Archive for January, 2019

  • Danaher Earns $1.28 per Share
    , January 29th, 2019 at 9:57 am

    This morning, Danaher (DHR) reported Q4 earnings of $1.28 per share. That beat the Street by a penny. Their previous guidance had been for $1.25 to $1.28 per share. For the year, Danaher made $4.52 per share.

    For Q1, DHR expects $1 to $1.03 per share. Wall Street had expected $1.03 per share. For all of 2019, the company sees earnings between $4.75 and $4.85 per share. I said I expected them to say $4.75 to $4.80 per share. Wall Street had been expecting $4.82 per share.

    This is from the press release:

    Danaher Corporation (DHR) today announced results for the fourth quarter and full year 2018. For the quarter ended December 31, 2018, net earnings were $746.8 million, or $1.05 per diluted share, representing a 13.0% year-over-year decrease.

    Non-GAAP adjusted diluted net earnings per share for the quarter ended December 31, 2018 were $1.28. This represents a 7.5% increase over the comparable 2017 period. For the fourth quarter 2018, revenues increased 5.5% year-over-year to $5.4 billion, with non-GAAP core revenue growth of 5.5%.

    For the full year 2018, net earnings were $2.7 billion, or $3.74 per diluted share, representing a 7.0% year-over-year increase. Non-GAAP adjusted diluted net earnings per share for 2018 was $4.52 per share, which represents a 12.0% increase over the comparable 2017 amount. Revenues for the full year 2018 increased 8.5% to $19.9 billion, with non-GAAP core revenue growth of 6.0%. The Company generated operating cash flow of $4.0 billion for the full year 2018, which represents a 15.5% year-over-year increase.

    For the first quarter of 2019, the Company anticipates that diluted net earnings per share will be in the range of $0.78 to $0.81 and non-GAAP adjusted diluted net earnings per share will be in the range of $1.00 to $1.03.

    For the full year 2019, the Company anticipates that diluted net earnings per share will be in the range of $3.85 to $3.95. The Company continues to expect its 2019 non-GAAP adjusted diluted net earnings per share to be in the range of $4.75 to $4.85.

    Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “We are very pleased with our fourth quarter results which wrapped up a tremendous 2018. During the year, we delivered strong revenue growth and operating margin expansion, leading to double-digit adjusted earnings per share and free cash flow growth. We believe we gained share in many of our businesses, driven by a combination of new product innovation and enhanced commercial execution. In addition, we closed over $2 billion in strategic acquisitions, and we believe we are well positioned for significant capital deployment in our attractive end-markets.”

    Joyce continued, “Over the past several years, through a combination of organic and inorganic initiatives, we have transformed Danaher into a higher growth, higher margin, and higher recurring revenue company with strong footholds in attractive, fast-growing end-markets. Our portfolio today — combined with the power of the Danaher Business System — positions us well as we focus on delivering long-term shareholder value in 2019 and beyond.”

  • Morning News: January 29, 2019
    , January 29th, 2019 at 7:08 am

    Gold Reaches Seven-Month High as Stocks, Dollar Struggle

    U.S. Sanctions Venezuela State Oil Firm, Escalating Pressure on Maduro

    PDVSA’s Angry Creditors Are Prowling the Caribbean for Oil to Seize

    Trump’s Shutdown Surrender Adds Pressure to Secure China Trade Win

    Government Shutdown Cost U.S. Economy $11 Billion, C.B.O. Says

    Powell Faces Early Reckoning on Fed’s $4-Trillion Question

    The Bond Market Proves the Doubters Wrong. Again.

    PG&E Files for Bankruptcy With More Than $50 Billion in Debt

    Tesla Has Just 4 Weeks to Rally 21% or Pay $920 Million on Bonds

    FaceTime Bug Lets iPhone Users Eavesdrop, in a Stumble for Apple

    Boeing’s Decision of the Decade: Does It Build the 797?

