In this Weekly Update, I include summaries for 11 Cabot Benjamin Graham Value Investor companies that reported quarterly financial results or other noteworthy news during the past week. Financial reports are for the quarter ended March 31, and prices appearing after each stock symbol are the closing prices on Thursday, May 4, 2017.
I’m in the process of writing a special report on the state of the U.S. economy with a focus on several sectors. In the report, I will disclose which sectors look good and which sectors look bad. I see further gains for stocks in the technology, financial, industrial, materials, consumer discretionary and healthcare segments. I foresee problems in the oil, automotive and retail sectors. I will provide my opinion on stocks in these sectors and the basis for my conclusions. My report will be emailed to you on Tuesday, May 9.
Also, in this Update, I present two indexes, which list companies featured in the Cabot Value Model or in the Cabot Enterprising Model during the most recent four months so you can quickly find my recent write-ups for stocks appearing in the models.
My schedule for the next five weeks will be:
Tuesday, May 9: Wall Street’s Best Daily
Thursday, May 11: Cabot Enterprising Model issue 274E
Friday, May 12: Weekly Update
Tuesday, May 16: Wall Street’s Best Daily
Friday, May 19: Weekly Update
Friday, May 26: No Weekly Update – My Daughter’s Wedding
Friday, June 2: Weekly Update
Thursday, June 8: Cabot Value Model issue 275V
Friday, June 9: Weekly Update
Company Reports
Alliance Resource LP (ARLP 22.75) reported exceptional sales and earnings. Sales surged 12% and EPS tripled after sales declined 3% and EPS increased 81% in the prior quarter. Higher coal volumes from new contracts, cost cuts and improved mining efficiency bolstered results. Management forecast strong growth during the remainder of 2017 and hinted at higher dividends. The master limited partnership currently distributes dividends yielding 7.7%. Buy at 22.41 or below.
Apple (AAPL 146.53) produced solid results. Sales rose 5% and EPS climbed 11% after increasing 3% and 2% in the previous quarter. The company’s board of directors increased the quarterly dividend to $0.63 from $0.57, resulting in a yield of 1.7%.
iPhone sales were weak in the quarter, partly due to the expected launch of a new iPhone in the fall. iPhone buyers will delay buying a new phone until the new iPhone is introduced. The weakness in iPhone sales was more than offset by strong revenues generated from Apple’s services business.
If the new iPhone contains many new features that attract lots of buyers, Apple’s stock price could take off. During the next few months, though, the stock will likely move up and down with the stock market. Hold.
Arris International plc (ARRS 27.06) reported results in line with forecasts. Sales dipped 8% and EPS fell 15% after sales and EPS increased 60% and 25% during the previous quarter. Arris’s purchase of Pace bolstered 2016 sales, but high inventories caused first-quarter sales to falter. Second-half results will receive a jolt from balanced inventories and the company’s acquisition of the Ruckus Wireless and Brocade divisions from Broadcom in the third quarter. Also, Arris won several sizeable contracts at the end of the first quarter that will boost growth during the next several quarters. Hold.
Cognizant Technology (CTSH 60.75) reported mixed results and initiated a quarterly dividend. Sales climbed 11% and EPS advanced 5% after increasing 7% and 9% in the prior quarter. A major concern for Cognizant has been President Trump’s tough stance on the H1-B visa rules. The company has most of its employees in India.
Revenue from Cognizant’s financial services unit, which accounts for 39% of total revenue, rose 7%, while revenue from healthcare services, 28% of revenue, rose nearly 10%. Cognizant initiated a quarterly dividend of $0.15 which will provide a yield of 1.0%. Hold.
Facebook (FB 150.85) produced excellent first-quarter results. Sales surged 49% and EPS soared 73% after increasing 51% and 120% in the prior quarter. Daily active users advanced 38%. Management’s focus on advertising on mobile devices is producing exciting new growth.
Mobile ads now account for 85% of ad revenue, spurred by 14% higher ad prices. Also, advertisers are spending 41% more on mobile advertising. The availability of video postings on the company’s Facebook and Instagram platforms is attracting new users by the millions. The number of Facebook users is now close to two billion. Buy at 153.49 or below.
Gilead Sciences (GILD 68.08) reported weak results again. Sales dropped 17% and EPS fell 18% after declining 14% and 26% in the prior quarter. Sales of HIV and hepatitis C products increased by $0.4 billion to $3.3 billion from a year ago. The gain was more than offset by a sales decrease of $1.7 billion to $2.6 billion for hepatitis C products. Other product sales totaling $0.5 billion were flat from a year ago.
Cash on hand increased to $34 billion or $26 per share. The company cut back share repurchases during the quarter, which could be a signal that Gilead is getting ready to make a major acquisition. Any news will send GILD shares significantly higher. Hold.
IntercontinentalExchange (ICE 60.87) recorded no growth in the first quarter. Revenue inched ahead 1% and EPS were flat after sales and EPS increased 30% and 8% in the prior quarter. Trading and clearing revenue declined 6% while data and listings revenue rose 8%. The company posted higher fees from IPOs (initial public offerings) because it listed all of the last 27 large U.S. company IPOs.
After consummating several large acquisitions during the past 10 years, ICE made no new significant purchases during the past year to fuel revenue growth. However, management expects growth to accelerate during the second half of 2017. Buy at 60.36 or below.
MSCI Inc. (MSCI 97.59) reported solid results for the quarter ended March 31. Revenue climbed 8% and EPS jumped 33% after increasing 7% and 30% in the previous quarter. Revenue growth was bolstered by a 20.5% increase in revenue from ETFs linked to MSCI indexes. This bodes well for future revenue and profits; investors will sell expensive mutual funds and reinvest in low-fee ETFs.
Investors hoped MSCI would beat estimates by a wider margin and sold MSCI shares after the good news. The modest dip in the stock price offers an excellent buying opportunity. Buy at 99.58 or below.
Scripps Networks (SNI 70.20) beat analysts’ estimates. Revenue advanced 5% and EPS dropped 32% after revenue increased 4% and EPS declined 20% in the previous quarter. The prior year quarter includes the sale of the company’s investment in a regional sports network.
Weaker TV ratings hurt results along with sluggish advertising revenue. According to a recent report, 762,000 subscribers terminated their cable or satellite TV service in the first quarter, five times higher than during the same period a year ago.
International revenue was strong, and long-term agreements with several distribution partners were finalized. Scripps’ lifestyle TV viewers remain loyal to the TV offerings, which is attractive to advertisers. Hold.
Stifel Financial (SF 49.22) reported strong first-quarter results. Revenue climbed 9% and EPS surged 37% after increasing 11% and 36% in the previous quarter. Stifel’s banking revenue surged 26%, and asset management and service fee revenue rose 13%. Management forecast similar growth during the remainder of 2017. Buy at 49.57 or below.
WestJet Airlines (WJA.TO 21.73) reported encouraging results. Revenue climbed 8% but EPS dropped 42% after revenue increased 6% and EPS fell 8% in the previous quarter. The company added 10 jets to its fleet and filled 83% of its seats compared to 82.1% in the year ago quarter. However, labor costs rose, and fuel costs soared 36% from a year ago. Maintenance costs jumped 26%, but will decrease noticeably during the remainder of the year.
In March 2017, WestJet significantly increased service and new routes from Montréal and Québec City to a number of Canadian and U.S destinations. The airline will launch a new, ultra-low-cost carrier (ULCC) in Canada, to commence flights in late 2017. The ULCC will broaden WestJet’s growth opportunities and open new market segments to Canadians looking for lower fares. Hold.
Index of Latest Summaries – Recommendations featured in recent issues.
