Today’s news: CF Industries (CF) moves from Strong Buy to Hold.
Earnings reports from: Apple (AAPL), CF Industries (CF), DowDuPont (DWDP), Quanta Services (PWR), Voya Financial (VOYA) and WestRock (WRK).
Apple (AAPL – yield 1.4%) – On July 31, Apple reported third quarter EPS of $2.34, above all analysts’ estimates. Revenue of $53.3 billion beat the consensus estimate of $52.3 billon. Paid subscribers to Apple Services rose 60% year-over-year. The company repurchased $20 billion of stock during the quarter. The company had a great quarter, full year earnings estimates are rising and the stock is reaching new all-time highs.
I’d like to caution you that when financial news shows debate popular stocks such as Netflix (NFLX) and Apple, they insist that AAPL is a value stock. While AAPL is absolutely a value stock – as measured by P/E, PEG ratio and dividend – it is also a solid growth stock, as measured by strong earnings growth. Within those discussions, the financial experts are simply trying to point out that AAPL has a value component that you will not find in other growth stocks such as Twitter (TWTR) and Netflix.
Note that we’re in Apple’s fiscal fourth quarter now. Investors should therefore concentrate entirely on Apple’s fiscal 2019 numbers, because that’s what the investment professionals will be doing. Analysts now expect EPS to increase 27.3% and 15.8% in fiscal 2018 and 2019 (September year-end). The corresponding P/Es are 17.2 and 14.8. There’s about $80 billion remaining in the share repurchase authorization. The stock is moderately undervalued based on 2019 numbers. Buy AAPL now. Strong Buy.
CF Industries Holdings (CF – yield 2.6%), a nitrogen fertilizer producer, reported second quarter EPS of $0.63 yesterday afternoon, when the market was expecting $0.45. Revenue of $1.30 billion beat the estimate of $1.22 billion. The company unexpectedly announced a $500 million share repurchase authorization that will take place through June 2020.
I expect this aggressive growth stock to react well to the earnings report. When I added CF to the Growth Portfolio, I mentioned that I was looking for a shorter-term hold on the stock with a price target near 50. I’m moving the stock from Strong Buy to Hold, in expectation that the share price will jump today, meaning there will be less profit margin in the remaining potential run-up. I don’t want to hold the stock longer-term, like I might with AAPL, due to price volatility of U.S. and Chinese energy sources and currencies affecting CF’s profit margins. Right now, CF is in the sweet spot. If the share price races up to 50, begin using stop loss orders. Hold.
DowDuPont (DWDP – yield 2.2%) – DowDuPont reported second quarter adjusted EPS of $1.37 this morning vs. the estimate of $1.30. Revenue of $24.2 billion beat the estimate of $23.6 billion DowDuPont repurchased $1 billion of stock during the quarter.
The company guided third and fourth quarter numbers lower than market expectations due to weakness in the Agriculture division (including foreign currency effects). DowDuPont increased earnings guidance in the Materials Science and Specialty Products divisions, but lower Agriculture earnings guidance will invariably impact the current share price.
DWDP is an undervalued growth stock with an attractive dividend yield. The company’s pending split into three stocks during the first half of 2019 is a significant component of investors’ potential capital appreciation with DWDP. The stock might trade down to 65 today. As long as the stock holds price support at 65, buy on weakness. Strong Buy.
Quanta Services (PWR) reported record second quarter earnings, revenue and 12-month backlog this morning. Adjusted diluted EPS of $0.59 missed the Zacks estimate of $0.61. Revenue of $2.66 billion surpassed the estimate of $2.5 billion. Importantly, the company increased full year revenue projections to a range of $10.35-$10.75 billion, while the consensus estimate is just $10.4 billion. Quanta repurchased $30.0 million of stock during June and July, with $46.1 million remaining in the repurchase authorization. I expect PWR to rise up to its January high of 40 this year. Once the stock breaks past 40, there will be no upside price resistance in sight. Buy PWR now. Strong Buy.
Voya Financial (VOYA – yield 0.1%) reported second quarter EPS of $1.13 yesterday afternoon, when the market expected $1.09. Voya completed the sale of its annuity operations during the quarter. The company repurchased $500 million of stock during the quarter, and expects to repurchase another $500 million of stock by year-end. Full year earnings estimates will likely increase modestly in the coming days. The share price is relatively low within its 2018 trading range. Buy VOYA now. Strong Buy.
WestRock Company (WRK – yield 3.0%) reported third quarter adjusted diluted EPS of $1.09 this morning vs. the estimate of $1.06. Revenue of $4.14 billion slightly missed the estimate of $4.2 billion. The share price has been weak as investors worry about potentially rising expenses impacting profits, citing strength in the U.S. dollar and rising raw material costs. Take advantage of the low share price and the attractive dividend, and buy WRK now. Strong Buy.