Archive for April, 2019

• Disney Soars on New Plans
  Eddy Elfenbein, April 12th, 2019 at 11:57 am

  Very good morning for Disney (DIS).

  

  From Business Insider:

  Disney shares were up more than 10% Friday morning, hitting a record high of $130.90, after the company revealed details of its new streaming service Disney Plus during the company’s investor day on Thursday.

  The new service will rival Netflix, which is currently dominating the space. Disney will launch the service in November and it will be priced at $6.99 per month, a notable discount to Netflix’s pricing which ranges from $8.99 to $12.99. Content will include “Marvel,” “Star Wars,” “Pixar,” and “National Geographic” content.

  Disney anticipates the service will include 25 original series and 10 movies and specials in the first year, in addition to the more than 400 titles from its library. The entertainment giants sees 90 million households subscribing to the service, which it expects to achieve profitability in 2024.

  UBS analyst John Hodulik was positive on the platform’s subscriber outlook, but noted that questions remain on the extent of foregone licensing fees for Disney.

  “While not providing specific EPS guidance we believe management has given enough detail to help investors model near term earnings trajectory while showing confidence in the long term subscriber opportunity,” Hodulik wrote. Shares topped Hodulik’s price target of $128.

  Wall Street is generally bullish on Disney, with 70% of analysts holding a “buy” rating. The company is set to report its first-quarter results on May 8.

• CWS Market Review – April 12, 2019
  Eddy Elfenbein, April 12th, 2019 at 7:08 am

  “If markets were rational, I’d be waiting tables for a living.” – Warren Buffett

  After a seemingly endless wait, first-quarter earnings season has finally arrived, fashionably late but as dramatic as ever. Over the next few weeks, Corporate America will tell us how things went during the first three months of the year.

  This will be a key earnings season for Wall Street because we’re expecting a modest earnings decline. I should add that results have beaten expectations for the last 39 quarters in a row. (Come to think of it, shouldn’t that read: analysts have missed reality?) In any event, this will be the first time in ten years when revenues are higher but earnings are lower. In other words, margins are falling.

  

  The market’s been quite happy this week. The S&P 500 has rallied nine times in the last ten days. On Monday, the index closed at another six-month high. We’re close to erasing everything lost during last year’s unpleasantness.

  We have a few of our Buy List stocks due to report next week. In this week’s CWS Market Review, I’ll preview next week’s earnings reports. We also had great news from Cerner. Thanks to a major buyback announcement, the healthcare-IT stock jumped more than 10% for us on Tuesday. I’ll have all the details. But first, let’s see why the yield-curve hysteria has probably passed us by.

  The Best Jobless-Claims Report in 50 Years

  Last Friday, the government said the U.S. economy created 196,000 net new jobs in March. That’s a good number, and it’s a welcome relief after the lousy number from February. (By the way, the February was revised upward modestly.)

  It seems that the sluggish start we had at the beginning of the year may have already passed. I suspect that a lot of companies will take advantage of the diminished expectations for this earnings season to pass off bum accounting issues. If Wall Street isn’t expecting much, then this is a good time to book a loss on that investment that went south. We may see a lot of that.

  I think the government shutdown, combined with issues from China, put a damper on economic growth during Q1. However, that may have already passed, and we could be accelerating at this point. Let me highlight a few stats.

  On Thursday, we got the lowest initial jobless-claims report since October 1969. This is interesting because this is one of the few data series that ticked higher during the shutdown. To me, this suggests that things have gotten better.

  

  There are also signs of green shoots from China. The government there has done just about everything to get the economy back on its feet. In fact, the IMF recently bumped up its forecast for Chinese economic growth. Plus, the Chinese stock market has rallied impressively off its low. I never thought I’d see a Communist government cut taxes to spur growth, but here we are.

  I’ve also noticed the recent uptick in energy prices which could presage positive signs for the global economy.

  This is a bit of a U-turn in my thinking, but I try to follow the evidence. I recently talked about the flattening of the yield and its impact on the economy. I was surprised by the amount of bearish commentary I saw on the yield curve. Sure, an inverted curve isn’t ideal, but it’s hardly reason to panic.

  It seems that the yield curve has already backed off some. The 10-year Treasury yield is back above the three-month yield. Also, the odds of a Fed rate cut later this year have diminished. Within the next five months, the futures market thinks there’s only a 30% chance of a rate cut. Even that seems high to me.

