Archive for October, 2019

• Morning News: October 24, 2019
  Eddy Elfenbein, October 24th, 2019 at 7:35 am

  Mario Draghi is Leaving the ECB: Here Are the Key Moments of His 8-year Reign

  Germany’s Factory Recession Sends Industry Employment Plunging

  C.E.O. Confidence Is Collapsing. That Could Hurt Stocks.

  The Permian Basin Is Facing Its Biggest Threat Yet

  Twitter Stock Plunges as Quarterly Sales and Forecast Disappoint Wall Street

  One Family Built Forever 21, and Fueled Its Collapse

  Tesla Shares Soar 21% as Surprise Profit Answers Skeptics

  Nokia Shares Slide as 5G Troubles Prompt a Profit Warning

  A Lafite From China? This $300 Wine Is the Real Thing

  Hyundai Targets EV Sales of Over Half a Million by 2025, Posts Disappointing Third-Quarter

  Facebook’s Zuckerberg, Accused of Lying, Withstands a Washington ‘Beating’

  Animal Spirits: The Least Happy Age & Why the IPO Market is Different This TIme

  Michael Batnick: Where’s the Buyback Beef?

  Jeff Carter: 3 Legs of The Stool

  Joshua Brown: Private Markets Look Like the Dumb Money Now

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• Globe Life Beats Earnings
  Eddy Elfenbein, October 23rd, 2019 at 5:23 pm

  After the bell, Globe Life (GL) reported Q3 net operating income of $1.73 per share, compared with $1.59 per share for the year-ago quarter. Wall Street had been expecting $1.69 per share. Here are some highlights:

  • Net income as an ROE was 12.0%. Net operating income as an ROE excluding net unrealized gains on fixed maturities was 14.7%.

  • Life underwriting margin at Liberty National Exclusive Agency and American Income Exclusive Agency increased over the year-ago quarter by 12% and 9%, respectively.

  • Health underwriting margin at Family Heritage Exclusive Agency increased over the year-ago quarter by 12%.

  • Life premiums increased over the year-ago quarter by 7% at American Income Exclusive Agency and health premiums increased over the year-ago quarter by 7% at both Family Heritage Exclusive Agency and American Income Exclusive Agency.

  • Life net sales at Liberty National Exclusive Agency and American Income Exclusive Agency increased over the year-ago quarter by 12% and 9%, respectively.

  • 932,946 shares of common stock were repurchased during the quarter.

• Morning News: October 23, 2019
  Eddy Elfenbein, October 23rd, 2019 at 7:06 am

  Trouble Brews for American Companies That Gorged on Cheap Credit

  The Stock Market Has a Lot of Money Riding on the 2020 Election

  Google Claims a Quantum Breakthrough That Could Change Computing

  Huawei Launches Foldable Phone in China at Prices Starting from $2,400

  Verizon To Offer Customers A Year of Disney+ For Free, Upstaging Quibi’s T-Mobile News

  How Biogen Salvaged Alzheimer’s Drug After a Costly Failure

  Zuckerberg to Admit that Facebook Has Trust Issues

  China Factory Production Key as Tesla Reports Third-Quarter Results

  WeWork Staff, Facing Job Cuts, Express Outrage at Founder Payout

  Boeing Ousts Top Executive as 737 Max Crisis Swells

  Datsun Brand Set to Go as Nissan Rolls Back Ghosn’s Expansionist Strategy

  Johnson & Johnson CEO Testified Baby Powder Was Safe 13 Days Before FDA Bombshell

  Nick Maggiulli: Escape the Fee Prison Now

  Michael Batnick: Uncomfortable Reading

  Cullen Roche: No One Knows What Individual Stocks are Actually Worth

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• Sherwin-Williams Beats and Raises Guidance
  Eddy Elfenbein, October 22nd, 2019 at 12:42 pm

  This morning, Sherwin-Williams (SHW) posted Q3 adjusted earnings of $6.65 per share. That beat Wall Street’s estimates of $6.48 per share. The shares are up about 5% today.

