Sixteen Cabot Benjamin Graham Value Investor companies reported quarterly financial results or other noteworthy news. I include one sell recommendation in today’s update: AMC Networks (AMCX). Prices appearing after each stock symbol are the closing prices on Thursday, August 4. Reports are for the quarter ended June 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 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 next Weekly Update will be sent to you on Friday, August 19, 2016. My schedule for the next five weeks will be:
* Friday, August 10-12, Cabot Conference - No Weekly Update
* Friday, August 19, Weekly Update
* Tuesday, August 23, Cabot Wealth Advisory
* Friday, August 26, Weekly Update
* Thursday, September 1, Cabot Value Model issue 266V
* Friday, September 2, Weekly Update
* Thursday, September 8, Cabot Enterprising Model issue 266E
* Friday, September 9, Weekly Update
Company Reports
Aetna (AET 116.61) delivered strong second-quarter revenue and earnings growth. Revenue rose 5% and EPS advanced 9%, after revenue increased 4% and EPS fell 4% in the previous quarter. Revenue was bolstered by higher premiums and more medical memberships. Profits benefited from lower general and administrative expenses, partly offset by lower underwriting margins in Aetna’s Health Care segment. Management expects similar results during the remaining two quarters of 2016.
Aetna plans to withdraw all of its 2017 public exchange expansion plans, and will re-evaluate future participation in its 15-state Affordable Care Act exchanges. Aetna will continue to pursue a merger with Humana despite objections from the U.S. Department of Justice. Hold.
AMC Networks (AMCX 53.81) reported disappointing results. Sales climbed 14%, but EPS dropped 8% after increasing 6% and 20% in the prior quarter respectively. Earnings were negatively impacted by excessive foreign currency transaction losses. AMC has profited from the immense popularity of its hit cable TV shows in the past, but the shows’ ratings are dropping. The latest August 3 ratings show that AMC’s six highest rated shows aired for more than a year have attracted 25% fewer viewers than a year ago.
The company’s most popular show, the Walking Dead, is no longer resonating with cable TV audiences, and many of AMC’s other offerings are similar to The Walking Dead. Analysts have begun to lower sales and earnings estimates slightly, which is reflected in AMCX’s price. In my opinion, revenue and earnings estimates will drop sharply during the next several months. Cut the cord on AMC Networks now. Sell.
Bristow Group (BRS 9.73) recorded another deficit, as sales declined 21%. Bristow has produced five negative earnings results during the past six quarters. Sales were negatively impacted by the continuing slump in offshore oil drilling activity, leading to substantially lower demand for Bristow’s helicopter taxi services. In addition, the British pound has depreciated noticeably following Brexit.
Management expects to offset future weakness in the British pound with cost reductions. However, weak demand for the helicopter taxi service will likely continue during the next three quarters. On a brighter note, Bristow is completing its ramp-up of its search and rescue contract in the U.K., and posted a 74% revenue increase in the second quarter. Search and rescue now makes up 14% of total revenue.
Bristow’s stock price has plummeted during the past two years, and is now one of the most undervalued stocks in my database. Hold.
Cognizant Technology (CTSH 58.77) reported strong second-quarter results. Sales climbed 9% and EPS advanced 10%, after increasing 10% and 13% in the previous quarter. Management lowered its forecast for third-quarter sales, but predicts 2017 sales and earnings growth will accelerate. Hold.
Cummins (CMI 123.25) delivered decent second-quarter results. Sales fell 10% and EPS dipped 8%, after declining 9% and 13% in the prior quarter. Sales in the Middle East, Mexico, and Brazil were particularly weak. Cost cuts helped earnings from falling further. Management lowered its full-year forecast for 2016 sales to decline 8% to 10%. Recent new product introductions will spur sales during the remainder of 2016. Hold.
CVS Health (CVS 96.97) recorded excellent quarterly results, as expected. Sales surged 18% and EPS rose 8%, after increasing 19% and 4% in the previous quarter. Sales were enhanced by recent acquisitions and higher drug prices. Same-store sales climbed 2%. Management raised its full year forecast slightly. Buy at 98.28 or below.
Harman International (HAR 87.54) reported solid sales and earnings. Sales climbed 12% and EPS surged 39%, after increasing 11% and 23% in the prior quarter. Increasing demand for auto electronics is helping Harman, the auto electronics industry leader. Management provided an upbeat forecast for sales growth during the next three years. Buy at 83.33 or below.
IntercontinentalExchange (ICE 278.34) reported exceptional second-quarter revenue and EPS. Revenue soared 42% and EPS climbed 18%, after increasing 36% and 20% in the prior quarter. Revenue received a big boost from its Interactive Data purchase and other purchases. Management will continue to seek additional acquisitions.
ICE’s board of directors is “pursuing” a 5-for-1 stock split. I expect an announcement soon with details of the effective date. Buy at 262.76 or below.
Maiden Holdings (MHLD 13.90) delivered strong results. Revenue rose 3% and EPS soared 44%, after revenue increased 7% and EPS fell 15% in the previous quarter. Gross premiums written increased 2.1% to $688 million. Book value at the end of the quarter was $14.18. Buy at 13.70 or below.
Nike (NKE 54.79) will exit the golf equipment business, the company’s poorest performing business. Sales of golf equipment, including clubs, balls and bags, dropped 8% in 2015. Nike will continue to sell golf shoes and golf apparel. Hold.
Priceline Group (PCLN 1,359.99) reported excellent results. Sales and EPS climbed 12%, after increasing 17% and 30% in the prior quarter. EPS exceeded forecasts, but sales fell a bit short. Hotel bookings rose 24% in the second quarter, while car rental bookings rose 8%. Management predicts third-quarter EPS will rise 15%. Buy at 1,336.36 or below.
Prudential Financial (PRU 72.84) reported weak revenue and earnings. Revenue declined 5% and EPS plunged 37%, after declining 4% and 22% in the previous quarter. Premiums fell 9%, fee income declined 7%, and asset management fees decreased 5%. Any increase in interest rates will send Prudential’s earnings considerably higher. Hold.
Rackspace (RAX 26.55) is nearing a sale. The company’s stock price soared 15% after rumors that the cloud services provider is in advanced talks with one or more private equity firms. Two years ago, Rackspace revealed that it was looking for a buyer. An offer could be announced within the next few days. Hold.
Synchronoss Technologies (SNCR 40.26) produced solid results. Sales climbed 14% and EPS advanced 2%, after increasing 7% and 0% in the prior quarter. Cloud services, which is 57% of total sales, increased 33% from a year ago. Synchronoss introduced Enterprise Secure Mobility Platform in June. The service could generate significant sales in the next several quarters. Buy at 40.33 or below.
Team Health Holdings (TMH 37.03) reported mixed results. Sales surged 28% but EPS dipped 4%, after sales increased 35% and EPS fell 9% in the previous quarter. Management lowered its sales and EPS forecast for the remainder of 2016, sending the stock 6.5% lower. Team Health could become an acquisition target. Hold.
WestJet Airlines (WJA.TO 23.13) recorded weak, but better-than-expected sales and earnings. Sales inched ahead 1% and EPS dropped 39%, after falling 5% and 35% in the prior quarter. The airline initiated service to London, which added startup expenses during the quarter. WestJet hopes to attract cost-conscious British travelers to its low-fare offerings. Total sales and earnings will likely improve during the second half of 2016. Hold.
Index of Latest Summaries – Recommendations featured in recent issues.