Archive for February, 2021

• Barron’s Calls Ross Stores a “Unique Bargain”
  Eddy Elfenbein, February 26th, 2021 at 11:23 am

  At Barron’s, Teresa Rivas has nice things to say about Ross Stores (ROST):

  Make no mistake: Ross Stores, which has a market value of $44 billion, is far from putting the pandemic behind it. Visits to stores were up 6.5% in the fourth quarter, but they’re still down by the mid- to high-single digits from their prepandemic peak. That’s probably a result of the Dublin, Calif.–based company’s exposure to its home state and others, such as Florida and New Jersey, that have seen slower in-store traffic recoveries. That geographic mix is still a near-term headwind and could show up in next week’s fourth-quarter report. Ross is expected to report a profit of $1 a share, down from $1.28 in the year-ago period, on sales of $4.3 billion, off 3.3% year over year.

  Longer term, however, the geographic exposure could create a “more meaningful recovery in fiscal 2022,” notes MKM Partners analyst Susan Anderson. She has a Buy rating on Ross and recently raised her price target on the shares to $138 from $124, and sees “off-price as among the best-positioned segment to recover postpandemic, and to gain outsize share in the retail landscape.”

  There’s also evidence that shoppers are eager to return to the in-person treasure-hunt model that has fueled the group’s yearslong gains. According to data from Placer.ai, off-price retailers have seen an “impressive recovery pattern,” both in terms of foot traffic and sales, since the third quarter. All three major players have seen visits rebound to within 10% of January 2020’s prepandemic levels, while TJX’s T.J. Maxx has returned to positive traffic growth.

  (…)

  Ross’ earnings per share are expected to rebound from $1.21 in fiscal 2020, which ended in January, to $4.53 in fiscal 2021—a 274% increase that isn’t far behind the big gains expected for its peers—while sales are expected to rise 34% year over year to $16.8 billion. But at 26 times 12-month forward earnings, Ross’ stock valuation is on par with TJX’s, and is cheaper than Burlington’s, at 38 times. Just trading at 30 times forward earnings would put the stock at $136, a 10% gain. Or, it can simply grow faster than the market expects. That’s how Anderson, who forecasts a $5.10 per share profit in fiscal 2022, arrives at her target of $138, up 12% from Wednesday’s close.

• CWS Market Review – February 26, 2021
  Eddy Elfenbein, February 26th, 2021 at 7:08 am

  ”The more successful the corporation, the more likely it is to be unique in some of its policies.” – Philip Fisher

  The stock market seems to be getting a little nervous lately. On Tuesday, the S&P 500 fell 1.8% during the day. That didn’t last long. The index bounced off its 50-day moving average and rallied strongly into the close. Many of the well-known “high beta” stocks were particularly tossed about.

  That rally faded, and on Thursday, the S&P 500 had its second-worst loss this year. The S&P 500 dropped 2.45% on Thursday to finish the day at 3,829.34, which is about 0.6% above its 50-DMA. The S&P 500 has been above its 50-DMA almost continuously for the last four months. Despite the new volatility, in this week’s CWS Market Review, I want to focus on reasons to be optimistic for the overall economy.

  

  We also had a few more earnings reports. Unfortunately, two of our stocks, Trex and Ansys, got dinged hard, even though they reported decent earnings. I’ll explain what happened in a bit. We also got two more dividend hikes this week. Last week it was Moody’s and Sherwin-Williams. This week, it’s Silgan and Thermo Fisher (increases of 17% and 18% respectively). I’ll also preview next week’s Buy List earnings. But first let’s look at why the U.S. economy may be stronger than is commonly believed.

  Reasons for Optimism

  I want to be careful how I say this, but there are a number of reasons to believe that the U.S. economy is doing better than a lot of people think. Obviously, the economy isn’t doing well in absolute terms. By my estimates, we’re around 10 million people away from full employment.

  My point is that we’re doing better than a lot of folks on Wall Street believe. Tied to this is a belief that the battle against the coronavirus is going well. There’s even talk that we can get back to normal by the summer.