  This week, we got the minutes from the last Fed meeting, and members are still open to raising rates. I think it’s a long shot, but it’s not unthinkable. I suspect that the Fed realizes the December hike was a mistake, and for now, they’re not going to move much in either direction.

  The key variable continues to be the economy, and that’s why earnings season is so important. Now let’s look at what we can expect next week.

  Next Week’s Earnings Reports

  Here’s a preliminary calendar of this seasons earnings reports for our Buy List stocks. Twenty of our 25 stocks report on this cycle. Not every company has said when it’ll report, but I’ve tried to have the latest info.

  Company	Ticker	Date	Estimate
  Eagle Bancorp	EGBN	17-Apr	$1.12
  Signature Bank	SBNY	17-Apr	$2.76
  Torchmark	TMK	17-Apr	$1.59
  Check Point Software	CHKP	18-Apr	$1.31
  Danaher	DHR	18-Apr	$1.01
  Sherwin-Williams	SHW	23-Apr	$3.70
  Stryker	SYK	23-Apr	$1.84
  Moody’s	MOC	24-Apr	$1.92
  AFLAC	AFL	25-Apr	$1.06
  Cerner	CERN	25-Apr	$0.61
  Hershey	HSY	25-Apr	$1.46
  Raytheon	RTN	25-Apr	$2.49
  Church & Dwight	CHD	2-May	$0.66
  Intercontinental Exchange	ICE	2-May	$0.90
  Disney	DIS	8-May	$1.59
  Becton, Dickinson	BDX	9-May	$2.58
  Broadridge Financial	BR	TBA	$1.50
  Cognizant Technology Solutions	CTSH	TBA	$1.04
  Continental Building Products	CBPX	TBA	$0.35
  Fiserv	FISV	TBA	$0.82

  Eagle Bancorp (EGBN) is due to report on Wednesday, April 17. Three months ago, the bank released an impressive earnings report. The bank earned $1.17 per share, which was four cents better than estimates. Last year was a very good year for Eagle.

  When looking at banks, there’s a key metric to watch which is called the “efficiency ratio.” It’s their overhead as a percent of revenue. Basically, the efficiency ratio tells us how well-run the bank is. The lower the number, the better. As a general rule, anything below 50% is considered good. For all of 2018, Eagle’s efficiency ratio was 37.3%. Despite the good results, shares of Eagle plunged more than 10% the day after the report came out.

  This is where it gets weird. Eagle turned around and marched up to $60 per share in February, then plunged to $48 in March. EGBN is back up to $55, and I think it’s a good value here. The consensus is for earnings of $1.12 per share.

  Signature Bank (SBNY) will also report on Wednesday. SBNY has been a big winner for us this year (+28.5%). In January, the bank reported a knockout quarter. For Q4, SBNY’s net interest margin was 2.90% and its efficiency ratio was 34.94%. Those are pretty good numbers. Interestingly, the bank also launched Signet, a “new proprietary, blockchain-based digital-payments platform.” Wall Street expects earnings of $2.76 per share. Expect to see a beat.

  Also on Wednesday, Torchmark (TMK) is due to report. Their last earnings report matched expectations. For all of 2019, TMK sees earnings of $6.50 to $6.70 per share. For the Q1 report, Wall Street expects $1.59 per share which sounds about right.

  Check Point Software (CHKP) is also due to report on Thursday, April 18. The stock looks to be a big winner for us this year. For Q1, Check Point sees revenues between $460 and $480 million and EPS between $1.28 and $1.34. For all of 2019, Check Point sees revenues ranging between $1.94 and $2.04 billion and earnings between $5.85 and $6.25 per share.

  Danaher (DHR) is also due to report on Thursday. 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. The dental spin-off is expected to happen in the second half of this year.

  Cerner Is a Buy up to $66 per Share

  On Tuesday, Cerner (CERN) said it had reached an agreement with Starboard Value, an activist shop. That’s one of those firms that takes a position in a company, and then advocates for changes. We’ve done well in recent years thanks to the work of activists. After some back and forth, Cerner and Starboard reached an agreement to make some changes at Cerner.

  Most of the details aren’t terribly important for our purposes (you can read them here), but I want to highlight two. One is that the healthcare-IT firm will initiate a dividend. The other is that Cerner’s buyback authorization has been increased by $1.2 billion. That’s a big chunk of change. The company now has approval to repurchase $1.5 billion worth of CERN stock.