  This was a very good quarter for Sherwin. The CEO said:

  “Sherwin-Williams delivered strong results in the quarter as adjusted earnings per share increased 17.1% year-over-year to $6.65. Our performance in the quarter was driven by continued strength in North American architectural paint markets, which offset choppiness in some industrial end markets. U.S. and Canada same store sales growth was 8.1% as our pro painting customers continued to report strong demand. As a result of this strong volume and operating efficiencies, consolidated gross margin expanded over 300 basis points to 45.7%. Adjusted EBITDA margin in the quarter improved 150 basis points to 18.9% compared to the prior year.

  “For the second consecutive quarter, all three operating segments increased segment profit and margin compared to the same period last year. In The Americas Group, our North American paint stores generated strong growth in all regions and all customer end markets, led by double digit growth in residential repaint. With the strong volume, the team delivered incremental operating margin of approximately 37%, and we have opened 31 net new stores year to date.

  Segment profit in The Americas Group increased $85.9 million to $663.7 million in the quarter and increased $122.1 million to $1.61 billion in nine months due primarily to higher paint sales volume and selling price increases.

  Sherwin is increasing its full-year guidance range to $20.90 – $21.30 per share. The previous range was $20.40 to $21.40 per share. Since Sherwin has already made $16.83 per share for the first nine months of this year, the new range implies Q4 earnings of $4.07 to $4.47 per share.

  SHW is up 118% for us since we first added it to the Buy List in 2017.

  

• Morning News: October 22, 2019
  Eddy Elfenbein, October 22nd, 2019 at 7:34 am

  Half the World’s Banks Are Too Weak to Survive a Downturn, McKinsey Says

  Chinese Vice Foreign Minister Says Progress Made in Trade Talks With U.S.

  Biogen Surges as Momentum for Alzheimer’s Treatment Revives Hope

  Boeing’s Crisis Grows: Tense Meetings, Falling Stock, Angry Lawmakers

  Macy’s, Home to $8,000 Mink Jackets, Will Stop Selling Fur Products By 2021

  Facebook Lays On the Charm for Its Libra Cryptocurrency Plan

  WeWork Considers Rescue Plans From SoftBank and JPMorgan

  How A Major U.S. Farm Lender Left a Trail of Defaults, Lawsuits

  Diaper Rush: Conquering a $9 Billion Market No One Wants to Talk About

  50 Companies to Watch in 2020

  UPS Strikes Agreements to Use Drones to Deliver Medical Supplies

  Infosys Dives Most in Two Years As Whistle-Blowers Target CEO

  Ben Carlson: 9 Questions I’m Pondering at the Moment & What Does the Future Hold For CFA Charterholders?

  Roger Nusbaum: Habits Make The Investor & Financial Stress Will Kill Us

  Howard Lindzon: Momentum Monday – Housing Stocks and Verizon…Barf

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• Danaher Is Selling Some Business Ahead of Biopharma Deal
  Eddy Elfenbein, October 21st, 2019 at 1:13 pm

  The following is a press release from Danaher (DHR) announcing that it’s selling some businesses ahead of its acquisition of GE’s Biopharma business. They expect the deal to close in Q1 of 2020.

  Danaher Corporation (DHR) today announced that it has signed an agreement to sell its label-free biomolecular characterization, chromatography hardware and resins, and microcarriers and particle validation standards businesses to Sartorius AG for approximately $750 million. The combined revenue of the businesses, which are part of Danaher’s Life Sciences segment, was approximately $140 million in 2018.

  Danaher entered into the agreement to sell these businesses as a step towards obtaining regulatory approval for its pending acquisition of the GE Biopharma business, and the closing of the Sartorius AG agreement is conditioned upon Danaher’s closing its acquisition of the GE Biopharma business. Danaher’s acquisition of the GE Biopharma business, the proposed regulatory remedies (the package of businesses being sold), the approval of Sartorius as the buyer in such remedies, and Sartorius’ acquisition described above all remain subject to approvals from various regulatory authorities.

  Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “This represents a significant step in the regulatory process toward closing the GE Biopharma acquisition. While timing around meeting all closing conditions, including regulatory approvals, is still uncertain, we remain very encouraged by the progress to date and expect closing of the transaction in the first quarter of 2020.”

• Morning News: October 21, 2019
  Eddy Elfenbein, October 21st, 2019 at 7:31 am

  These 20 Countries Will Dominate Global Growth in 2024

  JPMorgan Warns U.S. Money-Market Stress Likely to Get Much Worse

  How Exploding Private Sector Balance Sheets Have Changed Recessions As We Know Them

  In a Strong Economy, Why Are So Many Workers on Strike?

  Estate Taxes Are Easy to Flee, but They Still Help States

  Boeing Expresses Regret Over Ex-Pilot’s 737 MAX Messages, Faults Simulator

  Facebook Open to Currency-Pegged Stablecoins for Libra Project

  G.M. Contract Terms May Be a Tougher Fit for Its Rivals

  Online Influencers Tell You What to Buy, Advertisers Wonder Who’s Listening

  Halliburton Profit Falls 32% on Weak North America Drilling

  Behind Ken Fisher’s Ads, a Hardball Culture Reels in Billions

  Goldman’s Unwelcome Streak: A String of Insider Trading Charges

  Cullen Roche: Three Things I Think I Think – What if it All Comes Crashing Down?

  Jeff Miller: Weighing the Week Ahead: Earnings Season Opportunity?

  Joshua Brown: How Narrative Economics Shape Our World – Barry Talks with Robert Shiller

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• CWS Market Review – October 18, 2019
  Eddy Elfenbein, October 18th, 2019 at 7:08 am

  “There is nothing more deceptive than an obvious fact.” – Sherlock Holmes

  This week, our two Buy List bank stocks rallied after reporting better-than-expected earnings. Signature Bank gained 1.9%, and Eagle Bank rose 1.4%. At one point, Eagle was up more than 11% on the day.

  I’m especially glad to see good news from Eagle after the stock got a super-atomic wedgie three months ago. Shares of EGBN are now up 16% off their low, yet the stock is still trading at less than 10 times this year’s earnings. I’ll have all the details in a bit.

  On Thursday, the S&P 500 came close to finishing above 3,000 for the first time in a month, but it fell just shy. Over four scary trading days this summer, the index dropped 5.5%, and we’ve nearly made it all back.

  

  In this week’s CWS Market Review, I’ll go over our two Buy List earnings reports for this week. I’ll also preview the reports we have coming next week. It’s going to be a busy week for us. We have seven Buy List stocks due to report, including five on Thursday. I’ll break it all down for you. But first, let’s look at look at our Q3 earnings calendar.

  Q3 Earnings Calendar

  Here’s a table of the 20 Buy List stocks that are reporting this earnings season (the other five don’t follow the March/June/September/December cycle). I’ve included each stock’s earnings date, Wall Street’s consensus and the actual results. Please note that not all the dates are out, and the earnings consensus may change.

  Company	Symbol	Date	Estimate	Results
  Eagle Bancorp	EGBN	16-Oct	$1.07	$1.08
  Signature Bank	SBNY	17-Oct	$2.70	$2.75
  Sherwin-Williams	SHW	22-Oct	$6.48
  Globe Life	GL	23-Oct	$1.69
  AFLAC	AFL	24-Oct	$1.07
  Cerner	CERN	24-Oct	$0.66
  Danaher	DHR	24-Oct	$1.15
  Hershey	HSY	24-Oct	$1.60
  Raytheon	RTN	24-Oct	$2.86
  Check Point Software	CHKP	28-Oct	$1.40
  Stryker	SYK	29-Oct	$1.90
  Cognizant Technology Solutions	CTSH	30-Oct	$1.05
  Moody’s	MCO	30-Oct	$1.99
  Church & Dwight	CHD	31-Oct	$0.61
  Intercontinental Exchange	ICE	31-Oct	$0.94
  Becton, Dickinson	BDX	5-Nov	$3.31
  Fiserv	FISV	6-Nov	$0.97
  Disney	DIS	7-Nov	$0.95
  Broadridge Financial	BR	TBA	$0.72
  Continental Building Products	CBPX	TBA	$0.39

