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Cabot Undervalued Stocks Advisor Special Bulletin

Two of the stocks in the portfolio report earnings beats.

Today’s news: Comerica (CMA) and Delta Air Lines (DAL) report earnings beats.

Comerica (CMA – yield 3.3%) reported adjusted diluted fourth-quarter EPS of $1.95 this morning, above all analysts’ estimates. Full-year 2018 EPS of $7.24 exceeded the consensus $7.18.

CEO Ralph W. Babb, Jr. pointed out that “nonperforming loans continue to decline and are at an exceptionally low level.” That’s an important indication that the U.S. economy remains strong, without any obvious or lurking chinks in its armor. The company expects continued loan growth in 2019, along with higher net interest income and lower expenses than in 2018.

Read more in Comerica’s fourth-quarter press release.

CMA rose 3% upon the market’s open today.

CMA is an undervalued growth & income stock. The stock is rapidly approaching short-term price resistance at about 77. While CMA could easily turn right around and experience a pullback, there’s a smaller chance that the stock could advance as far as 84 before finally taking a breather. That’s going to depend upon near-term action in the broader stock market. I will likely return CMA to a Buy recommendation after the first major pullback. Hold.

Delta Air Lines (DAL – yield 2.9%) reported fourth-quarter adjusted earnings per share (EPS) of $1.30 yesterday, at the top of the range of analysts’ estimates, when the market expected an average of $1.26. Quarterly revenue of $10.7 billion came in on target.

Full-year 2018 EPS of $5.65 beat the $5.57 estimate, up +14.6% vs. 2017. Results reflected a boost from lower income tax rates and a lower share count. Delta repurchased $1.6 billion of stock in 2018.

CEO Ed Bastian commented, “As we move into 2019, we expect to drive double-digit earnings growth through higher revenues, maintaining a cost trajectory below inflation, and the modest benefit from lower fuel costs. Margin expansion is a business imperative and we remain confident in our full-year earnings guidance of $6 to $7 per share.”

Delta President Glen Hauenstein cautioned the market regarding first-quarter 2019 revenue and EPS. “Our March quarter adjusted unit revenue growth is expected to be flat to up two percent including impacts from the timing of Easter, increasing currency headwinds, and the ongoing government shutdown.”

The current consensus earnings estimate for 2019 is $6.67, reflecting 19.7% EPS growth. That number will change in the coming days as analysts rework their 2019 projections based on management guidance. I expect the full-year number to drop to at least $6.54, which will reflect 17.4% EPS growth. (I point this out because various news stories emphasized the downward earnings revision, but in perspective, 17% is a fantastic earnings growth rate for a large company.)

Read more in Delta’s fourth-quarter press release.

Despite some intraday volatility, the stock closed relatively flat yesterday.

DAL is an undervalued growth stock with an attractive dividend yield. The share price needs to continue stabilizing before gathering enough strength to advance. Patient investors can buy now, lock in the dividend yield, and likely achieve attractive capital gains in 2019. Buy.