Archive for July, 2017

  • Trading the Dollar Decline
    , July 21st, 2017 at 6:24 pm

  • Moody’s Earns $1.51 per Share
    , July 21st, 2017 at 8:20 am

    Moody’s (MCO) had a very good earnings report this morning, plus they raised guidance. For Q2, the ratings company earned $1.51 per share which is a 16% increase over last year. That also beat expectations by 17 cents per share. Quarterly revenues were up 8% to $1 billion, and operating income rose 12% to $457.5 million. Very good results.

    More importantly, Moody’s raised their full-year earnings range to $5.35 to $5.50 per share. The previous range was $5.15 to $5.30 per share. Things are going well for Moody’s.

    “In the second quarter, Moody’s recorded $1.0 billion in quarterly revenue, as well as double-digit EPS growth,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “Given the strength of the first half and a supportive market environment, we are raising our full year 2017 diluted EPS and adjusted diluted EPS guidance ranges to $5.69 to $5.84 and $5.35 to $5.50, respectively.”

    Mr. McDaniel added, “We continue to expect our previously announced acquisition of Bureau van Dijk to close in the third quarter of 2017 and look forward to further extending Moody’s position as a leader in risk data and analytical insight.”

    This is a very good report.

  • CWS Market Review – July 21, 2017
    , July 21st, 2017 at 7:08 am

    “Don’t confuse brains with a bull market.” – Humphrey B. Neill

    Second-quarter earnings season kicked off this week for our Buy List stocks. Unfortunately, we’ve had a few poor reactions to the earnings reports even though the underlying fundamentals of our companies are still pretty strong.

    We’ve had six Buy List stocks reports so far this week, plus Moody’s is due to follow later today. In a bit, I’ll go over all our earnings reports. I also have a few new Buy Below prices for you. Later on, I’ll preview six more earnings reports coming next week.

    Overall, Wall Street has been in a buoyant mode. The S&P 500 has continued to make several new all-time highs. Volatility remains extremely low. Here’s an interesting stat: Only once in the last 14 trading days has the S&P 500 fallen by more than 0.1%. It’s almost as if every trading day, the market closes just a tiny bit higher. Now let’s take a look at what was a very busy week for earnings.

    Signature Bank Earns $2.21 per Share

    On Wednesday, Signature Bank (SBNY) started off the second-quarter earnings season for our Buy List. The New York-based bank reported quarterly earnings of $2.21 per share, which matched Wall Street’s consensus.

    But there’s a big caveat to that number. It doesn’t include Signature’s “provision expense and write-downs for the taxi-medallion portfolio.” As we’ve seen, SBNY took a bath on those medallion loans. Uber, Lyft and others have knocked the entire cab industry for a loop. But as I’ve said, this is a known problem, and SBNY has been working on it.

    “We did not, nor did any others, foresee the dramatic decline in taxi-medallion values caused by a combination of rapid radical disruption by app-based hailing systems and inaction by governmental authorities. We did, however, see the disruption coming in time to set an upper limit on loan amounts and to stop our lending earlier than most,” said Scott A. Shay, Chairman of the Board.

    I was more concerned with net interest margin. That’s the key metric for any bank. For Signature, their net interest margin for Q2 was 3.11%. That’s pretty good. Overall, this was an OK quarter for Signature. It’s largely what I expected.

    Traders were not pleased with the earnings reports. The shares have struggled lately, but I still like SBNY. Don’t let the downdraft scare you. This week, I’m dropping my Buy Below on Signature down to $144 per share.

    Five Earnings Reports on Thursday

    Thursday was a very busy day for us, as we had five Buy List stocks report earnings.
    Leading off the group was Danaher (DHR). The diversified manufacturer said they made 99 cents per share for Q2. Danaher had previously told us to expect earnings to range between 95 and 98 cents per share.

    Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “During the second quarter, we delivered double-digit adjusted earnings per share growth, generated strong cash flow, and our two most recent large acquisitions – Pall and Cepheid – continued to perform very well.”

