CWS Market Review – January 31, 2020
“I made my money by selling too soon.” – Bernard Baruch
On Monday, the S&P 500 snapped its 74-day streak of not having a 1% down day. Perhaps fears of the coronavirus weighed on the market. Or maybe it was fears over earnings. In any event, the market had a very small stumble this week.
Because things had been so calm, the volatility probably seems greater than it truly is. After all, drops of 1% aren’t that uncommon. The good news for us is that our Buy List has held up much better than the overall market. Our Buy List was already leading the market this year by 1.22%. When folks get scared, they flock towards quality, and those are the kind of stocks we like.
We had several Buy List earnings reports this week. Hershey led the way with a very good report. Danaher and Stryker also did well. In fact, Danaher is already our second 10% winner this year. On the downside, Sherwin-Williams came in below Wall Street’s estimate.
In this week’s issue, I’ll review all our Buy List earnings reports from this week. I’ll also preview several more that are coming next week. We’re going to have several Buy List stocks report on Tuesday, including Disney. But first, let’s run down this week’s earnings news.
Stryker Beats Earnings and Offers Good Guidance
After the closing bell on Tuesday, Stryker (SYK) reported Q4 earnings of $2.49 per share. That beat Wall Street’s estimates by three cents per share. Stryker’s own range was $2.43 to $2.48 per share.
Quarterly sales rose by 8.8% to $4.1 billion. For all of 2019, Stryker earned $8.26 per share.
From the earnings report:
“We had an excellent finish to 2019, achieving 8.1% full-year organic sales growth and 13% adjusted EPS gains. This marks our seventh consecutive year of accelerating organic sales growth and is a testament to our talent, culture and durable operating model,” said Kevin Lobo, Chairman and Chief Executive Officer. “The performance was balanced across businesses and geographies and positions us well for continued success.”
Now to guidance. For Q1, Stryker expects earnings of $2.05 to $2.10 per share. Wall Street had been expecting $2.05 per share. For all of 2020, Stryker sees earnings of $9.00 to $9.20 per share. The Street has been expecting $9.03 per share.
This is a solid report. Last month, Stryker increased its dividend by 11%. That was their 27th annual dividend hike in a row. Stryker remains a buy up to $223 per share.
Silgan Holdings Matches the Street
Also after the bell Tuesday, Silgan Holdings (SLGN) reported Q4 earnings of 38 cents per share. That pinged Wall Street’s forecast on the nose. Silgan had said they expected earnings between 34 to 39 cents per share, which seems like a wide range.
As I mentioned last week, Silgan didn’t have a great 2019, so these results are fairly mediocre. However, I see a lot of promise for Silgan going forward.
For 2020, Silgan sees earnings ranging between $2.28 and $2.38 per share. Wall Street had been expecting earnings of $2.30 per share. This was a good report, and it means Silgan is going for about 13.5 times next year’s earnings. Silgan is a buy up to $34 per share.
Thursday Earnings from Hershey, Danaher and Sherwin-Williams
We had three more Buy List earnings reports on Thursday morning. Two were good. One was not so good.
Let’s start with the good news.
Hershey (HSY) reported Q4 earnings of $1.28 per share. That was four cents better than estimates. The company had been expecting $1.18 to $1.24 per share. For the year, Hershey made $5.78 per share. This was a good year for them.
For 2020, Hershey sees earnings between $6.13 and $6.24 per share. I like that guidance. Wall Street had been expecting $6.16 per share. The shares rallied 4.6% on the news. Hershey is a buy up to $162 per share.
Also on Thursday, Danaher (DHR) reported Q4 earnings of $1.28 per share. Wall Street had been expecting $1.25 per share. This is such a good company.
For Q1, Danaher said they expect earnings of $1.06 to $1.09 per share. That’s pretty good. Wall Street was expecting $1.04 per share. For all of 2020, Danaher expects earnings of $4.80 to $4.90 per share (note that that doesn’t include the impact from the GE Biopharma acquisition). Remember, the company also recently IPO’d its dental business.
The stock rallied 2.3% on the earnings news. DHR is already a 10% winner for us this year. I’m lifting my Buy Below on Danaher by $25 to $180 per share.
Now for the bad one. (Okay, it wasn’t that bad.) Sherwin-Williams (SHW) reported Q4 earnings of $4.27 per share. That was 12 cents below estimates. Sherwin’s earnings report is a bit complicated because there are a few charges and adjustments. The CEO noted “softness in certain industrial end markets and choppiness in our international businesses.”
For 2020, Sherwin-Williams expects earnings to range between $22.70 and $23.50 per share. Wall Street had been expecting $24.26 per share. I want to see better numbers here. The stock lost 3.6% on Thursday, although it had been down close to 6% earlier in the day. I’m keeping my Buy Below price for SHW at $590 per share.
