Today’s news: DowDuPont (DWDP), Marathon Petroleum (MPC), Quanta Services and Voya Financial (VOYA) each move from Hold to Buy recommendations; earnings reports from Baker Hughes (BHGE), DowDuPont (DWDP), Marathon Petroleum (MPC), Quanta Services (PWR) and Voya Financial (VOYA).
I expect a traders’ market through year end. Be wary: just because a stock rebounds nicely this week does not mean that it will maintain those share price gains. We just experienced a 10% correction on the S&P 500—that’s significant, although not foreboding. We will invariably see stocks and market indexes bounce up and down for many weeks, which is normal and characteristic when a market correction occurs. Those bounces make for a ripe playground for traders. Good luck!
Baker Hughes, a GE co. (BHGE – yield 2.7%) reported third-quarter EPS of $0.19 vs. the consensus $0.20 this week. Revenue of $5.7 billion missed the estimate of $5.9 billion. The company is benefitting from an ongoing energy sector uptrend in capital expenditures. Refer to the press release to read more about new products and contract wins.
CEO Lorenzo Simonelli commented, “We are encouraged by the improved outlook for the macro environment. We expect both the North American and International markets to grow in 2019 as customers increase spending and overall rig and well counts grow. The offshore market is the strongest it has been in many years and the improving tender and order activity is an encouraging sign as we look out to 2019 and beyond. The LNG outlook is also improving… We remain well-positioned for the next build-cycle.”
Many Wall Street firms changed their price targets to various points within a range of $31-$43. The share price might now be stabilizing from its recent drop, but it’s too soon for me to give BHGE a Buy recommendation. Hold.
DowDuPont (DWDP – yield 2.6%) reported third-quarter EPS of $0.74 this morning, exceeding the consensus estimate of $0.71. Savings from the 2017 merger of Dow Chemical and DuPont de Nemours came in higher than expected and are projected to continue increasing. All the company’s divisions and regions experienced organic revenue and volume increases vs. a year ago. Quarterly revenue of $20.1 billion came in roughly on target with the $20.2 billion estimate.
CFO Howard Ungerleider stated, “Going forward, we remain well-positioned to continue to drive top-line gains from above-GDP demand growth for our products and new product launches, while further delivering productivity and cost synergy savings.”
DowDuPont repurchased $1 billion of stock during the third quarter. Today’s announcement of a new $3 billion share repurchase authorization should be well-received by investors. The repurchases will take place prior to the first 2019 spin-off, recently estimated for June 1, 2019 completion. DowDuPont also announced Boards of Directors for its three companies today, which will become independent entities in 2019.
We have likely seen the worst for the share price, although investors should continue to expect volatility as the broader market settles down after the October correction. I’m changing my recommendation on DWDP from Hold to Buy. The stock could easily trade between 54 and 64 in the coming weeks, or even through year end, so time your purchases and sales accordingly. Buy.
Marathon Petroleum (MPC – yield 2.5%) reported third-quarter EPS of $1.62 today vs. the consensus estimate of $1.70. Adjusted for non-recurring costs, EPS came in at $1.70. Revenue of $23.1 billion slightly missed the $23.6 billion estimate. The company repurchased $400 million of stock during the quarter.
The Andeavor (ANDV) acquisition closed on October 1. The company will next focus on optimizing its Andeavor Logistics LP (ANDX) business. From the press release: “In October, MPC began evaluating the financial business plans of Andeavor Logistics LP (NYSE: ANDX), with the intent to move toward financial policies more consistent with its approach towards MPLX. This approach includes meaningfully higher distribution coverage, leverage levels at or below 4.0x EBITDA, no planned public equity issuances, and independent sustainability with limited parent support.”
We have likely seen the worst for the share price, although investors should continue to expect volatility as the broader market settles down after the October correction. I’m changing my recommendation on MPC from Hold to Buy. The stock could easily trade between 70 and 80 in the coming weeks, or even through year end, so time your purchases and sales accordingly. Buy.
Quanta Services (PWR) reported record adjusted diluted third-quarter EPS of $0.88 this morning, at the bottom of the range of analysts’ estimates. Revenue of $2.99 billion slightly exceeded the consensus estimate of $2.92 billion. The company reported record quarterly revenues, operating income and backlog.
CEO Duke Austin stated, “Importantly, strengthening demand across our business solidifies our outlook for earnings growth in 2019.” Quanta raised full-year revenue and adjusted EBITDA guidance, reaffirming full-year EPS expectations. Management now expects revenue to reach a range of $10.95-$11.05 billion in 2018, higher than all analysts’ estimates. 2019 estimates will invariably rise as well. While 2018 EPS guidance remains in the $2.70-$2.80 range vs. the $2.73 consensus estimate, there are analysts with estimates as low as $2.59. Those analysts will necessarily publish new research reports with higher expectations that will influence their investor bases.
Quanta provides specialized infrastructure and network services to the electric power, oil and natural gas industries. The “recent highlights” section of the press release itemizes several large new contract wins for Quanta, including an October contract win with PacifiCorp that is not yet reflected in backlog numbers or analysts’ earnings and revenue estimates. Quanta repurchased $303.9 million of stock during the first three quarters of 2018.
We have likely seen the worst for the share price, although investors should continue to expect volatility as the broader market settles down after the October correction. I’m changing my recommendation on PWR from Hold to Buy. The stock could easily trade between 31 and 33.5 in the coming weeks, or even through year end, so time your purchases and sales accordingly. Buy.
Voya Financial (VOYA – yield 0.1%) reported adjusted diluted third-quarter EPS of $1.34 this week, above all analysts’ estimates, reaching a previously-stated goal of achieving adjusted operating earnings per share of $1.30-$1.40 by the end of the second quarter of 2019.
A new authorization to repurchase $500 million of stock was announced. Voya also announced the awaited decision to cease life insurance sales by year end—a decision that is expected to generate $1 billion in free cash flow over the next 5-6 years.
The company will host an Investor Day on November 13 in which they will highlight their business plan through 2021.
We have likely seen the worst for the share price, although investors should continue to expect volatility as the broader market settles down after the October correction. I’m changing my recommendation on VOYA from Hold to Buy. The stock could easily trade between 43 and 48 in the coming weeks, or even through year end, so time your purchases and sales accordingly. Buy.