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Turnaround Letter
Out-of-Favor Stocks with Real Value

April 21, 2023

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Three companies, First Horizon (FHN), Holcim (HCMLY) and Nokia (NOK) reported earnings this week. Next week, General Electric (GE), Xerox (XRX), Polaris (PII), M/I Homes (MHO), Mattel (MAT), Dril-Quip (DRQ), Capital One Financial (COF) and Newell Brands (NWL) are scheduled to report earnings. The following week, at least eight companies will report earnings.

There were no ratings changes this past week.

With the arrival of spring vacation week for our kids, we are on a lighter publication schedule, with brief Friday notes (to include earnings) and no podcast on Friday, April 14 and Friday, April 21. Also, the monthly letter will be pushed back a week to Wednesday, May 3. We’ll continue to monitor the holdings list and provide any Alerts if necessary.

Earnings Updates:

First Horizon Corp (FHN) – Based in Memphis, Tennessee, First Horizon is a relatively straightforward mid-sized regional bank that emphasizes personal and small/medium-sized business banking across the southeastern United States. The shares provide an appealing way to exploit the bank sell-off: merger arbitrage. First Horizon has agreed to a $25/share all-cash deal to be acquired by TD Bank Group, a large and well-capitalized Canadian bank, but FHN shares trade at a wide discount due to ongoing regulatory delays and worries that the price will be reduced. We believe the deal has a strong chance of being completed. However, the downside appears limited without a transaction. First Horizon is well-capitalized and well-managed, has high-quality deposit and loan books and generates healthy profits.

The bank reported a strong quarter compared to a year ago, with a healthy 3.87% net interest margin, a 53% efficiency ratio1, a 13.3% return on common equity and a 10.4% CET1 capital ratio2 showing that First Horizon’s earnings and overall financial picture are sturdy. Even when reducing its capital by unrealized losses on its bond holdings, the resulting 9.0% CET1 capital ratio is well above minimum requirements.

When compared to the previous quarter, however, the results suggest that the bank’s fundamentals are unlikely to continue to improve for now. The bank offered no comments on the TD agreement to acquire First Horizon at $25/share in cash other than to reiterate its prior comments. The shares trade at 1.69x the tangible book value of $10.89/share.

In the quarter, adjusted earnings of $0.45/share rose 18% from a year ago but were 4% below estimates. Revenues were stronger due to higher lending margins, although fee income was weak. Expenses remained under control (falling 3%).

Credit losses were tiny at 0.11% of loans. Non-performing loans are increasing but remain reasonable. Reserves for credit losses increased incrementally to 1.35% of loans – a level that we consider healthy. Total deposits fell 16% from a year ago and 4% from the previous quarter, while non-interest-bearing deposits fell 25% from a year ago and 10% from the previous quarter. The trends suggest that customers are loyal but want better-yielding deposit programs. Despite raising its deposit interest rates, First Horizon was able to increase its lending profits. We anticipate little to no improvement in its lending profits (net interest margin) given the likely increase in its deposit interest rate costs.

  1. The efficiency ratio (non-interest expenses divided by total revenues) shows how much of the revenues are consumed by overhead expenses.
  2. The Common Equity Tier 1 (CET1) capital ratio is a complicated and now controversial regulatory measure of a bank’s capital strength, somewhat similar to a simple capital/assets ratio.

Holcim (HCMLY) – This Swiss company is the world’s largest producer of cement and related products. After its troubled 2015 merger and a payments scandal, Holcim hired Jan Janisch, a highly capable leader whose turnaround efforts are showing solid results, particularly by expanding the company’s profit margins and cash flow. A possible overhang on the shares is the carbon intensity of cement production, but the company’s efforts in reducing its carbon footprint are impressive. (CHF is Swiss francs, CHF1.00 = US$1.12).

Holcim reported encouraging first-quarter 2023 results. Net revenues rose 8% on an organic basis and were 2% above estimates. Recurring operating profits rose 12% on an organic basis and were about 6% above estimates. The company incrementally raised its full-year 2023 guidance – a surprising move given the uncertainties in the global construction industry. Holcim supported its optimism with strong first-quarter results and a strong order book across all segments, even as North America roofing results were weak in the first quarter.

New guidance calls for 6% organic sales growth and 10% organic operating profit growth, as well as a 16% recurring profit margin. Free cash flow guidance of “around” €3 billion was unchanged. Shares of Holcim have rebounded sharply (+63%) since their sell-off last year and have reached a new post-scandal high. The shares have about 20% upside to our $16 price target.

The company’s initiatives to reduce its carbon footprint are supporting its growth. Cement-making is carbon-intense and builders are increasingly following low-carbon mandates, so they are finding Holcim’s reduced-carbon products more appealing today than in the past (when Holcim was a low-carbon laggard).

The interim report did not include balance sheet or cash flow information.

Nokia (NOK) – Initially recommended in 2015, Nokia has struggled for years to regain its competitiveness. New CEO Pekka Lundmark (March 2020) is finally getting the company back into the game.

Nokia reported a modestly weak report which, combined with incremental margin pressure and comments that economic conditions are starting to weigh on customer spending, drove the shares down 9% on the news. The company maintained its ranges for full-year comparable sales growth (+2% to +8%), operating margin (11.5% to 14.0%) and free cash flow conversion (20% to 50% of comparable operating profit), which are all positive and healthy. And, with its investment-grade credit rating, Nokia plans to make some acquisitions and become more aggressive with its share buybacks to utilize its large excess cash balances. But, the weak-ish outlook, especially for mobile networks, implies results will be toward the lower end of these ranges, and investors worry that this is only the first of more negative revisions ahead.

