Sunday, March 19, 2017

Weekly Portfolio Summary

So it's been a while since I've last done a weekly summary as I've been working to get caught up on fourth quarter reports.  Now I'm back at it and I've got a lot to catch up on.  It's been a wild few weeks with the various political events, the February jobs report being announced as much stronger than expected, and now the Fed has raised interest rates by another quarter percent.  The market, overall, has contined its climb slightly, based off of earnings, but has recently leveled off more, not really going anywhere.  Unfortunately, my portfolio can't say the same.  The majority of my stocks have been relatively flat for the last few weeks.  However, Ionis Pharmaceuticals has been gut wrenching.  First it shot up on strong earnings results, then came the lastest phase 3 drug test results and a subsequent downgrade by Goldman Sachs and the stock has since taken quite the beating.  

Despite the rate hike of 25 basis points by the Fed this week, 10 year rates still went down and continue to oscillate between approximately 2.4% and 2.6%.  This leads me to believe that both the rate increase was essentially baked in already as well as there seems to continue to be plenty of demand for these bonds.  I do expect rates will increase over time, it just doesn't appear it'll be a rapid ascension.  Overall, I consider this good for the markets and the economy at this time.

Finally there's Oil.  Prices did go up some this week, and production numbers were much lower than expected.  While that is usually a bullish signal, there likely isn't a lot of oomph behind it as there are still very shaky agreements within OPEC regarding cutting overall production.  Saudia Arabia, a country known to lead the OPEC group, has managed to cut their productions below agreed limits, however, they increased production compared to where they were at in January.  Other countries like Iran, Iraq, and Russia have not gotten down to needed levels yet and if they don't work towards compliance, it's certain that the Arabians will continue to increase production to maintain market share.  This is an important factor to a couple stocks I'm looking at to potentially add into my portfolio.  I'll cover this more as I work to build out those portions of my site.

There are no major events or conferences occurring that would impact my portfolio this week.  It will, instead, be the leaf blowing in the wind of an overall set of market themes. 
  
Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash. Ratings are based upon a combination of 12-18 month outlook on stock direction and market driven need for capital preservation or appreciation.  The ratings may not necessarily directly results in moves I make due to financial positioning and cost basis.


Ones:
Ionis Pharmaceuticals (IONS, $40.22, -20.46%) -  I chose this as my speculative stock to try to make significant gains in my portfolio.  With the introduction of the AHCA, the healthcare industry has come back under some scrutiny regarding pricing concerns.  This leaves them vulnerable to Presidential tweets and other impacts.  At the same time, there recently has been some disappointing results on a few various drug test results, Ionis' Volanasorsen to be included in this mix, though less impactfully so.  After last week's downgrade from Goldman Sachs, the stock has yet to have recovered, as I expected.  Add onto that a rising interest rate environment, and future earnings also start looking more lucrative - thought commentary from Fed Chair Yellen maintained a "gradual" approach to rate increases which should be helpful.  Healthcare needs to either get out of the current negative limelight and/or find some positive stories to help their cause.  I'm not about to say this is a bad choice, at this point.  The company has a lot of opportunities in front of it with their pipeline, but the overall market won't be terribly helpful.  Despite the rather harsh hits the stock has taken over the last couple weeks, I was surprised to note that both the OBV and RSI were still in up trends on a longer term trend line.  Sure they're retreating and this could be a roll over point, but I was expecting this kind of move would have something more dramatic.  That said, MACD is negative on both charts and I'm seeing nothing that indicates the stock has sold off too much.  The daily charts, on the other hand, are showing some oversold indicators and the downward movements do appear to be slowing down.  The 200 DMA could be a reasonably strong floor in the $36 - $38 region.  I'm estimating a 2017 earnings target of a $0.50 loss for next year, primarily due to ramp-up costs early on.  My price target for 2017 is about $54.  I feel like this stock is a buy, but more so only when it gets below $40 and only if you have patience to ride this turbulence out, as I expect the ascent from here to be slow.  Ionis is 12.60% of my portfolio.

