Today’s news:
• Alexion Pharmaceuticals (ALXN) reported a good fourth quarter; disappointed on 2020 guidance; moves from Buy to Strong Buy.
• Amazon.com (AMZN) reported an unexpected, tremendous surge in fourth-quarter profit; moves from Strong Buy to Buy.
• Blackstone Group (BX) reported a fourth-quarter profit and revenue beat.
• Brunswick Corp. (BC) reported a great fourth quarter. (This stock appears in the Cabot’s 10 Best Buy and Hold Stocks for 2020 publication.)
• Corteva (CTVA) reported a great fourth quarter and higher 2020 guidance.
Alexion Pharmaceuticals (ALXN) reported a good fourth quarter yesterday. Revenue was $1.38 billion and non-GAAP EPS was $2.71, each higher than the respective consensus estimates of $1.31 billion and $2.60. All four pharmaceutical brands – Soliris, Ultomiris, Strensiq and Kanuma -- delivered higher-than-expected revenue. Full-year 2019 EPS was $10.53 vs. the expected $10.43, up 33.0% vs. the prior year. The earnings report itemizes nearly 20 projects and clinical trials that Alexion is currently pursuing.
Management expects to achieve revenue in a range of $5.50-$5.56 billion in 2020, and non-GAAP EPS in a range of $10.65-$10.85. The prior consensus 2020 revenue and EPS estimates were $5.64 billion and $11.37, respectively. The stock fell 6.2% to 100.30 as investors expressed their disappointment that the costs of the Achillion acquisition will impact full-year 2020 profits, as will an increased tax rate, and the higher R&D costs associated with Alexion’s current volume of clinical trials.
As you can imagine, I keep track of earnings estimates during the entire time that I follow any particular company, and I’ve been following Alexion for many years. Please be aware that Alexion’s earnings estimates climb consistently throughout each year, and even at year end, the final results outperform Wall Street estimates. Therefore, today’s expectation of 3% EPS growth in 2020 is likely a very low estimate vs. the number Alexion will ultimately report a year from now. In that light, I think today’s reaction to the share price was just plain silly.
Alexion Pharmaceuticals is a biopharmaceutical company that researches and manufactures treatments of severe and rare health disorders. ALXN is an undervalued growth stock. The company grew EPS 27%, 35% and 33% in 2017 through 2019. The 2020 P/E is 9.3, which is extremely low for a biopharmaceutical stock. Eight investment firms changed their price targets on ALXN to a range of 115-165. I’m moving ALXN from Buy to a Strong Buy recommendation, to take advantage of the share price while it’s near the bottom of its trading range. The stock is cheap. Patient growth stock investors should accumulate shares. Strong Buy.
Amazon.com (AMZN) reported fourth-quarter diluted EPS of $6.47 yesterday afternoon, far above the analyst estimate range of $2.19-$5.58. As you can imagine, investors were shocked and ebullient, pushing the share price up 9.75% to 2,053 in after-hours trading. The previous price peak was 2,040 in September 2018.
Revenue of $87.4 billion came in at the top of the estimated range of $83.2-$87 billion. Free cash flow increased to $12.5 billion for the trailing 12 months vs. $8.4 billion a year ago, after subtracting a multitude of principal repayments on lease and financing obligations.
Full-year 2019 EPS of $23.01 trounced the consensus estimate of $20.67, representing 14.3% annual earnings growth.
CEO Jeff Bezos commented, “… more people joined Prime this quarter than ever before, and we now have over 150 million paid Prime members around the world. We’ve made Prime delivery faster — the number of items delivered to U.S. customers with Prime’s free one-day and same-day delivery more than quadrupled this quarter compared to last year. Members now have free two-hour grocery delivery from Amazon Fresh and Whole Foods Market in more than 2,000 U.S. cities and towns. Prime members watched double the hours of original movies and TV shows on Prime Video this quarter compared to last year, and Amazon Originals received a record 88 nominations and 26 wins at major awards shows.” The press release lists dozens of the company’s accomplishments in 2019.
The company expects first-quarter 2020 sales within a range of $69-$73 billion. Analysts had projected $71.6 billion. I continue to expect strong double-digit earnings growth in 2020, and a high P/E. Twenty-one investment firms raised their price targets on AMZN to a range of 2,250-2,700 this morning. Now that the share price is challenging its all-time high from 2018, I’m moving my recommendation from Strong Buy to Buy. Growth investors can likely expect share price volatility in the coming days, and attractive capital gains over a several-year period. Buy.