    Huawei Lawyer Says CFO Meng a ‘Hostage’ After U.S. Presses Charges

    Woodbridge Group Must Pay $1 Billion for Defrauding Thousands of Elderly People in a Ponzi Scheme

    Michael Batnick: The Single Greatest Error

    Joshua Brown: Blue Magic

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  • Update on Wabtec/GE
    , January 28th, 2019 at 2:52 pm

    At the beginning of the year, we took Wabtec (WAB) off our Buy List.

    The company had plans to merge with GE’s transportation business. On Friday, they altered the terms of the agreement. GE will spin off some of their transport business to GE shareholders. What’s left over will be merged with Wabtec.

    A prominent analyst at JP Morgan, who’s been a GE bear, did not like the latest news. Both stocks are down today. At one point, WAB was down 5%.

  • Morning News: January 28, 2019
    , January 28th, 2019 at 7:17 am

    The World Economy Just Can’t Escape Its Low-Growth Low-Inflation Rut

    China’s Banks Are Desperate for Capital

    Long Winter’s Nap? Global Slowdown, Market Fears Could Extend Fed Pause

    U.S. Treasury Set to Borrow $1 Trillion for a Second Year to Finance the Deficit

    $1.5 Trillion U.S. Tax Cut Has No Major Impact on Business Capex Plans

    In 5G Race With China, U.S. Pushes Allies to Fight Huawei

    Chipmaker Xilinx’s 5G Orders Kick Off Race to Cash In On New Networks

    Bridgewater, RenTech Make $13 Billion in a Grim Year for Hedge Funds

    Mailing Just Got More Expensive: Forever Stamps See Biggest Price Increase Ever

    U.S. Pension Insurer Slams Lampert Bid for Sears

    Vale’s Board Suspends Dividends After Deadly Dam Disaster

    SEC Investigates Nissan Over Carlos Ghosn’s Pay Disclosures

    Howard Lindzon: Momentum Monday…Some Stocks are Perking

    Ben Carlson: Who Owns All the Stocks & Bonds?

    Roger Nusbaum: When Momentum Isn’t

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  • Breaking Down Signature’s Q4
    , January 27th, 2019 at 12:34 pm

    Writing at Seeking Alpha, Stephen Simpson has good things to say about Signature Bank‘s (SBNY) fourth quarter.

    Signature had a strong-looking fourth quarter report, with revenue 3% better than expected and both pre-provision income and core EPS about 5% better than the sell-side expected. The “but” is that about half of the upside was driven by higher than expected prepayment income. Even so, an earnings beat of 2% – 3% isn’t bad in a quarter where more than a third of banks have missed.

    Revenue rose 4% yoy as reported, with net interest income up 5%. As a liability-sensitive bank, Signature Bank has been taking a bruising as rates have headed higher, and the company saw an 18bp yoy/5bp decline in core NIM (adjusted for the pre-payments), partly offsetting the double-digit yoy growth in average earning assets. Fee income declined 27% yoy (and rose 27% qoq), but is presently a trivially small part of the business.

    Operating expenses rose 8% yoy and the efficiency ratio worsened on both an annual (140bp) and sequential (70bp) basis, as Signature continues to invest in these growth opportunities and continues to hire private banking teams, including eight teams hired in 2018. Relative to expectations, though, the efficiency ratio was nearly a point better than expected, as these growth-oriented spending plans had been well-communicated to the Street. Pre-provision income growth was modest (up 2%), but still better than expected, and tangible book value per share rose about 9%.

    Signature showed some exciting momentum in its lending. Period-end loan balances rose almost 12% yoy and 4% qoq, modestly exceeding expectations and accelerating from the growth rates seen in the last two quarters. Multifamily lending is still far and away the dominant lending line here (Signature has meaningful share in the NYC multifamily market), but C&I lending pipped multifamily and CRE loan growth on a qoq basis by 30bp, the first time C&I lending has outgrown CRE lending in a long time. I believe this reflects Signature’s commitment (and some early progress/success) in diversifying the business away from such an intense real estate focus in the future.

