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Turnaround Letter
Out-of-Favor Stocks with Real Value

May 10, 2024

Viatris (VTRS) reported 1Q 2024 results yesterday, narrowly missing on revenue but coming in line with earnings expectations at 67 cents per share. Sales of older drugs Lipitor and Norvasc declined, with the branded drugs unit’s revenue dropping 4.5% to $2.31 billion. The company has completed its women’s healthcare business divestiture and expects its API unit sale to close soon. Despite the challenges, Viatris reaffirmed its financial guidance for the year, projecting total revenue between $15.5 billion and $16.0 billion, with adjusted EBITDA estimated at $5.0 billion to $5.4 billion. The company remains focused on debt reduction, having paid down $546 million during the quarter.

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Viatris (VTRS) reported 1Q 2024 results yesterday, narrowly missing on revenue but coming in line with earnings expectations at 67 cents per share. Sales of older drugs Lipitor and Norvasc declined, with the branded drugs unit’s revenue dropping 4.5% to $2.31 billion. The company has completed its women’s healthcare business divestiture and expects its API unit sale to close soon. Despite the challenges, Viatris reaffirmed its financial guidance for the year, projecting total revenue between $15.5 billion and $16.0 billion, with adjusted EBITDA estimated at $5.0 billion to $5.4 billion. The company remains focused on debt reduction, having paid down $546 million during the quarter.

TreeHouse Foods (THS) posted disappointing results on Tuesday, showing a 3.9% drop in net sales to $820.7 million and a wider-than-expected loss of 3 cents per share. Adjusted EBITDA fell to $46 million, primarily due to higher labor costs and an ongoing restart at the company’s broth factory. TreeHouse did reaffirm its 2024 guidance, however, targeting net sales of $3.43-$3.5B and adjusted EBITDA of $360-$390M as the company focuses in on private brands, snacking, and beverages while improving efficiencies through its TreeHouse Management Operating System.

Brookfield Reinsurance (BNRE) announced strong Q1 2024 results yesterday. Following the acquisition of American Equity Investment Life (AEL), the company achieved $279M in distributable operating earnings – nearly double Q1 2023 – driven by annuity sales growth and higher investment income. Net income rose to $337M from a $93M loss last year thanks to improved operating performance, and the acquisition of AEL adds over $50 billion in assets, making Brookfield one of North America’s largest annuity providers. The Board declared a quarterly distribution of $0.08 per share, payable on June 28, 2024.

Goodyear Tire & Rubber (GT) reported a mixed quarter Wednesday, missing on analyst estimates but cutting its net loss in half on a YoY basis. Revenue was down 8% year-on-year to $4.5 billion on a decline in overall tire sales volumes impacted by unfavorable price mixes and strategic challenges. However, segment operating income significantly increased to $247 million, nearly doubling from the previous year. In particular, the company experienced a robust quarter in its U.S. retail network, recording the best first quarter in five years, and CEO Mark Stewart highlighted the company’s “Goodyear Forward” initiative, which contributed about $70M in income improvements.

Six Flags Entertainment (SIX) reported a disappointing Q1, with revenue dropping 6.3% year over year to $133M, missing expectations by $3.65M. Admissions and in-park spending per capita declined, leading to an 8% fall in total guest spending per capita, influenced by reduced revenue from extended memberships. Adjusted EBITDA fell to -$26M from -$17M the previous year, excluding $5M in merger-related costs, while earnings came in at -$0.98 per share, roughly 7.6% below consensus. Despite the weak quarter, CEO Mike Spanos noted a promising start to 2024, with season pass sales up double-digits and pre-booked group sales nearing pre-pandemic levels. The merger with Cedar Fair is anticipated to close in the first half of 2024 pending regulatory approvals.

Berkshire Hathaway (BRK.B) Q1 2024 operating earnings increased by 39% to $11.2B, driven by strong gains in its insurance and energy businesses. The company repurchased $2.6B of its stock and increased its cash and short-term securities to a record $189B. Improved insurance performance, especially at GEICO, contributed to the gains, as pretax underwriting earnings rose to $1.93B due to higher premiums and reduced claims. However, BNSF Railroad earnings declined due to unfavorable business changes. The energy sector saw improved results, particularly in U.S. utilities and natural gas pipelines. Berkshire’s equity portfolio remains concentrated in five companies: Bank of America, American Express, Coca-Cola, Chevron, and Apple, which investing legend Warren Buffett said would likely continue to be their top holding despite recent cuts to the position.