Blackstone Group Inc. (BX – yield 3.2%*) reported fourth quarter EPS of $0.71 yesterday, when analysts expected $0.67. Revenue from asset sales and fee income totaled $2.0915 billion vs. the expected $1.6 billion, and above all Wall Street estimates. (That’s a difficult number for analysts to predict.) Assets under management rose to a record $571 billion. The company repurchased 1.5 million shares of stock during the quarter and 12.8 million shares during 2019.
Blackstone’s dividend payout changes each quarter. The next dividend of $0.61 per share will be paid on February 18.
Blackstone Group is the world’s largest and most diversified alternative asset manager. The company deploys capital into private equity, lower-rated credit instruments, public debt and equity, real assets, secondary funds and real estate. During the fourth quarter, strong growth in Blackstone’s real estate and hedge funds businesses offset declines in their private equity and credit divisions. Reuters reported, “Blackstone said it expects to raise up to $100 billion through funds spanning several strategies in 2020, including life sciences, Asia private equity, real estate debt, infrastructure secondaries and European direct lending.”
Five investment firms raised their price targets on BX to a range of 53-68 this morning. The P/E is quite high – about 20 – and the stock is way overextended, roughly doubling in the last year. On the positive side, the stock remains Best in Class among alternative asset managers, and the earnings growth rate is strong enough to handle the valuation. BX won’t defy gravity forever. The stock could easily fall 15% or more during a normal stock market correction. Hold.
*The payout varies each quarter with the total of the last four announced payouts equaling $1.95 and yielding 3.2%.
I will occasionally comment on news or price movements among the stocks featured in Cabot’s 10 Best Stocks to Buy and Hold in 2020, which was published in early January.
Brunswick Corp. (BC – yield 1.5%) reported fourth quarter results yesterday. Diluted EPS of $0.82 surpassed all analysts’ estimates, as did $982.6 million revenue, by a wide margin. The company reported record full-year earnings for the 10th consecutive year, and expects to do so again in 2020. Brunswick manufactures and markets the most notable brand names across all major marine categories. Products includes boats, engines, parts and accessories. The business outlook includes a slow start to 2020, then accelerates in the second half of the year. Profits are expected to grow 21.2% in 2020, and the P/E is low at 12.0.
Four investment firms raised their price targets on BC to a range of 67-72 this morning. The stock peaked near 68 in September 2018, experienced a big price correction that was largely associated with some now-completed M&A activity, and is now rising back toward the previous high. BC is a good undervalued growth stock that could especially appeal to boating enthusiasts.
Corteva Inc. (CTVA – yield 1.8%) reported a great fourth quarter yesterday. Revenue was $2.98 billion vs. the consensus $2.92 billion, reflecting strength in North American volumes and Latin American pricing. The market was especially surprised by EPS of $0.07 when analysts had forecast a ($0.12) per share loss, within a range of ($0.14)-$0.09. The earnings beat included a one-time $0.10 gain on the sale of crop chemical molecules. (If you’re like me, the science of “crop chemical molecules” is over my head, but I’m glad that the folks at Corteva know how to create and sell such things.) Full-year revenue and non-GAAP EPS were $14.3 billion and $1.43 vs. the $13.8 billion and $1.24 consensus estimates.
Corteva Agriscience provides farmers with seeds and crop protection products (herbicides, fungicides and insecticides), enabling them to maximize yield and profitability. The company announced plans to ramp up sales of Enlist E3 Soybeans to U.S. and Canadian farmers in 2020, one year ahead of schedule. Corteva has now doubled 2020 planted acreage projections for the product and added another 20 licensees.
Management gave 2020 guidance that includes revenue reaching $14.5 billion and EPS within a range of $1.45-$1.55 vs. the recent Wall Street estimates of $14.4 billion and $1.48, respectively. Investors are always pleased when future guidance exceeds estimates, and the stock reacted by rising 4.6% to 29.24. Four investment firms raised their price targets on CTVA to a range of 29-34 this morning. The high end of 2020 EPS guidance reflects 8.4% growth and an 18.8 P/E. I don’t love those numbers in relation to each other, but the 2021 and 2022 earnings estimates reflect much stronger EPS growth. I’ll re-evaluate my recommendation as consensus estimates are revised in the coming days. There’s upside price resistance at 31.5, where the stock last traded in August 2019. Hold.