Today’s news: Delek U.S. Holdings (DK) moves from Buy to Strong Buy. Baker Hughes (BHGE), Blackstone Group (BX), DowDuPont (DWDP) and WestRock (WRK) reported quarterly results this morning.
Baker Hughes, a GE co. (BHGE – yield 2.9%) reported fourth quarter adjusted diluted EPS (non-GAAP) of $0.26, on target with analysts’ estimates, and revenue of $6.26 billion, above the $6.0 billion estimate. New orders, revenue and operating income rose substantially, both vs. third quarter 2018 and vs. fourth quarter 2017.
In November, General Electric (GE), Baker Hughes’ majority shareholder, reduced their ownership from approximately 62.5% to approximately 50.4%. (GE is experiencing cash flow and debt problems, and is thus selling investments in order to solve corporate problems. The GE problem has no bearing on Baker Hughes’ operations.)
Baker Hughes offers products, services and digital solutions to the international oil and gas community.
BHGE is an undervalued aggressive growth stock with an attractive dividend yield and a low debt-to-capital ratio. The stock is up 4.9% to 25.10 in pre-market trading. There’s upside price resistance at 27, where I would expect BHGE to rest for a while. Buy.
Blackstone Group LP (BX – yield 6.5%*), the world’s largest and most diversified alternative asset manager, reported fourth quarter non-GAAP economic net income (ENI) of $0.067 per diluted share this morning (according to my calculations) when the market was expecting $0.05. (This number was not itemized within the press release. I calculated it from numbers on the financial statement so it could be off slightly.)
As a reminder, limited partnerships operate somewhat differently from most corporations (Apple, Bristol-Myers, etc.). Quarterly economic net income (ENI) is not really comparable to earnings per share (EPS), and quarterly distributions vary each quarter, as opposed to the predictable sameness of quarterly corporate dividends. Blackstone Group’s next quarterly distribution will be $0.58 per share, bringing the trailing 12-month total distribution per share to $2.14. The current yield on the stock, based on yesterday’s closing share price of $33.14, is 6.5%.
The company reported fourth quarter 2018 inflows of $38.6 billion, and full year inflows of $101.1 billion, bringing total assets under management (AUM) to $472 billion. Blackstone repurchased $542 million of stock during the year, with $458 million remaining in its repurchase authorization.
Many of Blackstone’s eight investment strategies—within the categories of real estate, private equity, hedge fund solutions and credit—were affected by poor fourth quarter investment markets, with various strategies’ quarterly performances ranging between up 5.1% to down 7.3%. For the full year, all of these strategies produced positive returns except distressed credit, down 3.2%. All three private equity strategies produced double-digit returns, at an average growth rate of 16.6%.
BX is an excellent stock for dividend investors. In addition, speculative investors have an opportunity for outsized capital gains if BX converts from an L.P. to a C-corp., which management is currently contemplating. I would be very comfortable buying BX now. Strong Buy.
Delek U.S. Holdings (DK – yield 3.2%) surged 6.8% yesterday to 32.23 as the market realized that continued contraction in global crude oil supplies will likely enhance demand for Delek’s products. Several of Delek’s competitors—Valero Energy (VLO) and PBF Energy (PBF)—source crude oil from Venezuela, and will therefore be affected by new U.S. sanctions against Venezuela’s oil industry. Delek does not purchase crude oil from Venezuela. The company will announce fourth quarter results after the market close on February 19.
Delek was featured in Tim Lutt’s January 29 Cabot Stock of the Week publication.
DK is an extremely undervalued small-cap growth stock. I’m moving DK from Buy to Strong Buy, now that market momentum is favorable. There’s plenty of room between the current share price and upside price resistance at 40 for new investors to achieve attractive capital gains. I expect DK to surpass 40 later this year. Strong Buy.
DowDuPont (DWDP – yield 2.8%) reported fourth quarter adjusted EPS of $0.88 this morning, when the market was expecting $0.87. Revenue of $20.1 billion missed the $20.9 billion estimate, largely due to negative currency movements, price declines in polyethylene products and price declines within the company’s Industrial Intermediates and Infrastructure division.
The company repurchased $1.4 billion of stock during the fourth quarter, and intends to use the balance of the repurchase authorization during the first quarter.
CEO Ed Breen commented, “In our first full year as a merged company, we delivered consistently strong results. Pro forma sales rose 8 percent with gains in every geography. We delivered a 13 percent increase in operating EBITDA. And we raised our cost synergy expectation by 20 percent to $3.6 billion, while continuing to return significant capital to shareholders. We remain on track for the separation of the new Dow on April 1, followed by Corteva from the new DuPont on June 1.” Management expects continued global economic expansion in 2019.
DWDP is an undervalued growth stock with an attractive dividend yield. The stock is down 7.6% to 54.79 in pre-market trading. Take advantage of today’s price volatility and buy DWDP. It’s widely expected that the sum of the parts of the spin-off companies will exceed the current share price. There’s short-term price resistance at 60. Strong Buy.
WestRock Company (WRK – yield 4.4%), a global packaging and container company, reported first quarter EPS of $0.83 this morning (September year end), when the market was expecting $0.79; and $4.3 billion revenue vs. the consensus estimate of $4.53 billion. WestRock repurchased $44 million of stock during the quarter.
WRK is an undervalued growth & income stock with a big dividend yield. WRK is likely to trade between 40 and 48 for a few months. There’s plenty of room for growth investors to achieve capital gains during this first phase of WestRock’s share price recovery. Buy.