Elanco Animal Health (ELAN) shares jumped 25% after the company reported better-than-expected Q1 2024 results and outlined upcoming product launches. Overall revenue declined 4% to $1.2 billion due to shifted Bayer Animal Health product sales from Q2 2023, but when excluding the impact of last year’s ERP blackout, the company actually saw 3-5% growth. Elanco updated its full-year guidance to $4.46B-$4.515B, reflecting contributions from new products Credelio Quattro, Zenrelia, and Bovaer. FDA approvals for Credelio Quattro and Zenrelia are expected in Q3, with Bovaer’s cattle feed ingredient review set to conclude soon, potentially contributing additional revenue in Q4.

Warner Bros. Discovery (WBD) missed Q1 2024 revenue and earnings expectations but managed to post a rise in free cash flow to $390M due to cost cuts and the $86M profit posted by its direct-to-consumer (DTC) streaming division. CEO David Zaslav emphasized a 2-million subscriber increase for Max, nearing the 100-million mark, strong international growth, and reduced churn/improving ARPU supported by the launch of Max in Europe and Latin America. WBD plans to offer a streaming bundle with Disney+, Hulu, and Max while continuing to expand its streaming services and implement further cost reductions. The company is aiming to secure a new deal with the NBA amid speculation that NBCUniversal could secure the rights, but thus far it remains confident in its profitability targets for 2025.

Tyson Foods (TSN) reported strong financial growth in Q1 2024 despite missing estimates, with adjusted EPS and operating income each rising nearly 60% to respective values of $0.62 per share and $341M. Operating cash flow increased by over 50% to $1.2B while overall sales were stable at $13.1B and CapEx fell by over 40% to $621M. The Chicken segment saw a significant year-over-year improvement in adjusted operating income – up $326M into positive territory at +$160M – while the Beef and Pork segments reported modest revenue increases. YTD free cash flow for Q1 also moved into the black, rising by almost $900M to +$556M. The company remains focused on optimizing its operational footprint while managing challenges like limited cattle supplies and consumer behavior shifts. Tyson updated its fiscal 2024 adjusted operating income guidance to between $1.4B and $1.8B, with CapEx expected to be $1.2+1.4B.

Fidelity National Info Services (FIS) reported a strong start to 2024 with first-quarter adjusted EPS of $1.10 for continuing operations ($1.33 including discontinued operations) and GAAP diluted earnings per share of $0.03 for continuing operations ($1.25 overall). Revenue for continuing operations rose 3% to $2.5 billion, while adjusted EBITDA margin expanded to 39.5%. FIS announced a $500 million increase to its 2024 share repurchase target, aiming for $4.0 billion in total. The company also reaffirmed its full-year revenue and adjusted EBITDA forecasts and increased its full-year adjusted EPS outlook by $0.22.

Baxter International (BAX) first-quarter revenue rose to $3.6 billion, up 2% overall versus 3% in constant currency, while adjusted EPS exceeded guidance at $0.65. The Medical Products and Therapies segment saw 6% growth, while Pharmaceuticals achieved 11% and Kidney Care grew by 3%. While the Healthcare Systems & Technologies (HST) segment declined 9% due to operational issues and order delays, Baxter’s adjusted gross margin still managed to increase to 42.5%, and the adjusted operating margin to 14.3%. Full-year sales growth is projected at 2% reported, 2-3% constant currency, with adjusted EPS guidance for the balance of the year at $2.88-$2.98 per share.

Friday, May 10, 2024, Subscribers-Only Podcast:

Covering recent news and analysis for our portfolio companies and other topics relevant to value/contrarian investors.

Today’s podcast is about 20 minutes long and covers:

  • Initial note
    • Introduction – addressing some subscriber questions about the Catalyst Report.
    • A quick rundown of the 11 CTL companies that reported this week.
  • Comments on recommended companies
    • Western Union (WU) has resumed remittance services between the U.S. and Cuba after a technical disruption in January halted transfers for over three months. The service restoration will provide crucial financial support to Cuban families amid a worsening economic crisis exacerbated by COVID-19, U.S. sanctions, and a struggling tourism sector.
    • Janus Henderson Group (JHG) affirmed its dividend of $0.39 per share, payable on May 29th, bringing the dividend yield on the company’s stock to 4.7%.
    • Kohls (KSS) announced that 200 stores will receive Babies R Us shop-in-shops beginning in August and continuing through the fall, with all expected to be operational prior to the holiday shopping season.
    • Advance Auto Parts (AAP) announced plans to release its 1Q 2024 financial results on Wednesday, May 29th, 2024, before the market opens.
    • First Quantum Minerals (FM.TO) is being pressured by Panamanian President-Elect Jose Raul Mulino to drop arbitration proceedings against the Central American country before he will even consider engaging in talks to reinstate the company’s mining license at its Cobre Panama operation.
    • Macy’s (M) announced the company will report 1Q earnings results on Tuesday, May 21st, 2024.