Twos:
Citigroup (C, $60.37, +44.52%) - I've held this bank for a long time as a play off a turnaround which seems to be taking shape.  Focus has been on tax reform, regulation reform, and Fed rate hikes.  These are seen as catalysts for future growth and has helped the stock reach the levels it's at.  I do believe people are also overlooking international growth and that is Citigroup's ace in the hole, in comparison to most of its brethren.  The stock remains a value, given its price is below the TBV, but that won't stop it from having pullbacks as it has been catching its breath lately.  After their last quarterly report, there is some concern around their NIM estimates, though they appear exceptionally conservative - predicting no more rate hikes this year (and one has just happened).  I'm also a little concerned in an oversupply of stock, which hopefully can be remedied by a combination of permission to buy back more stock and larger dividend payments.  Citi's charts now show signs of a stock in the middle of a pause.  In the multi-year charts, the MACD is flat and fluttering back and forth over its line while momentum has died down.  The OBV and RSI continue to sit well on their positive trends, though.  The weekly charts show the same trends as the multi-years, though, with stronger and flat momentum.  The 50 DMA appears to be a floor around $59, and its a floor proving to be stronger than I originally thought, given the time its taking to reach it as well as the fact that factors like rate hikes are favorable to the stock's future.  Daily charts show some weakness, with a RSI that's rolling over as well as down trending momentum and a MACD that's flat and crossing over negatively.  That said, the RSI hasn't broken through its trend lines, so this might be a natural result of the pause.  I still am very confident in Citi's long-term upward trajectory but believe this pause to be healthy for the stock.  The next catalyst will be the results of the next CCAR, which should hopefully allow the company to return more capital to shareholders through dividends and buybacks.  I'm targeting a 2017 TBV of $68 and am keeping my multiple at 1x TBV due to their latest report and overall market sentiment, thus a $68 price target.  Citigroup is 16.21% of my portfolio.

Cedar Fair (FUN, $68.09, +22.00%) - To try to play the strengthening US consumer while also protecting my portfolio with yield, I chose Cedar Fair on the theory that people are looking more for fun experiences to put their money as they decide to stay home more and feel more comfortable with an improving economy.  2016 resulted in record sales and there isn't anything, at this point, that has management believing the trend is changing.  They continue to expand their Christmas celebrations and also look to expand or improve on hotel experiences as much of their attendance comes from a wider radius.  This year, they're also looking to open a junior sports venue on its property next to one of its parks.  Interest is already looking positive for new forms of cash flow.  This year, the company feels confident that they will hit their $500M in EBITDA target, which is a year faster than originally planned.  When looking into the technicals, I see a stock that's on a long term up trend, but may be in need of a small pause.  All of the key long-term indicators are set up nicely, with a couple of them signaling overbought signs.  The MACD, OBV, and RSI are all positive.  There are similar indications in the weekly and daily charts, though the MACD is converging towards a bearish crossover.  I'd say that my downside risk is still in the $62 - $65 range where $65 area has support by the 50 DMA.  I estimate 2017 earnings of $3.57 and a multiple of 20.  As such, the 2017 price target is $71.50, with and early 2018 EPS estimate of $3.93 and 2018 price target of $78.  With a 5.08% yield, down side seems a bit more limited and I'd start buying when yield hits 5.5% (about $62.50).  Rate increases by the Fed could cause the more unstable hands to pull out of the stock, creating buying opportunities.  Cedar Fair is 16.76% of my portfolio.

