Today’s news:
• Baker Hughes Company (BKR)
reported third-quarter results.
• Royal Caribbean Cruises (RCL) reported third-quarter results.
• Total S.A. (TOT) reported third-quarter results.
• Universal Electronics (UEIC) moves from Buy to Hold.
• Additional market notes.
Baker Hughes Company (BKR – yield 3.3%) reported third-quarter adjusted diluted EPS of $0.21 this morning, vs. the consensus estimate of $0.24, up 46% vs. a year ago. Revenue of $5.9 billion missed the expected $6.1 billion. Orders were up 19% vs. the second quarter and 35% year-over-year. CEO Lorenzo Simonelli commented, “We delivered a solid third-quarter with strong growth in Turbomachinery and Oilfield Equipment orders, and continued margin improvement in our Oilfield Services business. Overall, we are very pleased with our execution as a team, and we believe Baker Hughes is firmly on the right path financially, operationally, and strategically.”
Baker Hughes offers products, services and digital solutions to the international oil and gas community. BKR is an undervalued, mid-cap aggressive growth stock. I expect a wide trading range today, as investors alternately focus on bad news (earnings and revenue miss vs. analysts’ estimates) vs. good news (huge year-over-year growth in profits and orders). The stock has traded between 21-25 for six months, and while there’s room for traders to make money, there’s no sign of a pending near-term move past 25. Buy.
Royal Caribbean Cruises (RCL – yield 2.8%) reported record third-quarter adjusted EPS of $4.27 this morning, including the negative impact of $0.13 per share from itinerary disruptions and relief efforts related to Hurricane Dorian, thus missing the consensus estimate of $4.31.
The company lowered full-year EPS guidance to a range of $9.50-$9.55 vs. the current consensus estimate of $9.64, which includes a negative impact of $0.15 per share from Hurricane Dorian. (Excluding the hurricane’s impact, Royal Caribbean is increasing the midpoint of their full-year guidance by $0.08 per share.) The company is now guiding analysts to an expectation of $1.28 EPS in the fourth quarter.
The hurricane impacted 16 sailings and made this the most disruptive storm in the company’s history. CEO Richard D. Fain commented, “Our business continues to thrive and exceed our expectations. While Hurricane Dorian had a negative impact, stronger demand for our brands and our key itineraries exceeded our expectations. Excluding the hurricane impact, we are not only able to maintain our yield and earnings guidance, but to raise both slightly as a result of particularly strong performance in the U.S. and China.”
CFO Jason T. Liberty commented, “As we enter 2020, we are particularly enthusiastic about the new ship deliveries, the development of new destinations, our fleet modernization and technology initiatives. These investments will help us deliver even greater vacations while generating higher yields and better returns.”
The company is experiencing strong early booking trends for 2020. Rates are higher than the same time last year in all four quarters, booked load factors are ahead of the same time last year on a like-for-like basis and the booking window has extended. While still early in the booking cycle, the view for 2020 is encouraging and the company expects another year of solid yield and earnings growth.
RCL is an undervalued, large-cap growth & income stock. The price chart is improving, and the stock is up 1% in pre-market trading. A good response to the earnings report could push RCL into the 120s. Buy RCL now. Buy.
Total S.A. (TOT – yield 5.7%) reported third-quarter net income of $3.0 billion this morning, beating the expected $2.8 billion. The quarter’s energy production reached record levels, delivering strong results despite 2019 declines in oil and natural gas prices. Organic free cash flow totaled 174% of the dividend payout, which answers the classic investor question, “Is the dividend safe?” The company is following through with previous intentions of raising the dividend 6% annually. Year-to-date share repurchases amounted to $1.15 billion, with a full-year goal of $1.75 billion. (Total reports results in euros, and I rely on a third party to discuss results in terms of U.S. dollars. If I was not as specific on certain numbers as is common, it’s because those numbers were not available.) Analysts from Jefferies and Credit Suisse were very pleased with Total’s results, and the stock was up 1% in early trading.
Total is a French multinational integrated energy company, and an undervalued, large-cap growth & income stock. Profit growth is expected to be quite strong in 2020. TOT has price resistance at 53, and again at 57. Buy TOT for long-term capital gains, while locking in a large and rising dividend yield. Strong Buy.
Universal Electronics (UEIC) is inches away from reaching significant price resistance at 55. I would expect the stock to stop rising, and possibly pull back to the mid-40s as it digests this year’s huge run-up. I’m therefore moving UEIC from Buy to a Hold recommendation. Feel free to buy on pullbacks. Remember that UEIC is a micro-cap stock, so it’s going to have exaggerated price movements. Hold.
Market notes: I noticed yesterday that price charts on agriculture stocks (chemicals, nutrients, seeds) all looked similarly bullish, with the stocks rising from recent lows in what appears to be an immediate upside opportunity. These include three of our portfolio stocks: CF Industries (CF, Strong Buy – yield 2.5%), Corteva (CTVA, Buy – yield 1.9%) and Mosaic (MOS, Buy – yield 1.0%). In addition, price charts on at least four major alternative asset manager stocks also look very bullish, which is somewhat surprising to me, considering how much these stocks have already run up. That includes Blackstone Group Inc. (BX, Strong Buy – yield 3.6%).