  Earnings from Eagle and Signature

  Three months ago, shares of Eagle Bancorp (EGBN) plunged after the bank reported higher legal costs. Unfortunately, Eagle couldn’t say much because it’s an ongoing investigation. However, Eagle made it clear that it would have no impact on their operations.

  On Wednesday, we learned that that appears to be correct. Eagle reported net income of $36.5 million for its third quarter. That’s down 6% from a year ago. That works out to $1.07 per share. Excluding two non-recurring items, Eagle made $1.08 per share. That beat Wall Street’s consensus by a penny.

  Those aren’t bad numbers, especially considering the low interest rates and flat yield curve. Remember that a bank is basically the yield curve with incorporation papers. The key stat for any bank is net interest margin. For Q3, Eagle’s net interest margin was 3.72%.

  Susan Riel, Eagle’s CEO, said, “We continue to see good lending opportunities and have worked to attract more deposits to fund those loans and to bring down the loan-to-deposit ratio at third quarter-end 2019 compared to second quarter-end 2019. Furthermore, by sustaining favorable operating leverage, we maintain strong profitability while rates remain very low, and we stay well positioned when interest rates begin moving back to more normalized levels, given the degree of variability in our asset pricing.”

  Nonperforming loans are just 0.66% of total assets. Another key stat for any bank is the efficiency ratio. That’s the ratio of non-interest expense to total revenue. For Q3, Eagle’s efficiency ratio was 38.34%. That’s pretty good. Earlier this year, Eagle snapped its ten-year streak of quarterly earnings growth.

  Now for the important concern, which is legal costs. For Q3, Eagle has legal bills of $3.6 million. That’s up from $2.1 million a year ago. Of course, that’s due to the investigation that the bank mentioned this summer. All Eagle could say is that they expect “elevated” levels of legal costs for the rest of this year.

  Overall, Eagle Bancorp is making do in a difficult environment. The stock is going for just under 10 times this year’s earnings estimate. Eagle remains a buy up to $47 per share.

  On Thursday, Signature Bank (SBNY) reported Q3 earnings of $2.75 per share. That was five cents better than expectations.

  Total deposits now stand at $39.06 billion. That’s an increase of 8.2% over the last year. I like that non-accrual loans are just 0.09% of total loans, and if you exclude taxi-medallion loans, then it’s just 0.06%. Net interest margin on a tax-equivalent basis is just 2.68%.

  During Q3, Signature bought back 630,000 shares of stock for $75 million. There’s still more than $300 million left in its current authorization.

  Signature got off to a great start for us this year. It became a 30% winner in just six weeks. Since then, it’s been lagging, but SBNY has picked up some recently. On Thursday, shares of Signature gained 1.9% after the earnings report. Signature Bank remains a buy up to $130 per share.

  

  Preview of Next Week’s Earnings

  We have seven Buy List stocks due to report earnings next week. Let me run down what to expect.

  Sherwin-Williams (SHW) has been an outstanding stock for us. It’s up 42% this year. Three months ago, Sherwin made $6.57 per share, which beat estimates by 20 cents per share. On Tuesday, Sherwin is due to report its Q3 earnings.

  For this year, Sherwin expects earnings between $20.40 and $21.40 per share. That’s very doable. The company has already made $10.17 per share for the first half of the year. For Q3, Wall Street expects $6.48 per share.

  On Thursday, the shares made another new high. Sherwin is currently trading above my $550 Buy Below price, so don’t chase it. I may raise our Buy Below next week, but I want to see the earnings numbers first.