Home Depot (HD, $149.60, +140.80%) - I chose this stock as a play on the housing and retail industries, expecting positive results from people taking advantage of an improving economy and home prices to invest in home building and improvements.  I believe the concept of people wanting to spend more time at home has them investing more in the home.  The stock was choppy to start the year, but recently it has started to breaking out on some positive news from home builders and the fact that a mostly local company, like Home Depot, is virtually safe from the protectionist and anti-trade commentary we've been hearing from the new President.  The company is executing on its plan, taking share, and expect same store sales comps of 5%, which is pretty incredible for a company that isn't opening more stores and after the 2016 earnings results, I expect them to do that again, despite their own down played guidance.  Additionally they have increased their share buyback plan and are now returning 55% of the prior year's earnings stream as dividends, up from its previous 50% mark.  The charts are strong, perhaps a little too strong.  We see strong upward trends everywhere we look, the prices MACD is very bullish in all three time perspectives (short, medium, long).  That said, we are looking at a number a indicators that are in over bought territory in all three time views as well.  I haven't seen this before and it's starting to make me a little cautious.  That's because not only are these indicators overbought, but they've been that way for six weeks or more in many cases (Williams, Slow Stochastics, Money Flow).  The RSI hasn't gotten over bought yet, but it's also close.  This leads me to believe the upside in the short term is a bit limited.  I'd exercise caution and consider if it makes sense to lock in some profits.  I estimate 2017 earnings of $7.25.  I estimate a multiple of 22, giving a 2017 price target of $159.  I think this is a great company and operator, and you may want to consider picking up stock now or on any pull backs.  HD is 13.39% of my portfolio.

Honeywell (HON, $127.16, +200.39%) - I continue to believe that this company is best of breed in the industrial conglomerate sector.  It does a great job of spreading itself across short, medium, and long-term cycles, has a significant play into the aerospace cycle (commercial airplanes being a primary focus), and they have a management team with a track record of excellent execution.  The aerospace division continues to be an area of concern lately with private jets, helicopters, and defense spending lagging expectations, but I believe this is a short-term event and management confirms this belief by stating improvements are expected to resonate come the second half of the year.  While CEO Dave Cote is stepping down this month, I have a large amount of confidence in a smooth transition to Darius Adamczyk.  It isn't typical to have such faith in transition, but this is a unique management team, very similar to what we saw when Home Depot went through their shift in new CEOs.  Taking a look at the charts, this stock is just like Home Depot.  It's been going on a major run for the last number of months to new highs.  Much of this seems to be an index-related move as the stock has moved in line with both the S&P 500 and the Industrial index, though HON has broken out at a larger scale, likely due to the quality of the company.  The OBV, RSI, and MACDs are all very strong and there are some other indicators sitting in over bought territory, however, only for a few weeks so far in the long-term charts. The stock is looking to be losing some energy and will likely pull back some before it can surge again.  I'm hoping it can eek just a little bit higher, but I'll watch the price and overall action closely, as this pause in the stock has been well aligned with the general flatness of the market.  Money flow into the stock is unsustainable and the daily MACD is surprisingly bearish, despite the overall action in the stock.  The RSI has also gone through a pullback, but hasn't crossed the trend line.  This looks like it'll be little more than a 3% pullback though, so I'd be looking for it to settle in around $123-$124.  I anticipate 2017 earnings of $7.10 - anticipating that the company is currently being particularly cautious.  I also think industrials are going to be able to fetch a stronger multiple if the economies of the world really do start firing on growth.  Thus, I have set the multiple to 18, resulting in a 2017 price target of $128.  2018 EPS is estimated to be about $7.81 and have a price target around $145.  HON is 17.07% of my portfolio.

