by Todd Shaver | May 5, 2016 | 7am News Flash
AMERISOURCEBERGEN 1Q16 RESULTS
Results Versus Expectations: Stock Overreacts
AmerisourceBergen (ABC: $78, down $6) The stock experienced a sharp decline following the release of the March quarter results. There are two issues to address. Here is what happened in the quarter:
First, EPS came in at $1.68 per share a solid 16% gain and a full $0.09 above expectations. Revenues increased 9% to $36 billion and that was exactly what Wall Street expected. So from this standpoint, all well. Wall Street headlines called it “a revenue miss.” We strongly disagree.
Secondly, the company is cutting full year earnings guidance to $5.44-$5.54 a share from the previous range of $5.71-$5.82. They offered a 4%-6% increase in profit expectations for the September 2017 year-end.
Here is the source of the problem and what we will be watching closely. The mix of business between branded and generic drugs is shifting to a greater degree toward generics than we expected. In addition, price deflation in generics is taking place at a faster pace than in the past. Distributors benefit when new drugs come onto the market at higher prices or when prices are increased on existing drugs. In the past when the patent on a drug expired, there was a large price drop after which pricing on the generic was relatively stable. This new data is being taken into account in the revised earnings guidance.
The stock market typically overacts to the slightest earnings surprise, whereas traders act solely on headlines. This is where key fundamental news is ignored. Listen to this good news: during the quarter, the company extended its $400 billion long-term distribution agreement with its biggest customer Walgreens Boots Alliance. Recent acquisitions (see basic research report on the website for details) are integrating well and contributing to growth. The Company also announced it authorized stock repurchases of up to $750 million.
Stock Price Overreaction Creates Special Opportunity
The news on generics is disappointing and not the best situation should this worsen. We don’t believe it will but we will be watching generic pricing like a hawk from this point. The stock is selling at 14 times expected EPS for the September 2016 fiscal year. Even with lowered expectations, earnings growth is outpacing the economy while the stock is selling at a discount to a stock market valued at 21 times. The dividend was increased 17% last quarter and the current $1.36 offers a 1.7% yield. Altogether this represents the best value for AmerisourceBergen in many years.
by Todd Shaver | May 4, 2016 | 7am News Flash
Fitbit has great quarter. The market doesn't think so
Fitbit (FIT, $17.10, flat on the day but down $1.85 in after-hours trading to $15.25) reported earnings Wednesday after the close. Earnings were 10 cents beating the forecast for 2 cents. Revenues totaled $505 million, topping the estimate for $445 million, with 4.8 million devices sold during the first quarter. BMR Take – A super quarter. But guidance for the next quarter was light, at 10 cents, versus 26 cents expected. And that’s what the market didn’t like.
Fitbit's profits guidance also beat expectations. The company sees $1.17 next quarter, up from an earlier projection. The CEO said: "Based on the first quarter’s performance and momentum, we are confident about the remainder of the year, which is reflected in our increased guidance."
Fitbit sees full-year revenues of $2.5 billion to $2.6 billion. Its second-quarter revenue forecast was better than expected, at $575 million versus $530 million expected.
BMR Take: We don’t see anything bad in this report. We think the market is insane for reacting this way. If there is any logic left in this world, we would suggest that Fitbit is a buying opportunity.
Tesla Reports Sales and Earnings
Tesla (TSLA: $223, down $10 during the day, but up $7 to $229 in after-hours trading) reported Wednesday after the close. Some bullets:
--- The company is on track to deliver 80,000 to 90,000 electric vehicles this year
--- Tesla vowed to reach an annual production target of 500,000 cars in 2018, two years faster than expected.
--- They warned that spending will ramp up in tandem.
--- Elon Musk, the Chairman and CEO said the 2020 volume target was close to 1 million vehicles.
Tesla reported a wider first-quarter net loss, although results broadly beat Wall Street targets. "Increasing production 5-fold over the next two years will be challenging and likely require some additional capital but this is our goal," Tesla said in a statement.
The net loss widened to $280 million, or $2.10 per share from a loss of $155 million, or $1.22 per share, a year earlier. Excluding extraordinary items, the company lost 57 cents per share, about equal to expectations. Revenue rose to $1.15 billion from $940 million.
BMR Take: This stock is not for the faint of heart. If you believe in Elon Musk you are a buyer of the stock. If not, find something more secure. Like General Motors. (Just kidding!) But seriously, there are many growth stocks out there that have less risk than a new car company like Tesla. We are believers in the company but have none of our money in the stock (like ALL of our portfolio stocks.) So it is easy for us to suggest this company as a buy. So please put this investment in perspective for your own personal risk levels and goals.
by Todd Shaver | May 3, 2016 | 7am News Flash
Devon Energy
1Q16 Earnings Report
Price at time of Publishing: $33
1Q16 Results: Beat Consensus Bottom Line
Devon reported a 1Q16 loss of $0.53 per share, beating guidance of a loss of $0.64. Revenues came in at $2.2 billion. While the revenue line was short of estimates, it hardly matters considering the increase in Crude since March and the company’s major restructuring announced. (See below).
