CWS Market Review – January 24, 2020

“Everyone has the brain power to make money in stocks. Not everyone has the stomach.” – Peter Lynch

Here’s a factoid for you: When the bull market started, Zion Williamson, the basketball rookie sensation, was just eight years old. Both he and the market have changed markedly over the past eleven years, and I’ll add that both are much wealthier as well.

How much longer can this market run? I wouldn’t venture a guess, but the market still seems quite healthy. Earlier this week, the S&P 500 broke 3,333.33, and it hit another new all-time high.

Not only that, but it’s been calm as well. The index hasn’t had a 1% down day in more than 15 weeks. In fact, we haven’t seen back-to-back losses for 29 trading sessions. That’s one of the longest such streaks in years.

In this week’s issue of CWS Market Review, I want to focus on our earnings. Next week, seven of our Buy List stocks are due to report Q4 earnings. I’ll preview them all.

Next Week’s Buy List Earnings Reports

Earnings season heats up for us next week. We have seven Buy List earnings reports coming our way. Plus, we have several more in the week after that. This is an important time for our Buy List. Here’s an earnings calendar of when our stocks will report and Wall Street’s consensus.

Company Symbol Date Estimate Result
Eagle Bancorp EGBN 15-Jan $1.07 $1.06
Silgan Holdings SLGN 28-Jan $0.38
Stryker SYK 28-Jan $2.46
Danaher DHR 30-Jan $1.25
Hershey HSY 30-Jan $1.24
Sherwin-Williams SHW 30-Jan $4.39
Broadridge Financial Solutions BR 31-Jan $0.71
Church & Dwight CHD 31-Jan $0.55
Check Point Software CHKP 3-Feb $1.99
AFLAC AFL 4-Feb $1.02
Cerner CERN 4-Feb $0.74
Disney DIS 4-Feb $1.48
Fiserv FISV 4-Feb $1.14
Globe Life GL 4-Feb $1.72
Becton, Dickinson BDX 6-Feb $2.64
Intercontinental Exchange ICE 6-Feb $0.95
Moody’s MCO 12-Feb $1.94
Stepan SCL 20-Feb $0.88
Trex TREX 24-Feb $0.51
ANSYS ANSS TBA $1.98
Middleby MIDD TBA $1.72

Now let’s run through what to expect. On Tuesday, Silgan Holdings (SLGN) and Stryker (SYK) are due to report. Silgan is one of our new stocks this year. This company is one of the world’s leading makers of metal cans.

The recent earnings haven’t been that great. The last report came inline, and that’s probably weighed on the shares somewhat. Three months ago, Silgan said it expects full-year 2019 earnings between $2.12 and $2.17 per share.

Since they’ve already made $1.78 in the first nine months of this year, that implies a Q4 range of 34 to 39 cents per share. Wall Street expects 38 cents per share. The current share price is quite reasonable, but I’ll be curious to hear any guidance for next year. The stock recently had a seven-day winning streak. Next week’s results may be soft, but I expect to see better results later this year.

Three months ago, Stryker (SYK) beat earnings by a penny per share. The company had a good 2019. For Q4, Stryker sees earnings of $2.43 to $2.48 per share. For all of 2019, Stryker projects earnings between $8.20 and $8.25 per share. The shares dropped after the report, but Stryker has been trending higher lately.

Last month, Stryker increased its dividend by 11%. This was the 27th annual dividend increase in a row. Stryker is a very solid company.

We have three more earnings reports on Thursday. Let’s start with Danaher (DHR). They’ve been pretty busy lately. Danaher recently IPO’d Envista (NVST), which was their dental business. Danaher still owns a lot of the company. Danaher is also buying GE’s biopharma business.

For Q4, Danaher sees earnings ranging between $1.32 and $1.35 per share. That works out to full-year earnings of $4.74 to $4.77. The shares have rallied more than 21% since early November. In fact, the stock has outrun my Buy Below price, but I want to see the earnings before I make any adjustments.

Hershey (HSY) had a good quarter for Q3. The company beat earnings, but the chocolate folks didn’t change their full-year guidance.

Hershey still sees 2019 earnings of $5.68 to $5.74 per share. That’s the same story as three months ago. With the Q2 earnings beat, I thought Hershey would raise guidance, but it didn’t. The company seems to be low-balling Q4.

