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CWS Market Review – February 5, 2021

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Author: Eddy Elfenbein
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”Investment is most successful when it is most businesslike. – Ben Graham”

So far this earning season, we’re a perfect 12 for 12. All 12 of our Buy List stocks that have reported earnings so far have beaten Wall Street’s consensus. I probably shouldn’t jinx it, since we still have ten more reports to go.

It looks like Wall Street has survived the meme-stock rebellion. At least for now. Shares of GameStop crashed 83.5% this week, and there’s still one more trading day left. GameStop’s plunge this week works out to an average loss of 1% for every eight minutes and 41 seconds of market time. That’s pretty painful.

Meanwhile, the S&P 500 closed at another all-time high on Thursday. Since October 30, the S&P 500 has rallied 18.4%. Notice how we bounced off the 50-day moving average (blue line).

(Side note: Six months ago, the now-famous “Roaring Kitty” cc’d several Wall Street big shots in an attempt to draw attention to his bullish videos on GameStop. Amongst those big shots was your humble editor. At the time, GameStop was going for about $4 per share. I didn’t learn about the tweet until this week.)

In this week’s CWS Market Review, I’ll cover all of our Buy List reports. We also had two dividend hikes this week, plus Sherwin-Williams announced a 3-for-1 stock split. I’ll also preview four more earnings reports coming our way next week, including Disney. There’s lots to get to, so let’s jump right in.

Six Buy List Earnings Reports

Here’s our updated 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
Cerner CERN 10-Feb $0.78
Disney DIS 11-Feb -$0.42
Moody’s MCO 12-Feb $1.96
Zoetis ZTS 16-Feb $0.86
Stepan SCL 18-Feb $1.08
Trex TREX 22-Feb $0.36
Ansys ANSS 24-Feb $2.54
Middleby MIDD TBA $1.40
Miller Industries MLR TBA n/a

Last Friday, Church & Dwight (CHD) reported Q4 earnings of 53 cents per share. That beat the company’s own range of 50 to 52 cents per share. You really can’t go wrong with condoms and baking soda.

For 2020, C&D made $2.83 per share. That’s an increase of 14.6% over 2019. The company had been expecting growth of 13%. Full-year net sales grew 12.3% to $4.9 billion. Cash from operating activities increased 14.6% to $990.3 million.

The best news is that Church & Dwight increased its quarterly dividend by 5.2% to 25.25 cents per share. This makes the annual payout $1.01 per share. This is the 25th consecutive year in which Church & Dwight has increased its dividend. I love seeing long streaks like this.

For 2021, C&D expects earnings of $3.00 to $3.06 per share. That’s growth of 6% to 8%. Wall Street had been expecting $3.05 per share.

For Q1, the company sees sales growth of 3% and organic sales growth of 2%. For EPS, Church & Dwight expects 80 cents per share. The Street had been expecting 86 cents per share.

That’s not great, and the shares pulled back after the earnings report, but I’m not too concerned. For now, I’m dropping our Buy Below on Church & Dwight to $90 per share.

On Monday, Thermo Fisher Scientific (TMO) reported Q4 earnings of $7.09 per share. This was a very good quarter for TMO. Wall Street had been expecting $6.56 per share. Q4 revenue grew by 54% to $10.55 billion. Full-year revenue increased 26% to $32.22 billion, and full-year EPS increased 58% to $19.55.

On the earnings call, Thermo said it expects 2021 earnings of $21.62 per share and revenue of $35.1 billion. I like that forecast. Wall Street had been expecting $20.74 per share on revenue of $33.7 billion. I’m lifting our Buy Below price on Thermo to $500 per share.

On Tuesday, Broadridge Financial Solutions (BR) reported fiscal Q2 earnings of 73 cents per share. That topped Wall Street’s estimates of 70 cents per share.

CEO Tim Gokey said that Broadridge now expects sales and earnings growth to be at the “higher end” of their full-year guidance. The current guidance is for revenue growth of 3% to 6% and earnings growth of 6% to 10%.

“Broadridge delivered 7% recurring-revenue growth and 38% adjusted-EPS growth in the second quarter.

“We are executing well on our targeted-growth plans across governance, capital markets, and wealth and investment management. As we enter our seasonally more significant second half of the year, we will continue to invest to support our long-term growth strategies,” Mr. Gokey added.

“Our fiscal-2021 outlook puts us squarely on track to achieve the three-year growth objectives we presented at our investor day two months ago, including 7-9% recurring revenue and 8-12% adjusted-EPS growth,” Mr. Gokey concluded.

Let’s do a little math. Last fiscal year (ending in June), Broadridge made $5.03 per share. So that higher end of guidance roughly translates to earnings this fiscal year of $5.43 to $5.53 per share. For the first six months of this year, the company has made $1.70 per share.

This isn’t an outstanding report like BR’s last one, but it’s a good one. Broadridge remains a buy up to $150 per share.

There’s always a dud each earning season, and this time, it looks to Check Point Software’s (CHKP) turn. On Wednesday, the cyber-security company reported earnings of $2.17 per share. That beat Wall Street’s consensus by six cents per share.

For the same quarter one year before, Check Point made $2.02 per share. Sales rose 4% to $564 million. Wall Street had been expecting revenue of $555.4 million. During the quarter, Check Point bought back 2.7 million shares for $323 million.

So what upset traders? The answer is Check Point’s guidance. For Q1, Check Point sees earnings ranging between $1.45 and $1.55 per share. Consensus was $1.51 per share. For the whole year, Check Point expects $6.45 to $6.85 per share. Consensus was $6.92 per share.

