Fifteen Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news during the past week. I have changed my opinion on CVS Health (CVS) from Buy to Sell. This Update also includes questions from subscribers along with my answers. Prices appearing after each stock symbol are the closing prices on Thursday, November 10, 2016. Reports are for the quarter ended September 30, 2016 unless otherwise stated. Sales and earnings increases and decreases are based on year-ago comparisons.
I also present two Indexes that 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:
- Friday, November 18, Weekly Update
- Tuesday, November 22, Wall Street’s Best Daily
- Friday, November 25, No Update – Thanksgiving Weekend
- Thursday, December 1, Cabot Value Model issue 269V
- Friday, December 2, Weekly Update
- Thursday, December 8, Cabot Enterprising Model issue 269E
- Friday, December 9, Weekly Update
- Friday, December 16, Weekly Update
Company Reports
Bristow Group (BRS 12.77) reported another loss, but results met expectations. Sales fell 20% after declining 21% in the prior quarter. The company reduced its EPS deficit to -$0.85 from -$1.21 a year ago and -$1.17 in the previous quarter. The weak oil and natural gas market continues to plague Bristow’s results, and the post-Brexit drop in the British pound added $0.16 per share to the company’s EPS deficit. However, management believes the company remains on pace to hit its full-year guidance, and Bristow is starting to see an increase in demand for offshore contract activities. Management is focusing on a return to profitability even if the oil market doesn’t recover, including diversifying away from the oil industry and further improving operating efficiencies. Hold.
Cognizant Technology (CTSH 53.81) posted solid third-quarter results. Sales climbed 8% and EPS jumped 14% after increasing 9% and 10% in the prior quarter. Sales in the United Kingdom fell 2.3%, whereas sales in the rest of Europe surged 17%. Management forecast continuing success into 2017. CTSH shares have underperformed during the past week because investors fear that large international companies, including Cognizant, will be adversely affected by President-elect Trump’s foreign policies. However, I believe CTSH will not be affected, and the current low price presents an excellent buying opportunity. Buy at 55.65 or below.
Convergys (CVG 24.52) reported lackluster sales and earnings. Sales were flat and EPS inched ahead by 2% after sales declined 3% and EPS increased 24% in the previous quarter. Management lowered CVG’s sales and earnings forecast for the current quarter, which sent CVG shares tumbling. Recent new contract signings will bolster sales and earnings in 2017. Hold.
CVS Health (CVS 77.28) reported solid results, but management warned 2017 will be difficult. Sales rose 15% and EPS advanced 28% after increasing 18% and 8% in the previous quarter. Management revealed the company will lose more than 40 million retail prescriptions in 2017, and lowered its forecast for 2017 sales and earnings by a considerable amount. Many of the 40 million prescriptions will be filled by Walgreens, CVS’s competitor. The news sent CVS’s shares below 70 before bouncing back following the election of Mr. Trump. Earnings per share will likely increase a paltry 1% in 2017, because of declining market share in the company’s retail prescription segment. I believe CVS shares will underperform the stock market indexes during the next 12-month period. Therefore, I recommend selling your CVS Health shares now. Sell.
Disney, Walt (DIS 94.96) reported results that were a tad below forecasts. Sales declined 3% and EPS advanced 16% after increasing 9% and 10% in the prior quarter. Lower advertising revenue and fewer ESPN viewers crimped sales, but management expects modest EPS growth in 2017 and “more robust growth” in 2018 and beyond. The new Shanghai theme park and new releases of Star Wars will bolster future sales and earnings. Buy at 93.22 or below.
Johnson Controls (JCI 45.25) benefited noticeably more than expected from its Tyco merger and Adient spinoff. Johnson is also helped by owning 60% of Hitachi Appliances, which far-exceeded expectations. Sales surged 17% and EPS advanced 10% after sales dipped 1% and EPS increased 18% in the prior quarter. Management is very optimistic about the newly transformed Johnson Controls, which helped to send JCI up 12% during the past eight days. Buy at 43.91 or below.
Maiden Holdings (MHLD 14.95) recorded mixed third-quarter results. Revenue rose 6% and EPS soared 33% after increasing 3% and 44% in the previous quarter. Interest rates have begun to rise after Donald Trump’s win, which could add considerable interest income from Maiden’s $3.5 billion bond holdings. The company’s board of directors increased the quarterly dividend to $0.15 from $0.14. The resulting yield is now 4.1%. Buy at 15.10 or below.
Nissan Motor (NSANY 18.85) reported solid results. Sales advanced 4% and EPS dropped 10% after sales were flat and EPS decreased 4% in the prior quarter. Nissan’s shares have dropped in reaction to President-elect Trump’s threats to impose tariffs on goods imported from foreign countries. I believe it is too soon to assess the effects of Mr. Trump’s policies. Nissan’s stock price should rebound soon. Hold.
Priceline Group (PCLN 1,554.32) reported exceptional sales and earnings. Sales surged 19% and EPS jumped 23% after sales and EPS increased 12% in the previous quarter. The number of hotel room-nights booked was up 29% from a year ago. Management provided a modest outlook for current quarter sales and earnings. PCLN soared 12% to $1,600 after the quarterly report before settling back to the current price. Hold.