On Semiconductor (ON, $15.25, +67.66%) - On Semi was a stock I chose long ago as a play into the tech industry.  It's a leader in power saving for various technical devices.  It completed the acquisition of Fairchild Semiconductor, which is meant to help expand their reach, capabilities and market share.  With the increased synergies, they should be able to increase their value.  The tech sector - semiconductors in particular - exploded for a little while with results from consolidation in the industry as well as some great reports from quarterly results.  The high amount of debt the company has puts their balance sheet in some jeopardy, so this isn't exactly a best in breed stock.  This hasn't been an impact on the stock surging higher as we continue to hit all time highs.  Multi-year charts are very bullish with trends strongly positive in all indicators.  There are a few that are overbought at this time, but they're starting to get under that level after a couple weeks of stagnation.  The RSI and MACD still look positive with nothing particularly concerning yet.  In fact, the OBV could be indicating a possibility for another leg up.  The weekly charts are very similar, however, the strength stagnates in the dailies some.  Here, the MACD is bearish, and the RSI is almost flat.  My biggest concern is how steep this run up is in the long-term charts and the historical patterns it relates to.  It's hard not to feel like we're reaching a peak in stock price, but with a stronger economy, that could be a head fake.  At this time, the stock is well over my 2017 price estimate, though my estimate may actually be too cautious, given the overall environment.  Now that I have more information, I estimate 2017 earnings to be $1.19 and currently estimate 2018 earnings to grow to $1.30.  I still believe the right multiple for the stock is 13 times earnings due to the volatile nature of the stock.  As such, that puts a 2017 price target of $15.50 and 2018 of $17.  I have the stock at a 2 for its long-term prospects.  That said, I feel the stock has moved too much, too fast and will continue to consolidate for a while.  ON is 6.14% of my portfolio.

Pepsico (PEP, $111.39, +54.07%) - The epitome of a safety stock, this consumer packaged goods (CPG) company is in my portfolio not just for the safety it can provide when the stock market takes a dive, but also because the company has been performing extremely well on its promises.  The company continues to outperform its peers (though calling Coke a peer is getting much more difficult) and posted nearly 4% organic growth against strong comps from 2015.  Interest rates and foreign exchange rates continue to be problematic and is a reason why management delivered cautious guidance of "at least 3%" organic growth in 2017.  They also increased their dividend, which helps keep the stock relevant against rate hikes.  Recently the stock has been on the rise - even despite an increasing interest rate.  It's somewhat baffling, but there are a lot of rumors around Kraft-Heinz being interested in an acquisition.  I don't see Pepsico willing to play that game, but the stock is likely on the rise due to speculation there anyway.  Shifting to the charts, things continue to look positive on the surface.  A lot of the indicators are on positive trends.  The OBV is positive in all three time perspectives as is the RSI.  The multi-year RSI has even broken a long-term trend line to the upside.  That said, in the multi-year view, we're seeing a number of indicators over bought with a few more not far off.  The gap to over bought seems to have increased in the shorter time spans though, and the MACD of the daily charts is trying to cross back over to bullish from a short stint of going bearish.  Generally speaking, the charts look relatively favorable, but the strength in these prices aren't likely sustainable.  I feel this is a great stock to help diversify your portfolio and build over time into the weakness.  I estimate 2017 earnings of $5.14.  Because I believe the stock deserves a premium I'm setting the multiple to 21 and my 2017 price target to $108.  It's important to note that in a likely raising rate environment, I anticipate more downside potential than upside and that I expect it will grow slower than the S&P 500.  This is all about having a diversified portfolio and it will be a great stock in a mediocre sector.  Should the market take a fall, this stock will have the ability to bolster me some.  I would look at potentially buying more shares around $100.  PEP is 9.97% of my portfolio.


Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.

Sunday, March 12, 2017

Stock Analysis: Ionis Pharmaceuticals (IONS)

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

It's been a couple weeks since Ionis reported fourth quarter and fiscal year earnings results.  And the two weeks since has been a whirlwind of news to process.  As such, I'll take some time to talk about earnings, but also the events since that earnings call to see if I can place where everything really is at.  

Starting with the earnings report, as Ionis pre-announced, they were well ahead of guidance and expectations, primarily due to the FDA approval of SPINRAZA and the resulting milestone payment from Biogen.  Revenues came in at $160.3 million - over 50% above expectations of $99.3M.  The resulting earnings of $0.26 which is leaps and bounds above the $-0.13 that was expected.  Cash on hand also exceeded the $650M expectations, coming in at $665M.  This is important because with strong cash on hand, the company is less likely to need to have a secondary offering and dilute the share pool.

