Today’s News: Earnings reports from BB&T Corp. (BBT), Blackstone Group (BX), Comerica (CMA) and Skechers (SKX). Both BB&T Corp. (BBT) and Comerica (CMA) move from Hold to Strong Buy.
BB&T Corp. (BBT – yield 3.0%) reported record second quarter adjusted diluted EPS of $1.01, on target with consensus estimates. Highlights of the quarter included lower-than-expected non-performing loans and net charge-offs, accelerating loan growth (commercial & industrial and residential mortgage), prolonged FDIC surcharges and a strong likelihood of bank acquisitions, as BB&T has already been approached by various potential merger partners.
The stock fell in an overreaction to an adequate earnings report, bouncing once again at the bottom of its very solid 2018 trading range. There’s room for short-term investors to make 10% as the stock travels back to the top of its trading range near 55.5. I’m therefore moving BBT from Hold to Strong Buy. Despite the fact that I may sell near 55.5 – my portfolio considerations in addressing a large investor base are different than that of a buy-and-hold investor – longer-term investors should consider BBT a very solid investment for years to come. Strong Buy.
Blackstone Group (BX – yield 6.2%*) reported second quarter economic net income (ENI) of $0.90, above all analysts’ estimates. Quarterly revenue also exceeded all estimates. The dividend payout varies each quarter. Blackstone announced that the third quarter dividend will be $0.58 per share, higher than the market had expected.
The market reacted well to the earnings report. Nevertheless, BX just retraced back to its 2018 highs in recent days, and odds are high that the stock will need to rest a bit before beginning a new run-up. I encourage both growth investors and dividend investors to add to their positions on dips below 35. Buy.
*The payout varies each quarter, with the total of the last four announced payouts (excluding the $0.30 special 2018 distribution) yielding 6.2%.
Comerica (CMA – yield 1.4%) reported second quarter EPS of $1.87 this week, above all analysts’ estimates. Quarterly highlights include lower provisions for loan losses, higher operating expenses and higher net interest margin. Comerica is one of the most asset-sensitive banks in the U.S., with a very high percentage of variable rate loans, thus benefiting from rising interest rates. The bank is expected to increase its third quarter dividend on the heels of a second quarter dividend increase.
I’m moving my recommendation on CMA from Hold to Strong Buy. While the price chart is not bullish, the trading range is solid, the stock is low within that range, and both the earnings estimates and dividend should be increasing promptly, both of which should serve to draw positive attention to the stock. Strong Buy.
Skechers (SKX) reported second quarter results after the market closed on July 19. The company had a big earnings miss due to intense investment in international wholesale and retail operations. Record quarterly revenue of $1.134 billion came in on target, and Skechers also achieved record gross margins of 49.4%.
International wholesale sales rose 24.9% in the quarter and international retail sales rose 12.8%. International wholesale and retail sales represented 51.6% of total sales. Worldwide same store sales increased 4.5%.
CEO Robert Greenberg commented, “We are investing in our international business—both in newer and established markets as we continue to experience strong growth overseas.
Chief operating officer David Weinberg commented, “Our largest international markets—Canada, China, South Korea, Germany, India, and the United Kingdom—achieved double-digit sales growth in the second quarter, a testament to our global strategy. Additionally, China shipped approximately 5.6 million pairs in the period, a new quarterly record.”
“As expected, our domestic wholesale business had single-digit decreases in the quarter though much of our business within our core accounts remained solid. Our international distributor business also had single-digit decreases, but performed better than originally anticipated. Looking forward, we believe both of our domestic wholesale and international distributor businesses will be positive in the second half of the year. Our focus for the balance of 2018 is to continue to grow our international business while maintaining our strength in the United States.”
Skechers reported $0.29 EPS when the market was expecting $0.41. Clearly, either Skechers management is not very talented at conveying earnings projections to analysts, or analysts are not talented at projecting the costs of Skechers’ business operations.
Expenses that contributed to lower-than-expected quarterly profits included advertising, marketing, warehouses, distribution, significant international expansion, a dozen new store openings, planning for Single’s Day in China, adverse foreign exchange impact of the strong U.S. dollar and legal costs.
The stock traded down dramatically in after-hours trading. I would expect institutional investors to take advantage of the resulting lower price and add to their positions. Skechers remains an incredibly successful and rapidly growing company, with huge ongoing growth opportunities in international markets.
Investors who are not ruffled by small- and mid-cap stock volatility should consider buying now. Strong Buy.