    Joyce continued, “As we look to the second half of the year, we expect our core growth rate to accelerate compared to first half levels off of improving order trends and as recent acquisitions become part of our core revenue. We believe that the power of the Danaher Business System, significant opportunities across our portfolio, and a strengthening balance sheet position us well for the remainder of 2017 and beyond.”

    Now for guidance. For Q3, Danaher said to expect earnings between 92 and 96 cents per share. Wall Street had been expecting 96 cents per share. The good news is that Danaher raised its full-year range. The old range was $3.85 to $3.95 per share. The new range is $3.90 to $3.97 per share.

    Despite the higher guidance, the shares pulled 3% during Thursday’s trading. Frankly, the report looked just fine to me. The company is doing well. I’m keeping Danaher’s Buy Below at $90 per share.

    Snap-on (SNA) said they made $2.60 per share for Q2. That was five cents better than expectations. Net sales rose 5.6% to $921.4 million. Diluted EPS rose by 10.2% over last year’s Q2.

    The CEO said, “Our year-over-year improvement in operating margin before financial services reflects ongoing progress through our Snap-on Value Creation Processes. At the same time, these results also demonstrate continued advancement along our strategic runways for growth, as indicated by the notable increase in activity in the quarter. Despite some sales headwinds in the quarter for the Snap-on Tools Group, we believe the vehicle-repair markets in which we operate remain robust and afford significant ongoing opportunity. Furthermore, our acquisition of Norbar Torque Tools in the second quarter adds to our expanding product offering to customers in critical industries. Finally, these results would not have been possible without the dedication and capability of our franchisees and associates worldwide; I thank them for their extraordinary commitment and ongoing contributions.”

    SNA was also punished by traders. On Thursday, the shares closed 4.7% lower. I don’t understand how a five-cent beat can result in a $7.37 falloff in the share price, but that’s Wall Street for you. This week, I’m dropping my Buy Below on Snap-on down to $161 per share.

    Alliance Data Systems (ADS) was the ugly one this week. The loyalty-solutions people said they pulled in $3.84 per share for Q2. That was 11 cents more than expectations. Quarterly revenue rose 4% to $1.8 billion.

    However, the big news is that ADS is lowering its full-year guidance from $18.50 to $18.10 per share. ADS said its brand-loyalty business “produced soft results.” But ADS is actually bumping up its revenue guidance from $7.7 billion to $7.8 billion.

    The company also said it’s “comfortable” in giving initial 2018 guidance of $21.50 per share in core earnings. The consensus on Wall Street was for earnings of $21.42 per share. Still, Wall Street was not pleased with Thursday’s report. Shares of ADS dropped by 9.5%. I’m lowering my Buy Below to $252 per share.

    Sherwin-Williams (SHW) had a big earnings miss. The company only made $3.80 per share last quarter. Wall Street had been expecting $4.57 per share. The reason for the earnings shortfall was costs assoicated with the recent merger with Valspar.

    Sherwin said they see Q3 earnings coming in between $3.70 and $4.10 per share. That includes a charge of $1.10 per share related to the acquisition. Wall Street had been expecting Q3 earnings of $4.91 per share.

    For all of 2017, Sherwin now expects earnings to range between $12.30 and $12.70 per share. That will include $2.50 in charges related to the acquisition. Wall Street had been expecting $14.76 per share.

    Shares of SHW got clobbered early Thursday. At one point it was down more than 6.1%. But the stock recovered some lost ground and closed down 2.5%.

    After the closing bell on Thursday, Microsoft (MSFT) reported fiscal-Q4 adjusted earnings of 98 cents per share. But that figure includes a tax benefit of 23 cents per share. Excluding that, MSFT earned 75 cents per share which was four cents more than Wall Street’s consensus.

    Revenue in MSFT’s Intelligent Cloud unit rose 11% to $7.4 billion. The company said that Azure revenue rose by 97%, while Office 365 revenue jumped by 43%. The CFO even said that Azure was the primary catalyst for the earnings beat. Microsoft said that LinkedIn brought in $1.07 billion in revenue, and had an operating loss of $361 million.