For most of the quarter Wall Street analysts focused on the negative effects of $30 Crude. Devon has been rolling back production and recently made a serious 75% dividend cut. The company is restructuring both its business and the balance sheet to prepare for the next domestic energy cycle. Based on current low rig count, the US Exploration and Production cycle is near rock bottom and can only go one way, and that is up.
Devon’s actions are just the right medicine. The stock has been an absolute winner. From a February 19th low of $18, the stock has nearly doubled. Compared with virtually any measure including other Exploration and Production companies like Apache (APA) and Pioneer Natural Resources (PXD), Devon is showing the best stock performance.
But the restructuring doesn’t stop here. Further aggressive action is making Devon lean and mean. Devon has an agreement to sell its non-core Mississippian assets in northern Oklahoma to White Star Petroleum for $200 million. Altogether, $2-$3 billion of non-core assets will be sold this year. Proceeds will reduce Devon’s $12 billion in long term debt. These moves, added to the $1.3 billion in equity capital raised in February, make Devon as lean as it has been in years. We like Devon here but we’re watching crude like a hawk. At $43.50 it’s had a good run from $26 in February. If it stays in this area for a month we’d be happy campers. But if it heads to $35 and lower, we will be removing Devon from the Special Opportunities Portfolio. We hereby raise the target from $28 to $43 and the sell price from $15 to $28.
by Todd Shaver | Apr 27, 2016 | 7am News Flash
Facebook (FB: $109, flat on the day, but up $9 in overnight trading to $118) Facebook reported 1Q16 earnings of 77 cents per share on revenue of $5.4 billion. Analysts were looking for 62 cents per share on $5.25 billion in revenue. Advertising revenue rose 57% Y/Y to $5.2 billion in the quarter, and Mobile Ad Revenue now amounts to 82% of total ad revenue. Monthly users reached 1.65 billion, of which 66% - 1.1 billion - are Daily Active Users.
Facebook also said it will create of new class C share. Shareholders would get two C shares for each class A or class B share they own, effecting a 3-1 split and allowing CEO Mark Zuckerberg to sell some of his shares while still maintaining control of the company.
Check this out from the Associated Press wire that just came out:
“It's now possible to buy stuff on Facebook via automated messaging "bots." Last month, Facebook announced that people can use its Messenger chat service [900 million users and counting!] to order flowers, keep up with the news and buy shoes or other goods from participating companies. If the feature takes off, we could all be chatting with artificially intelligent bots to reserve plane tickets, book hotel rooms or order salmon teriyaki before long.”
This looks like an Amazon knock-off and you know how much Amazon is worth, right? $285 billion. Have you noticed Facebook’s market cap? $320 billion! And don’t forget that Facebook has $18 billion in cash and NO debt.
BMR Take: BOY DID WE NEED THIS. After Netflix, Apple and Twitter had some rough quarters, we needed an UPBEAT report. And we got it from Facebook. The numbers are huge. Let the shorts jump in and push it down a little over the next few days so we can all buy some more because this one is headed to $130 and higher. Like Elon Musk at Tesla and Solar City, like Jack Dorsey at Twitter, like Nick Woodman at GoPro, the leader of this company is a genius. We like to invest in geniuses as they see the world differently than you and I and allow us to invest in their ideas.
We hereby raised our Price Target to $140 from $120 and our Sell Price to $105 up from $92.
by Todd Shaver | Apr 25, 2016 | 7am News Flash
Adeptus Health (ADPT: $69, up $1)
1Q16 Results Blew Through Expectations
Thus far Adeptus has been a home run. For the first quarter of 2016, revenues hit $113 million a 38% jump over last year. Adeptus blew through expectations for profits of $0.40, reporting $0.47. If first quarter results are any indication, there is much more excitement ahead.
The company now operates 90 emergency room centers, having open nine during the quarter. But that is only part of the story. Revenues from existing locations increased 12%. In our basic report on Adeptus that we published on the first of this month, with the stock at $54, we pointed out the enormous earnings leverage from rising revenue per location. This is well underway at the 81 established emergency centers. Overall, the quarter deserves a grade of A+.
Management Guidance: Major Upward Revision
In the conference call, management made nothing short of a major upgrade in full year 2016 guidance, forecasting revenues of $635-$665 million (previous Wall Street consensus was $510 million) and profits of $2.50-$2.60 (previous consensus was $2.47).
There is a very clear message in this revised forecast. First, we are looking for a big increase in new locations during the balance of the year with revenue growth accelerating to over 50% as a result. It normally takes between 12-24 months for a new facility to reach profitability. Thus, this year’s surge in new locations will translate into major benefits in 2017 and beyond.
Consensus estimates are now up to $2.63 for 2016 and $3.85 for next year
We love to find companies where consensus estimates are rising. It is a great way to find investment winners. In the case of Adeptus, they are rising rapidly. Wall Street’s new love affair with Adeptus is moving so fast it is hard to appreciate. We offer the table below in case there are any doubts.
| EPS Trends |
Current Qtr.