  The problem is that bad news sells, and bad news sells especially well on Wall Street. To be an optimist, it’s often held, is to be naïve. In this case, I’m taking a sober look at the facts.

  Let’s start with some basics. For one, bond yields have gradually worked their way higher over the past few months. That usually means that more economic growth is on the way. At one point on Thursday, the 10-year yield reached 1.6%. That’s more than a 1% increase in about six months. Interestingly, most of the increase is coming from the inflation premium side of the coin. Real yields are still very low (negative, in fact). This suggests that yields have a lot of room to move higher.

  Many commodities have been rallying, which is often another sign of a growing economy. The price for copper recently touched a 10-year high (see below). Additionally, oil prices have been on the upswing. Bank of America recently said that oil could spike to $100 per barrel.

  Tied to higher oil is the unsurprising fact that cyclical stocks have been doing well, especially energy and financials. Since late October, the S&P 500 Energy Index is up over 75%. Of course, that’s coming off several terrible years. Energy stocks are still half of what they were seven years ago.

  

  The Federal Reserve is squarely on our side. Jerome Powell testified before Congress this week, and he made it clear that the Fed intends to keep rates low for a long time. According to the most recent economic estimates, most members of the FOMC don’t see a need to raise interest rates this year, next year or the year after.

  We’ve also had promising economic reports recently. The recent report on existing-home sales was positive. More interesting is that housing inventory is at a record low (the data go back to 1982). This means that more new homes will have to be built. That means more contractors, more hammers, more wires, more pipes and, importantly, more jobs.

  Also, don’t forget shoppers. Last week’s retail-sales report was quite good. The National Retail Federation projects growth this year of 6.5% to 8.2%. That would be the fastest growth in two decades.

  The Atlanta Fed’s GDPNow model now sees economic growth of 9.6% for the first quarter. That would be amazing. The New York Fed’s model sees growth of 8.3%. Some of the big investment firms are coming around. Goldman now sees Q1 GDP growth of 6%. Morgan Stanley is at 7.5%, and Bank of America is at 6.5%. Here’s a stunner. According to JPMorgan, the U.S. could outperform China this year.

  Not all the numbers are in yet, but it looks like earnings for Q4 will be down about 12% from the year before. Earnings for Q3 are now projected to outpace Q3 of 2018, which is the current record holder. That’s a remarkable recovery in such a short period of time.

  That’s my cautious case for reasons to be cautiously optimistic for a cautious recovery. Now let’s look at this week’s earnings.

  Earnings from Trex, HEICO and Ansys

  We had three more earnings reports this week. Here’s the latest Earnings Calendar:

  Stock	Ticker	Date	Estimate	Result
  Silgan	SLGN	26-Jan	$0.53	$0.60
  Abbott Labs	ABT	27-Jan	$1.35	$1.45
  Stryker	SYK	27-Jan	$2.55	$2.81
  Danaher	DHR	28-Jan	$1.87	$2.08
  Sherwin-Williams	SHW	28-Jan	$4.85	$5.09
  Church & Dwight	CHD	29-Jan	$0.52	$0.53
  Thermo Fisher	TMO	1-Feb	$6.56	$7.09
  Broadridge Financial Sol	BR	2-Feb	$0.70	$0.73
  AFLAC	AFL	3-Feb	$1.05	$1.07
  Check Point Software	CHKP	3-Feb	$2.11	$2.17
  Hershey	HSY	4-Feb	$1.43	$1.49
  Intercontinental Exchange	ICE	4-Feb	$1.08	$1.13
  Fiserv	FISV	9-Feb	$1.29	$1.30
  Cerner	CERN	10-Feb	$0.78	$0.78
  Disney	DIS	11-Feb	-$0.42	$0.32
  Moody’s	MCO	12-Feb	$1.97	$1.91
  Zoetis	ZTS	16-Feb	$0.87	$0.91
  Stepan	SCL	18-Feb	$1.08	$1.42
  Trex	TREX	22-Feb	$0.36	$0.37
  Ansys	ANSS	24-Feb	$2.54	$2.96
  Middleby	MIDD	1-Mar	$1.40
  Miller Industries	MLR	TBA	n/a

  After the bell on Monday, Trex (TREX) reported Q4 earnings of 37 cents per share. That beat the Street by a penny per share. Sales rose 39% to $228 million. For the year, the company made $1.55 per share.

