in the first quarter of last year we had a very favorable tax adjustment, which is not expected to repeat, and which will negatively impact the first quarter of fiscal 2018 by approximately $0.03 per share. As outlined above, in the fiscal 2017 third quarter we identified, but did not adjust out, roughly $0.08 per share of non-operating, one-time items. These items should be added back to the fiscal 2017 base results for our fiscal 2018 third quarter. Given the higher-than-normal tax rate in the fiscal 2017 fourth quarter, we would anticipate $0.05 per share benefit in the fiscal 2018 fourth quarter.

  “For the first quarter of fiscal 2018, in addition to the higher tax rate mentioned above, we expect higher raw material costs experienced in the fourth quarter to continue through the first quarter, as well as continued foreign currency headwinds, both translational and transactional. Also, most of our operating groups were on plan in the first quarter of fiscal 2017, before their results began to weaken, and our Brazilian operation benefited in the first quarter last year when Brazil hosted the summer Olympics. As a result, our EPS estimate for the first quarter of fiscal 2018 is $0.83 per share to $0.85 per share.

  Wall Street had been expecting 89 cents per share for this quarter, and $3.00 per share for the year. Shares of RPM are down about 7% today.

• Morning News: July 24, 2017
  Eddy Elfenbein, July 24th, 2017 at 7:08 am

  Traders Fear Hard Landing in Emerging Markets

  Oil Rises as Saudi Arabia Pledges Deep Cut to August Exports

  Euro Zone Business Growth Slows at Start of Second Half

  IMF Cuts U.K. Forecast as Brexit Inflation Knocks Consumers

  IMF Sees U.S. Fading as Global Growth Engine

  U.S. Inflation Remains Low, and That’s a Problem

  U.S. Foresaw Better Return in Seizing Fannie and Freddie Profits

  Sensing Weakness, Uber’s Asian Rivals Make $2.5 Billion Play

  Blackstone Mortgage 7.9% Dividend Yield Is Not Good Enough

  Quest for AI Leadership Pushes Microsoft Further Into Chip Development

  Samsung Takes Aim at TSMC with Plans to Triple Chip Foundry Market Share

  Direct Lending Funds’ Fading All-Weather Appeal

  Howard Lindzon: StockTwits Adds Streams and Symbology for 100+ Cryptocurrencies and Tokens

  Joshua Brown: Upside Surprises Hit a Five Year High

  Ben Carlson: The Game Beyond the Game

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• Three Quick Charts
  Eddy Elfenbein, July 22nd, 2017 at 11:15 pm

  Here are some charts I wanted to show you.

  First up, is Moody’s (MCO) recent performance. We got a nice response from the earnings report.

  

  Second up, the Nasdaq Composite just snapped a 10-day winning streak.

  

  Om CNBC, I mentioned that the Dow is down for the year priced in euros. Here’s the chart:

  

• Healthcare Breakout?
  Eddy Elfenbein, July 21st, 2017 at 6:27 pm