Today’s news:
• Designer Brands (DBI) shares rose 8% yesterday on reaffirmed 2019 guidance; recommendation raised to Strong Buy.
• Marathon Petroleum (MPC) shares up today on Speedway buyout talks; recommendation raised to Strong Buy.
• Mosaic Company (MOS) reported fourth-quarter results; good 2020 outlook.
Designer Brands Inc. (DBI – yield 6.5%) shares rose 8% yesterday after CEO Roger Rawlins stated in a press release, “Based on preliminary, unaudited results, we expect to meet our previously stated full-year 2019 guidance.” The company will issue fourth-quarter and full-year results on March 17, as well as 2020 guidance.
The press release was issued on the occasion of DSW President William “Bill” L. Jordan being promoted to a new position, Chief Growth Officer of Designer Brands. My immediate thought is that this was a wise move that relates directly to growth opportunities derived from Designer Brands’ new partnership with media and fashion icon Jennifer “J.Lo” Lopez. Ms. Lopez’ new footwear line will debut this spring, exclusively at DSW Designer Shoe Warehouse stores. It’s good to see that corporate management is ready to capitalize on the opportunity to add millions of J.Lo fans into Designer Brands’ extremely successful marketing machine.
Designer Brands is one of North America’s largest designers, producers and retailers of footwear and accessories. The company operates DSW Warehouse, The Shoe Company and Shoe Warehouse stores with nearly 1,000 locations in 44 U.S. states and Canada; and Camuto Group.
Considering that the stock held price support yet again in recent days (as opposed to falling below its seven-month trading range), the dividend yield is high, 2020 earnings growth is expected to be attractive, the P/E is below 10 (a bargain on a growth stock!) and 2019 numbers do not apparently hold any negative news, I’m therefore raising my recommendation on DBI from Buy to Strong Buy. The stock is rising within a wide, volatile trading range, about to surpass its 50-day moving average. Traders, growth investors and dividend investors should buy now. Strong Buy.
Marathon Petroleum (MPC – yield 3.9%) shares are up 4% this morning on rumors that a Japanese retail group, Seven & i Holdings Co, said that they are in talks to buy Marathon’s Speedway retail stores for $22 billion. MPC is an undervalued company, expected to achieve strong earnings growth this year. I’m moving my recommendation on MPC from Buy to Strong Buy, now that the stock is trading above both its 200-day and 50-day moving averages. Risk-tolerant growth investors and dividend investors should buy MPC now. There’s short-term upside price resistance at 67. Strong Buy.
Mosaic Company (MOS – yield 1.0%) reported fourth-quarter 2019 results yesterday afternoon. The adjusted loss of ($0.29) per share missed the ($0.05) consensus estimate, while revenue of $2.1 billion came in ahead of the $1.9 billion estimate.
The company took actions throughout the year to mitigate the impacts of extreme weather, market oversupply and government mandates, including managing assets, lowering cost structure and reducing inventories. From the press release:
Weather conditions, including the wettest year in North America in almost 50 years, negatively impacted North American spring and fall applications and sales volumes, which in turn pressured prices. In response to these conditions, the company made aggressive decisions to improve its cost structure and balance production with customer demand. These previously announced actions, including the permanent closure of Plant City phosphates operations, the acceleration of Esterhazy K3 production and the extended idling of the Colonsay potash mine, combined with the Phosphates segment goodwill impairment, led to $1.46 billion in noncash charges. In 2019, Mosaic made important progress to position the company for future success:
• Realized approximately $330 million in Mosaic Fertilizantes annual net synergies
• Accelerated the timeline for the completion of Esterhazy K3
• Successfully mitigated Brazil tailings dam regulatory changes
• Executed strategic decisions to improve cost structure
• Extended idling of Colonsay
• Permanently idled Plant City
• Took actions to balance Mosaic’s phosphate production with customer demand
• Delivered record safety results
Recent phosphate trends are more favorable, with global inventories falling and the market tightening. The company has seen more than a $65 per tonne improvement from the lowest priced sales in December to sales recently booked. Additionally, China phosphate production has been hamstrung in 2020 by the coronavirus epidemic, putting Mosaic in a position to capitalize on clients seeking alternate product sources. Management has decided to return phosphate operations to full production, in expectation of “strong global fertilizer demand in 2020.”
During the year, the company repurchased 7.1 million shares of its common stock for $150 million
The Mosaic Company is the world’s largest producer of finished phosphate and potash, supplying crop nutrients and animal feed ingredients via production facilities in the U.S., Canada, South America and the Asia-Pacific region. The company will host an analyst conference call this morning, February 20, after which analysts will put pen to paper and refigure their 2020 forecasts, which are expected to show vast improvement over 2019 results. I’m not recommending purchases at this time, and instead waiting for revised 2020 estimates. Hold.