  For Q1, Trex expects sales of $235 million to $245 million. The midpoint is a 20% increase. That’s a pretty good number. Wall Street had been expecting $237.51 million. The company didn’t provide EPS guidance.

  I’m mostly pleased with this report, but traders were not impressed by a one-cent earnings beat. The stock fell 9% in Tuesday’s trading, and has since stabilized. I’m not too concerned, because the share price had already run up so much prior to the earnings report. Even with Tuesday’s drop, Trex is up nicely for us this year. Trex remains a buy up to $98 per share.

  On Tuesday, HEICO (HEI) reported fiscal Q1 earnings of 51 cents per share. Wall Street had been expecting 48 cents per share. HEICO’s fiscal year ended in January, so it’s the first of our “off-cycle” stocks to report.

  This was a good report, but HEICO had a tough year. For last year’s Q1, HEICO made 89 cents per share. HEICO’s operating margin was 19.2%, which is good, but is down from 21.9% from last year.

  The pandemic has been hard on the aviation industry. For Q1, sales for HEICO’s commercial-aviation business fell 43%. Still the company has been able to generate an impressive cash flow. For Q1, cash flow from operations increased by 32% to $107.2 million.

  HEICO said that it can’t give guidance yet for this year, but a lot will hinge on how well the commercial-aviation business rebounds. I think HEICO will continue to prosper. HEI is a buy up to $140 per share.

  Lastly we have Ansys (ANSS), which said on Wednesday that it made $2.96 per share for Q4. That was well ahead of Wall Street’s consensus of $2.54 per share. Still, traders were not pleased with the company’s modest guidance. In Thursday’s trading, ANSS got pounded for a 12% loss. Ouch! Still, Ansys did well last quarter. Revenue adjusted for currency rose by 24%. For all of 2020, Ansys made $6.70 per share.

  Maria Shields, Ansys CFO, stated, “We closed out 2020 with the strongest quarterly and annual financial results in the company’s history, with our fourth-quarter results exceeding the high end of guidance across all key metrics. Highlights include record quarterly and annual revenue, with the operating leverage of our business model driving strong margins and earnings. ACV, which grew 20% and 9% in constant currency for the quarter and the year, reached record levels of recurring sources at 83% for the quarter and 82% for the year. Additional notable highlights include both record operating cash flow of $547 million and deferred revenue and backlog of $967 million.”

  Now let’s look at guidance. For Q1, Ansys sees earnings between 73 and 90 cents per share on revenue of $335 million to $360 million. Wall Street had been expecting $1.08 per share.

  For all of 2021, the company projects earnings of $6.44 per share to $6.92 per share, and revenue of $1.79 billion to 1.875 billion. The Street was looking for $7.08 per share.

  So what gives? I think this is a combination of the company low-balling us, plus genuine uncertainty surrounding Covid. I’m not concerned about Ansys. To reflect the selloff, this week I’m dropping my Buy Below on Ansys to $360 per share.

  Earnings Preview for Middleby, Miller and Ross Stores

  In last week’s newsletter, I said that I wasn’t sure when Middleby (MIDD) was going to report its Q4 earnings. Now we know. The company said the earnings will be out on Monday, March 1, before the market opens.

  Middleby had a very strong Q3 earnings report in November. Wall Street had been expecting $1.04 per share, and Middleby beat that by 30 cents per share. CEO Tim FitzGerald said, “We delivered record cash flows, improved profitability, and enhanced our capital structure for the long-term.” The stock jumped 17% in one day. For Q4, Wall Street expects $1.40 per share.

  

  Ross Stores (ROST) is our second off-cycle stock. Their fiscal Q4 ended in late January. The deep-discounter will report earnings on Tuesday, March 2, after the market closes.

