Sunday, February 12, 2017

TLH Market Review

This week we saw every major index hit a new high.  The Nasdaq led the way with a 1.2% gain for the week while continuing to lead in the new year as it's already tacked on 6.5% in 6 weeks!!!

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The week was light in economic reports so we are going to focus strictly on the earnings front with our picks.  We had a slew of reports out this week from Church & Dwight(CHD), Emerson Electric(EMR), Universal Corp(UVV), Cognizant Technology Solutions(CTSH), Reynolds American(RAI), and Cummins Inc(CMI).


Church & Dwight(CHD) reported Q4 and FYE'16 results. Q4 EPS came in at $0.42 on revenues of $896 million.  FYE'16 results came in with EPS of $1.75 on revenus of $3.49 billion.  For the year the company increased operating cash by 8.1%, which got reflected in the 7% dividend increase to $0.19 share. The company should really be on the list for every dividend investor out there. With 21 consecutive year of dividend increases & 116 years of dividend payments it's a shoe in. The company plans to continue targeting a 40% payout ratio.Their business model is simple.  Sell things that people need everyday.  That's it.  Their line of soaps, detergents, vitamins, washing soda(huh?), and even condoms are trusted by consumers across the globe. Shares finished the week on a solid note as they crossed above the $48 mark.

Emerson Electric(EMR) reported FY Q1'2017 results with EPS of $0.48 on revenues of $3.21 billion. The company is finally seeing some benefits to the restructuring the last two years. The companies Commercial and Residential Solutions is the big winner on the back of strength in it's HVAC business. Additionally the company increased it's outlook by increasing continuing operations EPS guidance to $2.47-$2.62.

It's crazy to think just over a year ago when I added shares in January 2016 the company was trading in the low 40's. This pick has been a big winner for us as it's up 52.94% since I added compared to the S&P's 23.92% return.


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Universal Corp(UVV) saw a huge jump the day of earnings as it jumped over 18% and hit a high of $83.35. The action has been looking a little choppy though so I'd be cautious right now considering the stock has a had a great run for us, which I highlighted here. The company did see it's net income increase by 21.5%, and that was cited by a lot of other sources as the reason for the move. I just think it's everyone else finally recognizing what a great company it really is ;).

Cognizant Technology Solutions(CTSH) reported it's Q4 and FYE'16 results. Q4 EPS came in at $0.68 on revenues of $3.46 billion(up7.1%). For FYE'16 the company reported EPS of $2.55(down 10 cents from 2015) on revenues of $13.49 billion(up 8.6%). The company also announced they are forming a cooperation agreement with Elliott Management. The company is going to appoint three new directors to it's board, and form a 3 member Financial Policy Committee. If you recall Elliott Management wrote back in November 2016 they felt Cognizant is worth significantly more.

The big news with CTSH is they already started to implement some of the changes recommended by Elliott without them having board seats.  The company has decided to initiate a $.15/share dividend, and a $1.5 billion accelerated share repurchase program in Q1. That's a welcome sign for investors, and I think we can expect really good dividend increases over the next 3-5 years.  I wouldn't be surprised if we see a few 10%+ raises.


Cummins Inc(CMI), reported their Q4 and FYE'16 results.  The company had Q4 EPS of $2.25(up 11.3%) on revenues of $4.5 billion(down 6%). The company had FYE'16 EPS of $8.23(up from $7.84) on revenues of $17.5 billion(down from $19.1 billion). I must say considering the challenging environment and sagging sales the company still managed to post net income that was barely unchanged from 2015 at $1.394 billion.  The company gave guidance for 2017:

  • Revenues down 5%
  • EBIT in the range of 11.0%-11.5%
  • Return 50% of Operating Cash Flow to shareholders. 
  • Q1 sales expected to market low point for the year
I'm excited to see how much more trucking CMI has in it this year. This is a great company and it's nice to see management thinks the downturn in the industry is just about over.

Reynolds American(RAI) reported their Q4 & FYE'16 results. Remember the company is being bought out by fellow pick British American Tobacco. Q4 results with EPS of a$0.60 on revenues of $3.1 billion.  FYE'16 results came in with EPS of $4.25on  revenues of $10.5 billion.  The company is also giving investors another 10.9% dividend raise.  They've given plenty of those the last year!!

With three dividend increases announced this week in the portfolio I'd say that's a win enough for us!

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