  

  The stock jumped 10% on Tuesday. The company will report earnings on April 25. For Q1, Cerner expects earnings between 60 and 62 cents per share on revenue of $1.365 billion to $1.415 billion. For all of 2019, the company is looking for earnings between $2.57 and $2.67 per share on revenue of $5.65 billion to $5.85 billion. This week, I’m raising my Buy Below on Cerner to $66 per share.

  On Thursday, Disney (DIS) unveiled its new streaming service. The service will be called Disney+. It will be ad-free and will launch on November 12. The service will cost $7 per month or $70 annually. This is Disney’s plan to attack Netflix. The shares fell 56 cents on Thursday to close at $116.60. The next earnings report is due out May 8.

  That’s all for now. Next week will be dominated by earnings news. There will be a few key economic reports as well. The industrial-production report is due out on Tuesday. On Wednesday, the beige-book report comes out. The retail-sales report comes out on Thursday. Then on Friday, we get the latest report on housing starts. 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: April 12, 2019
  Eddy Elfenbein, April 12th, 2019 at 7:05 am

  How China Turned 350 Million Millennials Into Day Traders

  Oil Scores Best Run in Three Years as Dollar, Stocks Tread Water

  Chevron Buys Anadarko in $33 Billion Bet on Shale Oil, LNG

  Uber, Losing $1.8 Billion a Year, Reveals I.P.O. Filing

  Costs for Boeing Start to Pile Up as 737 Max Remains Grounded

  Disney Unveils Price, Launch Date for Big Streaming Push

  Tesla Just Made It Harder to Buy Its Cheapest $35,000 Electric Car

  Mall REITs: Catch a Falling Knife

  Don’t Pay Too Much For Stocks That Pay Dividends

  The Tax Law’s Big Winner Is the Millionaire CEO

  Create a Crisis, Capture a Unicorn

  College Grads Sell Stakes in Themselves to Wall Street

  Michael Batnick: How to Improve Your Risk-Adjusted Returns

  Cullen Roche: My View On: Minsky’s Financial Instability Hypothesis

  Joshua Brown: The One Thing I’m Absolutely Certain Of & Are Things Getting Better or Worse?

  Be sure to follow me on Twitter.

• Me Podding With JC
  Eddy Elfenbein, April 11th, 2019 at 1:15 pm

  I did a podcast recently with JC Parets of All-Star Charts. I want to thank JC for having me on. It was a lot of fun. Check it out!

• Jobless Claims Fall to New Low
  Eddy Elfenbein, April 11th, 2019 at 10:52 am

  This morning’s jobless claims fell to 196,000. That’s the lowest number since October 4, 1969.

  Initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 196,000 for the week ended April 6, the lowest level since early October 1969. Claims have now declined for four straight weeks. Data for the prior week was revised to show 2,000 more applications received than previously reported.

  Economists polled by Reuters had forecast claims would rise to 211,000 in the latest week. The Labor Department said no states were estimated last week.

  The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 7,000 to 207,000 last week, the lowest level since early December 1969.

  

• Morning News: April 11, 2019
  Eddy Elfenbein, April 11th, 2019 at 7:07 am

  U.S., China Agree to Establish Trade Deal Enforcement Offices

  U.S. Core Inflation Cools Amid Shift in Data Methodology

  Automakers Plan for Their Worst Nightmare: Regulatory Chaos After Trump’s Emissions Rollback

  How to Say the ‘R-Word’: Bank Executives Grapple with Recession Talk

  What Bank CEOs Said to Congress

  Katie Porter Stumps JPMorgan Chase’s Jamie Dimon With Question About Employee’s Income

  CEO of Tiny California Bank Makes Twice as Much as Jamie Dimon

  Uber Filing Is Set to Cement 2019 as Year of the Unicorn IPO

  Lyft’s stock slide casts long shadow on Uber’s IPO

  Tesla and Panasonic Freeze Expansion of Gigafactory, Nikkei Says

  Great Job Delta!

  Bed Bath & Beyond Stock Is Sinking Because a Dividend Hike Doesn’t Beat an Earnings Miss

  Jeff Miller: Is It Time To Lever Up On Market Momentum?

  Ben Carlson: Money Makes Money

  Jeff Carter: Communication

  Be sure to follow me on Twitter.

• Morning News: April 10, 2019
  Eddy Elfenbein, April 10th, 2019 at 7:03 am

  U.S. Readies $11 Billion in Tariffs on E.U.

  Aramco Sells $12 Billion of Bonds in Unprecedented Debut

  Yes, the Economy Is Slowing. But Don’t Hyperventilate.