The guidance implies Q4 earnings of $1.18 to $1.24 per share. On the bright side, Hershey increased full-year sales guidance by a tiny bit.

Sherwin-Williams (SHW) had a very strong Q3. The paint people earned $6.65 per share, which beat the Street by 17 cents. The CEO said that the quarter was “driven by continued strength in North American architectural paint markets.”

For Q3, Sherwin’s gross margin grew by 3% and EBITDA margin improved by 1.5%. This was the second quarter in a row in which all three operating segments saw improved earnings over the year before.

The best news is that Sherwin increased its full-year 2019 guidance range to $20.90 – $21.30 per share. The previous range had been $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.

Lastly, there are two more earnings reports on Friday. I wasn’t wild about Broadridge Financial Solutions’s (BR) last earnings report. In October, the company missed the Street’s consensus by thee cents per share, and sales fell by 2%. One good note was that recurring revenue rose by 8%.

I was also pleased to see Broadridge reiterate its previous guidance (their fiscal year ends in June). For FY 2020, Broadridge sees earnings growth of 8% to 12%. That works out to a range of $5.03 to $5.22 per share. I think that’s very doable.

Shares of BR took a tumble after the October earnings report. Fortunately, BR has gradually made back a lot of lost ground. On Wednesday, the shares touched a six-month high. For Q1, Wall Street expects earnings of 71 cents per share.

Church & Dwight (CHD) disappointed traders in October even though the consumer-products company reported earnings of 66 cents per share, which was six cents more than estimates.

The problem was that the revenue figure wasn’t that good. Sales volume actually dropped a bit, but thanks to price increases, sales in dollars rose. Going forward, C&D expects sales growth of 5%, which was below consensus.

Church & Dwight also kept its full-year guidance at $2.47 per share. You’d think that they’d raise that after a six-cent beat, but they didn’t. The guidance implies Q4 earnings of 54 cents per share. That’s down from 57 cents per share in Q4 2018.

The Upcoming Federal Reserve Meeting

The Federal Reserve meets again next week. This will be an interesting meeting for a few reasons. One is that by law, a few voting members of the Federal Open Market Committee rotate each year, so with it being January, we’ll see some new faces.

This also looks to be the second meeting in a row in which the Fed will do nothing. It appears that Chairman Jay Powell and the rest of the FOMC are pleased with rates right where they are.

The bond market seems to be happy as well (and you don’t want to be on its bad side). In last week’s issue, I mentioned that the two-year Treasury yield is often decent proxy for Fed policy. Right now, the two-year yields 1.51% which is just inside the Fed’s short-term interest target rate of 1.50% to 1.75%.

We’re also seeing evidence that the lower rates are finally working. Last Friday, for example, the housing-starts report showed an increase of 16.9% in December. Housing starts are now at a 13-year high. That’s good news for a stock like Trex (TREX), the deck folks, which is already a 10% winner for us this year.

On Wednesday, the existing-homes report showed an increase of 10.8% over last year. This is a nice improvement over the lousy numbers that we had been seeing. Bill McBride, one of my favorite housing analysts, said that this was the sixth month in a row showing a year-over-year increase. That follows 16 straight months of year-over-year decreases.

Corporate earnings are on the mend as well. We don’t have all the results in yet, but the early numbers point toward a small increase in profit growth for Q4. There is, however, one big caveat to that. Those stats only hold if we ignore the energy sector, where profits are bombing. I mean, really bombing. As a whole, the 28 energy stocks in the S&P 500 are looking at a 40% drop in profits for Q4. The rest of the index is on pace for a small gain.

The latest data from the futures market shows that traders think there’s an 87% chance that the Fed won’t change rates. In my opinion, that’s about 12.9999% too low. In fact, the futures market currently doesn’t see the Fed making any move until after Election Day. This time, the traders might be right.

That’s all for now. Lots of earnings next week. Also, the Federal Reserve meets next week, on Tuesday and Wednesday. The policy statement will be out on Wednesday at 2 p.m. ET. On Thursday, the government will release its first estimate for Q4 GDP growth. These figures are often revised, but it will be interesting to see how well the economy was growing at the end of 2019. 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

Posted by on January 24th, 2020 at 7:08 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.