Today’s news: third-quarter earnings reports from Interpublic Group (IPG), Schlumberger (SLB), Skechers (SKX) and Synchrony Financial (SYF); DowDuPont (DWDP) reported a large impairment charge.
DowDuPont (DWDP – yield 2.7%) – News emerged late yesterday in The Wall Street Journal that DowDuPont will take a $4.6 billion charge in its Agriculture division that reflects a recalculation of the fair valuation of Goodwill and other intangible assets. DowDuPont then issued a press release stating “that the impairment is non-cash, reflects the effect of previously reported market conditions, and has no impact on its previously announced financial guidance for the Agriculture Division of DowDuPont for the full-year 2018.” The stock fell almost 3% in after-hours trading in response to the news. I anticipate that the stock will struggle through year end, possibly rising to 65 in the interim, and then gaining steam in 2019 as the spin-offs take center stage. Strong Buy.
The Interpublic Group of Companies (IPG – yield 3.5%) reported third-quarter adjusted EPS of $0.48 this morning, at the top of the analysts’ estimated range, when the market was expecting $0.46. Quarterly revenue of $2.3 billion far surpassed the relatively unanimous analyst estimate of $1.88 billion. The market was very pleased with the upside surprise on organic revenue growth from increased client spending.
IPG is up about 5% in premarket trading. There’s some price resistance at 24.5. I expect the stock to perform generally well from here on in. I can’t give IPG a Buy recommendation unless analysts’ estimates rise, which might happen in the coming days. Hold.
Schlumberger (SLB – yield 3.4%) reported third-quarter adjusted diluted EPS of $0.46 this morning, on target with analysts’ estimates. (It should be noted that consensus estimates vary, depending on who’s tallying them, e.g. Thomson Reuters, FactSet or Zacks. The FactSet estimate was $0.43.) Third-quarter revenue of $8.5 billion slightly missed the consensus estimate. International markets remain strong. Pipeline bottlenecks in the Permian are expected to work themselves out over the next 18 months, while supply constraints are slowing fracking activity in the Permian.
SLB is up 1% in premarket trading. The share price has been weak and is not yet ready to rebound. Patient investors can accumulate shares while locking in the attractive yield. Expect volatility. Buy.
Skechers USA Inc. (SKX) reported third-quarter diluted EPS of $0.58 yesterday afternoon, above all analysts’ estimates, and record sales of $1.176 billion, just shy of the $1.2 billion consensus estimate. In addition, the company raised its sales and net income guidance for the fourth quarter. Analysts will revise their earnings estimates in the coming days. I expect the 2018 consensus earnings estimate to increase from $1.73 per share to approximately $1.84. If the 2019 earnings estimate bumps up in tandem, then I will likely increase my recommendation to a Strong Buy.
Skechers spent $40 million as they repurchased 1.4 million shares of stock in the third quarter. There’s $92 million remaining in the share repurchase authorization.
The stock rose 9% in premarket trading today. I expect Wall Street to be very encouraged by the strong results at Skechers, which seem sustainable. However, whenever a stock price has been weak, no matter how well the stock might perform upon good news, there’s volatility ahead while the buyers and sellers get used to “a new normal” for how Wall Street is now perceiving the company. Big up days will be followed by down days for a while. The near-term trading range will most likely be 26.5-30. There’s very little chance that the stock will sustainably surpass 30 on its first rally. Buy on the down days! Buy.
Synchrony Financial (SYF – yield 2.8%) reported third-quarter diluted EPS of $0.91 this morning, above all analysts’ estimates. Revenue of $4.21 billion slightly exceeded the consensus estimate. The company completed the U.S. PayPal Credit financing acquisition, repurchased $966 million of stock and renewed relationships with Lowe’s, J.C. Penney, Associated Materials and Generac.
The share price has recently been weak and is now up about 3% in premarket trading. There’s short-term price resistance at 33.5, and additional resistance at 40, where SYF reached an all-time high in January. Buy SYF now and buy more on pullbacks. Strong Buy.