So everything was great, right?  Based on the report, as well as forward guidance that included targeting break-even operating earnings and the introduction of 3 to 5 new therapies, you'd think things are all headed in a positive direction.  As always with these types of stocks, there are risks that drugs will fail test or not be approved by the FDA and any of those events can have a hugely negative impact on the stock, as we saw last year with the platelet count issues.  But at this point, we aren't seeing any of that negativity.  As a result, the stock rose 22.7% on the week.  Dr. Jekyll was in control, or so it seemed...

A few short days later, Ionis, with their subsidiary Akcea, announced positive results from their phase 3 APPROACH study, noting that primary end points have been reached with a mean reduction of triglycerides of 77%, compared to an 18% increase in those taking a placebo.  As to be expected, the company did everything possible to make this sound as great as possible - and indeed, it does sound very positive.  More digging and research show there are things that people have started to become fearful of, though.  The primary risk/concern here is around those pesky platelet counts again.  The test resulted in 15% of the population having to be forced out of the study due to low platelet counts.  More damning yet is the fact that the symptoms went away after they discontinued dosing - indicating there is a link that the therapy can increase the likelihood of the condition.  When the situation was discovered, physicians began monitoring for the condition.  Treatment exists for such situations and since monitoring began, no patients left the program.  This is a tough situation.  The product works, but has a side effect that has some significant risk.  That side effect can be caught and managed/treated, but is such a side effect worth the potential benefits of the drug?  Are there competitors out there doing a better job?  This is what is spooking the markets and as a result, the stock started to drop down to previous levels in the $46 - $8 area. 

The news resulted in a continued downfall of the stock when then the stock and company was hit hard again on Friday.  Goldman Sachs downgraded the stock, naming a $25 price target.  They raised numerous concerns regarding "toxicity in the platform," meaning they continue to see side effects as the Antisense technologies continue to advance.  There was a lot of butt-hurt comments about Kynamro and the side effects of the therapies there, then as the therapy technologies advanced a number of issues have subsided or been removed, but some, like the low platelet counts in particular, continue to exist.  In what I was able to find, the analyst essentially placed his own bet on the cause for the low platelet cause, pinned it to the technology itself, and derived that this would prevent Volanesorsen or TTRx to move forward with much effectiveness.  Additionally, they called out competition from a couple other gene therapy drugs that haven't completed testing as a "one shot cure" to quickly supplant the potential gains from the Biogen/Ionis therapy.  The arguments were pointed and quite negative.  The market responded in kind, forcing the stock to shed 23.5% on the week.

Looking at the details as objectively as I can, I can understand some of Goldman's negativity.  There's no doubt that there is a pattern of "toxicity," as it's been described with the Antisense platform.  I'm mixed on my feelings towards the low platelet counts in the therapy.  The fact that biweekly monitoring is needed seems somewhat defeating if there's anything out there that can remotely compete with Volanesorsen and I think this needs to be addressed given the income potential this therapy has, given it doesn't have a sponsor.  At the same time, the drug appears to have proven that monitoring and management can bring positive results.  I fear a larger dropout rate from this therapy should it be approved.  Speaking of approval, I don't agree with the analysts worries over FDA approval.  With the new administration and reduced regulation, I wouldn't be surprised that the FDA becomes more lenient at best and perhaps about as strict as it has been at worst.  I feel the risk of approval denial here is lower than it was 6 months ago.  I'm also not terribly worried about the competition for gene therapy cures at this point.  There's one drug in phase 2 and the gene therapy is in phase 1.  That's quite awhile and needed positive proof for now.  If success continues, I see this more a risk closer to 2020.  

Wrapping this up and trying to put a nice bow on it, there are some problems that are likely to slow the growth capability of the stock.  That said, I'm not convinced that the stock deserves the hit it has taken either.  The company has continued to outperform its guidance and has a vast pipeline that isn't even in consideration.  Additionally, the analysts claims that the company and its solutions are unproven when calling them pioneering seems an awful lot like talking out both sides of the mouth.  I will keep this stock at a 1, noting that I do believe it can go below $40, so react accordingly.  I don't see much more down side to the stock though.  Subsequently, if they can deliver at or above expectations through this year, I still see plenty of upside now and into the out years.  That potential just isn't as strong right now, given the risks I've previously discussed.  As such, I'm lowering my price target for 2017 down to $54 (from $58).