    The software giant also gave upbeat guidance for the current quarter. The company expects Intelligent Cloud revenue to rise by between 8% and 11%. They see Productivity and Business Processes revenue rising by 21% to 24%. Overall, Wall Street seemed pleased by Microsoft’s results. The shares gapped higher during the after-market session, but that’s never a guarantee of what will happen on Friday. For now, I’m going to raise our Buy Below on Microsoft to $76 per share.

    Six Buy List Earnings Reports Next Week

    Now for next week’s earnings. On Monday, RPM International (RPM) is due to report. This is the odd-man out this earnings season because RPM’s fiscal Q4 ended in May. The other added wrinkle is that usually around 40% of RPM’s annual earnings come during their fourth quarter. The company said it expects full-year earnings to range between $2.57 and $2.67 per share. That implies a Q4 range between $1.13 and $1.23 per share.

    Wabtec (WAB) is due to report on Tuesday. The freight-services company has been in the midst of an impressive turnaround. Only recently has it started to falter. In April, WAB said they see full-year numbers ranging between $3.95 and $4.15 per share. Wall Street expects Q2 earnings of 94 cents per share.

    Express Scripts (ESRX) follows on Wednesday. The pharmacy-benefits manager has been a headache for us this year. I’ll be curious to hear any updates on the Anthem saga. Fortunately, regular business seems to be going well. Express told us they expect Q2 earnings to come in between $1.70 to $1.74 per share. That’s a pretty optimistic forecast, but I think they can do it.

    Next Thursday will be another crowded day for us. We have three more Buy List earnings reports. AFLAC (AFL), the duck stock, said that if the yen averages between 105 and 115 for Q2, then they see earnings coming in between $1.55 and $1.70 per share. The yen has mostly been between 110 and 115 for the last few months.

    Cerner (CERN) has been an excellent stock for us this year. The healthcare-IT folks pegged Q2 earnings between 60 and 62 cents per share. That’s a narrow range. I wanted to add that Cerner’s founder, Neal Patterson, recently died. You can read here about his extraordinary contribution to business.

    Last is Stryker (SYK). For Q2, Stryker expects EPS between $1.48 and $1.52. The orthopedics firm has a full-year forecast of $6.35 to $6.45 per share. They should be able to achieve both.

    Before I go, I wanted to mention that Smucker (SJM) raised its dividend by 4%. The quarterly payout will rise from 75 to 78 cents per share. This is their sixteenth annual dividend increase. The new dividend will be paid on Friday, September 1 to shareholders of record at the close of business on Friday, August 11. Smucker remains a buy up to $131 per share.

    Next week will be dominated by earnings reports. There’s actually a Federal Reserve meeting on Tuesday and Wednesday, but don’t expect much in the way of headlines. It’s highly doubtful the Fed will make any move on interest rates. The policy statement will come out on Wednesday afternoon. The big economic report for next week will come on Friday when the government releases its first estimates for Q2 GDP growth. 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

  • Morning News: July 21, 2017
    , July 21st, 2017 at 7:02 am

    Beijing Wants A.I. to Be Made in China by 2030

    Seeking a Positive Spin, Beijing Says Sino-U.S. Talks Tackled Excess Steel Production

    Easy Money Saved This Italian City. Soon, It Will Run Out.

    Siemens Halts Deliveries to Russian Firms Over Crimea Case

    Bank Profits Near Pre-Crisis Peak in U.S. Despite All the Rules

    Microsoft Profit Beats Expectations on Strong Cloud Demand

    FTC Probing Allegations of Amazon’s Deceptive Discounting

    Elon Musk Says He Has ‘Verbal Govt Approval’ for D.C.-to-New York Hyperloop

    Sears Is Giving Shoppers Even Fewer Reasons to Go to Its Stores

    Visa’s Third-Quarter Profit Beats Expectations

    Bitcoin Community Cheers as Miners Back New Scaling Framework

    Exxon Mobil Fined For Violating Sanctions on Russia

    2 Leading Online Black Markets Are Shut Down By Authorities

    Michael Batnick: When Something Is Obvious

    Jeff Miller: Sizzling Summer Picks in Discretionary Spending

    Be sure to follow me on Twitter.

