Today’s news: Good earnings reports from Apple (AAPL), Axis Capital (AXS), Baker Hughes, a GE Co. (BHGE) and Carlyle Group (CG). Carlyle Group officially announced a conversion to a corporation.
Apple Inc. (AAPL – yield 1.4%) reported third-quarter EPS of $2.18 yesterday afternoon, near the high end of the estimated range of $1.79-$2.20, when the market expected $2.10 (September year end). Revenue of $53.8 billion exceeded the $53.4 billion consensus estimate, and landed near the top of the estimate range of $52.5-$54.2 billion.
CEO Tim Cook told Reuters that “marked improvement in greater China” drove the results. The quarter’s all-time record revenue from Services will be well-received by Wall Street. Wearables, Home and Accessories grew 48% vs. a year ago, and made up 10% of Apple’s quarterly revenue.
“In regards to iPhone, the most important thing for us is that we continue to grow the installed base,” Cook told Reuters. “And we did that on iPhone. And so the fact that people are hanging onto them a little longer, it’s not something I worry about in the 90-day clock.”
Apple management raised fourth-quarter revenue expectations to a range of $61.0-$64.0 billion. Analysts had been expecting an average of $61.02 billion. Management raised fourth-quarter gross margin expectations to a range of 37.5-38.5%. (A bullish analyst who I follow had been expecting $61.3 billion revenue and 37.7% gross margins, so it isn’t just the bears on Wall Street who were caught by surprise.)
Apple repurchased $17 billion of stock during the quarter.
AAPL is up about 6% at 220 this morning. AAPL is a great stock for a high quality, buy-and-hold equity portfolio. When the share price reaches longer-term resistance at 230, expect the stock to stop advancing for at least several months. Strong Buy.
Axis Capital Holdings Ltd. (AXS – yield 2.6%) reported second-quarter revenue of $1.29 billion vs. the consensus estimate of $1.05 billion. Operating earnings of $1.62 per share beat the estimate of $1.34. The company outperformed all analysts’ estimates in the second quarter.
For the second quarter of 2019, the Company reports:
• Current accident year loss ratio improved 2.7 points compared to the same period in the prior year
• Pricing momentum continues to build across substantially all business lines
• Annualized return on average common equity of 14.3% and annualized ex-PGAAP operating return on average common equity of 12.3%
• Book value per diluted common share of $55.99, an increase of $3.15, or 6.0% compared to March 31, 2019
CEO Albert Benchimol commented, “Our results speak to the progress made as we continue executing on our strategy to strengthen our market position and improve our underwriting profitability, which includes disciplined corrective actions on under-performing business, and reducing portfolio volatility. Furthermore, the actions we have taken to enhance our franchise in our chosen markets give us excellent opportunities for profitable growth. With our strong presence at Lloyd’s, U.S. E&S markets, professional lines and global reinsurance, we believe AXIS is in a superior position to take advantage of the necessary firming in re/insurance markets.”
Axis Capital is an A+-rated global provider of specialty lines insurance and treaty reinsurance.
AXS is up about 1% this morning at 62.17. AXS is a small-cap stock that’s traveling directly toward its previous all-time high of 66, where it briefly traded in March 2017. I will very likely retire AXS near 66, as it will have met the portfolio objectives. Hold.
Baker Hughes, a GE Co. (BHGE – yield 2.8%), a global oilfield services company, reported second-quarter adjusted EPS of $0.20 this morning. Analysts had expected $0.19. Revenue of $5.99 billion exceeded the consensus estimate of $5.81 billion. Orders rose 15% vs. the prior quarter and 9% vs a year ago.
“The Liquefied Natural Gas (LNG) new-build cycle is a strong positive for our company and our international Oilfield Services (OFS) business continues to be very successful. Our outlook for 2019 is unchanged and we remain focused on our priorities of gaining share, improving margins and delivering strong cash flows,” said CEO Lorenzo Simonelli.
BHGE is up 4.4% at 25.59 this morning. BHGE is an undervalued, mid-cap aggressive growth stock. The price chart is bullish, indicating that the stock could travel to price resistance at 28 in the near term. Buy BHGE now. Strong Buy.
Carlyle Group LP (CG – yield 5.8%), a global alternative asset manager, announced second-quarter results this morning. Co-CEOs Kewsong Lee and Glenn Youngkin commented, “We more than doubled Fee Related Earnings over the past year, eclipsed our $100 billion fundraising goal, and increased total Assets Under Management to a record $223 billion.” (The reporting of revenue and earnings per share from a limited partnership is not comparable to quarterly reporting from a corporation, and that’s why I don’t announce those numbers herein.)
Carlyle Group made the long-awaited announcement that they will convert from a limited partnership to a corporation, effective January 1, 2020. The conversion opens up the potential institutional investing audience for the stock, thereby increasing capital gain potential and liquidity in the shares. Individual investors will have a more simplified tax-reporting obligation.
The company will also change the dividend structure. Rather than paying dividends that vary each quarter, Carlyle Group will pay a quarterly dividend of $0.25 per share beginning in 2020. At a share price of 25.42, the new yield would be 3.9%; and if you bought CG upon my initial recommendation at 21, your new yield would be 4.7%.
In keeping with the current limited partnership structure, the company will continue delivering variable quarterly payouts to shareholders through year end. In that light, the third-quarter payout will be $0.43. At a share price of 25.42, the trailing 12-month payout has been $1.47, yielding 5.6%.
CG is up 3% this morning at 25.42. I expect additional near-term capital appreciation. Hold.