Several More Buy List Earnings Next Week
Here’s the updated Earnings Calendar:
Company | Symbol | Date | Estimate | Result |
Eagle Bancorp | EGBN | 15-Jan | $1.07 | $1.06 |
Silgan Holdings | SLGN | 28-Jan | $0.38 | $0.38 |
Stryker | SYK | 28-Jan | $2.46 | $2.49 |
Danaher | DHR | 30-Jan | $1.25 | $1.28 |
Hershey | HSY | 30-Jan | $1.24 | $1.28 |
Sherwin-Williams | SHW | 30-Jan | $4.39 | $4.27 |
Broadridge Financial Solutions | BR | 31-Jan | $0.71 | $0.53 |
Church & Dwight | CHD | 31-Jan | $0.55 | $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 | 26-Feb | $1.98 | |
Middleby | MIDD | TBA | $1.72 |
Next week will be another busy one for us.
On Monday, Check Point Software (CHKP) is due to report. The Israeli cybersecurity firm is wrapping up another good year.
For Q4, Check Point sees earnings ranging between $1.93 and $2.04 and revenue between $527 million and $557 million. The company reiterated its 2019 full-year guidance of earnings between $5.85 per share and $6.25 per share and revenue between $1.94 million and $2.04 billion.
I hope Check Point offers some guidance on 2020. I think CHKP can hit $6.20 to $6.40 per share. The shares have struggled over the past year.
Get ready for a very busy day on Tuesday when we’ll have five Buy List earnings reports.
Let’s start with AFLAC (AFL). In October, the duck stock raised its full-year guidance to a range of $4.35 to $4.45 per share. That was a big increase over the old guidance of $4.10 to $4.30 per share. The range is based on the 2018 exchange rate of 110.39 yen to the dollar. The guidance implies a Q4 range of 94 cents to $1.04 per share. AFLAC is going for less than 13 times earnings. Expect conservative 2020 guidance.
For Q4, Cerner (CERN) expects earnings between 73 and 75 cents per share on revenue of $1.41 billion to $1.46 billion. The healthcare-IT firm sees new-business bookings ranging between $1.45 and $1.65 billion.
The Q4 earnings guidance is effectively a narrowing of their previous full-year guidance. Previously, Cerner had expected 2019 earnings of $2.64 to $2.72 per share. With new Q4 guidance, that works out to $2.66 to $2.68 per share.
Last year, Cerner reached an agreement with Starboard Value to start paying a dividend and increase its buyback authorization by $1.5 billion. That’s been exhausted, and Cerner raised the authorization by another $1.5 billion. If they offer 2020 guidance, I’m expecting a range near $3 per share.
Disney (DIS) makes a lot of money. On Tuesday, we’ll hear how much. The stock has been somewhat weak lately. This is probably due to travel fears from the coronavirus. If you don’t own Disney, this is a good window. The share price is actually lower than where it was nine months ago. Wall Street expects earnings of $1.46 per share.
In November, Fiserv (FISV) raised its guidance. The company now sees 2019 earnings of $3.98 to $4.02 per share which implies Q4 earnings of $1.11 to $1.15 per share. The previous 2019 guidance was $3.39 to $3.52 per share. That was a big increase. Business is going well for them. I’ll also be curious to hear guidance for 2020. Fiserv will probably be conservative.
Globe Life (GL) had been quiet for some time until this week when it was one of our best-performing stocks. Globe Life is a classic defensive stock. When people get nervous, they seek out GL.
By the way, the Texas Rangers baseball team will open its new ballpark, Globe Life Field, in March. For Q4, Wall Street expects $1.72 per share.
On Thursday, Becton, Dickinson (BDX) will be ready to report. This will actually be for its fiscal Q1. The medical-instruments firm already offered EPS guidance this year of $12.50 to $12.65. Wall Street wasn’t exactly thrilled with those numbers. Analysts had been expecting more.
I suspect BDX is trying to lower expectations. Last month, Becton bumped up its dividend for the 48th year in a row. The quarterly payout increased from 77 cents to 79 cents per share. For fiscal Q1, Wall Street expects $1.64 per share.
Intercontinental Exchange (ICE) is one of six Buy List stocks that’s up more than 8% this year. ICE has a great business, but one troubling spot is that the government isn’t pleased with the pricing power that exchanges have for their data services. That’s a big money maker for them. I don’t think this issue can be solved easily or quickly, and it will probably get settled by the courts.
ICE provides guidance for several metrics except EPS. But if we use a little math, the numbers they gave for Q4 should work out to earnings of about 95 cents per share, give or take. For Q4, ICE expects data revenue to be between $555 million and $560 million.
That’s all for now. Broadridge and Church & Dwight will report later today. On Monday, we’ll get the ISM Manufacturing report. The recent numbers here have been sluggish. On Wednesday, we’ll get the ADP payroll report, plus the ISM Non-Manufacturing report. Friday will be the big December jobs report. I’ll be particularly interested to see if there’s an increase in wages. 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. I’m going to be at the Money Show next week in Orlando. I’ll be speaking on Friday at 5:30 p.m. ET and again on Saturday at 2 p.m. ET. If you’re around, come on by and say hi.
Posted by Eddy Elfenbein on January 31st, 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.
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