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.

Saturday, March 11, 2017

Earnings Analysis: Home Depot (HD)

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

On February 21 (yeah, I know I'm way late), Home Depot announced fourth quarter and fiscal year results for 2016.  Instead of using words to describe how the quarter went, I thought I'd just leave this:


That baseball is essentially sell side analysts and their estimates for the quarter and the year - completely spanked, thought that can also be said about the guidance provided by Home Depot's management.  To get more specific, Home Depot reported sales of $22.2B and earnings of $1.44.  This was against expectations of $21.73B and $1.33 respectively.  Not only this, but same store comps were up 5.8% and 6.3% in the US.  Ladies and gentlemen, I think it's important to remind you that this is against difficult compares of a year ago!  On the year, comps were 5.6%, which is 60 basis points above what was estimated for the year.  Clearly, sales and earnings all topped management guidance as well.  

But wait!  There's more!  Because of the success and progress the company has made, additional moves have been made regarding their capital strategies.  Instead of setting their dividend payment to 50% of the previous year's earnings, they're raising it to 55%, meaning a 29% increase in dividend payout from a year ago.  They also replaced their previous share buyback program with a $15B program - a third which expected to be purchased during the course of 2017.  This is a rough estimate of about 2.5% of total shares outstanding.

Finally we have guidance.  Management provided guidance of sales and same store sales comp growth of 4.6%.  They also targeted a 10.5% increase in earnings, setting their target to $7.13.  They intend to open six new stores, which will have a negative impact on gross margin as well as I suspect the operating margin increase of 30 basis points is lower than if they didn't open new stores.  The new store openings is something to be careful of.  The retail sector, as a whole, is suffering from a condition of too many stores and their online services cannibalizing them.  We don't want to see Home Depot fall into the same problem or it's game over for the stock.  With the Fed expected to raise rates again this next week, I suspect there will be more chatter regarding how higher interest rates will hurt anything related to the homes, but I trust the CFO way too much to believe that stuff.  It's too early and there is a strong social penchant for improving the home for selling, or staying in - since people aren't going out as much right now.  Eventually rates will have an impact, but I don't see that any time soon.  While the retail sector is hurting, Home Depot is shining.  This is likely to make the stock even more sought after, but you do need to be careful of the stock getting ahead of itself.

I'm used to this management team being conservative and I don't find this time to be anything different.  You can pretty much guarantee they'll hit these numbers if things don't go well.  On top of that, they are also expecting a tax rate over 36%.  If that changes due to tax reform, that could be a huge windfall too.  I expect same store comps will be more around 5% and earnings increase will be closer to 13%.  As such, I'm increasing my 2017 earnings estimate to $7.25 and setting a price target at $159.  Just note that this price target requires a multiple of almost two times the earnings growth rate, so if we see any weakness it will take longer to hit that target.


Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.

Tuesday, February 21, 2017

Trade: On Semiconductor

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Today I sold 40% of my stake of On Semiconductor at a price of $15.90.  At the time of the sale, my position had gained over 87% in valuation and 42% of that increase has been since the first week in December.  While the stock did report spectacular results and a favorable guidance, I don't feel this strong of a move in just a couple months is likely to be sustainable.  As such, I needed to follow my own disciplines and take out some of my gains to protect me from down side risk.  I'm aware the stock technicals are still quite strong, indicating the stock could run more, but by taking out a large majority of what I've invested, I'm now close to playing with the house's money.  I see another 6.5% of room before the stock really feels like it's getting ahead of estimates and analyst price targets.  The stock is also known for pulling back as we enter into the spring months, since the reporting is now done and we're in a seasonally slow period.  This allows me the freedom to let the stock run on its own and take out the remaining investment as appropriate, or I can let it pull back and buy in at a much better time/price.  I still believe in the stock's long-term abilities to be a strong supplier for auto, IoT, and other power management solutions.  I just don't believe the stock and the company are in alignment at this time.  Discipline trumps conviction so I had to follow my rules.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.