  On Wednesday, it’s Globe Life’s (GL) turn. This will be the first earnings report under its new name. Previously, the company was known as Torchmark. For Q2, GL earned $1.67 per share, which was two cents ahead of estimates.

  For 2019, Globe Life sees net operating income per share between $6.67 and $6.77. The current price is around 14 times that. For Q3, Wall Street expects $1.69 per share.

  

  Thursday will be a busy day. We have five Buy List earnings reports coming out.

  Three months ago, AFLAC (AFL) said they made $1.14 per share for Q2. Forex knocked off a penny per share. The CEO said the duck stock aims to buy back $1.3 to $1.7 billion worth of stock this year.

  AFLAC didn’t exactly raise guidance, but they said that earnings should come in at the higher end of their current range which is $4.10 to $4.30 per share. That’s based on an average exchange rate of 110.39 yen to the dollar. For Q3, the consensus on Wall Street is for earnings of $1.07 per share.

  Cerner (CERN) has been somewhat weak since the summer, but that could change soon. The healthcare-IT firm said it expects Q3 earnings of 65 to 67 cents per share. I think they can beat that. For the full year, Cerner sees earnings between $2.64 and $2.72 per share.

  For Q2, Cerner said that bookings came in at $1.432 billion, which was the high end of its range. Revenue rose 5% to $1.431 billion. Earlier this year, Cerner reached an agreement with Starboard Value to start paying a dividend and increase its buyback authorization by $1.5 billion. The current yield is a little bit over 1%.

  Danaher (DHR) sees Q3 earnings ranging between $1.12 and $1.15 per share. For the full year, the company projects earnings between $4.75 and $4.80 per share.

  Earlier this year, Danaher had been expecting 2019 earnings of $4.75 to $4.85 per share, but they lowered guidance due to share dilution for the GE Biopharma deal. That deal should close sometime in Q4. Last month, Danaher IPO’d Envista (NVST), which was their dental business. Danaher still holds a large stake in the company.

  Shares of Hershey (HSY) had a quick downturn last month. The stock dropped seven times in eight sessions for a total loss of 8.3%. Fortunately, HSY has stabilized recently.

  Hershey had a very good quarter for Q2, but guidance wasn’t as much as I hoped for. The chocolatier currently expects 2019 earnings of $5.68 to $5.74 per share. For Q2, Hershey beat the Street by 14 cents per share, yet it only raised the low-end of its guidance by five cents. I thought that was odd. For Q3, Wall Street expects earnings of $1.60 per share.

  Raytheon (RTN) should be helped by the big defense-spending bill that was recently passed by Congress. For 2019, Raytheon expects sales of $28.6 billion to $29.1 billion and earnings between $11.50 and $11.70 per share. For Wednesday, the consensus is for $2.86 per share.

  At some point, shareholders of RTN will get 2.3348 shares of Raytheon Technologies. That’s the name for the combined company with United Technologies (UTX). However, Raytheon Technologies will not include the spinoffs of Otis and Carrier. That’s led to a bit of confusion as to how much those 2.3348 shares are worth. The deal should close in the first half of next year.

  That’s all for now. Expect a lot of earnings news next week. There’s also an election in Canada in Monday. On Tuesday, the report on existing-home sales is due out. On Wednesday, there’s a big OPEC meeting. Then on Thursday, the report on durable goods is due out, as is the report on sales of new homes. 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: October 18, 2019
  Eddy Elfenbein, October 18th, 2019 at 7:03 am

