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Value Investor
Wealth Building Opportunites for the Active Value Investor

May 5, 2020

Several portfolio stocks recently reported earnings and move to Strong Buy.

Today’s news:

• Alexion Pharmaceuticals (ALXN) acquires Portola Pharmaceuticals (PTLA).
• LGI Homes (LGIH) reported first quarter results; moves from Buy to Strong Buy.
• Marathon Petroleum (MPC) reported first quarter results; moves from Buy to Strong Buy.

Alexion Pharmaceuticals (ALXN 98.90) announced this morning their agreement to purchase Portola Pharmaceuticals (PTLA), a biopharmaceutical company that’s focused on blood-related disorders. Investors may access the press release and listen to the webcast on the company’s investor relations website.

Alexion will report first quarter results tomorrow morning, May 6. The market is expecting $2.71 EPS and $1.4 billion revenue. I’m leaving my recommendation as a Hold until the stock settles down from this current pullback. However, if you love the stock, there’s no harm in buying now. (Please note that it’s quite common for a company’s share price to fall when they announce an acquisition. That’s not an implication of “bad news” at the acquiring company.) We could easily see either of the following scenarios: ALXN pulls back to 95 and rests there, or ALXN has a strong earnings report that propels the stock above 105. Hold.

LGI Homes (LGIH 66) reported first quarter diluted EPS of $1.67 vs. the consensus estimate of $1.23 this morning, and $454.7 million revenue vs. the $432.4 million estimate. The company reported a record-breaking 1,835 home closings in the first quarter. Comments from the earnings press release include:

“Despite the challenging environment we encountered at the end of the first quarter, our business was stronger in April than we had originally expected and we are seeing positive momentum in recent sales trends that leads us to believe the impact from the COVID-19 pandemic may be less severe than we had originally expected. We are building, selling and closing homes across the nation every day and our customers are telling us that they are more ready than ever to move out of densely populated living situations and into homes that offer more space and privacy. As a result, our outlook for the coming months is tempered, but positive.”
LGI Homes is the tenth largest residential home builder in America. The company is currently building homes, primarily for first-time home buyers, in 19 U.S. states from coast-to-coast and the District of Columbia.

LGIH is a small-cap growth stock, and a good choice for growth investors and traders. I’m moving LGIH from Buy to a Strong Buy recommendation. The price chart is bullish, showing a potential near-term advance for the stock. At a share price of 66, there’s 44% upside as the stock retraces its all-time high of 95, where it traded in February. (At that time, be prepared to take profits.)

Be aware that a trend of small business closures resulting from the COVID-19 business lockdown could result in chronic unemployment that depresses the housing market, but that will probably take a few months to become apparent, and even longer to impact LGI Homes’ rapid corporate growth trajectory. Strong Buy.

Marathon Petroleum (MPC 32.35 – yield 7.2%) reported a first quarter adjusted loss of ($0.16) per diluted share this morning, when the market was expecting ($0.31); and $24.08 billion revenue vs. the $23.9 billion consensus estimate. Due to the impact of COVID-19 on the energy industry, Marathon is taking $12.4 billion of non-cash charges. The company announced a capital spending reduction of $1.4 billion and a $950 million reduction in operating expenses. Marathon has temporarily suspended share repurchases, and increased liquidity by $3.5 billion through an issuance of senior notes and a revolving credit facility. The company increased the dividend payout with the March payment. The next dividend is payable June 10 to shareholders of record as of the close of business May 20.

Despite all of the bad news that’s hammering corporate America from the business lockdowns, many of Marathon’s projects and goals made progress during the quarter. Refer to the section of the press release titled Strategic and Operations Update for descriptions of Speedway store conversions, the completed Gray Oak pipeline project, several ongoing pipeline projects, the Garyville coker project and the Dickinson renewable diesel fuel project. Marathon continues with their previous decision to retain majority ownership in MPLX, and aims to complete the separation of Speedway in the fourth quarter of 2020.

Marathon Petroleum is a leading integrated downstream energy company and the nation’s largest energy refiner, with 16 refineries, a majority interest in midstream company MPLX LP, 10,000 miles of oil pipelines, and product sales in 11,700 retail stores. Wall Street analysts have been forecasting a 2020 full-year loss of ($2.02) per share, followed by a 2021 profit of $2.52 per share. Those numbers will change in the coming week as analysts rework their forecasts based on first quarter results and corporate guidance.

I’m moving MPC from Buy to a Strong Buy recommendation. The market is warming up to energy stocks as global business lockdowns ease and the resulting commerce generates a recovering demand for oil. Marathon’s price chart is bullish, with the stock recently rising above the 50-day moving average. Traders and dividend investors should buy now. Strong Buy.