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Cabot Undervalued Stocks Advisor Special Bulletin

Four stocks from the Portfolios reported earnings.

Today’s news: Delek U.S. Holdings (DK), D.R. Horton (DHI), Supernus Pharmaceuticals (SUPN) and TiVo (TIVO) reported quarterly results.

Delek U.S. Holdings (DK – yield 2.6%) reported third quarter EPS of $2.02 vs. the Thomson Reuters estimate of $2.00 this week, and revenue of $2.5 billion vs. the expected $2.6 billion. Importantly, Delek guided Wall Street to much higher midstream EBIDTA by the year 2022 – profits that contribute directly to cash flow.

The company increased the quarterly dividend payout from $0.25 to $0.26 and repurchased $92.1 million of shares during the quarter. In addition, Delek announced a new $500 million share repurchase authorization, with an intention of repurchasing $150 million of stock during the fourth quarter.

Delek is a diversified downstream energy company, with businesses that include petroleum refining, transportation, marketing, renewables (producing biodiesel fuel) and asphalt operations.

DK is an extremely undervalued aggressive growth stock. The stock reacted well to the earnings report. I’ll move DK back to a Buy recommendation at some point between now and January 2, as the share price continues to stabilize. Hold.

D.R. Horton (DHI – yield 1.7%) reported fourth quarter EPS of $1.22 this morning (September year end), on target with the consensus estimate. Revenue of $4.4 billion missed the estimate of $4.6 billion. Full-year results included large increases in all significant numbers, including margins, net income, revenue, backlog and more.

The company raised the quarterly dividend today by 20%, from 12.5 cents per share to 15 cents, and repurchased $52.6 million of stock during the quarter. There was $375.5 million remaining in the share repurchase authorization upon fiscal year end (September 30).

The company forecasted lower-than-expected first quarter home deliveries, especially at higher price points, which have been impacted by rising home prices and rising interest rates. Chairman of the Board Donald Horton commented, “we continue to see good demand and a limited supply of homes at affordable prices across our markets, and economic fundamentals and financing availability remain solid. We are pleased with our current product offerings and positioning to meet demand in the current market, and we will adjust to future changes in market conditions as necessary.”

D.R. Horton is America’s largest homebuilder, also providing mortgage, insurance and title services. I continue to expect DHI to remain low until tax loss selling season is over, at which time a January rebound could easily play out among companies with strong fundamentals. Hold.

Supernus Pharmaceuticals (SUPN) reported third quarter EPS of $0.52 this week, above all analysts’ estimates. Revenue came in at $103 million vs. the $100.6 million consensus estimate, setting a new record for quarterly net product sales.

The company also announced that data from three Phase III SPN-812 trials, for the treatment of ADHD, is expected in December 2018, leading to the filing of a New Drug Application in 2019. Trials continue for SPN-810 for the treatment of Impulsive Aggression in patients with ADHD, and future trials are expected for SPN-604 for the treatment of bipolar disorder.

Full year 2019 earnings estimates immediately rose, reflecting an expectation of 39.3% earnings growth and a 17.9 P/E. Expect those numbers to change in the coming days as more analysts re-work their earnings estimates for the company.

Supernus was recently ranked as the number one fastest-growing pharmaceutical company worldwide per Fortune’s “100 Fastest-Growing Companies” list for 2018. The company focuses on the development and commercialization of products for the treatment of central nervous system diseases and psychiatric disorders, including epilepsy, migraine and ADHD.

SUPN is an undervalued, small-cap aggressive growth stock. The stock suffered in the recent market downturn, and despite yesterday’s big upward move, investors should expect SUPN to trade between 42 and 50 for a little while as it gets its bearings. Risk-tolerant growth stock investors and traders could benefit by purchasing shares in the lower portion of the trading range. Strong Buy.

TiVo (TIVO – yield 6.5%) reported third quarter EPS of $0.235 yesterday vs. the consensus estimate of $0.25 (with only three analysts contributing). As usual, the number was misreported by several news agencies. (I have explained in the past that TiVo does not report non-GAAP EPS because they agreed not to, as a condition of getting approval from the Securities Exchange Commission during an M&A situation. That’s because the SEC wanted to start a trend toward silencing the reporting of non-GAAP numbers. But not many companies have been coerced into similar non-reporting, so it creates a problem when bots extract numbers from press releases and create news stories using the incorrect numbers from the reports.)

TiVo creates products and licensable technology that enable the world’s leading media and entertainment providers to nurture more meaningful relationships with their audiences. Management is in strategic discussions with entities that are considering buying TiVo’s product and/or IP licensing divisions. Management stated, “It is our intention to complete the strategic review process by no later than our fourth quarter and year-end 2018 earnings call.”

The stock has lagged for an extended period of time, which was the original catalyst for company management’s consideration of selling to an investor who better recognized the company’s work. Risk-tolerant investors could buy now with an expectation of an M&A announcement by February. Strong Buy.