Archive for October, 2019

  • The Case for Eagle Bancorp
    , October 31st, 2019 at 1:27 pm

    There’s a good write-up on Eagle Bancorp (EGBN) at Seeking Alpha. Here’s a sample.

    Eagle Bancorp (NASDAQ:EGBN) was smacked hard in July on news of an investigation tied to potential related party transactions involving former CEO Ron Paul, but it seems like the market has calmed down about that issue and instead refocused on what is a pretty high-quality Washington, D.C. area growth story underpinned by healthy loan growth. Although spread compression remains an ongoing risk, the shares are up about 15% from my last article and have recovered about a third of the investigation-driven decline.

    I believe Eagle shares are still undervalued, and I’m more comfortable about the possible risk from the investigation, as management has pointed to comprehensive insurance coverage for just such events. While I don’t want to underplay the risk of weaker loan demand, tighter spreads, and a deteriorating credit cycle, those are more industry risks than company-specific risks, and I believe Eagle is still looking at a healthy long-term core earnings growth despite a likely low point in 2020.

  • Earnings from ICE and Church & Dwight
    , October 31st, 2019 at 1:17 pm

    Two more earnings reports this morning. Intercontinental Exchange (ICE) earned $1.06 per share which was 10 cents more than expectations. I really like this stock. For the quarter, ICE’s adjusted operating margin was 59%.

    Jeffrey C. Sprecher, ICE Chairman & Chief Executive Officer, said, “In the third quarter we generated record revenues and double-digit earnings-per-share growth. The combined strength of our futures business with compounding growth in our subscription-based Data & Listings business reflects our long-standing strategy of bringing transparency to global markets and enhancing customer workflows. As we look to 2020 and beyond, ICE’s diverse platform is well positioned to continue to serve our customers, generate growth and create value for our stockholders.”

    ICE provides guidance for several metrics except EPS:

    • ICE’s fourth quarter 2019 GAAP operating expenses are expected to be in a range of $637 million to $647 million and adjusted operating expenses are expected to be in a range of $562 million to $572 million.
    • ICE’s fourth quarter 2019 data revenues are expected to be in a range of $555 million to $560 million.
    • ICE’s interest expense is expected to be $71 million in the fourth quarter.
    • ICE’s fourth quarter effective tax rate is expected to be in the range of 21.5% to 23.5%.
    • ICE’s diluted share count for the fourth quarter is expected to be in the range of 557 million to 563 million weighted average shares outstanding.

    The shares are currently up about 1% in today’s trading.

    Church & Dwight (CHD) is another story. For Q3, the company made 66 cents per share.

    Matthew Farrell, Chief Executive Officer, commented, “Q3 was another outstanding quarter with sales growth of 5.0%. Organic sales grew 3.6%, exceeding our 3.0% outlook. Our categories continue to grow and our market shares are healthy. 12 of our 15 domestic categories grew during the quarter and more than half have grown at least 8 consecutive quarters. In the domestic business, 9 out of 12 power brands met or exceeded category growth in the third quarter. The international business continues to perform strongly with reported sales growth of 7.1% and organic sales growth of 8.7%.”

    Despite the earnings beat, CHD maintained its full-year guidance of $2.47 per share. The stock is down about 6% today.

  • Morning News: October 31, 2019
    , October 31st, 2019 at 7:28 am

    The Global Fertility Crash

    China Doubts Long-Term Trade Deal Possible With Trump

    The World’s Largest Nuclear Power Producer Is Melting Down

    Lots of Job Hunting, but No Job, Despite Low Unemployment

    Trump Delivering Only A Fraction Of The 6% Economic Growth He Promised

    Here’s What the Federal Reserve Chair Really Thinks About the Economy

    Hank Paulson on the Shocks of the New Economy

    It Will Take More Than Lower Mortgage Rates for a Housing Rally

    Fiat Chrysler and Peugeot Plan to Create World’s No.4 Carmaker

    In Record Deal, U.S. to Recover $1 Billion from Malaysian Fugitive Jho Low

    Twitter Will Ban All Political Ads, C.E.O. Jack Dorsey Says

    China’s Auto Market Could Shrink About 8% This Year

    Lawrence Hamtil: Valuable Lessons from Tom Russo about Investing Abroad

    Roger Nusbaum: Addition by Subtraction

    Joshua Brown: Why the Street Fears Elizabeth Warren as a Frontrunner & Asset Allocation for People in Their Twenties

    Be sure to follow me on Twitter.

