• Is it Time for Bitcoin?
    Posted by on July 25th, 2017 at 12:40 pm

    From MarketWatch:

    Cullen Roche of Orcam Financial Group echoed much of Richter’s view.

    “As a speculative instrument it’s an interesting bet on its widespread acceptance as a medium of exchange, but we should be very clear that we are speculating when we buy bitcoin,” he said. “In this sense it is more akin to something you might gamble on as opposed to something you prudently invest in. Not an inappropriate endeavor, but probably not one that should be an excessive portion of anyone’s asset allocation.”

    Eddy Elfenbein of the Crossing Wall Street blog agreed on the idea of rolling the dice, and actually didn’t rule it out for himself.

    “I’d buy bitcoin as a fun bet, but it still has a long way to go,” he said. “If a currency moves 15% a day, then it’s not a currency.”

  • Wabtec Misses and Guides Lower
    Posted by on July 25th, 2017 at 10:33 am

    This morning, Wabtec (WAB) became our latest stock to report earnings and it turned out to be our latest disappointment. For Q2, the freight services company earned 75 cents per share which included five cents per share due to the “net effect of the restructuring and transaction expenses and the interest expense benefit.” Wall Street had been expecting 94 cents per share.

    For all of 2017, Wabtec now expects sales of $3.85 billion and EPS between $3.55 and $3.70. That’s a reduction from their April forecast of $3.95 to $4.15 per share.

    Raymond T. Betler, Wabtec’s president and chief executive officer, said: “We remain confident in our future growth opportunities, even as we manage aggressively through our short-term challenges. In transit, we have a record and growing backlog, with significant projects in all major markets around the world, and we are making meaningful progress in the Faiveley integration, with margins improving during the year. In freight, our backlog has now increased for three consecutive quarters, and demand appears to be stable in our key markets. Finally, we continue to invest in our balanced growth strategies, including new products and acquisitions, around the world.”

    The shares are down about 11% this morning.

  • Morning News: July 25, 2017
    Posted by on July 25th, 2017 at 7:04 am

    For China’s Global Ambitions, ‘Iran Is at the Center of Everything’

    German Business Climate Hits Record as Economy Proves Robust

    Alphabet Shares Tank as Wall Street Freaks Over Rising Traffic Costs

    Michael Kors to Buy Jimmy Choo in $1.2 Billion Deal

    LedgerX Just Gave Us Another Way to Bet Against Bitcoin

    Halliburton Sees Drillers `Tap the Brakes’ on Shale Boom

    SoftBank Reportedly Seeking Uber Stake Valued at Billions

    Bill Gates Backs Uber Freight Rival

    Johnson & Johnson’s Pricey Best-Selling Drug Will Have to Face a 35% Cheaper Rival

    Sports Retailer Stocks Fall as Hibbett Posts Gloomy Outlook

    The Chipotle Corporate Sabotage Theory Returns

    Stada Board Recommends Acceptance of Improved Takeover Bid

    DuPont Beats on Strong Demand in Agriculture Business

    Michael Batnick: The Topic Is Gold

    Roger Nusbaum: Markets Continue to Melt (Higher!)

    Be sure to follow me on Twitter.

  • RPM International Earned $1.02 per Share
    Posted by on July 24th, 2017 at 1:04 pm

    This morning, RPM International (RPM) had a dud of an earnings report. The company made $1.02 per share for its fiscal Q4 which was 16 cents below Wall Street’s consensus. Quarterly net sales rose 4.6% to $1.49 billion.

    “We took additional cost reduction measures in the fourth quarter to position RPM to a return to double-digit earnings growth in fiscal 2018. We were pleased with solid organic growth in both our industrial and specialty segments during the fourth quarter, which we expect to continue as we enter into fiscal 2018. Organic growth across our consumer businesses was down 1.0%, principally due to lower results at our Kirker nail enamel business, the negative impact of a very rainy start to the spring season for home improvement sales and a difficult comparison to our prior-year quarter in which organic growth across RPM’s core consumer product lines increased 9.9%,” stated Frank C. Sullivan, RPM chairman and chief executive officer.

    “The consolidated revenue increase, particularly in a growth-challenged economic environment, was mitigated somewhat on leverage to the bottom line as a result of higher raw material costs during the quarter, including shortages and availability issues in a couple of key product lines. Also, a significantly higher tax rate in the fourth quarter this year versus last year reduced earnings per share on a comparative basis by $0.12.