Jun 2016 |
Next Qtr.
Sep 2016 |
Current Year
Dec 2016 |
Next Year
Dec 2017 |
| Current Estimate |
0.64 |
0.70 |
2.63 |
3.85 |
| 7 Days Ago |
0.64 |
0.63 |
2.47 |
3.60 |
| 30 Days Ago |
0.64 |
0.63 |
2.47 |
3.52 |
| 60 Days Ago |
0.60 |
0.54 |
2.16 |
3.29 |
| 90 Days Ago |
0.58 |
0.49 |
2.09 |
3.17 |
by Todd Shaver | Apr 21, 2016 | 7am News Flash
Kinder Morgan (NYSE: KMI, $18.16, down 84 cents) reported first 1Q16 results Wednesday. The firm posted earnings per share of $0.12 per share on revenues of $3.2 billion. In the same period a year ago Kinder Morgan posted EPS of $0.24 on revenues of $3.6 billion. This was a bit below consensus estimates of $0.19 per share on revenues of $3.75 billion.
Cash flow has remained remarkably steady despite slumping commodity prices. They reported cash flow of $1.23 billion for the first quarter of 2016, flat from last year's first quarter. Kinder Morgan will pay a dividend of 12 1/2 cents per share to shareholders of record on May 2nd. On an annualized basis the company’s dividend payment of $0.50 represents a yield of 2.75%.
The company also cut its capital expenditures from $3.3 billion to $2.9 billion, a second drop from its original spending plan of $4.2 billion for the year. The company also reduced its growth backlog from a prior total of $18.2 billion to $14.1 billion, driven primarily to the removal of the Northeast Energy Direct Market project and the Palmetto Pipeline project.
Executive chairman Richard Kinder had this to say about KMI:
“Given our tremendous amount of cash flow, we do not need to access the capital markets to fund growth projects in 2016. This cash flow in excess of our dividends insulates us from challenging capital markets and significantly enhances our credit profile. Moreover, we do not expect to need to access the capital markets to fund our growth projects for the foreseeable future beyond 2016.”
Capital expenditures are going lower, but the good news according to Richard Kinder, is that there will be no further dilution of the stock.
The weak market conditions are expected to continue to have a minor impact on Kinder Morgan's cash flow this year. Given its current outlook, it sees EBITDA now coming in roughly 3% below its $7.5 billion budget while distributable cash flow is expected to be roughly 4% below its $4.7 billion budget. The company still expects to generate more than enough cash flow to fund its current dividend and its capital budget, all the while still generating excess cash flow to reduce leverage and hit its year-end target.
BMR Take: We added the stock to our $17.76 in late February which is about where it is now, so we are content to sit back and collect dividends and keep our eye on the price of crude oil, looking for it to stabilize here in the 40s. If it heads back to $30, we will look to get out of the stock if it approaches $15.
Google (GOOG: $759, up $6 during the day, but down $45 to $715 in overnight trading) Alphabet's revenue rose to $20.25 billion from $17.25 billion, slightly below the $20.37 billion analyst consensus. Earnings per share came in at $7.50, and missed analysts' expectations of $7.97. However, foreign exchange rates shaved $762 million from the top line.
And listen to this: Google's advertising revenue increased 16% to $18 billion, rising 23% Y/Y. This is insanely good. The number of ads, or paid clicks, rose 29% the company said. Again – very strong if you ask us. Total income rose to $4.2 billion, or $6.02 per Class C stock, from $3.5 billion, or $5.10 per share.
BMR Take: We are not backing off on this one. The stock is ON SALE at $715. Will it go to $650-680 if the market heads to 17,000 or below? Probably yes. Can you stand the pain? Yes? No? If no, then get out now. But we remain big fans of this company, loaded with over $40 billion in cash. Hey – we accessed the google website five times while research this News Flash! We believe in the company and feel that if the market stays at 18,000 or higher, Google will come back slowly and surely to set new highs of $800+ by this time next year.
Microsoft (MSFT: $56, flat for the day, but down $3 to $53 in overnight trading) earned 62 cents, flat with the year-earlier quarter, on sales of $22.1 billion, up 2%, in the quarter ended March 31. Analysts expected 64 cents and $22.1 billion in sales (the same as what they reported.) Excluding the impact of foreign exchange rates, Microsoft’s sales would have risen 5%.
For the upcoming quarter, Microsoft expects sales of $22.1 billion, based on the midpoint of its guidance. That’s about the same as the year ago quarter, but $1 billion below the $23.0 billion modeled by Wall Street. Analysts expect 66 cents, up 10%.
BMR Take: This wasn’t a great quarter, but it is not the end of the world. If you are a little antsy about the stock, then sell it. There are lots of other places to put your money. We are raising our Sell Price to $48, which it could hit easily if the Dow takes a nose-dive in the next few weeks. Long term, Microsoft will do just fine. They have tons of cash ($100 billion) and $45 billion in long term debt. We know they are not a growth story any more, but are a value stock with great prospects ahead. Nothing wrong with that.