  The economic lockdown was very hard on Ross. Many of its customers are lower-income, and they depend on the stores. The third quarter was something resembling normal. Ross made $1.02 per share, which was 41 cents more than expectations.

  Q4 is the all-important holiday shopping season. Ross decided not to provide any sales or earnings guidance for Q4.

  Ross continues to have a strong financial position, with over $5.2 billion in total liquidity. The company also repaid its $800 million revolving-credit facility.

  The consensus on Wall Street is for earnings of $1.00 per share. That’s probably too low.

  Miller Industries (MLR) hasn’t said when it will report, but going by previous years, I’m assuming it will be sometime next week. Miller is a new stock for us this year, and it’s by far our smallest company on the Buy List. The current market value is $462 million. Disney is about 750 times larger. No analysts currently follow Miller, which is something I like.

  Miller Industries makes and sells towing and recovery equipment. The company makes wreckers that are used to move disabled vehicles. They also make those car carriers that you often see on the road. If a car or truck needs to be hauled out of something and then hauled away somewhere, odds are, Miller’s got a vehicle that can do it.

  The company was started by Bill Miller in 1990. His idea was to find well-known brand names in a highly segmented industry. Miller then planned to grow the business by buying up smaller names.

  Miller standardized the business so that different parts could fit in any vehicle. Miller Industries now owns several different brands, including Century, Vulcan, Chevron and Holmes. Miller quickly grew to have 40% market share. In fact, it soon got the attention of the anti-trust folks.

  Business was going very well until the pandemic. Miller’s annual EPS rose from $2.02 in 2017 to $2.96 in 2018 to $3.43 for 2019. Miller made $1.03 per share for last year’s Q4. I’m expecting earnings between 70 cents and 80 cents per share.

  Buy List Updates

  We had two more dividend hikes this week. Silgan (SLGN) raised its dividend by 16.7% to 14 cents per share. This is Silgan’s 17th consecutive annual dividend increase. The new dividend is payable on March 31 to the holders of record on March 17. Silgan is a buy up to $40 per share.

  The other hike came from Thermo Fisher (TMO). The company raised its dividend by 18% to 26 cents per share. The new dividend is payable on April 16 to shareholders of record as of March 16. TMO is a buy up to $500 per share.

  Last month, Stryker (SYK) had an impressive Q4 earnings report. The medical-technology company said it sees earnings this year ranging between $8.80 and $9.20 per share. The shares hit a new all-time high on Thursday. I’m lifting our Buy Below on Stryker to $260 per share.

  That’s all for now. Next week is a new month, and we’ll soon get many of the key turn-of-the-month economic reports. On Monday, the ISM Manufacturing Index is released. On Wednesday, ADP will release its report on private payrolls. Then on Thursday, we’ll get another report on jobless claims. Then on Friday, the government will release its jobs report for January. For January, the unemployment rate fell to 6.3%. 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: February 26, 2021
  Eddy Elfenbein, February 26th, 2021 at 7:02 am

  The Biden Economy Risks a Speeding Ticket

  House Poised to Pass Stimulus as Minimum Wage Hike Dealt Blow

  Costco CEO Doesn’t Get Lindsey Graham’s Problem With A $15 Minimum Wage

  10-Year Treasury Yield Retreats Slightly from One-Year High

  When Does a Commodities Boom Turn Into a Supercycle?

  F.C.C. Approves a $50 Monthly High-Speed Internet Subsidy

  Twitter Shakes Off the Cobwebs With New Product Plans

  Can Clubhouse Move Fast Without Breaking Things?

  Airbus Wants to Seize the Skies From Boeing

  China’s Huawei, Reeling from U.S. Sanctions, Plans Foray Into EVs

  AT&T Carves Out Pay-TV Business in Deal With TPG

  Cathie Wood’s Main ETF Slips Again After $4.9 Billion Asset Drop

  Michael Batnick: What If It Doesn’t End Badly?