Shares of CHKP plunged 10.5% on Wednesday. The stock is still higher than it was two months ago, but that kind of move hurts. Personally, I think traders overdid it. At the current price, Check Point is going for about 18 times this year’s estimate. Let’s also remember that Check Point might exceed its own guidance. After all, the company has topped expectations for the last 16 quarters in a row. (It could be longer, but that’s all the data I have.)

Look for a rebound here. Check Point remains a buy up to $133 per share.

In last week’s issue, I said I expected an earnings beat from AFLAC (AFL), and we got one, although it was close. For Q4, the duck stock reported operating earnings of $1.07 per share. That beat Wall Street’s forecast of $1.05 per share. The yen/dollar exchange rate pinged earnings by two cents per share.

For the year, AFLAC made $4.96 per share. That’s up from $4.44 in 2019. For the full-year, forex added four cents per share to the bottom line. During the quarter, AFLAC bought back 11.8 million shares of AFL for $500 million.

As always, the details are solid with AFLAC. At the end of the quarter, total shareholder equity was $48.46 per share. The annualized ROE on shareholders’ equity in Q4 was 11.5% and 15.3% for the full year.

My take: AFLAC had a very tough year in 2020. Given what they had to deal with, the company performed admirably. The recent 18% dividend hike reflects that. AFLAC remains a buy up to $50 per share.

On Thursday, Hershey (HSY) said it made $1.49 per share, which beat estimates by six cents per share.

Sales grew 5.7% to $2.19 billion, beating the FactSet consensus of $2.11 billion, as volume and prices increased. North America sales rose 8.9% to $1.97 billion, beating the FactSet consensus of $1.90 billion, while international and other revenue dropped 17.3% to $211.3 million to miss expectations of $219.7 million.

For 2021, Hershey expects EPS growth of 6% to 8%. Last year, the confectioner made $6.29 per share, so this year’s range is about $6.67 to $6.80 per share. That’s quite good. Wall Street had been expecting $6.58 per share. Hershey is a buy up to $160 per share.

Finally, Intercontinental Exchange (ICE) earned $1.13 per share, which beat estimates of $1.08 per share.

This is ICE’s 15th year in a row of record revenues. For the year, ICE earned $4.51 per share. ICE’s adjusted operating margin was 59%. This is why I love near-monopolies.

ICE is also raising its quarterly dividend by 10% to 33 cents per share. The first quarter dividend is payable on March 31 to stockholders of record as of March 17. Intercontinental Exchange is a buy up to $123 per share.

Four Buy List Earnings Reports Next Week

We have four more Buy List earnings reports scheduled for next week. Let’s start with Fiserv (FISV), which is due to report on Tuesday. I’m looking forward to this report because it should confirm Fiserv’s 35th year in a row of double-digit earnings growth. That’s a remarkable streak.

Fiserv expects to see its earnings rise by 11% over 2019. Fiserv earned $4 per share in 2019, so an 11% earnings increase translates to full-year earnings of $4.44 per share.

For the first nine months of this year, the company made $3.12 per share. That works out to Q4 earnings of $1.32 per share.

On Tuesday, it’s Cerner’s (CERN) turn. This company is usually quite accurate with its forecasts, so that takes some of the excitement out of earnings time. That’s fine by me. For Q4, Cerner expects revenue between $1.365 billion and $1.415 billion and earnings between 76 and 80 cents per share. That implies full-year earnings of $2.82 to $2.86 per share. Cerner is delivering as expected.

Disney (DIS) is due to report its fiscal Q1 on Thursday. This should be an interesting one. For the third quarter in a row, the Mouse House is expecting to report a loss, but for the quarter ending in June, Disney actually made a small profit. Disney has been hurt by the lockdowns, but it’s held up much better than Wall Street had expected.

Six months ago, Disney creamed estimates by 72 cents per share. Then, three months ago, Disney beat by 50 cents per share. This time around, the Street is looking for a loss of 42 cents per share. That forecast has crept higher in the past few weeks.

In October, I told you to expect a big earnings beat from Moody’s (MCO), but even I didn’t think it was going to be that much. For Q3, the ratings agency earned $2.69 per share, which creamed estimates by 59 cents per share. Moody’s Analytics, which is a key business for them, saw a revenue increase of 7% to $531 million.

At the time, Moody’s raised its full-year guidance range from $8.80 to $9.20 per share to $9.95 to $10.15 per share. For the first three quarters, Moody’s has made $8.24 per share. That implies Q4 earnings of $1.71 to $1.91 per share.

Sherwin-Williams to Split 3-for-1

On Wednesday, Sherwin-Williams (SHW) said it will split its stock three for one. This means shareholders will get two more shares for each share they own. However, the share price will fall by two thirds.

The split will happen on April 1. Last week, the paint stock reported very good earnings. For Q1, Sherwin expects that “sales will increase high single digits.” For 2021, the company sees earnings ranging between $26.40 to $27.20 per share.

When the split happens, our $720 Buy Below price will adjust to $240 per share.

That’s all for now. The January jobs report is due out later today. The consensus is that the U.S. economy created 50,000 net new jobs in January and that the unemployment rate is 6.7%. Next week’s news will probably be dominated by earnings. We’ll also get the consumer inflation report on Wednesday. I doubt will see much inflation, but there seems to be an emerging consensus that inflation will be gaining steam over the next few years. 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


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