Today’s news: Commercial Metals (CMC) reports second quarter results. Chipotle (CMG), Delek US Holdings (DK) and PBF Energy (PBF) are rising this week.
Chipotle Mexican Grill (CMG) — Chipotle shares are rising on the news that the company hired a new chief marketing officer, Chris Brandt, who previously worked with new CEO Brian Niccol at Taco Bell, in addition to his extensive experience at Outback Steakhouse, Carrabbas and other restaurant chains. The stock appears ready to surpass upside price resistance at 345 and head toward about 360. Hold.
Commercial Metals Company (CMC — yield 2.2%) reported second quarter results this morning (August year-end), slightly missing Wall Street’s revenue and profit forecasts, and pushing the stock down about 8%. Adjusted earnings per share were $0.26 vs. the consensus estimate of $0.27, and revenue was $1.1 billion vs. the consensus estimate of $1.16 billion. The company reported what is commonly referred to as “a messy quarter”, meaning that there are all sorts of one-time items in the earnings report: start-up costs at a micro mill in Oklahoma, charges relating to an acquisition, charges relating to discontinued operations, and changes to the U.S. tax code. Please refer to the press release for additional details.
CEO Barbara Smith stated:
“We have positioned CMC to take advantage of the strong market demand we expect for the balance of the year. In the U.S., the recent tax reform legislation is providing confidence for the underlying growth of the economy, prompting capital investment which should result in the increased consumption of steel. The Section 232 trade remedy details are still being finalized; however, we are hopeful that it will lead to a leveling of the playing field against imports. At our International Mill segment, we forecast high levels of demand, from both the Polish and North European markets, to continue the strong results of this business.
We are completing the exit of our International Marketing and Distribution business and plan to utilize the proceeds to both strengthen our balance sheet as well as invest in our core steel manufacturing segments. We anticipate that our Durant, Oklahoma facility will be operating near its capacity of approximately 350,000 tons per year by the end of the 2018 fiscal year, and we are working on our integration plans for the announced acquisition. We look forward to completing the closing conditions over the coming months and when the transaction closes, we see significant opportunity for cost synergies and value creation for our customers and shareholders.”
It’s not unusual for a small-cap stock to be volatile, and the volatility is often uncorrelated to company performance. My assessment is that today’s volatility is undeserved, and presents an excellent buying opportunity for traders, longer-term investors and dividend investors. With the share price down to $22.03 as I write, the current yield rises to 2.2%. Commercial Metals’ market cap is $2.8 billion.
Commercial Metals is a recycler and manufacturer of steel and metal products, including rebar and fence posts. Heading into today’s earnings report, Wall Street projected 2018 EPS to grow 115%, followed by 47% EPS growth in fiscal 2019. I expect those numbers to remain very strong as analysts tweak their earnings estimates in the coming days. CMC is an extremely undervalued aggressive growth stock. I strongly recommend that investors take advantage of today’s share price weakness. Buy CMC now. Strong Buy.
Delek US Holdings (DK – yield 2.0%) just pushed right past its January high without pausing. It would be normal for the stock to advance a bit, then briefly pull back one more time before continuing its run-up. Delek is a diversified downstream energy company and a very undervalued small-cap, aggressive growth stock. Buy DK now and buy more on dips. Strong Buy.
PBF Energy Inc. (PBF – yield 3.5%) is racing toward its January high at 36. Short-term traders should exit near 36, and everybody else should hold on for additional capital gains, which could come immediately. PBF Energy is one of the largest U.S.-based petroleum refining and marketing companies. PBF is an undervalued aggressive growth stock. Buy PBF now and buy more on dips. Strong Buy.