  • Cognizant Earns $1.08 per Share
    , October 30th, 2019 at 4:41 pm

    After the bell, Cognizant Technology Solutions (CTSH) reported Q3 earnings of $1.08 per share. That was three cents more than estimates. Revenues rose 4.2% to $4.25 billion. In constant currency, that’s an increase of 5.1%.

    “Over the past few months, we’ve sharpened Cognizant’s strategic posture and begun executing plans aimed at improving our competitive positioning,” said Brian Humphries, Chief Executive Officer. “Today we are announcing a simplification of our operating model and a cost reduction program, which will allow us to fund investments in growth. Looking ahead, we see a clear path to unlock the organization’s full growth potential, win in our key digital battlegrounds, and return Cognizant to its historical position of being the bellwether of the IT services industry.”

    For Q4, Cognizant sees revenue growth of 2.1% to 3.1% in constant currency. For the full year, CTSH sees earnings between $3.95 and $3.98 per share. That’s an increase of three cents per share to the low end. The guidance implies a Q4 range of $1.02 to $1.05 per share.

  • The Fed’s Policy Statement
    , October 30th, 2019 at 2:02 pm

    As expected, the Federal Reserve just cut interest rates by 0.25%. The range for Fed funds is now 1.50% to 1.75%.

    Here’s the policy statement:

    Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. (The following sentence is the big change from the last statement – Eddy) The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.

    In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

    Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against this action were: Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range at 1-3/4 percent to 2 percent.

    The part I highlighted above is being interpreted that the Fed is going to take a break on rate cuts for the time being. It looks like Powell will take the next six months or so to see how well the recent cuts have worked.

  • The Rebound in Eagle
    , October 30th, 2019 at 11:59 am

    Let me state upfront that this graph isn’t completely kosher because it begins the day after the 27% drop in shares of Eagle Bancorp (EGBN).

    But we’ve talked a lot about the crash; let’s look at the recovery:

    That’s not bad. Yesterday’s high was 25% above the post-drop low. I still think Eagle is a good bargain.

  • Moody’s Earned $2.15 per Share
    , October 30th, 2019 at 7:47 am

    Moody’s Corporation Reports Results for Third Quarter 2019

    Moody’s Corporation 3Q19 revenue of $1.2 billion up 15% from 3Q18
    Moody’s Investors Service 3Q19 revenue of $747 million, up 16% from 3Q18; Moody’s Analytics revenue of $494 million, up 13%
    3Q19 diluted EPS of $1.99 increased 25% from 3Q18; adjusted diluted EPS of $2.15 up 27%
    FY 2019 diluted EPS and adjusted diluted EPS guidance ranges increased to $7.20 to $7.35 and $8.05 to $8.20, respectively

    Moody’s Corporation (MCO) today announced results for the third quarter of 2019, as well as updated its current outlook for full year 2019.

    “Moody’s revenue increased 15% in the third quarter as Moody’s Investors Service benefited from strong corporate and public finance sector bond issuance amid favorable market conditions. Furthermore, Moody’s Analytics continued to deliver robust performance across all business lines, particularly in ERS, driven by solid demand for its analytical solutions,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “In light of stronger than anticipated top-line growth and disciplined expense management, we are raising our full year 2019 adjusted diluted EPS guidance range to $8.05 to $8.20.”

    ASSUMPTIONS AND OUTLOOK FOR FULL YEAR 2019

    Moody’s outlook for 2019 is based on assumptions about many geopolitical conditions and macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, mergers and acquisitions, consumer borrowing and securitization, and the amount of debt issued. These assumptions are subject to uncertainty, and results for the year could differ materially from our current outlook. Our guidance assumes foreign currency translation at end-of-quarter exchange rates. Specifically, our forecast for the remainder of 2019 reflects exchange rates for the British pound (£) of $1.23 to £1 and for the euro (€) of $1.09 to €1.