  • Four Buy List Earnings Reports this Morning
    , July 20th, 2017 at 11:25 am

    It’s been a busy morning for us; we had four Buy List stocks report their earnings.

    First up is Danaher (DHR). The diversified manufacturer said they made 99 cents per share for Q2. Danaher previously told us to expect earnings to range between 95 and 98 cents per share.

    Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “During the second quarter, we delivered double-digit adjusted earnings per share growth, generated strong cash flow, and our two most recent large acquisitions – Pall and Cepheid – continued to perform very well.”

    Joyce continued, “As we look to the second half of the year, we expect our core growth rate to accelerate compared to first half levels off of improving order trends and as recent acquisitions become part of our core revenue. We believe that the power of the Danaher Business System, significant opportunities across our portfolio, and a strengthening balance sheet position us well for the remainder of 2017 and beyond.”

    Now for guidance. For Q3, Danaher said to expect earnings between 92 and 96 cents per share. Wall Street had been expecting 97 cents per share. Danaher also raised their full-year range. The old range was $3.85 to $3.95 per share. The new range is $3.90 to $3.97 per share.

    The shares dropped at today’s open. I’m not sure why. This is a fine report. The shares are basically back to where they were during much of last week.

    Snap-on (SNA) said they made $2.60 per share for Q2. That was five cents better than expectations. Net sales rose 5.6% to $921.4 million. Diluted EPS rose by 10.2% over last year’s Q2.

    The CEO said, “Our year-over-year improvement in operating margin before financial services reflects ongoing progress through our Snap-on Value Creation Processes. At the same time, these results also demonstrate continued advancement along our strategic runways for growth, as indicated by the notable increase in activity in the quarter. Despite some sales headwinds in the quarter for the Snap-on Tools Group, we believe the vehicle repair markets in which we operate remain robust and afford significant ongoing opportunity. Furthermore, our acquisition of Norbar Torque Tools in the second quarter adds to our expanding product offering to customers in critical industries. Finally, these results would not have been possible without the dedication and capability of our franchisees and associates worldwide; I thank them for their extraordinary commitment and ongoing contributions.”

    Shares of SNA initially gapped up but then fell back down.

    Alliance Data Systems (ADS), the loyalty solutions people, said they pulled in $3.84 per share for Q2. That was 11 cents more than expectations. Quarterly revenue rose 4% to $1.8 billion.

    However, the big news is that ADS is lowering their full-year guidance from $18.50 to $18.10 per share. ADS said their BrandLoyalty business “produced soft results.” But ADS is actually bumping up their revenue guidance from $7.7 billion to $7.8 billion.

    The company also said they’re “comfortable” in giving initial 2018 guidance of $21.50 per share in core earnings. Still, Wall Street was not pleased with today’s report. The shares are currently off by about 10%.

    Sherwin-Williams (SHW) had a big earnings miss. The company only made $3.80 per share last quarter. Wall Street had been expecting $4.57 per share. The reason for the earnings shortfall was costs assoicated with the recent merger with Valspar.

    Sherwin said they see Q3 earnings coming in between $3.70 and $4.10 per share. That includes a charge of $1.10 per share related to the acquisition. Wall Street had been expecting Q3 earnings of $4.91 per share.

    For all of 2017, Sherwin now expects earnings to range between $12.30 and $12.70 per share. That will include $2.50 in charges related to the acquisition. Wall Street had been expecting $14.76 per share.

    Shares of SHW got clobbered early Thursday.

    Microsoft‘s (MSFT) report will come out after the close.

  • Morning News: July 20, 2017
    , July 20th, 2017 at 7:05 am

    Oil Steady After Drop in Fuel Stocks Stokes Demand Hopes

    When Will the ECB Pull Its Trillions From the Markets?

    U.K. Retail Sales Rebound as Heat Wave Boosts Clothing Demand

    U.S., China Fail to Agree on Trade Issues, Casting Doubt on Other Issues

    China’s Buying Spree Ends Badly

    Facebook Is Pursuing a Subscription Tool for News Outlets on Its Site

    T-Mobile Raises Subscriber Forecast as Price War Rages On

    Kinder Morgan’s Trans Mountain to See Little Major Work This Year

    Now the Cloud Over Ackman’s Head Says ‘Chipotle’

    The Company Trump `Saved’ Lays Off 338 Workers As He Celebrates Six Months in Office

    Qualcomm’s Profit Tanks 40% As Legal Fight With Apple Drags On

    American Express: Winning the Battle, Losing the War?