    Now for guidance:

    “Based upon the growth expectations above, we anticipate earnings per share for fiscal 2018 to be in the range of $2.85 to $2.95 per share. Throughout the year, it will be important to keep in mind the variability of our year-over-year quarterly comparisons, in particular, our tax rate is estimated to be in line with fiscal 2017, but may fluctuate quarter-to-quarter. Related to this, in the first quarter of last year we had a very favorable tax adjustment, which is not expected to repeat, and which will negatively impact the first quarter of fiscal 2018 by approximately $0.03 per share. As outlined above, in the fiscal 2017 third quarter we identified, but did not adjust out, roughly $0.08 per share of non-operating, one-time items. These items should be added back to the fiscal 2017 base results for our fiscal 2018 third quarter. Given the higher-than-normal tax rate in the fiscal 2017 fourth quarter, we would anticipate $0.05 per share benefit in the fiscal 2018 fourth quarter.

    “For the first quarter of fiscal 2018, in addition to the higher tax rate mentioned above, we expect higher raw material costs experienced in the fourth quarter to continue through the first quarter, as well as continued foreign currency headwinds, both translational and transactional. Also, most of our operating groups were on plan in the first quarter of fiscal 2017, before their results began to weaken, and our Brazilian operation benefited in the first quarter last year when Brazil hosted the summer Olympics. As a result, our EPS estimate for the first quarter of fiscal 2018 is $0.83 per share to $0.85 per share.

    Wall Street had been expecting 89 cents per share for this quarter, and $3.00 per share for the year. Shares of RPM are down about 7% today.

  • Morning News: July 24, 2017
    Posted by on July 24th, 2017 at 7:08 am

    Traders Fear Hard Landing in Emerging Markets

    Oil Rises as Saudi Arabia Pledges Deep Cut to August Exports

    Euro Zone Business Growth Slows at Start of Second Half

    IMF Cuts U.K. Forecast as Brexit Inflation Knocks Consumers

    IMF Sees U.S. Fading as Global Growth Engine

    U.S. Inflation Remains Low, and That’s a Problem

    U.S. Foresaw Better Return in Seizing Fannie and Freddie Profits

    Sensing Weakness, Uber’s Asian Rivals Make $2.5 Billion Play

    Blackstone Mortgage 7.9% Dividend Yield Is Not Good Enough

    Quest for AI Leadership Pushes Microsoft Further Into Chip Development

    Samsung Takes Aim at TSMC with Plans to Triple Chip Foundry Market Share

    Direct Lending Funds’ Fading All-Weather Appeal

    Howard Lindzon: StockTwits Adds Streams and Symbology for 100+ Cryptocurrencies and Tokens

    Joshua Brown: Upside Surprises Hit a Five Year High

    Ben Carlson: The Game Beyond the Game

    Be sure to follow me on Twitter.

  • Three Quick Charts
    Posted by on July 22nd, 2017 at 11:15 pm

    Here are some charts I wanted to show you.

    First up, is Moody’s (MCO) recent performance. We got a nice response from the earnings report.

    Second up, the Nasdaq Composite just snapped a 10-day winning streak.

    Om CNBC, I mentioned that the Dow is down for the year priced in euros. Here’s the chart:

  • Healthcare Breakout?
    Posted by on July 21st, 2017 at 6:27 pm

  • Trading the Dollar Decline
    Posted by on July 21st, 2017 at 6:24 pm

  • Moody’s Earns $1.51 per Share
    Posted by on July 21st, 2017 at 8:20 am

    Moody’s (MCO) had a very good earnings report this morning, plus they raised guidance. For Q2, the ratings company earned $1.51 per share which is a 16% increase over last year. That also beat expectations by 17 cents per share. Quarterly revenues were up 8% to $1 billion, and operating income rose 12% to $457.5 million. Very good results.

    More importantly, Moody’s raised their full-year earnings range to $5.35 to $5.50 per share. The previous range was $5.15 to $5.30 per share. Things are going well for Moody’s.

    “In the second quarter, Moody’s recorded $1.0 billion in quarterly revenue, as well as double-digit EPS growth,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “Given the strength of the first half and a supportive market environment, we are raising our full year 2017 diluted EPS and adjusted diluted EPS guidance ranges to $5.69 to $5.84 and $5.35 to $5.50, respectively.”

    Mr. McDaniel added, “We continue to expect our previously announced acquisition of Bureau van Dijk to close in the third quarter of 2017 and look forward to further extending Moody’s position as a leader in risk data and analytical insight.”

    This is a very good report.

  • CWS Market Review – July 21, 2017
    Posted by on July 21st, 2017 at 7:08 am

    “Don’t confuse brains with a bull market.” – Humphrey B. Neill

    Second-quarter earnings season kicked off this week for our Buy List stocks. Unfortunately, we’ve had a few poor reactions to the earnings reports even though the underlying fundamentals of our companies are still pretty strong.

