CWS Market Review – July 24, 2020

“The stock market is a giant distraction to the business of investing.” – Jack Bogle

Before I begin, I’d like to announce I’m going to host a post-market webinar on Tuesday, July 28 at 4 pm ET. National security expert John Schindler will be joining us. The webinar is free. You can register here.

Now on to stocks. This has been a busy week for earnings reports. Seven of our Buy List stocks report earnings on Wednesday and Thursday. I’m pleased to say that all seven beat estimates, and some beat them by quite a lot. I’ll go over them all in a bit.

It’s not over. We have eight more reports coming next week. In this week’s CWS Market Review, I’ll preview them all. There’s a lot to get to, so let’s jump into our recent earnings news.

Seven Buy List Earnings Reports

Here’s our updated Earnings Calendar:

Company Ticker Date Estimate Result
Check Point Software CHKP 22-Jul $1.44 $1.58
Eagle Bancorp EGBN 22-Jul $0.74 $0.90
Globe Life GL 22-Jul $1.53 $1.65
Silgan SLGN 22-Jul $0.65 $0.85
Stepan SCL 22-Jul $1.20 $1.65
Danaher DHR 23-Jul $1.08 $1.44
Hershey HSY 23-Jul $1.13 $1.31
RPM International RPM 27-Jul $1.01
AFLAC AFL 28-Jul $1.07
Sherwin-Williams SHW 28-Jul $5.85
Cerner CERN 29-Jul $0.61
Intercontinental Exchange ICE 30-Jul $1.04
Moody’s MCO 30-Jul $2.19
Stryker SYK 30-Jul $0.55
Church & Dwight CHD 31-Jul $0.63
Trex TREX 3-Aug $0.65
Disney DIS 4-Aug -$0.61
Ansys ANSS 5-Aug $1.16
Fiserv FISV 5-Aug $0.93
Middleby MIDD 5-Aug $0.41
Becton, Dickinson BDX 6-Aug $2.04
Broadridge Financial Solutions BR 11-Aug $2.08

Let’s start with Check Point Software (CHKP). On Wednesday morning, the Israeli cyber-security firm said that its Q2 earnings rose by 15% to $1.58 per share. That beat expectations of $1.44 per share.

The numbers were pretty good. Quarterly revenue rose 4% to $506 million. Wall Street had been expecting $488 million. Cash flow from operations increased by 8% to $252 million. During Q2, Check Point bought back 3.1 million shares for a total cost of $325 million. The company continues to have a solid balance sheet, which is something I like to see.

Interestingly, Check Point said that cyber-attacks have increased during the pandemic. In May, the company documented 192,000 coronavirus-related cyber-attacks a week. On Wednesday morning, the shares gapped up as much as 5%, but they later settled back down.

I’m very impressed with Check Point’s business performance. This was a good quarter for them. This week, I’m raising our Buy Below on Check Point to $133 per share.

Stepan (SCL), the chemical company, reported Q2 adjusted net income of $1.65 per share. That’s up from $1.50 per share a year ago. Expectations were for $1.20 per share. Currency translation pinged them for 11 cents per share.

Stepan has three operating units. Surfactants made $48.5 million in Q2. Volume was up 10% thanks to increased demand for cleaning and disinfection products. Polymers made $15.5 million, and Specialty products made $3.2 million.

On Thursday, the shares broke out to a new all-time high. I’m lifting our Buy Below on Stepan to $117 per share.

Silgan Holdings (SLGN) is turning into a nice winner for us. Last week I told you I was expecting good news from them, and we got it. The metal-container firm earned 85 cents per share for the second quarter. That beat expectations of 65 cents per share. This was the strongest quarter in the company’s history. Net sales were up by 7.6% to $1.18 billion.

Silgan also did something very rare these days. The company increased guidance. Silgan now sees full-year earnings of $2.70 to $2.85 per share. Silgan also increased its free-cash-flow estimate for this year from $275 million to $330 million. At the current share price, that works out to a free-cash-flow yield of nearly 8.5%.

Shares of Silgan gained 7.8% on Wednesday. I’m raising our Buy Below to $42 per share.

Two of our financial stocks reported on Wednesday afternoon. Both have been poor performers this year, but both had good quarterly results.

Let’s start with Globe Life (GL). The insurance company reported fiscal Q2 operating earnings of $1.65 per share. That beat expectations of $1.53 per share.

The company narrowed its operating income guidance for this year. The previous range was $6.65 to $7.25 per share. Now Globe Life sees earnings ranging from $6.80 to $7.04 per share.

The stock gapped up 6.1% on Thursday, but it’s still down over 23% for the year. Don’t give up on GL. I’m raising our Buy Below to $84 per share. One more note. Later today, the Texas Rangers will be hosting the Colorado Rockies at the new Globe Life Field.

We also got earnings from Eagle Bancorp (EGBN). I was particularly curious to hear what Eagle had to say. Our thesis is that the bank is operating just fine but it’s been weighed down by unresolved legal issues.

The results confirmed our view. For Q2, Eagle made 90 cents per share which beat estimates of 74 cents per share. The bank now has $9.8 billion in assets. That’s up 13% over the last year.

The bank said that legal, accounting and professional fees increased by $1.2 million compared with the same quarter one year ago. That’s not so bad. It works out to about three cents per share. I think the market is starting to realize that we’re right. Shares of Eagle rallied 6.8% on Thursday. Eagle Bancorp remains a buy up to $34 per share.

We had two more Buy List earnings reports on Thursday. Danaher (DHR) said that quarterly earnings rose 32% to $1.44 per share. That’s a big beat. Wall Street had been expecting $1.09 per share. Revenue increased 19% to $5.3 billion.