    Deposit growth couldn’t keep pace, rising about 9% yoy and 1% qoq, but Signature’s non-interest-bearing deposit balances improved startingly well, with 11% year-over-year growth in average balances, which is far and away better than anything else I’ve seen so far. That helped keep a lid on deposit costs, which rose 40bp yoy and 15bp qoq, and Signature did see its quarterly deposit beta decline to 40%, a level only slightly above mid-cap norms in the mid-30%’s.

    Simpson thinks Signature has a fair value of $140 per share.

  • The Story of Spam
    , January 27th, 2019 at 12:39 am

    How did Spam become the word for unwanted email?

    Hormel Foods Corp. first rolled out Spam in 1937, though the origins of the brand name are a bit obscure. According to the corporate history on the official Spam website, Ken Daigneau, the brother of a Hormel Foods vice president, won a contest with a prize of $100 for coming up with the name.

    Hormel is cagey about the name’s meaning, though. “One popular belief says it’s derived from the words ‘spiced ham,’” their website says. “The real answer is known by only a small circle of former Hormel Foods executives. And probably Nostradamus.” The “spiced ham” theory is supported by a 1937 publication from the U.S. Patent Office reporting the trademark: “For Canned Meats—Namely, Spiced Ham.” But the main ingredient of Spam has historically been pork shoulder, with ham added in.

    Spam was originally marketed as a “miracle meat” perfect for any occasion. But it developed a checkered reputation from its use as a stand-in when no fresh meat was available, especially in food shortages during and after World War II. Famously, Monty Python’s Flying Circus turned the postwar ubiquity of Spam into a surreal punchline in a 1970 television sketch. A waitress at a greasy spoon reciting such delicacies as “Spam, egg, Spam, Spam, bacon and Spam” incongruously leads to a chorus of Vikings loudly singing about “wonderful Spam.”

    Monty Python’s Spam sketch was a favorite of tech nerds of the 1980s, who playfully applied the term to the world of computing. As early as 1984, “spam” showed up alongside the nonsensical monosyllables “foo” and “bar” as a placeholder term for variables in discussions of computer programming. (“Spam” would become a standard variable name in the programming language Python, which owes its name to Monty Python fandom.)

    On bulletin-board systems of the ’80s, repeating the text “spam” over and over again could be used as a way to flood a message board to keep other users from posting. By 1990, “spam” became a verb referring to this type of flooding, especially when done to overflow the buffer of a program running a system in order to crash it. It became particularly popular among those playing a type of online game known as a Multi-User Dungeon, or MUD, and early examples come from MUD discussion groups. As one participant put it, “it has been generalized to mean sending lots of crap to servers as well as people you want to annoy the hell out of.”

    “Spamming” soon became a headache in the Usenet newsgroups of the early ’90s, with multiple posts flooding the zone for mere mischief or for commercial purposes. The commercial type of spam then reared its head on email servers, requiring the creation of “spam filters” and other anti-spam measures.

  • CWS Market Review – January 25, 2019
    , January 25th, 2019 at 7:08 am

    “Fear is an emotion, not a stock indicator.” – Coreen T. Sol

    The stock market has been oddly calm this week. This is especially interesting now that earnings season is underway. So far, the earnings results look pretty good. About 25% of the companies in the S&P 500 have reported Q4 earnings, and the “beat rate” is running close to 70%.

    Last Friday, the S&P 500 briefly got over 2,675. From trough to peak, the S&P 500 gained 14% in a little over three weeks. That’s a nice little rally. In the last 14 trading sessions, the index has only had three losing days. Crucially, the index is still above its 50-day moving average (the blue line in the chart below), and the 200-DMA isn’t that far off (the red line).

    Still, I’m cautious. The shutdown isn’t helping things, and the Federal Reserve gets together next week. My fear is that the central bank is clinging to an unnecessary need for higher interest rates. Hopefully, we’ll hear evidence that the FOMC is bowing to reality. With central bankers, one never knows.

