Sell Bristow Group (BRS). See details below.
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 two weeks. I also include questions from subscribers along with my answers. Financial reports are for the quarter ended March 31 unless otherwise noted, and prices appearing after each stock symbol are the closing prices on Thursday, June 1, 2017.
The major stock market indexes set new all-time high records yesterday, June 1. I foresee further gains before the stock market pauses. At 21,144, the Dow Jones Industrial Average is higher than my peak Minimum Sell Price level of 21,031 indicating that the stock market is overvalued. Stay cautious with a conservative approach.
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:
Thursday, June 8: Cabot Value Model issue 275V
Friday, June 9: Weekly Update
Tuesday, June 13: Wall Street’s Best Daily
Wednesday, June 14: Wall Street’s Best Daily
Thursday, June 15: Cabot Enterprising Model issue 275E
Friday, June 16: Weekly Update
Friday, June 23: Weekly Update
Friday, June 30: Weekly Update
Friday, July 7: Weekly Update
Company Reports
Big Lots (BIG 49.63) reported solid results and raised guidance. Sales for the quarter ended April 29 declined 1%, same-store sales dipped 0.9%, and EPS jumped 46%. In the prior quarter, sales were flat and EPS increased 18%. Management raised its earnings forecast for the remainder of 2017, which sent shares 7% higher before settling back. Management stated that sales growth accelerated at the end of the quarter, and growth has continued into the current quarter. Hold.
Bristow Group (BRS 7.04) recorded poor first-quarter results. Sales dropped 15% after decreasing 20% in the prior quarter. Bristow’s quarterly deficit ballooned to $2.22 per share from $0.46 in the previous quarter. Management gave a bleak outlook for 2017 and 2018, which sent BRS shares plummeting 52% since the report was released on May 24. Analysts lowered their sales and earnings forecasts drastically.
Bristow failed to slash expenses to offset the decline in sales, which caused the deficit to widen. While the continuing decline in offshore oil and natural gas drilling shows few signs of reversing, management has shown no signs of making major changes. The company’s helicopters certainly could be utilized for better uses, other than sitting and waiting for the offshore drilling market to improve.
After the precipitous drop, BRS should rebound during the next few days or weeks. I recommend selling now, though, and redeploying your decimated proceeds. Add to one of your current technology, industrial or other holdings. SELL.
Eaton Vance (EV 47.58) produced excellent results for the quarter ended April 30. Revenue rose 16% and EPS surged 29%, after increasing 7% and 2% in the previous quarter. Assets under management soared 22%, aided by the company’s acquisition of Calvert Investments. Management expects strong results during the remainder of 2017. Hold.
Lowe’s Companies (LOW 80.43) results came in a tad light for the quarter ended May 5. Sales climbed 11% and EPS advanced 18% after increasing 19% and 46% in the prior quarter. Same-store sales edged higher by 2%. Sales to consumers and do-it-yourself customers lagged, but sales to contractors and professionals were strong. Lowe’s stock price declined slightly, which is presenting an excellent buying opportunity. Buy at 86.23 or below.
Royal Bank of Canada (RY.TO 93.80 on the Toronto Exchange; RY 69.38 on the New York Stock Exchange) reported very good results for the quarter ended April 30. Revenue rose 8% and EPS climbed 11%, after increasing 2% and 16% in the previous quarter. Revenue from personal and commercial banking rose 5%, as growth in Canadian banking more than offset declines in U.S. and Caribbean operations. Royal Bank’s results will continue to advance based on the significant improvement in North American oil fracking and robust real estate conditions in parts of Canada. Hold.
Tech Data (TECD 103.07) easily beat analysts’ forecasts for the quarter ended April 30. Sales surged 29% and EPS soared 78%, after flat sales and an EPS increase of 7% in the prior quarter. Sales and earnings were bolstered by the Technology Solutions business purchased from Avnet on February 27. TECD generated strong cash flow and reduced its long-term debt. Management provided a robust outlook for sales and earnings in the current quarter. Buy at 96.37 or below.
Toll Brothers (TOL 37.75) exceeded expectations by a wide margin. Sales advanced 22% and EPS surged 43% after sales declined 1% and EPS increased 5% in the prior quarter. Currently, demand for new homes exceeds supply. Toll’s backlog of homes to build surged 19%, which bodes well for additional gains during the next several quarters. Buy at 37.07 or below.
Triumph Group (TGI 33.55) reported much better results. Sales dropped 13% but EPS skyrocketed 114% after declining 8% and 27% in the previous quarter. TGI shares soared 37% after results were released. Management’s restructuring plan produced better than expected results. New contract wins also added sales and earnings. Triumph settled its dispute with Bombardier, which clears the way for future business between the two companies. Buy at 30.01 or below.
Ulta Salon (ULTA 306.72) exceeded analysts’ estimates again. For the quarter ended April 29, sales jumped 22%, same-store sales rose 11%, e-commerce sales grew 71%, and EPS climbed 41%. Sales and EPS increased 25% and 33% in the previous quarter, respectively. Ulta opened 18 new stores and closed two stores to end the quarter with 990 stores. Management raised its sales and earnings forecast for the remainder of 2017. Hold.
VMware (VMW 97.40) beat analysts’ forecasts for the quarter ended May 5. Sales advanced 9% and EPS climbed 15%, after increasing 9% and 13% in the prior quarter. The company introduced several new products and alliances were expanded with Google, Microsoft and Oracle. Hold.
Williams-Sonoma (WSM 48.68) reported unexciting results for the quarter ended April 30. Sales improved 1% and EPS gained 2%, after increasing 9% and 5% in the previous quarter. Same-store sales were unchanged from year ago results. E-commerce sales rose 2% and generated 52% of total company sales. Sales growth will likely accelerate during the remainder of 2017. Buy at 53.34 or below.
Questions and Answers
Question: What is your view on CBI? Should we sell or hold tight? (from subscriber B.K.)
Roy: Chicago Bridge & Iron (CBI 19.57) reported poor first-quarter results, and then old news about lawsuits involving CBI, Toshiba and Westinghouse surfaced, which kept the stock price plummeting. The lawsuits should not become a major problem, but resolution will take years.
However, yesterday, CBI announced the retirement of Philip K. Asherman, 66, from his role as President and Chief Executive Officer of CBI and as a member of the company’s Board of Directors effective July 1, 2017. Patrick K. Mullen will become President and Chief Executive Officer. In my opinion, this is good news. The company’s leadership has been in question, and a change was long overdue. The change won’t solve all of CBI’s problems, but it will be a good start, which will help send the stock higher from here. Hold tight.?
Question: I notice my GHL stock has now lost 25%. I have been trying to sell before a 20% loss but somehow this one got past me and I do not know what to do. Please advise. (from subscriber B.C.)
Roy: Greenhill (GHL 21.05) reported weak sales and earnings for the quarter ended 3/31/17. Management indicated normal earnings will return this quarter. GHL has the potential to produce exceptional results during the remainder of 2017. I advise holding GHL.
Index of Latest Summaries – Recommendations featured in recent issues.
