Today’s news: Marathon Petroleum (MPC) and Voya Financial (VOYA) report strong fourth-quarter results; Total SA (TOT) reported an earnings miss; and price action on Comerica (CMA) and Guess? (GES).
Comerica (CMA – yield 3.2%) – Today BB&T Corp. (BBT) announced the acquisition of SunTrust Banks (STI). This M&A deal follows a recent merger agreement between Chemical Financial (CHFC) and TCF Financial (TCF). Reuters commented, “The $28.3 billion all-stock deal is the largest banking merger since the financial crisis and could spark a long-awaited wave of consolidation in the sector.”
Investors’ excitement is now building about possible additional M&A activity among mid-cap banks. As a result, several such stocks are up quite a bit today, with CMA rising more than most, over 5%.
Comerica is an undervalued financial services company engaged in domestic and international business banking and lending, wealth management and consumer services. In recent days I wrote, “It appears that … CMA will now trade between 77 and 85 before advancing further. Try to buy below 80.” This new tone of anticipation within the financial sector could now push CMA up toward 90 in the coming days. Dollar-cost-averaging into the stock seems like the best approach at this point. Buy.
Guess? (GES – yield 4.4%) – As I anticipated, GES is rapidly rebounding from last week’s irrational price drop. Today, Jefferies raised their recommendation on the stock from Hold to Buy.
GES is an undervalued aggressive growth stock with a big dividend yield. The stock has traded consistently between 19 and 25 since March 2018. Buy GES now while there’s about 21% capital appreciation potential as the stock eventually travels back toward 25, and receive the added bonus of a large dividend payout. Barring unexpected changes in the earnings outlook, once GES completes the rebound, it will still be a very undervalued growth stock. Therefore, GES shares could appeal to traders, growth investors, dividend investors, value investors, and longer-term investors. Strong Buy.
Marathon Petroleum (MPC – yield 3.3%) exceeded market expectations this morning, reporting fourth-quarter earnings adjusted for non-recurring costs of $2.41 per share, far above all analysts’ estimates. (Please note that a variety of computerized news reports misquoted the earnings per share number this morning, which will invariably cause some volatility in the share price. Subsequently, Wall Street analysts will quote correct numbers to their clients within new research reports, ultimately causing a favorable reaction among professional investors.)
Profit margins were enhanced by processing cheap oil from Canada and by cost savings associated with the October 2018 Andeavor acquisition. In the earnings press release, CEO Gary Heminger commented, “By executing the strategy outlined during our recent Investor Day, we have realized $160 million of synergies in just three months and continue to expect total annual gross run-rate synergies of up to $600 million at year-end 2019 and $1.4 billion by the end of 2021.”
Revenue of $32.54 billion missed the $34.0 billion consensus estimate.
The company repurchased $675 million of stock during the quarter and $3.3 billion of stock during full-year 2018. “The company remains committed to returning at least 50% of discretionary free cash flow to shareholders over the long term through a combination of dividends and share repurchases while maintaining its investment grade credit profile,” Marathon said in its earnings release.
MPC is an undervalued stock with an attractive, growing dividend. As expected, Marathon announced a 15% dividend increase last week, from $0.46 to $0.53 per quarter.
The stock has been up and down this morning, with short-term upside price resistance at 70. I expect MPC to rise a maximum of 32% from the current price as it eventually reaches its previous high at 85. Buy MPC now. Strong Buy.
Total S.A. (TOT – yield 5.4%) reported fourth-quarter EPS of $1.17 this morning, missing the $1.25 consensus estimate. Full-year EPS rose 27% year-over-year to $5.05.
CEO Patrick Pouyanne described “a return on average capital employed close to 12%, the highest among the majors, and a pre-dividend breakeven below $30 per barrel.” In addition, the net-debt-to-capital ratio dropped to 15.5%, well below the company’s maximum target of 20%.
Total repurchased $1.5 billion of stock in 2018. The company increased the dividend by 3.2% in 2018 and intends another 3.1% increase in 2019, along with plans to repurchase another $1.5 billion of stock.
Total also announced a significant “world class” gas condensate discovery off the southern coast of South Africa.
I will review Wall Street’s revised 2019 consensus earnings estimate for Total in the coming days, before deciding how to proceed with the stock. In the meantime, the price chart has been turning more bullish, with price resistance at 59. Hold.
Voya Financial (VOYA – yield 0.1%) reported $1.32 fourth-quarter EPS on the afternoon of February 5, above all analysts’ estimates. The company has been successfully focused on increasing growth and reducing expenses, while selling off less profitable business segments. Voya is reaching profit goals ahead of schedule.
VOYA is an undervalued aggressive growth stock. Management intends to increase the dividend yield to 1% in 2019.
The stock reacted very well to the earnings report, rising over 4% yesterday. I anticipate VOYA trading between 45 and 55 in the coming months as it continues to recover from last quarter’s stock market correction. VOYA is up over 30% from its December lows. A pullback is overdue, after which I will likely return VOYA to a Strong Buy recommendation. Hold.