For Q3, Danaher sees revenue growth “in the mid- to high-single digit range.” CEO Thomas P. Joyce, Jr., said, “We are very pleased with our second-quarter results—especially in such a challenging environment. Our solid revenue growth, strong cash-flow generation and more than 30% adjusted EPS growth are a testament to our team’s commitment to the Danaher Business System and the outstanding portfolio of businesses that comprise Danaher today.”

On Thursday, shares of Danaher got to another new high. We have a 30% profit with DHR this year. I’m raising our Buy Below to $212 per share.

Lastly, Hershey (HSY) said that quarterly sales fell 3.4% to $1.71 billion. The chocolatier had Q2 adjusted earnings of $1.31 per share. That beat Wall Street’s estimate of $1.13 per share. Hershey said it’s not providing any financial guidance at this time.

The company does expect accelerated sales growth in the second half of the year based on momentum exiting the second quarter, assuming no significant disruption to current consumer trends. The company also expects pricing and cost management to drive margin expansion in the second half of the year. We remain confident that our healthy balance sheet and strong cash flow will enable us to meet current business needs, invest for the future and return cash to stockholders.

Shares of HSY gained 5.7% on Thursday. Hershey remains a buy up to $150 per share.

Eight More Earnings Reports Next Week

Next week is going to be busy. We have eight Buy List stocks due to report.

RPM International (RPM) is scheduled for Monday. This is for the quarter that ended on May 31, which is their fiscal Q4. Companies are allowed a little more time to report their fiscal Q4. That’s why RPM reports in the middle of the normal earnings season.

In April, RPM reported Q3 earnings of 23 cents per share which was two cents better than expectations. Due to the coronavirus, RPM has decided to suspend its guidance. They also canceled any share buybacks. The good news is that RPM has a strong balance sheet and plenty of liquidity, so I’m hardly worried about their survival.

The now-canceled full-year guidance was for earnings between $3.30 and $3.42 per share. For Q4, RPM said it expects to see a sales drop of 10% to 15%. Wall Street expects earnings of $1.01 per share. The stock has been holding up fairly well. RPM has raised its dividend every year since 1973.

AFLAC (AFL) will report on Tuesday. The duck stock has struggled for us this year. AFLAC also withdrew its guidance, although the last earnings report was quite good. I was surprised to see AFLAC was trading below $35 per share not too long ago. That’s quite cheap. For Q2, Wall Street expects $1.07 per share. The duck should be able to beat that.

Shares of Sherwin-Williams (SHW) got to another high on Thursday. Its Q2 earnings are due out on Tuesday. Previously, the company lowered its full-year range to $16.46 – $18.46 per share with acquisition-related costs of $2.54 per share.

Sherwin recently increased its sales guidance for Q2. Sherwin now expects sales to decrease “by a mid-single-digit percentage” compared with last year. That may not sound so great, but the guidance before that was for sales to decrease “by a low- to mid-teens percentage.”

Many companies have withdrawn their guidance, which is certainly understandable, so I appreciate any background we can get. Wall Street expects Q2 earnings of $5.85 per share.

Cerner (CERN) will report on Wednesday. For Q2, the company sees revenue between $1.34 billion and $1.39 billion. For all of 2020, Cerner expects revenue between $5.55 billion and $5.70 billion. For earnings, Cerner expects EPS of 60 to 64 cents for Q2 and $2.78 to $2.90 for the full year.

Three more reports are scheduled for Thursday. For its Q1, Intercontinental Exchange (ICE) made $1.28 per share, which beat the Street by four cents. ICE had operating cash flow of $520 million, and free cash flow was $434 million.

CFO Scott A. Hill said, “In the first quarter we generated record revenues, record operating income and double-digit earnings-per-share growth, which enabled us to return over $850 million to stockholders through our dividend- and stock-buyback program.”

ICE gave several guidance metrics for Q2 and 2020, but none was EPS. I’ll highlight that ICE expects data revenue to be in a range of $565 million to $570 million. Wall Street is looking for earnings of $1.04 per share.

Moody’s (MCO) had a blow-out Q1. The ratings agency beat by 51 cents per share. Moody’s Investors Service had revenue growth of 19%, and Moody’s Analytics was up 5%.

For all of 2020, Moody’s sees earnings ranging between $7.25 and $7.85 per share. The shares are up 75% from their March low and are just below a new high. For Q2, analysts expect earnings of $2.19 per share.

Stryker (SYK) is one of those companies that’s so steady, you tend to forget how good it is. For Q1, Stryker beat by 15 cents per share. The company said that earnings were “significantly negatively impacted” by the coronavirus. Stryker has decided to forgo any guidance for this year. The Street’s consensus is for Q2 earnings of 55 cents per share.

Church & Dwight (CHD) made another new high for us on Thursday. This has been a steady winner for us. Unfortunately, C&D withdrew its guidance, but Wall Street expects Q2 earnings of 63 cents per share. Church & Dwight actually benefited from the coronavirus outbreak, especially brands like Arm & Hammer and some hygiene products.

This issue has been all about earnings, but I wanted to add a note on Becton, Dickinson (BDX). The company just got a massive order for 177 million syringes and needles for COVID-19 vaccination programs. Becton said it will start distributing the devices by the end of the year. Stay tuned for BDX’s earnings on August 5.

That’s all for now. We’re going to have more earnings reports next week. The Federal Reserve also gets together for another meeting on Tuesday and Wednesday. The policy statement will come out Wednesday afternoon, followed by a press conference by Fed Chairman Jerome Powell. On Thursday, we’ll get our first report on Q2 GDP, and it will be terrible. Wall Street is expecting a decline of 33%. I’m too scared to even make a guess. 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. Don’t forget to register for Tuesday’s webinar.

Posted by on July 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.