Today’s news: Earnings reports from Alexion Pharmaceuticals (ALXN), CIT Group (CIT), Dow Inc. (DOW), Royal Caribbean Cruises (RCL), Southwest Airlines (LUV) and Total SA (TOT).
Royal Caribbean Cruises (RCL) and Total SA (TOT) each move to Strong Buy.
Thus far, the 11 portfolio companies that delivered second-quarter results have all met or exceeded Wall Street’s consensus earnings estimates.
Alexion Pharmaceuticals (ALXN) reported second-quarter EPS of $2.64 yesterday, above the wide range of analysts’ estimates. Revenue of $1.20 billion beat the consensus estimate of $1.17 billion. CEO Ludwig Hantson commented, “We are well positioned to continue our momentum in the second half of 2019, strengthening our four durable franchises in hematology and nephrology, neurology, metabolics and FcRn, advancing and expanding our pipeline, and serving more people living with rare diseases than ever before.”
Investors may refer to the earnings press release for details about Alexion’s pharmaceutical products & performance, research and drug trials.
The company raised full-year forecasts vs. previous guidance, reflecting higher revenues, lower R&D costs, higher operating margins and significantly higher EPS. Using the midpoint of Alexion’s new full-year 2019 EPS guidance, investors can now expect 23% EPS growth.
Wall Street is going cautious on ALXN shares, pending September patent hearings in Europe. The concern seems to be overblown, especially considering the extremely successful ongoing business at Alexion. Several investment firms lowered their price targets to a range of 150-172. The two private reports that I read were bullish, with price targets of 169 and 177. The stock has a wide trading range, generally between 110-145. Risk-tolerant growth investors should recognize the extreme disparity between the current price and the target prices, and buy ALXN now. Strong Buy.
CIT Group (CIT – yield 2.7%) – On July 23, CIT Group reported second-quarter diluted EPS of $1.32 vs. the $1.13 consensus estimate. Revenue of $467 million beat the $460.8 million consensus estimate. CEO Ellen R. Alemany commented, “We continued to advance our strategic plan and delivered growth in core loans and leases, additional optimization of our balance sheet and improved operating efficiency.”
Average core loans and leases rose 1% from the prior quarter and 8% from the year-ago quarter. The earnings beat was attributed to lower advertising and marketing costs, lower employee costs, and various one-time items (good results from a tax audit and gains from the sale of a loan portfolio).
The company repurchased 3.2 million shares during the quarter at a cost of $158.8 million. Tangible book value per share of $54.29 increased 3.6% from the prior quarter.
CIT is an undervalued growth stock. The stock could reach 54-55 in late August, where it traded repeatedly in 2018. Strong Buy.
Dow Inc. (DOW – yield 5.5%) reported second-quarter non-GAAP operating EPS of $0.86 today vs. the $0.84 consensus estimate. Revenues of $11.0 billion were in line with Dow guidance and below the $11.3 billion consensus estimate. The company repurchased $300 million of stock during the quarter.
The business outlook is experiencing pressures from lower product pricing and resulting margin compression, trade wars and geopolitical concerns. Nevertheless, the company is performing better than expected.
CEO Jim Fitterling said, “We achieved demand growth in packaging applications, supported by new capacity on the U.S. Gulf Coast. We delivered more than $175 million of savings from cost synergies and stranded cost removal. We also moved quickly to further tighten our expense and capital spending in response to the macro environment. We delivered higher cash flow from operations.”
I love the earnings growth, value and dividend components of DOW, and the stock is low within its trading range. All types of stock investors (except perhaps short-term traders) stand to profit from new purchases of DOW. Strong Buy.
Royal Caribbean Cruises (RCL – yield 2.5%) reported second-quarter adjusted EPS of $2.54 today vs. the $2.46 consensus estimate, and above all analysts’ estimates. The company gave new full-year 2019 guidance of $9.55-$9.65 vs. their previous midpoint guidance of $9.45, which includes the impact of discontinuation of service to Cuba. This is an improvement of approximately $0.15 per share due to better second-quarter results and an improved revenue outlook for the second half of the year.
“We are elated to see our brands executing so effectively, keeping our business in an exceptionally strong position,” said Richard D. Fain, chairman and CEO. “Our strategic focus on destinations, technology and people is clearly paying off. And, our core products are doing exceptionally well, driven by a gratifyingly robust demand for the Caribbean.”
“The company’s booked position for the remainder of 2019 continues to set new records with all core products in line or ahead of the company’s previous expectations,” added Jason T. Liberty, executive vice president and CFO. Bookings for 2020 “are off to a very strong start.”
Now that it’s become clear that Royal Caribbean continues to thrive, despite problems at competitor Carnival Corp. (CCL), I’m moving the stock from Buy to a Strong Buy recommendation. RCL is an undervalued, large-cap growth & income stock. The stock appears to have begun a recovery from recent lows. At a price of 114, there’s 14% upside to price resistance at 130. Buy RCL now. Strong Buy.
Southwest Airlines (LUV – yield 1.4%) reported record second-quarter diluted EPS of $1.37 today vs. the $1.34 consensus estimate. Record quarterly operating revenues of $5.9 billion came in on target. Record results were achieved despite the grounding of the Boeing Max 737 jets.
CEO Gary Kelly commented, “We have had preliminary discussions with Boeing regarding compensation for damages due to the MAX groundings ... and no amounts from Boeing have been included in our second-quarter results.”
Southwest will extend MAX-related flight schedule adjustments through January 5, 2020.
Demand for Southwest’s new Hawaiian service has been robust. The company will expand Hawaiian services in the coming weeks and months; and will offer more service to Cozumel, Mexico in the first quarter of 2020. The company will cease operations at Newark Liberty International Airport and consolidate their New York City presence at New York LaGuardia Airport, effective November 3, 2019.
I literally saw news headlines that read “Southwest Airlines Ekes Out Profit,” thereby implying that the company had a poor quarter. Sheesh! Headlines like that can cause a share price to fall on the day of the earnings report, so be prepared for volatility.
Take advantage of today’s price dip and buy LUV now. Buy.
Total S.A. (TOT – yield 5.6%) reported second-quarter results this morning. Net income of $2.9 billion came in on target. During the quarter, oil prices rose and natural gas prices fell vs. the previous quarter.
CEO Patrick Pouyanne commented, “adjusted net income increased by 5% compared to the previous quarter … and the return on equity remained above 11% ... debt-adjusted cash flow increased by 10%...”
Total’s pre-dividend breakeven is below $50 per barrel, while Brent crude averaged $69 per barrel during the quarter. First-half 2019 net income rose 54% vs. first-half 2018. Debt levels remain low.
The company plans to sell $5 billion of assets in 2019-2020. As announced in May, Total agreed to purchase $8.8 billion of African assets from Anadarko Petroleum (APC). You may access the earnings press release here.
Total has a target dividend increase of 10% over the 2018-2020 time period, and has thus far increased the dividend by 6.5%. Share repurchases totaled $760 million during the quarter, as part of a $5 billion repurchase goal during the 2018-2020 time period.
I’m moving TOT from Buy to a Strong Buy recommendation. Take advantage of this month’s price pullback! I love the earnings growth, value and dividend components of TOT, and the stock is low within its trading range. All types of stock investors (except perhaps short-term traders) stand to profit from new purchases of TOT. Strong Buy.