  • Morning News: October 30, 2019
    , October 30th, 2019 at 7:03 am

    Trade and Fed Rate Worries Offset $50 Billion M&A Deal News, Sapping Stocks’ Strength

    It’s a Big Week for Economic News, With Implications for the 2020 Race

    Fed Prepares to Pause After Third Rate Cut: Decision Day Guide

    State of Health Among American Men Reveals Death and Despair

    The Drone Wars Are Already Here

    Toyota’s Support of Trump’s Emissions Rules Shocks Californians

    Fiat Chrysler in Merger Talks With PSA, Maker of Peugeot

    HBO Max Sets Price ($15 a Month) and Target Date (Next May)

    Amazon is Rolling Out Free Grocery Delivery to All Prime Members

    Sony to Shut Down PlayStation Vue, a Cable Alternative

    J&J’s Own Expert, Working for FDA, Found Asbestos in Baby Powder

    A Secretive Family Landing a $4 Billion Haul Has Everyone Guessing

    Nick Maggiulli: The sCAPEgoat

    Ben Carlson: Dear Bernie Sanders, Banning Buybacks Won’t Help

    Michael Batnick: Stock-Picking Struggles & The Most Bullish Signal in the World

    Be sure to follow me on Twitter.

  • Stryker Earned $1.91 per Share
    , October 29th, 2019 at 4:53 pm

    Stryker (SYK) reported Q3 earnings of $1.91 per share.

    Reported net sales increased 10.6% to $3.6 billion
    Organic net sales increased 8.6%
    Reported operating income margin of 17.5%
    Adjusted operating income margin(1) expanded 50 bps to 25.4%
    Reported EPS decreased 20.6% to $1.23
    Adjusted EPS increased 13.0% to $1.91, at the high end of guidance range

    “We delivered another strong quarter of results, with organic sales growth of 8.6% and adjusted EPS growth of 13%,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “We expect this momentum to continue, which positions us well to deliver above the high end of our initial guidance range for both organic sales and adjusted EPS.”

    Sales Analysis

    Consolidated net sales of $3.6 billion increased 10.6% in the quarter and 11.5% in constant currency. Organic net sales increased 8.6% in the quarter including 9.3% from increased unit volume partially offset by 0.7% from lower prices.

    Orthopaedics net sales of $1.3 billion increased 7.8% in the quarter and 8.8% in constant currency. Organic net sales increased 8.8% in the quarter including 10.1% from increased unit volume partially offset by 1.3% from lower prices.

    MedSurg net sales of $1.6 billion increased 9.2% in the quarter and 10.0% in constant currency. Organic net sales increased 8.8% in the quarter including 9.2% from increased unit volume partially offset by 0.4% from lower prices.

    Neurotechnology and Spine net sales of $0.7 billion increased 19.4% in the quarter and 20.2% in constant currency. Organic net sales increased 7.6% in the quarter including 7.8% from increased unit volume partially offset by 0.2% from lower prices.

    2019 Outlook

    Based on our performance to date and anticipated strength in the remainder of the year, we now expect 2019 organic net sales growth to be toward the higher end of our previously guided range of 7.5% to 8.0% and expect adjusted net earnings per diluted share(2) to be in the range of $8.20 to $8.25. For the fourth quarter we expect adjusted net earnings per diluted share(2) to be in the range of $2.43 to $2.48. If foreign currency exchange rates hold near current levels, we expect net sales in the fourth quarter and full year will be negatively impacted by approximately 1.0%, and net earnings per diluted share will be negatively impacted by approximately $0.02 in the fourth quarter and $0.15 in the full year.

  • Black Tuesday — 90 Years Ago Today
    , October 29th, 2019 at 1:31 pm

    October 29, 1929 was Black Tuesday on Wall Street. This was the day that really broke the market because it was supposed to be a rebound. The market had fallen sharply the day before, and the week before.

    The Monday-Tuesday decline was over 25%. That’s larger than the one-day fall in 1987. It still ranks as the worst two-day plunge in market history.

    Volume reached 16 million shares. Workers had to stay overtime to process the whole thing. The volume record would stand for the next 40 years.

    Check out the coverage from the New York Times:

    Stock Prices Slump $14,000,000,000 in Nation-Wide Stampede to Unload; Bankers to Support Market Today

    By THE NEW YORK TIMES

    The second hurricane of liquidation within four days hit the stock market yesterday. It came suddenly, and violently, after holders of stocks had been lulled into a sense of security by the rallies of Friday and Saturday. It was a country-wide collapse of open-market security values in which the declines established and the actual losses taken in dollars and cents were probably the most disastrous and far-reaching in the history of the Stock Exchange.

    That the storm has now blown itself out, that there will be organized support to put an end to a reaction which has ripped billions of dollars from market values, appeared certain last night from statements by leading bankers.

    Although total estimates of the losses on securities are difficult to make, because of the large number of them not listed on any exchange, it was calculated last night that the total shrinkage in American securities on all exchanges yesterday had aggregated some $14,000,000,000, with a decline of about $10,000,000,000 in New York Stock Exchange securities. The figure is necessarily a rough one, but nevertheless gives an idea of the dollars and cents recessions in one of the most extraordinary declines in the history of American markets.