    We’ve had six Buy List stocks reports so far this week, plus Moody’s is due to follow later today. In a bit, I’ll go over all our earnings reports. I also have a few new Buy Below prices for you. Later on, I’ll preview six more earnings reports coming next week.

    Overall, Wall Street has been in a buoyant mode. The S&P 500 has continued to make several new all-time highs. Volatility remains extremely low. Here’s an interesting stat: Only once in the last 14 trading days has the S&P 500 fallen by more than 0.1%. It’s almost as if every trading day, the market closes just a tiny bit higher. Now let’s take a look at what was a very busy week for earnings.

    Signature Bank Earns $2.21 per Share

    On Wednesday, Signature Bank (SBNY) started off the second-quarter earnings season for our Buy List. The New York-based bank reported quarterly earnings of $2.21 per share, which matched Wall Street’s consensus.

    But there’s a big caveat to that number. It doesn’t include Signature’s “provision expense and write-downs for the taxi-medallion portfolio.” As we’ve seen, SBNY took a bath on those medallion loans. Uber, Lyft and others have knocked the entire cab industry for a loop. But as I’ve said, this is a known problem, and SBNY has been working on it.

    “We did not, nor did any others, foresee the dramatic decline in taxi-medallion values caused by a combination of rapid radical disruption by app-based hailing systems and inaction by governmental authorities. We did, however, see the disruption coming in time to set an upper limit on loan amounts and to stop our lending earlier than most,” said Scott A. Shay, Chairman of the Board.

    I was more concerned with net interest margin. That’s the key metric for any bank. For Signature, their net interest margin for Q2 was 3.11%. That’s pretty good. Overall, this was an OK quarter for Signature. It’s largely what I expected.

    Traders were not pleased with the earnings reports. The shares have struggled lately, but I still like SBNY. Don’t let the downdraft scare you. This week, I’m dropping my Buy Below on Signature down to $144 per share.

    Five Earnings Reports on Thursday

    Thursday was a very busy day for us, as we had five Buy List stocks report earnings.
    Leading off the group was Danaher (DHR). The diversified manufacturer said they made 99 cents per share for Q2. Danaher had previously told us to expect earnings to range between 95 and 98 cents per share.

    Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “During the second quarter, we delivered double-digit adjusted earnings per share growth, generated strong cash flow, and our two most recent large acquisitions – Pall and Cepheid – continued to perform very well.”

    Joyce continued, “As we look to the second half of the year, we expect our core growth rate to accelerate compared to first half levels off of improving order trends and as recent acquisitions become part of our core revenue. We believe that the power of the Danaher Business System, significant opportunities across our portfolio, and a strengthening balance sheet position us well for the remainder of 2017 and beyond.”

    Now for guidance. For Q3, Danaher said to expect earnings between 92 and 96 cents per share. Wall Street had been expecting 96 cents per share. The good news is that Danaher raised its full-year range. The old range was $3.85 to $3.95 per share. The new range is $3.90 to $3.97 per share.

    Despite the higher guidance, the shares pulled 3% during Thursday’s trading. Frankly, the report looked just fine to me. The company is doing well. I’m keeping Danaher’s Buy Below at $90 per share.

    Snap-on (SNA) said they made $2.60 per share for Q2. That was five cents better than expectations. Net sales rose 5.6% to $921.4 million. Diluted EPS rose by 10.2% over last year’s Q2.

    The CEO said, “Our year-over-year improvement in operating margin before financial services reflects ongoing progress through our Snap-on Value Creation Processes. At the same time, these results also demonstrate continued advancement along our strategic runways for growth, as indicated by the notable increase in activity in the quarter. Despite some sales headwinds in the quarter for the Snap-on Tools Group, we believe the vehicle-repair markets in which we operate remain robust and afford significant ongoing opportunity. Furthermore, our acquisition of Norbar Torque Tools in the second quarter adds to our expanding product offering to customers in critical industries. Finally, these results would not have been possible without the dedication and capability of our franchisees and associates worldwide; I thank them for their extraordinary commitment and ongoing contributions.”

    SNA was also punished by traders. On Thursday, the shares closed 4.7% lower. I don’t understand how a five-cent beat can result in a $7.37 falloff in the share price, but that’s Wall Street for you. This week, I’m dropping my Buy Below on Snap-on down to $161 per share.

    Alliance Data Systems (ADS) was the ugly one this week. The loyalty-solutions people said they pulled in $3.84 per share for Q2. That was 11 cents more than expectations. Quarterly revenue rose 4% to $1.8 billion.

    However, the big news is that ADS is lowering its full-year guidance from $18.50 to $18.10 per share. ADS said its brand-loyalty business “produced soft results.” But ADS is actually bumping up its revenue guidance from $7.7 billion to $7.8 billion.