    We didn’t have any Buy List earnings reports this week, but we have a full slate next week. I’ll preview them all in this week’s issue. I also have an update on Fiserv, which just reached a new all-time high. Some of our Buy List stocks already look like big winners this year. (Anyone else notice that Signature Bank is up 21% YTD? Good: me too.) Before we get to that, let’s look at the best initial jobless-claims reports in half a century.

    Don’t Expect a Rate Hike Next Week

    There was important news on Thursday that didn’t get a lot of attention. The initial jobless-claims report came in below 200,000. Specifically, it was 199,000. What makes this noteworthy is that this hasn’t happened in nearly 50 years. The last time it was lower was in November 1969.

    The jobless claims report kinda sorta lines up with the government’s jobs reports, but not exactly. This suggests that we’re going to get another good jobs report next Friday. Importantly, I think we’ll see more folks wander back to the workforce. During the recession, many people simply stopped looking for jobs. That’s how rough things were. I noticed that Walmart is looking to hire 900 truckers and pay them $90,000 a year. A lot of companies need more workers, but now they finally have to pay more to get them.

    The Federal Reserve meets next week on Tuesday and Wednesday. Don’t expect any movement on interest rates. The Fed may be done for a while, but I’m not sure if they realize it yet. Their forecasts for this year were pretty bold. The median FOMC member sees the need for two more rate hikes this year, and a sizable faction thinks we need three.

    Color me skeptical.

    Let’s run down the evidence. The U.S. dollar has been holding up well. Inflation has been low. The CPI report for December showed a slight drop in consumer prices thanks to a decline in energy prices, but even the “core rate” is low. Currently, the futures market thinks there’s a 1-in-6 chance of a Fed rate hike by June. That sounds right. The futures market thinks there’s a 71% chance the Fed won’t make any changes to rates this year. A lot of people think the next move could be a rate cut.

    But the best news has been on the jobs front. The U.S. labor market continues to expand, and people are returning to the jobs market. There’s also evidence that wages are finally improving. Economic theory tells us that this results in inflation. At some point, I suppose that’s right, but I prefer to look at the real world over theory. (This, among many reasons, is why I’m not on the Fed.) There simply isn’t a need for higher rates right now.

    The housing market got knocked down in 2018, but it’s far from done for. Last month, existing-home sales fell 6.4%. We don’t yet have the new-homes sales data yet (thank you, shutdown), but the recent weakness is certainly due to higher mortgage rates. That’s another reason for the Fed to cool it. This may be why Sherwin-Williams recently warned that Q4 will be weak.

    Since rates have backed off, I expect a pickup in housing this year. It seems that a decade on from the economy going kablooey, folks are still nervous about a housing bust. Please. We’re not even close to one. We just need the Fed to cooperate.

    Next week, we’re going to get the initial report on Q4 GDP growth. This will be an interesting one because the last two reports were pretty good: +4.2% and +3.4%. The economy has had a very hard time stringing together three quarters in a row of decent growth (see chart above). This time, we may finally do it.

    As I mentioned earlier, earnings season is young, but the early results look promising. The consensus is for earnings growth of 13.5%. We should top that. With this earnings season, I’m also paying attention to guidance for 2019. Companies aren’t required to give investors guidance, but the better companies do, particularly those on our Buy List. Having said that, let’s look at the Buy List earnings reports for next week.

    Next Week’s Earnings

    Here’s a look at our Earnings Calendar:

    Company Ticker Date Estimate Result
    Eagle Bancorp EGBN 16-Jan $1.13 $1.17
    Signature Bank SBNY 17-Jan $2.80 $2.94
    Stryker SYK 29-Jan $2.15
    Danaher DHR 29-Jan $1.27
    Check Point Software CHKP 30-Jan $1.63
    Sherwin-Williams SHW 31-Jan $3.68
    AFLAC AFL 31-Jan $0.94
    Hershey HSY 31-Jan $1.27
    Raytheon RTN 31-Jan $2.88
    Cerner CERN 5-Feb $0.63
    Church & Dwight CHD 5-Feb $0.58
    Disney DIS 5-Feb $1.56
    Becton, Dickinson BDX 5-Feb $2.61
    Torchmark TMK 5-Feb $1.56
    Cognizant Technology Solutions CTSH 6-Feb $1.07
    Broadridge Financial BR 7-Feb $0.71
    Fiserv FISV 7-Feb $0.87
    Intercontinental Exchange ICE 7-Feb $0.92
    Moody’s MOC 15-Feb $1.68
    Continental Building Products CBPX 21-Feb $0.59

    As you can see, we have seven earnings reports scheduled for next week.

