Today’s news: Blackstone Group (BX) moves from Hold to Buy, Mattel (MAT) moves from Hold to Sell, and earnings reports from Alphabet (GOOGL), Apple (AAPL), ConocoPhillips (COP), WestRock (WRK) and XL Group (XL).
Alphabet Cl. A (GOOGL) reported fourth quarter 2017 results yesterday. EPS were $9.70 vs. the consensus estimate of $9.98. Revenue was $32.3 billion vs. the consensus $31.9 billion. The company authorized the repurchase of $8.59 billion of Class C capital stock (GOOG). In this week’s update I stated, “Odds are therefore stacked in favor of a short-term drop in the share price on February 2. Buy on pullbacks.” My opinion remains intact: buy GOOGL now. Buy.
Apple (AAPL—yield 1.5%) reported fantastic first quarter 2018 results yesterday (September year-end). Diluted EPS were $3.89 vs. the consensus estimate of $3.83. Both profits and revenue reached record levels. CEO Tim Cook stated, “iPhone X surpassed our expectations and has been our top-selling iPhone every week since it shipped in November.” The quarter’s iPhone shipments were down a fraction in North America, up 2.1% in Europe, the Middle East and Africa, and up 19% in China, where the iPhone continues to gain market share. The company had $163 billion cash on hand at quarter’s end, and is expected to repurchase a significant amount of stock in the coming years. Apple’s product mix is leaning more toward services revenue over time, derived from the App Store, iTunes, AppleCare, Apple Pay and other services.
Due to the strong quarterly financial results, I’m expecting earnings estimates to rise and for the stock to perform well in 2018. The stock is likely to trade between 165 and 180 in the coming weeks. Buy AAPL now. Strong Buy.
Blackstone Group LP (BX—yield 7.7*) is the world’s largest alternative asset manager with $434 billion in client assets. Blackstone reported fourth quarter 2017 results yesterday. Economic net income per share of $0.71 beat the consensus estimate of $0.67. The company declared a quarterly dividend of $0.85 per share, which lifts the current yield (based on the recent four quarters’ payouts) to 7.7%. Blackstone also announced the $17 billion purchase of a 55% stake in Thomson Reuters’ (TRI) financial data unit.
I had previously planned to sell BX at 37, and will continue to monitor the price action vs. the rising earnings estimates and the bullish nature of the Thomson Reuters acquisition, which might change my outlook for the share price. The stock is down a bit today, so I’m changing my recommendation from Hold to Buy. There’s room for traders to buy below 35 and profit from the trading range, and for income investors to buy a great company with a huge dividend yield. Buy.
ConocoPhillips (COP—yield 1.9%) reported fourth quarter 2017 results yesterday. Adjusted EPS was $0.45, on target with the consensus estimate. The quarterly dividend was raised by 7.5 percent, from $0.265 to $0.285 per share. The company paid down $7.6 billion of debt and repurchased $3 billion of common stock in 2017, paid down another $2.25 billion in debt year-to-date, and plans to repurchase $2 billion of common stock in 2018. ConocoPhillips also announced an agreement to acquire a 22% interest in the Western North Slope of Alaska from Anadarko Petroleum (APC). Earnings estimates will probably rise a bit next week, after analysts have had a chance to digest the earnings presentation and tweak their forecasts. In the meantime, recent expectations point toward aggressive EPS growth of 273% in 2018.
Barclays and RBC raised their price targets to 72 and 63, respectively. The stock is down a fraction from January highs, as is the price of light crude oil, and holding steady. Buy COP now, and buy more on pullbacks. Strong Buy.
Mattel (MAT) reported an adjusted fourth quarter 2017 loss of $0.72 per share when the market was expecting $0.17 EPS. Sales problems were compounded by the Toys R Us bankruptcy. New company management continues to project a turnaround in profitability, which has clearly not yet materialized. While it’s still possible that the rumored buyout offer might materialize, that’s not a solid enough reason for me to hold the stock. I’m selling MAT today. Sell.
WestRock Company (WRK—yield 2.6%), a global packaging and container company, reported first quarter 2018 results this week (September year-end). Adjusted EPS were $0.87, above all analysts’ estimates. The company announced that it will expand its corrugated packaging business in the Western U.S. by purchasing KapStone Paper and Packaging Corp. The deal is valued at approximately $4.9 billion and will be accretive to WestRock’s margins, earnings and cash flow in 2018. As a result of the unexpectedly strong earnings report and the M&A transaction, investment firms Bank of Montreal, Citigroup, D.A. Davidson and RBC raised their price targets to a range of 80 to 85.
Watch for earnings estimates to reflect 50% or more EPS growth in fiscal 2018. WRK is a very undervalued aggressive growth stock. Buy WRK now and buy more on pullbacks. Strong Buy.
XL Group Ltd. (XL—yield 2.3%), an insurer and reinsurer, reported fourth quarter 2017 results yesterday. Operating EPS were $0.45, well above the $0.38 consensus estimate. Net premiums grew 17% year-over-year, and as I reported several times recently, insurance premiums are expected to rise throughout the industry in 2018, marking a distinct change in pricing patterns. Rising premiums will be the catalyst that causes stocks to rise throughout the industry this year, barring an interruption by a correction in the broader stock market.
XL shares rose and then fell in 2017, giving back all their gains as the market dumped shares of property & casualty insurers in the wake of hurricanes, earthquakes and a typhoon. XL has begun its rebound. There’s a little price resistance at 39.5 and 42.5, and significant price resistance at 47. Buy XL now. Strong Buy.