Saturday, November 4, 2017

TLH Market Review + Earnings From Facebook, MasterCard, Cummins, Church & Dwight, ABInbev, HCP, & Cognizant 11/4/17

With 7 companies reporting earnings this week there is a lot to discuss with heavyweight names like Facebook(FB), MasterCard(MA), Cummin's(CMI), & Cognizant(CTSH).  We also had some record breaking on the jobs front. Yes hard to believe.

The recently released Non-Farm Payroll report showed the economy added 261,000 jobs last month.  The eye-popper was the unemployment rate hit a multi-decade low. Well technically. At no point since the 1970's has the unemployment rate been lower.  With the exception of the first month in the 70's(January 1970), and the last month of the 90's(December 1999), the unemployment rate is now lower than it was at any point during that time with a 4.1% handle.

Now I know people will say that's impossible because of X, Y, and Z with good reason. This rebound hasn't left many people feeling that great about their employment, or lack thereof.  But the numbers are the numbers.

So onto earnings

Last week I forgot to add my piece on AB InBev's(BUD) Q3. For the quarter the company had EPS of $1.31 on revenues of $14.7 billion, and Net Income of $2.1 billion.  The company also announced a dividend of 1.60 EUR for the quarter.  Volumes slipped 1.2% overall which was attributed mostly to a decline in Budweiser, and Bud Light sales in the US.  That's not surprising giving the competitive landscape of craft brews, and consumer tastes. It's worth keeping an eye on volumes as the next few quarters materialize. The company celebrated it's first full year as an entity with SAB Miller, and upped their cost saving synergies guidance from $2.8 billion to $3.2 billion over the same four year period(October 2020).

MasterCard(MA) reported Q3 earnings with EPS of $1.34 on revenues of $3.4 billion, and net income of $1.4 billion.  It was a record quarter for the company as revenues grew 18% which fell directly to record net income. The company saw a 10% increase in gross-dollar volume. We already knew after hearing from portfolio members Visa(V), and PayPal(PYPL) it would be a good quarter.  Not much else to say here other than the sector is on fire.  Shares drifted lower this week after hitting an all time high at exactly $152.

Cummins(CMI) reported Q3 earnings with EPS of $2.71 on revenues of $5.3 billion, and Net Income of $453 million.  The company saw large increases in sales as revenues climbed 26% from 2016, but remember that was a tough year for the company.  The company expects to finish the year strong and expects year end revenue growth to come in at 14-15% from 9-11%.  The shares took a bit of a hit on the news, but the stock has rallied over 18% since it's August lows so it looks like some profit taking was going around.

Church & Dwight(CHD) reported Q3 earnings with EPS of $0.52 on Revenues of $967 million, and Net Income of $133 million.  If you take a look at the balance sheet you'll see long term debt has increased by $1.4 billion over the last year.  That is from the $1 billion WaterPik purchase announced in July as the company issued a series of debt tranches due from 2019-2047 ranging 2.45% to 3.95% with $300 million due in 2019 attached to a floating LIBOR rate.  So where is the extra $400 million coming from? That money was borrowed to pay off other short term borrowings. The stock has been sliding the 2nd half of the year after getting off to a great start.  I think this is normal, and I expect the stock to eventually return to it's winning ways.

HCP(HCP) reported Q3 earnings with EPS of $-0.02,FFO of $0.33, Revenues of 454 million, and Net Loss of $7.7 million. The company is still struggling to really find it's footing as it realigns it's portfolio, as it makes strides in fits. SPP NOI growth was good at 2.5%, but the company did see occupancy declines in every category.  This has been a tough stock to own the last couple years as they worked through the QCP spinoff, and continue to shed Brookdale locations.  I'm not sure if I completely soured on this pick as I love the real estate health care sectors dependability.  But competition is fierce, and performance hasn't been nearly as great as I expected. Of course shares perked up on the news as they shot from $25 to $27. The stock has literally meandered for over 30 years in the 20's to low 30's.

Cognizant Technology Solutions(CTSH) reported Q3 earnings with EPS of $0.84 on Revenues of $3.77 billion, and Net Income of $495 million. Revenues were up 9.1%, and the company is doing quite well. Cognizant if you recall was in the dog house when the reported some bad conduct back in 2016 and shares hit a low $40's for a brief time. Since the beginning of November 2016 shares have rallied 45%! This is why you don't sell good companies on knee jerk reactions. Here is what the company CEO had to say

"We are making consistent progress in executing the plan to accelerate our shift to digital services and solutions," said Francisco D'Souza, Chief Executive Officer. "We've systematically built the significant capabilities needed to help our clients transform their business, operating, and technology models ̶ a transformation we call digital at scale. We believe our long-term relationships with clients and deep understanding of their priorities puts us in a privileged position to help them adapt, compete, and grow."

And finally what everyone has been waiting for. 

Social Media Juggernaut Facebook(FB) reported Q3 earnings with EPS $1.59(up 77%) on Revenues of $10.3 billion(up 47%), and Net Income of $4.7 billion(up 79%).  The company continues to exhibit rock solid growth across the board. DAU's were up 16% to 1.37 billion! Plus the company has nearly $38 billion in cash on the balance sheet with total liabilities of only $7.7 billion.  Yeah it's crazy how successful the company is. The shares though didn't react much, and have been seeing progressively smaller swings on each earnings report. The shares are up 55% YTD for us which is huge for the portfolio.  I don't know if I expect that type of performance to continue though in the short term.  That's quite a powerful rally, and I think eventually profit taking will come along. There's not much more room for the company to grow into an already $500 billion + valuation.  

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