Today’s news: Interpublic Group (IPG) and Martin Marietta Materials (MLM) each move from Hold to Strong Buy.
Earnings reports on Alexion Pharmaceuticals (ALXN), CIT Group (CIT), D.R. Horton (DHI), Interpublic Group (IPG), Knight-Swift Transportation (KNX), Martin Marietta Materials (MLM), PulteGroup (PHM) and Southwest Airlines (LUV). (Note: despite some crazy price action today, all of our companies reported very attractive quarterly results.)
Strong earnings & revenue beat: Alexion Pharmaceuticals (ALXN) reported second quarter EPS of $2.07 and revenue of $1.045 billion today, when the market expected $1.70 and $977.7 million. Management raised full year 2018 EPS guidance to a range of $7.00-$7.15 vs. the consensus estimate of $7.01. The increased profit is attributed to higher revenues, lower SG&A and R&D expenses and higher operation margins. Management also explicitly stated that ongoing restructuring expenses might be materially different from estimates.
ALXN is an undervalued aggressive growth stock. I continue to expect the stock to rise toward price resistance at 147 where it last traded in September 2017. I’ll be most likely to raise ALXN to a Strong Buy either on a pullback, or when it appears ready to break past 147. Buy.
Strong earnings & revenue beat: CIT Group (CIT – yield 1.9%) reported second quarter EPS of $1.00 and revenue of $495.1 million this week, vs. the consensus estimates of $0.97 and $478.2 million. Full year EPS guidance remained unchanged, continuing to reflect aggressive EPS growth in 2018 and 2019. Last week, CIT Group announced a 56% increase in the third quarter dividend, from 16 cents to 25 cents per share.
CIT continues to rise toward its 2018 high near 56, where I expect it to rest before continuing higher. Strong Buy.
Strong earnings & revenue beat: D.R. Horton (DHI – yield 1.2%) reported third quarter EPS of $1.18 and revenue of $4.44 billion today, when the market expected $1.08 and $4.32 billion (September year end). The company expects to continue growing revenue and pre-tax profit at a double-digit annual pace, and to also continue growing annual operating cash flows and returns. D.R. Horton raised 2018 guidance for operating margins. The company repurchased $27 million of stock during the quarter, and authorized the purchase of another $400 million of stock through September 2019.
DHI is an undervalued aggressive growth stock. There’s some upside price resistance at 46, where the stock will likely rest before continuing upward. The stock is cheap! Buy DHI now. Strong Buy.
Slight earnings beat: The Interpublic Group of Companies (IPG – yield 3.7%) reported second quarter EPS of $0.43 and revenue of $1.9 billion this week, when the market expected $0.42 and $1.9 billion. The company experienced strong organic growth and increased their full-year organic growth guidance. U.S. organic growth beat expectations, allaying fears that rival Omnicom Group’s (OMC) poor U.S. performance in the quarter would extend to its peers.
I believe the recent period of share price weakness is over, now that the market understands that Interpublic is thriving. I’m moving IPG from Hold to Strong Buy, with the expectation that the stock will now rise toward its 2018 high near 25. (I might sell thereafter, depending on momentum and the earnings outlook.) Buy IPG now. Strong Buy.
Earnings & revenue on target: Knight-Swift Transportation Holdings (KNX – yield 0.8%) reported second quarter EPS of $0.56 and revenue of $1.33 billion yesterday afternoon, each on target with consensus estimates. The company had a successful quarter and is pleased with the progress of the merger between Knight Transportation and Swift Transportation.
All company segments apparently performed well except the Swift Refrigerated division, which underperformed expectations, and presumably led to the exaggerated decline in the share price after hours. Management indicated that issues within the Refrigerated division were being addressed and would improve during the balance of 2018.
The company reduced debt during the quarter and authorized a $250 million share repurchase. Knight-Swift updated its guidance for third and fourth quarter EPS to an average of $0.58 and $0.70 vs. the consensus estimates of $0.58 and $0.73.
KNX is an extremely undervalued mid-cap aggressive growth stock. The drop in the share price is both ridiculous and confounding, and my sentiment is echoed today in Wall Street research reports. There’s nothing wrong at Knight-Swift – the company is a thriving industry leader with an exemplary management team. Investors who love to buy bargains should buy KNX today. Strong Buy.
Strong earnings & revenue beat: Martin Marietta Materials (MLM – yield 0.8%) reported record quarterly revenue and profit today. Second quarter adjusted EPS of $3.25 and revenue of $1.20 billion surpassed the consensus estimates of $2.87 and $1.15 billion. Management is bullish on the construction recovery in the U.S. accelerating in the second half of 2018 and continuing next year. They anticipate 2018 revenue within a range of $4.3-$4.5 billion vs. the consensus estimate of $4.2 billion.
MLM is an undervalued aggressive growth stock. The stock fell today, despite the fantastic earnings report. The company is thriving. I’m moving MLM from Hold to Strong Buy. I don’t anticipate it will take long for the stock to head back to 230 and higher. Buy MLM now. Strong Buy.
Strong earnings & revenue beat: PulteGroup (PHM – yield 1.3%) reported second quarter adjusted EPS of $0.89 and revenue of $2.57 billion today, when the market expected $0.75 and $2.37 billion. Net new orders decreased by 1%, while the backlog increased 11% to 11,845 homes and the backlog value increased 17%.
CEO Ryan Marshall commented, “We continue to see U.S. housing demand being supported by a number of positive market dynamics including an expanding economy, ongoing growth in jobs and wages, historically low unemployment, and sustained high levels of consumer confidence.” During the quarter, PulteGroup repurchased 1.7 million common shares for $53 million.
PHM is an undervalued growth stock. The stock has repeatedly bounced at 28 all year. Take advantage of the low price and buy PHM now. I expect PHM to return to its January peak at 35 at some point this year. Strong Buy.
Earnings beat and slight revenue miss: Southwest Airlines (LUV – yield 1.2%)
reported second quarter record diluted EPS of $1.26 and revenue of $5.74 billion today, when the market expected $1.22 and $5.8 billion. The company expects significantly higher third quarter operating revenue per available seat mile (RASM) vs. second quarter numbers, which were affected by the Flight 1380 accident this year.
LUV continues to climb toward its recent March high of 61. I expect the stock to rest there before approaching its January high of 66. Buy LUV now. Strong Buy.