  For First Time In A Decade, U.S. Companies Could Report Lower Profits on Higher Revenue

  U.S. Bank CEOs Face Off With Congress for the First Time Since Financial Crisis

  Warren Buffett Just Gave Wells Fargo Some Valuable Advice

  Uber Seeks About $10 Billion in Year’s Biggest IPO

  Wynn Resorts Ends Talks With Crown Resorts After Premature Disclosure

  Levi Strauss Swings to Profit, Maintains Outlook

  Standard Chartered to Pay $1.1 Billion in Iran Sanctions Settlement

  Are Plastic Bag Bans Garbage?

  Prosecutors Say Drugmaker Indivior Lied About Popular Opioid Treatment

  Nick Maggiulli: The Money We Don’t Talk About

  Ben Carlson: Dividends Don’t Matter As Much As They Used To & The Stories We Tell Ourselves to Sell Ourselves

  Michael Batnick: Smart People Saying Smart Things & Animal Spirits: Super Savers

  Be sure to follow me on Twitter.

• Shares of Cerner Soar
  Eddy Elfenbein, April 9th, 2019 at 9:45 am

  Shares of Cerner (CERN) are in a happy place this morning. The company said it’s increasing its share buyback program by $1.2 billion. The company has reached an agreement with Starboard Value, an activist shop. Cerner will add four new directors to the board.

  Here’s the press release.

  Update: Cerner closed higher 10.3% today.

  

• Morning News: April 9, 2019
  Eddy Elfenbein, April 9th, 2019 at 7:05 am

  Emerging-Market Currencies Are Flashing a Warning

  China Wants to Ban Bitcoin Mining, Traders Say Move Not a Surprise

  Demand for Saudi Aramco Bonds Sails Past the Goal

  Trump Threatens New EU Tariffs on Helicopters, Motorcycles, Cheese and Wine

  The EU and China Rescue a Plan to Present United Front to Trump

  Mnuchin Enters Hot Seat as Battle for Trump’s Tax Returns Escalates

  How Wells Fargo’s Regulators and Employees Drove Out Its CEO

  Big Wynn? Vegas giant makes $7.1 billion play for Australia’s Crown

  Carlos Ghosn Accuses Nissan Officials of Mismanagement

  Roundup, the World’s Best-Selling Weedkiller, Faces a Legal Reckoning

  A Foolish Take: Uber and Lyft’s Ridesharing Duopoly

  Hedge Fund Billionaire Ray Dalio Says the Crisis in Capitalism Is a ‘National Emergency’

  Lawrence Hamtil: No Free Lunch Over the Last Ten Years

  JC Parets: Is Earth Breaking Out?

  Joshua Brown: Seize the Mills!, How a Financial Advisor Uses Technicals & Is Economic Inequality a “National Emergency”?

  Be sure to follow me on Twitter.

• Eddy on Bloomberg
  Eddy Elfenbein, April 8th, 2019 at 9:29 pm

  I was invited on Bloomberg’s market-wrap show this afternoon. I don’t think there’s a video clip, but I’ll look some more.

  Here are the notes I wrote beforehand. Whenever I’m on TV, I try to have a list of things I want to say.

  The dividend story has been a quiet but important one. Yes, dividends are boring they’ve been working lately.

  Go back to the January 2018 peak, what’s the best performing sector? Not tech though it’s close. REIT and Utes have both done better even without adjusting for dividends. They’re both up about 13% while the S&P 500 is mostly flat. Interestingly, the S&P 500 High Beta Index is still below its January 2018 peak.

  Some of this is certainly due to change of stance from the Fed. Powell’s “long way from neutral comment” was only in October (it seems like it was forever ago). Since November, the two-year yield is down 60 basis points. The three-year is down 75 basis points. The futures market currently sees a decent chance of a rate cut by the end of the year. I’m not so convinced, but if it’s correct, that makes dividend- paying stocks more attractive.

  Last year, dividends for the S&P 500 were up 10% while the index fell 6.24%.

  For Q1, dividends were up 9.3%. We’ll probably an increase of 8% to 10% this year. In index adjust numbers, that’s about $58 to $59. That’s almost exactly a 2% dividend yield. Except for the financial crisis, the S&P 500 has (mostly) tracked a 2% dividend yield for the last 15 years.

  Even some blue chip stocks have some nice yields. Coke is about 3.5%. I doubt the dividend is in danger; they’ve raised it every year since JFK. Raytheon, a stock I own in my ETF, yields about 2%. They raised their dividend for the last 14 years.