    It was not so much the little trader or speculator who was struck by yesterday’s cyclone; it was the rich men of the country, the institutions which have purchased common stocks, the investment trusts and investors of all kinds. The little speculators were mostly blown out of their accounts by the long decline from early September. Thousands of them went headlong out of the market on Thursday. It was the big man, however, whose holdings were endangered yesterday and who threw his holdings into the Stock Exchange for just what they would bring, when hysteria finally seized him.

    Market Leaders Hard Hit

    Shares of the best known American industrial and railroad corporations smashed through their old lows of Thursday, and most of them to the lowest level for many years, as wave after wave of liquidation swept the market during its day of utter confusion and rout. As bid after bid was filled for stocks and more and more offered, stocks of the best grade dropped almost perpendicularly, with 2, 3, 5 and even 10 points between sales under probably the most demoralized conditions of trading in the history of the Stock Exchange and the Curb.

    United States Steel declined 17 1/2, General Electric lost 47 1/,; United States Industrial Alcohol, 39 1/2; Standard Gas, 40 1/2; Columbia Gas, 22; Air Reduction, 48 7/8; Allied Chemical & Dye, 36; Baltimore & Ohio, 13 3/8; A.M. Byers Company, 30 3/4; Chesapeake & Ohio, 23 1/2; New York Central, 22 5/8; Peoples Gas, 40 1/2; Westinghouse Electric, 34 1/4; Western Union, 39 1/2; and Worthington Pump, 29.

    These are the blue chips of the market, seasoned stocks based on the country’s leading industries, and which have lead the way up the ladder of fluctuations over many months of the now thoroughly defunct bull market. They, and many others, are the issues in which speculation has been most rampant. But stocks of all kinds were affected by the market’s second debacle. The good went down with the bad and levels undreamed of in Wall Street a month or so ago were crashed through before the resistless assault of a headlong and in many cases senseless wave of liquidation.

    Causes of Crash Varied

    Yesterday’s far-reaching decline in stocks may be ascribed mainly to a general loss of confidence in the market and the inability of any man or group to stem such a torrent of selling, which came from all parts of the world. European selling forming a very material percentage of the stocks forced on the market. But there were thousands of ramifications to the market and many factors, too, which served to add their quota of pressure.

    Among these may be enumerated: Belated liquidation from Thursday’s crash, when the market did not rally promptly from the decline.

    The cleaning out of several stale pools, whose holdings, in some cases large, went into the market for what they would bring.

    The immediate drying up of buying power on the part of the general public, already badly hit in the smash of Thursday.

    Bear selling for the decline of an adroit and unspectacular fashion.

    The mob psychology which impels holders of stocks in all parts of the country to try to sell them all at once when the market shows signs of giving way.

    Margin calls which went out of Wall Street by the thousands and which mainly were answered by orders to sell at the market.

    The catching of stop-loss orders, many of them put in months ago.

    Day’s Sales 9,212,800 Shares

    The statistical record of yesterday’s tremendous day furnished proof that in many respects it did not equal last Thursday’s trading, although the declines were larger. Trading on the Stock Exchange aggregated 9,212,800 shares, as compared with 12,894,650 on Thursday. On the Curb Market sales were 4,152,900 shares, as compared with 6,837,415 in last week’s violent decline.

    Once again the lateness of the tickers added to the confusion and as a guide to the trading were well-nigh worthless. At ten-minute intervals the floor prices were flashed on the bond tickers; and the Dow, Jones news tickers and the New York News Bureau tickers furnished running flows of quotations as they were received from the floor of the Exchanges. It was only by these methods of expediency that Wall Street was able to keep up with the market at all, and in most brokerage houses all attempts to keep their quotation boards up to date were abandoned. It just could not be done.

    Pool’s Purpose Misunderstood

    One of the difficulties that beset the market was the popular misconception that the banking pool, organized by J. P. Morgan & Co., the First National Bank, the National City Bank, the Guaranty Trust Company, the Equitable Trust Company, and the Chase National Bank would throw funds into the market to save it. What the bankers had set out to do, with their consortium, was merely to supply bids where no bids existed and to plug up the “air hole” which the market had developed on Thursday. They had no idea of putting the market up, or saving any one’s profits. Rather the general plan was to provide a degree of stabilization on which further liquidation could take place, if it proved necessary.