  China’s Economy Slows on Weak Investment, Testing Global Growth

  China’s GDP Growth Grinds to Near 30-Year Low as Tariffs Hit Production

  Russia’s Thawing Permafrost May Cost Economy $2.3 Billion a Year

  After Hemorrhaging $100 Billion, Europe Stages a Comeback

  How A Small Aluminum Maker Won U.S. Trade Protection

  Defiant Zuckerberg Says Facebook Won’t Police Political Speech

  Boeing C.E.O., Already Set for House Hearing, Is Likely to Face Senate, Too

  GM Transforms Who Wins, Who Loses in the Future of Work

  Credit Suisse to Start Charging Wealthy Clients for Cash Deposits

  Juul Halts Online Sales of Some Flavored E-Cigarettes

  Johnson & Johnson to Pay $117 Million Over Surgical Device Marketing

  Coca-Cola Stock Jumps as Strong Sales of Coke Zero Sugar Continue to Drive Revenue Growth

  Ben Carlson: A Eulogy for the 60/40 Portfolio

  Michael Batnick: Trading Behavior

  Roger Nusbaum: Is The 60/40 Portfolio Really Dead?

  Be sure to follow me on Twitter.

• Signature Bank Beat Estimates
  Eddy Elfenbein, October 17th, 2019 at 11:57 am

  This morning, Signature Bank (SBNY) reported Q3 earnings of $2.75 per share. Net interest margin on a tax-equivalent basis was 2.68%. Total deposits rose to $39.06 billion. Wall Street had been expecting $2.70 per share.

  Here are some details from the press release:

  Net Income for the 2019 Third Quarter Was $148.7 Million, or $2.75 Diluted Earnings Per Share, Versus $155.4 Million, or $2.84 Diluted Earnings Per Share, Reported in the 2018 Third Quarter.

  The Bank Declared a Cash Dividend of $0.56 Per Share, Payable on or After November 15, 2019 to Common Stockholders of Record at the Close of Business on November 1, 2019.

  During the 2019 Third Quarter, the Bank Repurchased 629,503 Shares of Common Stock For a Total of $75.0 Million. Thus Far, the Bank Has Repurchased $189.7 Million of Common Stock From Its $500 Million Authorization.

  Total Deposits in the Third Quarter Grew $1.52 Billion to $39.06 Billion; Total Deposits Have Grown $2.97 Billion, or 8.2 Percent, Since the End of the 2018 Third Quarter. Average Deposits Increased a Record $1.75 Billion in the 2019 Third Quarter.

  In Line with the Bank’s Strategy to Increase Floating Rate Assets and Reduce Its Commercial Real Estate Concentration, the Bank Decreased Commercial Real Estate Loans by $873.1 Million. Conversely, Commercial & Industrial Loans Grew by $885.4 Million During the Quarter. Therefore, For the 2019 Third Quarter, Loans Increased $4.9 Million to $37.94 Billion. Since the End of the 2018 Third Quarter, Loans Have Increased 8.0 Percent, or $2.81 Billion.

  Non-Accrual Loans Were $32.5 Million, or 0.09 Percent of Total Loans, at September 30, 2019, Versus $41.3 Million, or 0.11 Percent, at the End of the 2019 Second Quarter and $134.2 Million, or 0.38 Percent, at the End of the 2018 Third Quarter. Excluding Taxi Medallion Loans, Non-Accrual Loans Were $22.9 Million, or Six Basis Points of Total Loans.

  Net Interest Margin on a Tax-Equivalent Basis was 2.68 Percent, Compared with 2.74 Percent for the 2019 Second Quarter and 2.88 Percent for the 2018 Third Quarter. Core Net Interest Margin on a Tax-Equivalent Basis Excluding Loan Prepayment Penalty Income Decreased Five Basis Points to 2.66 Percent, Compared with 2.71 Percent for the 2019 Second Quarter. Excess Cash Balances From Significant Deposit Flows Lead to Four Basis Points of the Core Net Interest Margin Decline.

  Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based, and Total Risk-Based Capital Ratios were 9.66 Percent, 11.91 Percent, 11.91 Percent, and 13.16 Percent, Respectively, at September 30, 2019. Signature Bank Remains Significantly Above FDIC “Well Capitalized” Standards. Tangible Common Equity Ratio was 9.51 Percent.