    On Tuesday, Danaher and Stryker are set to report. Previously, Danaher (DHR) told us to expect Q4 earnings between $1.25 and $1.28 per share. My math tells me they’ll probably beat that by a little.

    For all of 2018, Danaher expects earnings between $4.49 and $4.52 per share. For context, at this time last year, Danaher gave initial 2018 guidance of $4.25 to $4.35 per share. That should tell you how well things have been going for them. I love seeing our stocks raise guidance.

    With the earnings report, Danaher will probably give initial 2019 guidance. I’m expecting something around $4.75 to $4.80. Don’t be surprised if they low-ball us. That’s how the game is played. Remember that Danaher is also planning to spin off its dental business sometime this year. We may get an update on Tuesday.

    Stryker (SYK) took a big hit in December, and the shares have been rallying back. For Q4, the company expects $2.13 to $2.18 per share. For all of 2018, Stryker sees earnings between $7.25 and $7.30 per share. I think the Street will be watching their Q1 guidance carefully. The consensus is for $1.84, which is probably too high, but don’t sweat this one. Stryker is a solid company.

    Check Point Software (CHKP) is due to report on Wednesday. This is another stock that ended 2018 on a rough note. So far, 2019 is looking a lot better. In October, CHKP told us it expects Q4 earnings of $1.56 to $1.67 per share on revenue of $500 million to $528 million. That’s a pretty big range, but, according to my numbers, that’s reasonable. I don’t know enough to predict an earnings miss or beat. Again, guidance will be key. Consensus on the Street for Q1 is for $1.38 per share.

    Next Thursday will be a busy day for us. Four Buy List stocks are due to report.

    AFLAC (AFL) has been a strong performer lately. In October, the duck stock said it sees itself coming in at the “high end” of its previous full-year guidance. (Warning, math ahead.) That guidance was $3.90 to $4.06 per share, and it assumed an exchange rate of ¥112.16 to the dollar. If by “high end” AFLAC means $3.98 to $4.06 per share, then that means they see Q4 coming in between 87 cents and 95 cents per share. Lately, the yen has been running around ¥109 to the dollar. I may raise my Buy Below on AFLAC, but I want to see the Q4 numbers first.

    Hershey (HSY) is one of our new stocks this year. The shares got knocked down on Thursday with some other consumer-staples stocks. Three months ago, the stock took a hit when it met Wall Street’s estimate for Q3. The lower share price helped convince me to add it to this year’s Buy List. Hershey expects full-year earnings of $5.33 to $5.43 per share. That works out to $1.22 to $1.32 per share for Q4.

    Raytheon (RTN) is another new stock this year. We already have an 8.5% gain this year, but it’s early. Three months ago, the aerospace firm easily beat expectations and raised guidance. Despite the good earnings news, the stock has been going for a decent valuation. I think we got RTN at the right time. In October, Raytheon raised its full-year guidance range from $9.77 – $9.97 per share to $10.10 – $10.11 per share. When the range is one-penny wide, I think that’s a clue that the company knows what to expect. I hope to see 2019 guidance between $11.50 and $12 per share.

    Sherwin-Williams (SHW) already warned us that the Q4 report won’t be a good one. The paint people had been expecting a sales increase in the mid-single digits. Instead, it will be 2%. The company said they had weak North American sales in October and November. Sales improved in December but not enough to make up the difference.