Please know that while I don’t yet personally own shares of all Cabot Turnaround Letter recommended stocks – including the stocks mentioned in this note – that will materially change over time.


Market CapRecommendationSymbolRec. IssuePrice at Rec.Current Price *Current YieldRating and Price Target
Small capGannett CompanyGCIAug 20179.22 3.29 -Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.68 4.52 -Buy (20)
Small capDril-QuipDRQMay 202128.28 19.71 -Buy (44)
Small capKopin CorpKOPNAug 20232.03 0.80 -Buy (5)
Small capAmmo, Inc.POWWOct 20231.99 2.46 -Buy (3.50)
Mid capMattelMATMay 201528.43 18.87 -Buy (38)
Mid capAdient plcADNTOct 201839.77 28.90 -Buy (55)
Mid capXerox HoldingsXRXDec 202021.91 13.617.3%Buy (33)
Mid capViatrisVTRSFeb 202117.43 11.224.3%Buy (26)
Mid capTreeHouse FoodsTHSOct 202139.43 35.35 -Buy (60)
Mid capThe Western Union Co.WUDec 202116.40 13.297.1%Buy (25)
Mid capBrookfield ReBNREJan 202261.32 44.200.7%Buy (93)
Mid capPolarisPIIFeb 2022105.78 86.653.0%Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.01 13.02 -Buy (24.50)
Mid capJanus Henderson GroupJHGJun 202227.17 33.094.7%Buy (67)
Mid capSix Flags EntertainmentSIXDec 202222.60 26.52 -Buy (35)
Mid capKohl’s CorporationKSSMar 202332.43 23.968.3%Buy (50)
Mid capFrontier Group HoldingsULCCApr 20239.49 5.93 -Buy (15)
Mid capAdvance Auto PartsAAPSep 202364.08 75.641.3%Buy (98)
Mid capMohawk IndustriesMHKJan 2024103.11 119.72 -Buy (165)
Mid capVF CorporationVFCMar 202416.24 12.732.8%Buy (25)
Mid capBarnes GroupBApr 202436.55 38.361.7%Buy (55)
Mid capFirst Quantum MineralsFM.TOMay 202415.9318.043.5%Buy (40)
Large capGeneral ElectricGEJul 2007304.96 167.500.2%Buy (160)
Large capNokia CorporationNOKMar 20158.02 3.723.6%Buy (12)
Large capMacy’sMJul 201633.61 19.453.4%Buy (25)
Large capNewell BrandsNWLJun 201824.78 8.233.4%Buy (39)
Large capVodafone Group plcVODDec 201821.24 8.6011.3%Buy (32)
Large capBerkshire HathawayBRK.BApr 2020183.18 408.82 -HOLD
Large capWells Fargo & CompanyWFCJun 202027.22 61.282.3%HOLD
Large capWestern Digital CorporationWDCOct 202038.47 72.09 -Buy (78)
Large capElanco Animal HealthELANApr 202127.85 17.20 -Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.53 17.255.8%Buy (70)
Large capVolkswagen AGVWAGYAug 202219.76 14.556.6%Buy (70)
Large capWarner Bros DiscoveryWBDSep 202213.13 8.04 -Buy (20)
Large capCapital One FinancialCOFNov 202296.25 142.491.7%HOLD
Large capBayer AGBAYRYFeb 202315.41 7.800.4%Buy (24)
Large capTyson FoodsTSNJun 202352.01 59.653.3%Buy (78)
Large capAgnico Eagle MinesAEMNov 202349.80 68.102.3%Buy (75)
Large capFidelity Natl Info ServicesFISDec 202355.50 73.712.8%Buy (85)
Large capBaxter InternationalBAXFeb 202438.79 35.953.2%Buy (60)

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Matthew Warder is Cabot Wealth Network’s Chief Analyst of Cabot Turnaround Letter