  Ben Carlson: The Stock Market Is Smarter Than All of Us

  Howard Lindzon: Jason Gardner, Founder & CEO of Marqeta, Joins Me on Panic with Friends to Discuss Making It as a Fintech Entrepreneur

  Be sure to follow me on Twitter.

• Q4 GDP Growth Revised Higher to 4.1%
  Eddy Elfenbein, February 25th, 2021 at 12:15 pm

  The GameStop saga returned to the market yesterday and today. At 2:30 pm yesterday, GameStop was going for just under $50 per share. At 4 pm, the stock closed at $91.71. This morning, Game Stop got as high at $170 per share.

  The rally was apparently sparked by an ice cream cone tweet from Ryan Cohen. This tweet somehow had a cryptic message. Anyway, I have a feeling this story isn’t over.

  We had some good economic news this morning. Q1 GDP was revised slightly higher to growth of 4.1%. (That’s annualized and after inflation.)

  The National Bureau of Economic Research is the official dater of recessions. They say when a recession began and ended. Last June, NBER said the economic recession peaked in February. They haven’t called a trough date yet, but I think they will sometime soon.

  I don’t know if this is exactly a V-shaped recovery, but it is a recovery.

  

  Note that the shaded area signals a recession and it’s based on NBER’s timing.

  This morning’s jobs report came in at 730,000. That beat expectations of 845,000. This also came close to a post-pandemic low, which is currently 711,000.

• Morning News: February 25, 2021
  Eddy Elfenbein, February 25th, 2021 at 7:04 am

  Carbon Offsets Gird for Lift-Off as Big Money Gets Close to Nature

  Blank-Check Buyers Set Sights on Corporate Spinouts as Next Prey

  It’s Gates Versus Musk as World’s Richest Spar Over Bitcoin

  Hong Kong Slaps 30% Tax Hike on Share Trading

  GameStop Rally Builds After Puzzling Ice-Cream Cone Tweet

  Charlie Munger Says Novice Investors Are Getting Lured into a Bubble in ‘Dirty Way’ By Robinhood

  Powell Says Better Child Care Policies Might Lift Women in Work Force

  Verizon, AT&T and T-Mobile Dominate $81 Billion 5G Spectrum Auction

  The Future of Car Navigation Has Arrived

  Losing Bid for Postal Contract Proves Costly for Electric-Vehicle Maker

  What Happens When a Publisher Becomes a Megapublisher?

  Michael Batnick: When Value Turns Into Momentum?

  Jeff Carter: Who Makes The Profit?

  Howard Lindzon: Non Fungible Tokens (NFT’s) – Tell Me More Howie

  Joshua Brown: Why Not Just Print and Give Away Money Infinitely? & Grantham: More Debt Doesn’t Grow the Economy.

  Be sure to follow me on Twitter.

• Ansys Earns $2.96 per Share
  Eddy Elfenbein, February 24th, 2021 at 5:07 pm

  ANSYS, Inc. (ANSS), today reported fourth quarter 2020 GAAP and non-GAAP revenue growth of 28% and 27% in reported currency, respectively, or 25% and 24% in constant currency, respectively, when compared to the fourth quarter of 2019.

  For FY 2020, GAAP and non-GAAP revenue growth was 11% in reported currency, or 10% in constant currency, when compared to FY 2019. For the fourth quarter of 2020, the Company reported diluted earnings per share of $2.46 and $2.96 on a GAAP and non-GAAP basis, respectively, compared to $1.91 and $2.24 on a GAAP and non-GAAP basis, respectively, for the fourth quarter of 2019.

  For FY 2020, the Company reported diluted earnings per share of $4.97 and $6.70 on a GAAP and non-GAAP basis, respectively, compared to $5.25 and $6.58 on a GAAP and non-GAAP basis, respectively, for FY 2019.