    Media Consolidation Is In The Air, and John Malone Is Fanning It

    Jeff Carter: Tough Lessons

    Josh Brown: Brokers Go Bye Bye

    Be sure to follow me on Twitter.

  • Smucker Raises Dividend by 4%
    , July 19th, 2017 at 7:34 pm

    Good news for Smucker (SJM). The jelly people raised their dividend by 4%, from 75 to 78 cents per share. This is their sixteenth annual dividend increase. The new dividend will be paid on Friday, September 1 to shareholders of record at the close of business on Friday, August 11.

  • Signature Bank Earns $2.21 per Share
    , July 19th, 2017 at 1:47 pm

    This morning, Signature Bank (SBNY) kicked off the second-quarter earnings season for our Buy List stocks. The bank reported quarterly earnings of $2.21 per share which matched Wall Street’s consensus.

    But there’s a big caveat to that number. It doesn’t include Signature’s “provision expense and write-downs for the taxi medallion portfolio.” As we’ve known, SBNY took at bath on those medallion loans. Uber and others have knocked that entire industry. But as I’ve said, this is a known problem and SBNY has been working on it.

    “We did not, nor did any others, foresee the dramatic decline in taxi medallion values caused by a combination of rapid radical disruption by app-based hailing systems and inaction by governmental authorities. We did, however, see the disruption coming in time to set an upper limit on loan amounts and to stop our lending earlier than most,” said Scott A. Shay, Chairman of the Board.

    Net interest margin, the key metric for any bank, was 3.11% during Q2. That’s pretty good. Overall, this was an OK quarter for Signature. It’s largely what I expected. The shares dropped sharply at the open, but recovered some ground. SBNY is currently down about 1.5%.

  • Morning News: July 19, 2017
    , July 19th, 2017 at 7:07 am

    How Trump Could Puncture the Equity Bubble

    Net Neutrality Or Continued Innovation? Can’t We Have Both?

    Mustard at a Price That Makes Your Eyes Water

    Frontier Airlines is Doubling in Size

    Netflix Says Its Cash Burn Could Reach $2.5 Billion for 2017, and That It’s An ‘Indicator of Enormous Success’

    Discovery, Viacom Said to Have Held Talks to Acquire Scripps

    Volvo Profit Jumps on 22% Rise in Truck Orders

    Shareholders Weigh British American, Reynolds Tobacco Merger

    Harley-Davidson Spirals Down, Announces U.S. Layoffs, Builds Factory In Thailand

    Daimler Will Recall 3 Million Diesel Cars Across Europe to Fix Emissions

    Investors Spooked By Sick Chipotle Customers

    AMC Tries to Steer Clear of Chinese Owner’s Debt Worries

    Ben Carlson: What’s Your Track Record?

    Cullen Roche: Are ETFs and Index Funds More Dangerous in a Bear Market?

    Roger Nusbaum: Is a Minsky-esque Moment Coming?

    Be sure to follow me on Twitter.

  • How Broker Rebates Work
    , July 18th, 2017 at 11:40 am

    In today’s NYT, Jonathan Macey and David Swensen write on the pernicious practice of broker rebates. Brokers are supposed to get the best trades for their clients:

    But that’s not what is happening. Instead, brokers routinely take kickbacks, euphemistically referred to as “rebates,” for routing orders to a particular exchange. As a result, the brokers produce worse outcomes for their institutional investor clients — and therefore, for individual pension beneficiaries, mutual fund investors and insurance policy holders — and ill-gotten gains for the brokers.

    Although the harm suffered on each trade is minuscule — fractions of a cent per share — the aggregate kickbacks amount to billions of dollars a year. The diffuse harm to individuals and the concentrated benefit to Wall Street create yet another way in which the system is rigged, justifiably eroding public confidence in the fairness of the financial system.