Today’s news:
• Bristol-Myers (BMY) reports third quarter results.
• CF Industries (CF) reports third quarter results.
• Corteva (CTVA) reports third quarter results.
• Marathon Petroleum (MPC) reports third quarter results; announces Speedway spinoff, CEO retirement and additional news.
Bristol-Myers Squibb Company (BMY – yield 2.8%) reported third-quarter non-GAAP EPS of $1.17 this morning vs. the consensus $1.07, and above all analysts’ estimates. Third quarter revenue of $6.00 billion beat the $5.89 billion consensus estimate.
Additional news includes:
• Announcement that CheckMate -9LA met the primary endpoint of overall survival.
• Presentation of important new data on their Immuno-Oncology Portfolio at ESMO
• The company expects to close the Celgene acquisition by the end of 2019.
• The company increased their full-year 2019 non-GAAP EPS guidance range from $4.20 - $4.30 to $4.25 - $4.35. (The recent consensus estimate was $4.28, so that number will likely come up a bit.)
Bristol-Myers is a pharmaceutical company, and a vastly undervalued growth stock. Taking into account today’s change in earnings guidance, investors can expect EPS to grow approximately 8% and 42% in 2019 and 2020. At a share price of 58.11, the 2020 P/E is just 9.5, and the dividend yield is 2.8%.
The stock just blew past 56 – a long-term resistance level. There’s more significant price resistance at 61 and 65. BMY has incredible momentum right now, and I expect additional immediate upside.
The only problem I foresee is that despite the low valuation, strong earnings growth and prospects for benefits from the Celgene merger, the stock is quite overextended. It’s going to have to pull back and rest at some point. If the idea of the share price falling to about 54 upsets you, then use a stop-loss order. Buy.
CF Industries (CF – yield 2.7%) reported third-quarter diluted EPS of $0.29 yesterday afternoon vs. the consensus $0.34, when analysts expected a range of $0.14-$0.57. (At least one analyst is reporting adjusted diluted EPS of $0.32, although that number is not clear in the press release.) Revenue of $1.038 billion hit the approximate midpoint of the estimate range of $991 million - $1.1 billion. The company repurchased 1.5 million shares during the quarter. The quarter was impacted by lower urea volume and lower ammonia pricing.
CEO Tony Will commented, “The CF team’s outstanding execution and our company’s position on the low end of the global cost curve continue to drive substantial cash generation and an industry-leading free cash flow yield. Over the last 24 months, this superior cash flow generation has enabled us to repay $1.1 billion in debt, with another $750 million to be retired by the end of this year. Additionally, we repurchased more than 16 million shares for $750 million, distributed $550 million in dividends and invested approximately $400 million in growth. We believe our structural and operational advantages, along with positive nitrogen industry fundamentals, will continue to support our cash generation, allowing us to build on this track record in 2020 and beyond.”
From the press release: “The company expects that nitrogen industry fundamentals will continue to improve in both the near- and longer-term as the global market continues to tighten over the coming years. In the near-term, demand from import-dependent regions should support global pricing. In North America, corn crop futures continue to support an increase in planted corn acres over the next two seasons. Outside of North America, demand for urea from India and Brazil remains positive.”
CF Industries is a global leader in transforming natural gas into nitrogen. Products include ammonia, granular urea, UAN, ammonium nitrate and diesel exhaust fluid. CF is an undervalued, mid-cap aggressive growth stock. Analysts will revise earnings estimates in the coming days, but taking into account today’s five-cent earnings miss, that puts earnings growth at approximately 91% and 24% in 2019 and 2020. At a share price of 44.27, the 2020 P/E is 15.0, and the dividend yield is 2.7%.
CF has traded between 46-52 since mid-June. Today is an aberrant day in the stock market, with most stocks falling. Continue to accumulate CF within the recent price range, but hold off on purchases if the stock closes below 46 today. Strong Buy.
Corteva Inc. (CTVA – yield 2.0%) reported a third-quarter loss of ($0.39) per share this morning vs. the consensus estimate of ($0.46), at the high end of analysts’ range. Net sales of $1.911 billion missed the $1.995 billion estimate. Results and perceptions have been complicated due to serious 2019 U.S. weather disruptions and foreign exchange headwinds, both of which can relatively easily change in the coming months. Indeed, corn planting is expected to be favorable to Corteva going forward.
Merger cost synergies for the three months ended September 30, 2019 totaled approximately $100 million and remain on track with full-year commitment of $350 million. Management revised their full-year 2019 operating earnings guidance up $0.04 per share over the prior guidance mid-point, from a range of $1.06-$1.31 to a range of $1.20-$1.26. The recent consensus estimate was $1.17. Wall Street will therefore be issuing research reports to their institutional investors and retail clients that raise earnings estimates.
Corteva provides farmers with seeds and crop protection products. The company was recently spun off from DowDuPont. CTVA is a mid-cap growth & income stock. Taking into account the increased 2019 EPS guidance, 2020 EPS growth will be approximately 26%. Expect these numbers to be adjusted in the coming days. At a share price of 25.94, the 2020 P/E is 16.7 and the dividend yield is 2.0%.
Despite today’s ugly day in the stock market, CTVA remains within its recent price range of 25.5-28.5. Continue to accumulate shares. Buy.
Marathon Petroleum (MPC – yield 3.3%) reported third-quarter adjusted diluted EPS of $1.63 this morning vs. the consensus estimate of $1.38. At least one analyst estimated $2.16, so despite the strong earnings beat, there will be at least one group of people on Wall Street who are disappointed with today’s results; while many others will be thrilled. Quarterly revenue of $31.2 billion missed the consensus $34.4 billion.
Additional news includes:
• $283 million in third quarter cost synergies from the Andeavor acquisition, which are “significantly ahead-of-schedule and on-track to exceed the targeted $600 million by year end.”
• Significant operational improvements on the West Coast.
• Record retail merchandise sales.
• 33 consecutive quarters of same-store merchandise growth.
• $500 million in third quarter share repurchases.
• Announcement of the intent to separate Speedway from Marathon—a.k.a. a spinoff—into an independent company. (This should be perceived as bullish news.)
• The formation of a Midstream Special Committee to consider ways to enhance shareholder value.
As a likely result of recent activist investor agitation, CEO Gary Heminger announced his intended retirement from Marathon Petroleum today, after 45 years of service. Executive Chairman Gregory Goff will also retire, and Michael Hennigan will take on the CEO position at MPLX GP LLC.
Marathon Petroleum is a leading integrated downstream energy company and an undervalued large-cap stock, expected to deliver an 80% profit increase in 2020. At a share price of 63.68, the 2020 P/E is 8.7 and the dividend yield is 3.3%.
I’m likely to Retire MPC from the Growth Portfolio prior to the Speedway spinoff, which could take place several months hence, solely for the reason of simplifying portfolio holdings. I think it’s important to own oil refining stocks in 2020, so I will consider recommending a different oil refining company, or just emphasize our position in VanEck Vectors Oil Refiners ETF (CRAK). Take advantage of today’s share price weakness and buy MPC. There’s some price resistance near 70, then again at 78 and 83. Strong Buy.