Today’s news: Quarterly earnings beats from Alexion Pharmaceuticals (ALXN), Legg Mason (LM) and Vertex Pharmaceuticals, and earnings miss from Commercial Metals (CMC).
Alexion Pharmaceuticals (ALXN) reported a third-quarter earnings beat of $1.44 EPS vs. the consensus estimate of $1.32, driven by higher-than-expected operating margins. Revenue came in $5 million below estimates at $859 million, an 8% year-over-year increase. Management raised full-year 2017 EPS guidance to a range of $5.50–$5.65, although the consensus estimate was already at $5.60.
The stock is down, although nothing has changed in terms of aggressive profit growth and low valuation. I would consider this price pullback to be a buying opportunity. Buy.
Commercial Metals Company (CMC – yield 2.4%) reported adjusted fourth-quarter EPS of $0.07 this morning (August year-end), when the market was expecting approximately $0.19 to $0.21. The company says product demand remains strong, but that rebar imports are increasing competition, and higher scrap metal prices are affecting profitability. Analysts’ EPS estimates will necessarily be reduced for 2017 and 2018.
The stock is down about 8% this morning on the earnings disappointment. Based on today’s price action, I’m estimating that the stock will trade between 19 and 22 in the foreseeable future. I see no chance that the price will surpass 22 until a subsequent earnings report shows a much more profitable quarter. There is a risk that the share price could fall below the recent trading range, down toward 17.
It’s too soon for me to know whether the 2018 outlook represents attractive growth and value. I’m going to need to monitor Wall Street’s updates. I’ll keep CMC in the portfolio for at least a short while so that I can report back to you on revised Wall Street earnings estimates and a clearer outlook for the stock. Expect volatility.Hold.
Legg Mason (LM – yield 2.9%) reported second-quarter 2018 EPS of $0.78 vs. the consensus estimate of $0.69 (March year-end). The stock is reacting well, within a stable trading range. My price target is 44, where LM last traded in October 2015. I’m not going to move the stock back and forth between Buy and Hold, but any share price below 39.5 represents a 10%+ capital gain opportunity. Hold.Vertex Pharmaceuticals (VRTX) reported third-quarter non-GAAP EPS of $0.53 when the market was expecting $0.31, surpassing all analysts’ estimates. Both Kalydeco and Orkambi revenues beat estimates as well. The stock traded down this morning, then recouped much of the fall. I consider today’s price to be a very temporary buying opportunity. Buy.