Earnings Updates on Boise Cascade (BCC), Martin Marietta Materials (MLM), Archer Daniels Midland (ADM) and BP plc (BP)
Boise Cascade Far Surpasses Quarterly Profit Expectations
Wood products company Boise Cascade (BCC) reported a big first quarter earnings beat today, pushing the stock up 5% near 32 this morning. The market expected $0.09 EPS, but Boise bested that number with $0.26 per share. Revenue came in at $974.4 million vs. the consensus estimate of $966.3 million.
The company is expecting a good 2017 due to continued increases in single-family and multi-family housing starts.
At this point, we could see analysts raise estimates to reflect 75% profit growth in 2017, while the P/E is down below 20. The stock is extremely undervalued based on both 2017 and 2018 numbers.
Based on previous trading patterns, we could see BCC get stuck at 32 during the current uptrend. When it surpasses 32, there’s no major price resistance until it reaches 39. If you’re looking to optimize your purchase price, I think you’re best case scenario will be a pullback to 30. Strong Buy
Martin Marietta Materials Stuns Market with Blowout First Quarter Results
Martin Marietta Materials (MLM – yield 0.7%) reported record first-quarter sales and profits yesterday, with EPS of $0.67 when the market expected $0.40. Quarterly revenue of $791.7 million far surpassed the $726.3 million consensus estimate. Sales increases among all product lines have been fueled by the economic recovery. The company’s CEO stated, “We remain highly confident that we are in a multi-year construction recovery.” Construction materials stocks roared their approval, with MMM rising 7.6% yesterday and Vulcan Materials (VMC) rising 4.1%.
Full-year 2017 EPS estimates had come down from $9.09 in late January to $8.17 in recent days, vs. $6.63 in 2016. The consensus EPS estimate will invariably leap in the coming days as analysts rework their numbers, with the expected 2017 EPS growth rate changing from 23% to something in the 35% to 40% range.
The company authorized a 20-million-share buyback plan in February 2015, repurchasing 5.4 million shares thus far, including 458,000 shares during the recent quarter.
I mentioned in yesterday’s May issue of Cabot Undervalued Stocks Advisor that “MLM could break past short-term upside resistance at 242 this year.” It looks like that breakout could happen within a few days or weeks. Buy MLM now and buy on pullbacks, too. Strong Buy.
Archer Daniels’ Grain Trading Troubles Overshadow Big Year-Over-Year Profit Increase
Archer Daniels Midland (ADM, yield 3.1%) reported first-quarter EPS of $0.60 yesterday vs. the $0.62 consensus estimate, and $0.50 in the year-ago quarter. Revenue was $14.99 billion vs. the consensus estimate of $15.09 billion. Second-quarter profits are also expected to be much higher than year-ago numbers.
The company is having trouble making a profit in its grain trading business, due to excess production in the global grain market. Archer Daniels reacted by restructuring its trading business, including changes in locations and personnel. Higher-than-expected profits in the company’s corn and soybean processing businesses helped to offset the revenue disappointment on the grain trading desk.
Prior to this earnings report, analysts expected ADM to grow EPS by 31% in 2017. That number will come down a bit, but it still represents a noticeably large profit increase. In an overreaction to the earnings miss, the stock fell almost 9% yesterday to very strong price support near 41. I would expect ADM to now trade between 41 and 44 for a while before heading back into the high 40s. Hold.
BP Joins Integrated Oil Peers in Exceeding First Quarter Profit Expectations
U.K. integrated oil company BP plc (BP – yield 6.8%) reported strong quarterly profits yesterday, in synch with many of its peers this earnings season, including Chevron (CVX), ExxonMobil (XOM) and Total (TOT).
BP saw its profits triple vs. a year ago due to rising energy prices, increased production and cost-cutting efforts. First-quarter net income was $1.51 billion vs. the consensus estimate of $1.26 billion. The company also beat estimates on energy production and free cash flow.
The quarterly tax rate was 33%, down from the 40% that BP had expected. (I mention the tax rate because there are plenty of people who like to say that corporations don’t pay taxes.) BP is starting up seven projects this year, more than in any single year of the company’s history. Current projects are coming in ahead of schedule and under budget.
The company continues to pay large fines related to the April 2010 Deepwater Horizon explosion in the Gulf of Mexico. Those payments will be largely curtailed after 2017, at which time free cash flow (FCF) can be used to enhance business operations, pay down debt and increase dividends.
Debt rose year-over-year, with the debt ratio well within the company’s targeted range. The number is in flux, increasing from Deepwater Horizon payments and shrinking from ongoing asset sales.
The stock rose 1.25% yesterday. I expect BP to rise to—and possibly surpass—38 this year, as investors become more confident in BP’s increasing energy production, cash flow and earnings per share. Oil company stocks don’t generally move quickly. No one has missed their chance to accumulate shares of BP. Strong Buy.
Additional Stock Market News and Price Action
Adobe Systems (ADBE) is up over 30% year-to-date, and is slowly moving from fair valuation toward overvaluation. I will hate selling this stock, but if it becomes both overextended (rising for several months without a pullback) and overvalued, I’m going to have to sell, to make room for a more undervalued growth stock. For now, I’ll give ADBE a little more rope. Hold.
I mentioned in yesterday’s May issue of Cabot Undervalued Stocks Advisor that Vulcan Materials (VMC – yield 0.8%) “could break past 124 in early May, on its way to upside price resistance at 135.” As it turns out, the stock burst past 124 yesterday, in tandem with Martin Marietta Materials’ superb earnings report. VMC’s price resistance at 135 is not foreboding. If the stock wants to continue rising from there, it could certainly do so in the coming weeks and months. Watch for Vulcan’s first-quarter results on the morning of May 10, and near-term increases in consensus full-year EPS estimates, both of which should be bullish for the share price. Strong Buy.