Today’s news:
•
Very strong earnings beats from CF Industries (CF), Corteva (CTVA), Marathon Petroleum (MPC) and TiVo (TIVO).
• CF Industries (CF)
moves from Strong Buy to Hold.
• Corteva (CTVA) moves from Buy to Hold.
• TiVo (TIVO) is now Retired from the Buy Low Opportunities Portfolio.
CF Industries Holdings (CF – yield 2.2%) – Yesterday afternoon, CF Industries reported second quarter adjusted EPS of $1.13 per diluted share vs. the consensus $0.86, near the top of the very wide estimate range. Revenue of $1.5 billion beat the consensus estimate of $1.4 billion. The company repurchased $118 million of stock during the quarter.
CF Industries is one of the world’s largest producers of nitrogen products, serving customers on six continents. While some of the company’s ag products had subdued volumes due to a difficult planting season, ammonia sales were unexpectedly strong, reaching record levels and bringing high prices.
CEO Tony Will commented, “The CF team operated exceptionally well during a challenging spring season. We shifted our production mix, favoring urea over UAN to capture higher margin opportunities, we leveraged our transportation flexibility to overcome the impact of historic flooding and we reliably supplied our customers where and when they needed product. As we look forward, we believe strong demand in North America, our position on the low end of the global cost curve and the capabilities of CF’s people and systems will continue to drive substantial cash generation.”
Wall Street is thrilled with the results from CF (and other ag companies) this earnings season, and will invariably be raising earnings estimates in the coming weeks. The stock is up 8% this morning at 53.54.
CF is an undervalued, mid-cap aggressive growth stock. The stock is approaching price resistance near 55, where it last traded in October 2019. I’m therefore moving CF from Strong Buy to a Hold recommendation, because odds favor the stock will need to settle down and rest after the 33% run-up in June and July. Hold.
Corteva Inc. (CTVA – yield 1.6%) reported second quarter adjusted EPS of $1.42 this morning vs. the $1.00 consensus estimate. Revenue came in fractionally higher than consensus, restrained by U.S. planting delays. Corteva is an agricultural sciences company.
The quarter’s highlights include:
• Outside North America, favorable conditions supported strong organic sales growth in both Crop Protection and Seed, up 21 percent and 10 percent for the quarter, respectively.
• Weather-related planting delays and lower than expected planted area in corn, soybeans, and canola pressured sales in North America.
• The Company realized cost synergies of approximately $200 million for the six months ended June 30, 2019, bringing the cumulative realized savings since the merger closing to $700 million out of the total $1.2 billion that are expected by 2021.
• During the first half 2019, the Company announced new regulatory approvals in Seed, together with new and expanded registrations across the Crop Protection portfolio, including the expanded federal label from the U.S. Environmental Protection Agency for Transform® WG insecticide with Isoclast™ active.
• The company lowered 2019 profit guidance, which was largely expected by Wall Street, and did not therefore have a typically depressing effect on the share price.
CTVA is a mid-cap growth & income stock. The stock rose almost 9% this morning to 32.11, a new high. I’m moving CTVA from Buy to a Hold recommendation so as to give the stock a chance to settle down, and to review the new earnings forecasts in the coming weeks. Hold.
Marathon Petroleum (MPC – yield 3.7%) reported second quarter adjusted earnings per diluted share of $1.73 this morning vs. the consensus estimate of $1.37, at the high end of a wide estimate range. (Other sources of consensus estimates predicted $1.32 and $1.35.) Revenue of $33.7 billion came in a fraction above consensus.
The quarter’s highlights included:
• Higher fuel and merchandise margin contributions across the Speedway retail system.
• $270 million of cost synergies relating to the Andeavor acquisition, with $403 million in synergies realized year-to-date toward the year-end goal of $600 million and the 2021 goal of $1.4 billion.
• The cumulative completion of 407 Andeavor store conversions to the Speedway system, targeting a goal of 700 store conversions through year-end.
• The repurchase of $500 million of stock.
• The combination of MPLX LP (MPLX) and Andeavor Logistics (ANDX) into one public midstream company.
• Marathon is expanding its product distribution and number of retail stores in Mexico, now totaling 155 stores.
• Marathon and MPLX are involved in three current pipeline products.
• In July, Speedway acquired 33 NOCO Express convenience stores in the Buffalo, New York area.
• The ongoing Garyville coker project is expected to increase refining output by 14%.
• Refinery turnaround costs were much higher vs. a year ago, as were transaction, merger and litigation costs.
• Refining and marketing profits were lower vs. a year ago, due to narrower crude differentials and lower product realizations.
• Marathon is also considering asset divestitures.
I expect big Wall Street earnings revisions in the coming days. I’ve got MPC recommended as a Buy, rather than a Strong Buy, to reflect poor 2019 EPS growth. Fortunately, 2020 EPS growth projections are huge, and the P/E is shockingly low. (As we get closer to 2020, I will likely change my recommendation to Strong Buy.) MPC will remain in the Growth Portfolio for quite a while. The stock is rising again. At a current price of 57.18, there’s 13% upside to medium-term price resistance at 65. Buy MPC now. Buy.
TiVo Corp. (TIVO – yield 3.8%) reported second quarter non-GAAP EPS of $0.32 vs. the consensus $0.19 yesterday afternoon, and revenue of $176.2 million when analysts expected $161.6 million. For the second time since new CEO Dave Shull came on board in May, the company raised full-year 2019 revenue and profit guidance. The stock reacted very well, rising 9% this morning. TiVo remains on track to spin off its Product business from its Intellectual Property Licensing business in a tax-free transaction to shareholders during the first half of 2020.
I continue to believe that TiVo offers excellent technology to the communications industry. Nevertheless, I am retiring TIVO from the Buy Low Opportunities Portfolio today. In general, I’m moving away from very small-cap stocks due to volatility, illiquidity and their lack of news updates for investors. Retired.