In the quarter, comparable revenues of €5.9 billion rose 10% and were about 2% above estimates. Comparable per-share earnings of €0.06 fell 14% and were one euro, or about 14%, below estimates that called for flat earnings. Net profits fell 18% but were incrementally supported by the lower share count.

Nokia’s balance sheet remains impressively sturdy, and the company continues to repurchase its shares. While the macro outlook for tech spending is darkening, we are maintaining our Buy rating on the shares given Nokia’s healthy operations, capable management and solid balance sheet.

Comments on other recommended companies

  • Newell Brands (NWL) – stands to gain from the deep financial troubles at Tupperware, but Newell faces the same demand headwinds.
  • Western Digital (WDC) – is paying a $300 million fine to resolve charges that it shipped 7 million hard drives to Chinese company Huawei in violation of U.S. trade restrictions. Western stopped its shipments to Huawei in September 2021. Seagate and Toshiba were also found to be illegally shipping drives to Huawei.
  • Western Digital (WDC) – competitor Seagate reported a weak quarter, raising concerns about WDC’s quarter, to be reported on May 8.
  • Volkswagen AG (VWAGY) – announced a new EV for the Chinese market that promises a battery with a 435-mile range. Volkswagen is facing intensified pressure from domestic producers in China.
  • Bayer AG (BAYRY) activist shareholder Bluebell Capital is exerting additional pressure for Bayer to break up its businesses and change out its supervisory board ahead of Bayer’s annual meeting next week.

Market CapRecommendationSymbol



Price at





Rating and Price Target
Small capGannett CompanyGCIAug 20179.22 1.81 - Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.68 6.04 - Buy (20)
Small capDril-QuipDRQMay 202128.28 28.49 - Buy (44)
Mid capMattelMATMay 201528.43 17.15 - Buy (38)
Mid capAdient plcADNTOct 201839.77 39.33 - Buy (55)
Mid capXerox HoldingsXRXDec 202021.91 13.947.2%Buy (33)
Mid capIronwood PharmaceuticalsIRWDJan 202112.02 10.69 - Buy (19)
Mid capViatrisVTRSFeb 202117.43 9.685.0%Buy (26)
Mid capTreeHouse FoodsTHSOct 202139.43 52.51 - Buy (60)
Mid capKaman CorporationKAMNNov 202137.41 22.363.6%Buy (57)
Mid capThe Western Union Co.WUDec 202116.40 10.918.6%Buy (25)
Mid capBrookfield ReBNREJan 202261.32 33.181.7%Buy (93)
Mid capPolarisPIIFeb 2022105.78 109.03 - Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.01 10.50 - Buy (24.50)
Mid capM/I HomesMHOMay 202244.28 65.64 - Buy (67)
Mid capJanus Henderson GroupJHGJun 202227.17 26.006.0%Buy (67)
Mid capESAB CorpESABJul 202245.64 59.01 - Buy (68)
Mid capSix Flags EntertainmentSIXDec 202222.60 24.08 - Buy (35)
Mid capKohl’s CorporationKSSMar 202332.43 23.148.6%Buy (50)
Mid capFirst Horizon CorpFHNApr 202316.76 18.453.3%Buy (24)
Large capGeneral ElectricGEJul 2007304.96 99.760.3%Buy (160)
Large capNokia CorporationNOKMar 20158.02 4.202.2%Buy (12)
Large capMacy’sMJul 201633.61 17.343.8%Buy (25)
Large capToshiba CorporationTOSYYNov 201714.49 16.406.3%Buy (28)
Large capHolcim Ltd.HCMLYApr 201810.92 13.163.3%Buy (16)
Large capNewell BrandsNWLJun 201824.78 12.317.5%Buy (39)
Large capVodafone Group plcVODDec 201821.24 11.119.2%Buy (32)
Large capMolson CoorsTAPJul 201954.96 57.702.6%Buy (69)
Large capBerkshire HathawayBRK.BApr 2020183.18 323.82 - HOLD
Large capWells Fargo & CompanyWFCJun 202027.22 41.672.9%Buy (64)
Large capWestern Digital CorporationWDCOct 202038.47 33.32 - Buy (78)
Large capElanco Animal HealthELANApr 202127.85 9.73 - Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.53 35.375.4%Buy (70)
Large capVolkswagen AGVWAGYAug 202219.76 16.625.5%Buy (70)
Large capWarner Bros DiscoveryWBDSep 202213.13 13.83 - Buy (20)
Large capCapital One FinancialCOFNov 202296.25 97.272.5%Buy (150)
Large capBayer AGBAYRYFeb 202315.41 16.743.2%Buy (24)

Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every Rated recommendation. The chief analyst may purchase securities discussed in the “Purchase Recommendation” section or sell securities discussed in the “Sell Recommendation” section but not before the fourth day after the recommendation has been emailed to subscribers. However, the chief analyst may purchase or sell securities mentioned in other parts of the Cabot Turnaround Letter at any time.Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at or to our friendly customer support team at Due to the time and space limits we may not be able to cover every topic, but we will work to cover as much as possible or respond by email.

Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.