Prudential Financial (PRU 97.74) reported excellent results. Revenue surged 36% and EPS climbed 11% after declining 6% and 37% in the previous quarter. Assets under management rose 15% from a year ago. Higher interest rates will add notable interest income from Prudential’s massive $332 billion bond holdings. PRU shares are nearing my Min Sell Price of 99.71 and should be sold if PRU meets or exceeds 99.71. Hold until my Min Sell Price is achieved.
Scripps Networks (SNI 67.01) delivered strong results. Revenue advanced 3% and EPS surged 17% after increasing 22% and 6% in the previous quarter. Ratings and viewers grew despite competing coverage by the major networks of the Olympics and the U.S. election. Scripps Networks’ Travel Channel, Cooking Channel, DIY Network, Great American Country Channel and the Food Network all produced high ratings, which bodes well for 2017 revenue and earnings growth. Buy at 65.78 or below.
Skyworks Solutions (SWKS 75.91) recorded improved results. Sales declined 5% but EPS rose 11% after decreases of 7% and 8% in the prior quarter. Skyworks is developing improved products and services for mobile and Internet of Things applications. Management expects sales and earnings growth to accelerate notably in the current quarter. Buy at 78.97 or below.
Stifel Financial (SF 43.89) beat analysts’ estimates. Revenue rose 10% and EPS jumped 15% after revenue increased 10% and EPS declined 3% in the previous quarter. Stifel’s global wealth management and advisory businesses bolstered results. President-elect Trump’s ideas to cut regulatory oversight and rising interest rates propelled SF 15% higher during the past two days. Buy at 41.63 or below.
Synchronoss Technologies (SNCR 47.01) released stronger than expected results. Sales rose 17% and EPS advanced 17% after increasing 14% and 2% in the prior quarter. Cloud revenue soared 58% and Activation revenue jumped 42% during the quarter. Management’s forecast for rapid sales and earnings growth in the current quarter sent shares soaring 27% higher during the past five days. Buy at 47.50 or below.
Team Health Holdings (TMH 41.10) is on track to be bought out by Blackstone for $43.50 all cash. The offer won’t diminish, so the downside for TMH shareholders is minimal. The agreement includes a 40-day “go-shop” period (which expires December 10, 2016) during which TeamHealth can receive other offers from interested parties. No other offers have been made, but I advise holding off selling until we see if another offer materializes. I believe TMH is worth more than $43.50. Hold.
Questions and Answers
Q: Is ZBH a buy at this lower level? (from subscriber S.S.)
A: Zimmer Biomet Holdings (ZBH 100.68) produced weaker than expected third-quarter sales and earnings. On top of that, management forecast slow growth for the current quarter, which sent ZBH plummeting. Zimmer appeared to lose market share in the third quarter, but the company is well managed and will regain market share in 2017. Recent acquisitions will also add to sales and earnings growth in 2017. Zimmer will likely earn 7.90 in 2016 and 8.70 in 2017. At 12.6 times 2016 EPS, ZBH shares are quite attractive. I recommend purchasing ZBH below 100.65. The stock will likely advance 49% to my Min Sell Price of 148.38 within two years. ZBH probably won’t take off right away, but good gains should start to materialize in 2017.
Q: I typically enter your “min sell” price as a sell limit in my accounts. A limit expires after 60 days, which requires me to update or renew. I would find it helpful to have any “min sell” that has changed from the previous month, in some way flagged—perhaps as a bolded value or in some other way. Just a thought. (from subscriber S.A.)
A: I recalculate my Max Buy and Min Sell Prices at the beginning of each month. The data that determines any changes in the price estimates includes any new quarterly financial results or sales and earnings estimates. In addition, changes in the 10-year Treasury note interest rate also cause my price estimates to change slightly. With all of these moving parts, my Max Buy and Min Sell Prices usually change every month.
I like your idea of placing sell limits on your stocks at the Min Sell Prices. I am considering whether to send out alerts when a stock price rises to within 5% of its Min Sell Price. Currently I include conditional formatting on my spreadsheet that identifies any stocks selling within 5% of my Min Sell Price and stocks that have reached their Min Sell Prices. Aflac, Knight Transportation, Benchmark Electronics and Prudential are all within 5%. I’ll make an announcement if I decide to send out “5% alerts.”
Q:
Should I sell my Guggenheim Bulletshares (I have BSJG, BSJI and BSJK)? You do not mention them in your latest newsletter. (from subscriber R.G.)
A: I have had a Hold opinion for the Guggenheim Bulletshares for quite some time. I continue to like four of the ETFs and have included them in the Hold and Sell Table on page 7 in my Cabot Value Model Issue #268V published on November 3. In December, I will recommend redeeming the Guggenheim 2016 High Yield Corp. Bond ETF (BSJG) at the end of the month, and replacing it with the Guggenheim 2020 High Yield Corp. Bond ETF (BSJK).
I like your idea of investing in fewer Bulletshare ETFs and including just the High Yield ETFs in your portfolio. You can counterbalance the higher risk with low risk or very low risk stocks that pay decent dividends.
Index of Latest Summaries – Recommendations featured in recent issues.
