Today’s news:
• Amazon.com (AMZN) reported first-quarter results.
• Apple Inc. (AAPL) reported second-quarter results.
• Mercury General (MCY) reported first-quarter results.
• Tyson Foods (TSN) reported second-quarter results.
• Oil Majors
• Airline Stocks
Amazon.com (AMZN) reported first-quarter EPS of $5.01 on the afternoon of April 30, when analysts were expecting $6.25. Revenue of $75.5 billion beat the estimate of $73.6 billion. The company expects to spend all of the second-quarter profit – approximately $4 billion – on COVID-related expenses. The company hired 175,000 new employees to meet a surge in demand, and also increased hourly and overtime wages. Investors can read a tremendous amount of additional information in the earnings press release.
The stock rose to a new all-time high near 2,500 in April, and is now trading sideways, with potential downside coming from weakness in the broader market. Hold.
Apple Inc. (AAPL 283.17 – yield 1.1%) reported second-quarter 2020 results on the afternoon of April 30 (September year end). The company posted quarterly revenue of $58.3 billion vs. the $54.5 billion consensus estimate. Diluted earnings per share of $2.55 far surpassed the $2.26 estimate.
The quarter’s successes also included all-time record revenue in Services and a quarterly revenue record for Wearables. Apple is planning a new 5G iPhone launch later this year.
Apple announced a quarterly dividend increase of 6.5%, from 77 cents to 82 cents. The company repurchased $18.6 billion of stock during the quarter, with $40 billion remaining in their previous repurchase authorization; and they announced a new $50 billion share repurchase authorization.
The most recent earnings estimates project EPS rising 3% and 21% in 2020 and 2021. I expect those numbers to change again next week, after analysts have had time to review the quarter’s results and rework their numbers.
I expect the stock to react well to the company’s successes. However, if the broader market continues to suffer in the coming days, as it did on Friday, Apple’s share price could be subdued for a short while. Growth investors should take advantage of the price while it remains low. Buy.
Mercury General Group (MCY 39.00 – yield 6.4%) reported first quarter non-GAAP operating EPS of $1.07 this morning vs. the $0.88 consensus estimate. The quarter’s combined ratio, a profitability measure, came in at 95.9%, better than the year-ago quarter’s 97.3%. This morning’s press release contained very little commentary. Additional comments will be channeled through this afternoon’s earnings webcast.
Mercury General Group operates as Mercury Insurance, the leading independent agency writer of automobile and home insurance in California, with total assets over $4.5 billion. Mercury also writes automobile, home and/or other lines of insurance, including business and mechanical breakdown insurance, in ten additional U.S. states. The company is faring well during the global virus pandemic because fewer driving miles result in fewer car accidents and lower expenses to the insurance company. On the flip side, insurance companies’ investment portfolios declined in value during the first quarter of 2020 due to falling prices in stock and bond markets. Mercury General Group was featured in the April issue of Cabot Undervalued Stocks Advisor.
MCY is an undervalued small-cap stock with an unusually large dividend yield. The company was recently expected to deliver EPS of $3.61 and $3.45 in 2020 and 2021. Those numbers will be revised in the coming week as analysts assess first-quarter results. The price chart was turning bullish last week, and then the broader market turned downward. Hold.
Tyson Foods (TSN 60.01 – yield 2.8%) reported second-quarter adjusted EPS of $0.77 this morning when the market was expecting $1.03. Record quarterly revenue came in on target at $10.89 billion. The company also reported record six-month beef adjusted operating margin of 6.9% and record six-month total sales of $21.7 billion.
All in all, the company is faring well despite serious global health and business disruptions, and a first-quarter fire in a beef processing facility. Prior to the pandemic, Tyson was expected to experience tremendous profit growth in 2020 and 2021. In recent days, Wall Street’s EPS projections amounted to 8% and 13% growth in 2020 and 2021, which is still good compared to a majority of American companies that are being far more seriously impacted by the virus-caused business lockdowns.
CEO Noel White commented, “During the quarter, we witnessed an unprecedented shift in demand from foodservice to retail, temporary plant closures, reduced team member attendance, and supply chain volatility as a result of the virus. Despite these challenges, we were able to adjust our product mix and redirect products to the appropriate channels. While we cannot anticipate how long the challenges presented by COVID-19 will persist, we remain focused on driving long-term growth. Our solid balance sheet, ample liquidity, scale and diversity continue to give us confidence in our long-term outlook.”
Tyson Foods is the largest U.S. food company, with operations in 20 countries, and a recognized leader in protein with leading brands including Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, Aidells, ibp and State Fair. Management is focused on the growing global need for protein, and fulfilling that need in a sustainable and environmentally conscious manner. Tyson Foods was featured in the January and April issues of Cabot Undervalued Stocks Advisor.
TSN is an undervalued stock, attractive for growth investors and dividend investors. The stock continues to recover from this winter’s stock market correction, currently trading between 58-65. I expect continued upside in 2020, interspersed with pullbacks as we experience volatility in the broader market. The stock is down today in the pre-market, but unless the entire market takes a tumble, I expect TSN shares to stay within their trading range this week, possibly heading back toward 65. Buy.
Oil Majors – I noticed that there were quite a few increases in analysts’ price targets for Chevron (CVX) and Exxon Mobil (XOM) this morning. Those new price targets were presumably incorporated into relatively bullish research reports that went out to institutional investors. Keep in mind that bullish research reports are not terribly common in recent months, due to the economic downside of the COVID pandemic, so if you own these stocks, you might see some good price action in the near term as institutional investors make buying decisions.
Airline Stocks – Famed Berkshire Hathaway (BRK) CEO Warren Buffett revealed to investors that he sold all of Berkshire’s airline stocks. (Berkshire had held 10% stakes in four airlines.) This is a very big deal, and this is not the time to chase airline stocks.
At a minimum, we will need several quarters to pass before it becomes clear which airlines are strong enough to survive the dramatic virus impact to the travel industry. When a company or industry is hit with serious business interruptions, the bad news invariably unfolds slowly, with the effect of continuing to suppress share prices. Your capital can probably be put to work more quickly and effectively in companies that are thriving today. There will be plenty of time to buy low among problem companies in the future, as rays of hope become apparent.