    Before, Sherwin told us to expect Q4 earnings between $4.07 and $4.22 per share. Now it says earnings will be $3.55 per share. On a full-year basis, the company expects earnings of $18.53 per share (which excludes merger-related costs). The previous estimate was $19.05 to $19.20 per share.

    I’m not pleased with this news, but I’m prepared to give Sherwin the benefit of the doubt. This is a well-run outfit, and their results speak for themselves. I appreciate the company getting out ahead of the news. This could be a very good year for Sherwin.

    Fiserv Is a Buy up to $84 per Share

    There’s an old saying about the movie business: “nobody knows nothing.” Well, that applies to investing as well. Last week, I told you about Fiserv’s (FISV) deal with First Data. After the deal was announced, shares of Fiserv plunged 8.8%. Since then, they’ve rallied back impressively.

    On Thursday, Fiserv hit a new all-time high. In six days, from low to high, Fiserv gained more than 20%! This is why we trade our positions so infrequently. Nobody knows nothing. This week, I’m lifting my Buy Below to $84 per share. Earnings are due out on February 7.

    That’s all for now. There will be a lot more earnings news next week. The Fed meeting is on Tuesday and Wednesday. Don’t expect any change on interest rates. The policy statement will come out on Wednesday afternoon. Also on Wednesday, the Q4 GDP report comes out. Wall Street expects growth of 2.9%. If that’s not enough news, the January jobs report will come out on Friday. 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. Several readers have asked if I could host another conference call, especially about earnings season. That’s a great idea. I’m planning one now. I’ll have more details soon.

  • Morning News: January 25, 2019
    , January 25th, 2019 at 7:04 am

    China’s Latest Official GDP Report Is Accurate. No, Really.

    Businesses Are Taking Action After Brexit Warnings Go Unheeded

    Global Shipping Rates Slump in Latest Sign of Economic Slowdown

    Debating the Economics of the Shutdown

    Another Loan? Furloughed Employees Balk at Wilbur Ross’s Suggestion

    Goldman, Morgan Stanley Ask to Cancel Trades After $41 Billion Flash Crash

    Bitcoin Is Worth Less Than the Cost to Mine It, JPMorgan Says

    Hospitals Are Asking Their Own Patients to Donate Money

    Mark Zuckerberg Writes WSJ Column Defending Facebook

    Google’s Bid to Battle Amazon Suffers Blow as Walmart Withdraws

    Weak Intel Outlook Stokes Fears of a Chip Slowdown

    Tesla Reportedly Expects to Have Cash to Make Big Debt Payment

    Jeff Miller: Are You Trading Bear Momentum?

    Jeff Carter: Competition Is the Path

    Joshua Brown: White House Tips for Surviving the Shutdown & How to Double Your Money

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  • Motley Fool on Disney
    , January 24th, 2019 at 12:02 pm

    Interesting discussion:

  • Morning News: January 24, 2019
    , January 24th, 2019 at 7:10 am

    World Leaders at Davos Call for Global Rules on Tech

    Saudis to Davos: Move on from Khashoggi, Let’s Do Business

    Two Venezuelan Presidents Raises Questions About OPEC Leadership

    What Makes This Standoff Worse Than Other Government Shutdowns

    The New Hedge Fund Manager Flies Economy and Stays in Hostels

    Corporate Chiefs Look Past Economic Risks and Pin Hopes on Trump for Trade Deal

    Why Ford’s Operating Profit Dropped 28% in 2018

    Amazon’s Self-Driving Scout Starts Deliveries

    Microsoft Bing Blocked in China as Tensions, Crackdown Intensify

    Hedge Fund Prepares Proxy Fight to Oust Board at Embattled PG&E

    Verizon To Lay Off 7% of Media Group Staff

    Carlos Ghosn Leaves Renault as It Tries to Heal Rift With Nissan

    Ben Carlson: The Long-Term in International Stocks & Animal Spirits: Stay the Course

    Michael Batnick: Tumultuous Times & In or Out

    Roger Nusbaum: What Are You Doing To Enhance Your Optionality?

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