  “Q4 was an outstanding quarter, concluding an excellent finish to fiscal year 2020. We delivered double-digit revenue growth, while maintaining industry-leading margins, despite the global disruptions caused by the COVID-19 pandemic,” said Ajei Gopal, Ansys president and CEO. “I am proud of our many accomplishments in 2020, in particular, maintaining our focus on customer success. That focus throughout the year resulted in our closing of the three largest license deals in our company history. We added to our market-leading portfolio with the acquisitions of two industry pioneers, Lumerical Inc. and Analytical Graphics, Inc. (AGI). And we recently released the latest version of our product portfolio, Ansys 2021 R1, making it faster and easier than ever for our customers to innovate.”

  Gopal further stated, “The pandemic has reinforced Ansys’ core value proposition of cost savings and improved time to market. It has fast-tracked product roadmaps requiring more simulation, and it has accelerated corporate digital transformations as more engineers work from home for the long term. As we look ahead, these represent tailwinds to our total addressable market. I remain confident in our ability to drive strong and profitable growth.”

  Maria Shields, Ansys CFO, stated, “We closed out 2020 with the strongest quarterly and annual financial results in the Company’s history, with our fourth quarter results exceeding the high end of guidance across all key metrics. Highlights include record quarterly and annual revenue, with the operating leverage of our business model driving strong margins and earnings. ACV, which grew 20% and 9% in constant currency for the quarter and the year, reached record levels of recurring sources at 83% for the quarter and 82% for the year. Additional notable highlights include both record operating cash flow of $547 million and deferred revenue and backlog of $967 million. These results reflect the resiliency of our business model and the incredible efforts and dedication of the Ansys employees during unprecedented times. Given the prolonged state of the global pandemic, while we remain cautiously optimistic as we look into the first half of 2021, we remain confident in our ability to continue to execute on our strategy and continue to create long-term value for all of our key stakeholders.”

• S&P 500 Sector Correlations
  Eddy Elfenbein, February 24th, 2021 at 9:46 am

  Here’s something I have been working on. This is the correlation among the different S&P 500 sectors. It’s from the beginning of 2020 until today.

  

• Morning News: February 24, 2021
  Eddy Elfenbein, February 24th, 2021 at 7:03 am

  Hong Kong Announces Over $15 Billion Budget to Lift Economy Out of Recession

  German Economy Robust at End of 2020 But Near-Term Outlook Weak

  Australia’s Antitrust Chief Claims Victory After Facebook Standoff

  Biden Rushes to Address Global Computer Chip Shortage via Latest Executive Order

  After Texas Crisis, Biden’s Climate Plan Hangs on Fragile Power Grid

  California Wins Court Victory for Its Net Neutrality Law

  Powell Focuses on Economic Need at Key Moment in Markets and Politics

  Cathie Wood Funds Hit by Biggest Investor Exodus on Record

  Robinhood CEO Tells Portnoy Limits Prevented Liquidity Crunch

  McDonald’s Joins the Fierce Fight for Chicken Sandwich Supremacy

  Here’s How Much Wealth You Need to Join the Richest 1% Globally

  Anime Is Booming. So Why Are Animators Living in Poverty?

  Howard Lindzon: Non Fungible Tokens (NFT’s) …I Can’t Believe I Have To Learn This

  Joshua Brown: Everybody Knows You Never Go Full Weimar

  Michael Batnick: Buy the Dip & Animal Spirits: The Beanie Baby Bubble

  Be sure to follow me on Twitter.

• Thermo Fisher Raised Its Dividend by 18%
  Eddy Elfenbein, February 23rd, 2021 at 6:06 pm

  The dividend hikes keep coming.

  Earlier we had a dividend increase from Silgan. Now we just learned that we got a dividend increase from Thermo Fisher (TMO). The company raised its payout by 18% to 26 cents per share.

  The dividend is payable on April 16, 2021, to shareholders of record as of March 16, 2021.

• Silgan Raises Dividend by 16.7%.
  Eddy Elfenbein, February 23rd, 2021 at 4:47 pm

  Silgan (SLGN) hiked its dividend by 16.7%. The quarterly payout will rise from 12 cents per share to 14 cents per share.

  This is Silgan’s 17th consecutive annual dividend increase. The new dividend is payable on March 31 to the holders of record on March 17.