    The rally of Friday and the steadiness of the market, which returned to normal on Saturday, could be attributed partly to this misconception, partly to a temporary restoration of confidence by the public generally. The long Sunday holiday gave traders the opportunity to think over their own particular problems. Those who still had profits in the market could visualize them slipping away; those who had losses feared that they might be extended still further. There was that very large definite quota, too, who had received margin calls over the week’s end and who had decided to get out of the market completely.

    Opening Weak and Nervous

    At any rate, stocks opened weak, nervous and unsettled. Steel, at 202 1/4 was off 1 /1/4. International Telephone and Telegraph at 100 was off 3, General Electric at 290 was off 7 1/2, and there were similar reactions from Saturday’s closing figures.

    The opening quotations were a surprise and a shock to Wall Street and to the country, which watched its tickers at 10 o’clock with feverish anxiety. It had been generally believed that some sort of organized support had been arranged over Sunday and that the market, at least, would be a steady one. Most persons believed that the storm of liquidation had blown itself out and that while the market might not advance, still it would not decline very far and that the orderly readjustments started on Friday and Saturday could be completed.

    But these reckonings had been made without taking into consideration the deep-seated fear of a smashing and declining market by the thousands of holders of stocks at home and abroad. They had been through a tempestuous and nerve-wracking week and the answer to the opening quotations was a veritable flood of selling which swept the market from its feet.

    Steel Leads in Decline

    Steel pounded down through 200, and 5 to 10 point declines all over the list had been established by 10:30 o’ clock. By 11 o’ clock the market was in the identical state of demoralization that characterized it on Thursday when the bottom dropped out. Each set of figures brought news of a lower level of prices, and stocks were going down 5 to 10 points in an hour, with support evidently of a very chary character and without power to stem the torrent of liquidation which again was flowing over the country’s Exchanges.

    From nervous irregularity at the opening, the tone became weak and it continued increasingly weak right through to the close, with nervousness and hysteria becoming more emphasized during the final hour of trading when almost 3,000,000 shares were dealt in on the Stock Exchange.

    It was in this final hour that the greatest damage was done. Terror reigned on the Stock Exchange, on the Curb and in the brokerage offices. A curious hush fell over customers’ rooms in strange contrast to the pushing, whirling, shouting mob of brokers on the floor of the Exchanges who strove with might and main to execute their orders. Few men or women spoke. Most of them merely watched with fascinated eyes the jumping hieroglyphics. Most of them had been sold out. But they held to their chairs and watched the quotations as if hypnotized.

    Rush of Sales Increases

    The mounting volume and the declining quotations synchronized with each other during the entire day. Sales to 10:30 on the Stock Exchange were 815,600 shares; by 12 o’clock they had mounted to 3,135,200; by 1:30 to 5,547,900; by 2:10 to 6,328,500, with the total finally footing up to 9,212,800.

    The statistical record of the day’s debacle, as measured by the averages compiled by The New York Times, which have been maintained since 1911, reflected the greatest decline in history, and the industrial averages and the combined, that is, twenty-five representative railroad and twenty-five representative industrial shares, sold down to new low points for the year. Little more than two months ago all of them established new highs. Figured by these measures, the rails declined 9.31, and the industrials 49.12, the combined dropping 29.22. The industrials reached a high of 469.49 on Sept. 19. Yesterday they dropped to 314.95, a decline of 154.54. The combined average of fifty stocks sold at their high for all time on Sept. 19 was 311.90. The decline since that date, to yesterday’s low of 222.57, has been 89.33 points.

    Wild Rumors Current

    One of the features of the day’s trading was the large number of rumors afloat. These involved houses as well as individuals, but none of them was believed to be true. Thus far, the financial district has got through the most disastrous break in its history in exceptionally good fashion. As on Thursday, there were many reports of suicides in Wall Street, none of which was true. There was no mistaking the gravity of the situation which has developed, however, or the attitude with which leading bankers and brokers view it.

    There was but one brief respite during the day. At 1:10 P.M. the news tickers reported that Charles E. Mitchell had just entered the Morgan offices. Wall Street jumped to the conclusion that another banking conference was on, and stocks steadied momentarily. Steel common was then selling on the floor of the Exchange at 193 1/2. A Morgan broker on the floor of the Stock Exchange started bidding for Steel, and the market leader immediately rallied to 198. But the rally was short-lived. Ten minutes later Steel was back to 190 and stocks started once more on the violent smash that did not stop until the bell halted trading.