    The company also said it’s “comfortable” in giving initial 2018 guidance of $21.50 per share in core earnings. The consensus on Wall Street was for earnings of $21.42 per share. Still, Wall Street was not pleased with Thursday’s report. Shares of ADS dropped by 9.5%. I’m lowering my Buy Below to $252 per share.

    Sherwin-Williams (SHW) had a big earnings miss. The company only made $3.80 per share last quarter. Wall Street had been expecting $4.57 per share. The reason for the earnings shortfall was costs assoicated with the recent merger with Valspar.

    Sherwin said they see Q3 earnings coming in between $3.70 and $4.10 per share. That includes a charge of $1.10 per share related to the acquisition. Wall Street had been expecting Q3 earnings of $4.91 per share.

    For all of 2017, Sherwin now expects earnings to range between $12.30 and $12.70 per share. That will include $2.50 in charges related to the acquisition. Wall Street had been expecting $14.76 per share.

    Shares of SHW got clobbered early Thursday. At one point it was down more than 6.1%. But the stock recovered some lost ground and closed down 2.5%.

    After the closing bell on Thursday, Microsoft (MSFT) reported fiscal-Q4 adjusted earnings of 98 cents per share. But that figure includes a tax benefit of 23 cents per share. Excluding that, MSFT earned 75 cents per share which was four cents more than Wall Street’s consensus.

    Revenue in MSFT’s Intelligent Cloud unit rose 11% to $7.4 billion. The company said that Azure revenue rose by 97%, while Office 365 revenue jumped by 43%. The CFO even said that Azure was the primary catalyst for the earnings beat. Microsoft said that LinkedIn brought in $1.07 billion in revenue, and had an operating loss of $361 million.

    The software giant also gave upbeat guidance for the current quarter. The company expects Intelligent Cloud revenue to rise by between 8% and 11%. They see Productivity and Business Processes revenue rising by 21% to 24%. Overall, Wall Street seemed pleased by Microsoft’s results. The shares gapped higher during the after-market session, but that’s never a guarantee of what will happen on Friday. For now, I’m going to raise our Buy Below on Microsoft to $76 per share.

    Six Buy List Earnings Reports Next Week

    Now for next week’s earnings. On Monday, RPM International (RPM) is due to report. This is the odd-man out this earnings season because RPM’s fiscal Q4 ended in May. The other added wrinkle is that usually around 40% of RPM’s annual earnings come during their fourth quarter. The company said it expects full-year earnings to range between $2.57 and $2.67 per share. That implies a Q4 range between $1.13 and $1.23 per share.

    Wabtec (WAB) is due to report on Tuesday. The freight-services company has been in the midst of an impressive turnaround. Only recently has it started to falter. In April, WAB said they see full-year numbers ranging between $3.95 and $4.15 per share. Wall Street expects Q2 earnings of 94 cents per share.

    Express Scripts (ESRX) follows on Wednesday. The pharmacy-benefits manager has been a headache for us this year. I’ll be curious to hear any updates on the Anthem saga. Fortunately, regular business seems to be going well. Express told us they expect Q2 earnings to come in between $1.70 to $1.74 per share. That’s a pretty optimistic forecast, but I think they can do it.

    Next Thursday will be another crowded day for us. We have three more Buy List earnings reports. AFLAC (AFL), the duck stock, said that if the yen averages between 105 and 115 for Q2, then they see earnings coming in between $1.55 and $1.70 per share. The yen has mostly been between 110 and 115 for the last few months.

    Cerner (CERN) has been an excellent stock for us this year. The healthcare-IT folks pegged Q2 earnings between 60 and 62 cents per share. That’s a narrow range. I wanted to add that Cerner’s founder, Neal Patterson, recently died. You can read here about his extraordinary contribution to business.

    Last is Stryker (SYK). For Q2, Stryker expects EPS between $1.48 and $1.52. The orthopedics firm has a full-year forecast of $6.35 to $6.45 per share. They should be able to achieve both.

    Before I go, I wanted to mention that Smucker (SJM) raised its dividend by 4%. The quarterly payout will rise from 75 to 78 cents per share. This is their sixteenth annual dividend increase. The new dividend will be paid on Friday, September 1 to shareholders of record at the close of business on Friday, August 11. Smucker remains a buy up to $131 per share.

    Next week will be dominated by earnings reports. There’s actually a Federal Reserve meeting on Tuesday and Wednesday, but don’t expect much in the way of headlines. It’s highly doubtful the Fed will make any move on interest rates. The policy statement will come out on Wednesday afternoon. The big economic report for next week will come on Friday when the government releases its first estimates for Q2 GDP growth. 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