Sunday, February 19, 2017

Earnings Analysis: Cedar Fair (FUN)

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Last Wednesday, Cedar Fair announced fourth quarter and fiscal 2016 results.  Earnings appeared disastrous, with a loss of $0.12, which was fourteen cents below expectations.  On the flip side, net revenues came in at an astonishing $192M which handily beat expectations of $182.64M by 5%.  Guidance also continued with the narrative we've been hearing with the company expecting to surpass the $500M EBITDA threshold this year.  Year end EPS ended up at $3.14, which was significantly higher than I estimated at this time last year.  In the conference call, we heard a number of good results from management.  They saw an increase in attendance - despite weather, increased spend per customer, and an increase in revenues from their assets outside of the parks (think hotels, resorts, etc).  Price increases were applied and they saw no struggle in customers accepting it.  Finally, people continue to take advantage of pre-ordering for both park entry and food options.  This saves them a little money, but gives the management team a clearer and clearer picture of their cash flows.  Speaking of cash flows, those have been strong and continue to appear that way.  Management stated they're quite comfortable with their flows to manage debt and distribution payments, which means they shouldn't need to release more equity to cover costs.  In fact, costs aren't expected to grow nearly as much this year (4%) as they did last year because management doesn't expect to see as much in terms of wage increases.  The distribution payment is $3.44 per year, which is a yield of 5.17% as of this weekend's close price.  Healthy enough to limit impact caused by rate increases at this time.

Looking at the stock itself, I maintain my view that this is buyable on a pullback - especially if it reaches a yield of 5.5% (around 62.50).  I am also expecting the company to hit an EBITDA target of around $505M on the year.  Based on the information I've seen, I continue to believe the company will earn around $3.57 this year.  That puts the current price at a little under 19 times my estimate for earnings.  When earnings are expected to grow by 13.7% I feel a multiple of 20 is fair when looking at price targets for the next year.  My 2017 price target is $71.50.  My early estimates for 2018 are EPS of $3.93 and a price target of $78.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.

Thursday, February 16, 2017

Earnings Analysis: Pepsico (PEP)

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

On Wednesday, Pepsico announced fourth quarter and fiscal year 2016 financial results.  Numbers for the fourth quarter were basically within expectations for the top line and a bottom line beat of four cents compared to estimates ($19.5B revenues and $1.20 EPS delivered).  Results were strong as the company managed to essentially meet or beat all of their financial metrics.  It can be said that organic growth came a little below expectations at 3.7% vs. the 4% they targeted, but I'll give them a pass on it.  These growth numbers are off of strong numbers delivered in 2015, so I feel satisfied with the growth represented.  Foreign exchange rates continue to be a problem for the company, with countries like Mexico and Brazil being large portions of their sales, while their currency continues to be devalued against the dollar.  Margins were slightly compressed compared to previous quarters, though management expected it.  There was also some nice reductions in SG&A to help the overall picture.  In addition, the company has already raised its dividend to $3.22 per year and promised $2B in buybacks.  The dividend increase sets the stock at 3% yield as of close on Tuesday, which is a fairly healthy return.  The buyback is lower than it has been in past years, but they used to have their buybacks outpacing their cash flow.  This is now in line with their guidance to keep cash levels sustainable.

In general, the company delivered excellent numbers.  Compare them to some of their peers and the results look even better yet.  It does seem that guidance has caught people by surprise - at least initially - though.  Guidance was "at least 3%" organic growth, and Core EPS growth of 8% (they delivered 9% this year).  Management's earnings guidance was $5.09.  To me, this seems conservative.  Management clearly stated that they are providing guidance for what they know they can meet.  If their worries around macro conditions and volatility turn out to be no big deal, it should set them to beat expectations.  The company also has a history of keeping expectations reasonable, but low and then they raise guidance halfway through the year.  I don't feel this is set up to be much different from that history.  

I believe this company has the right management in place to continue to lead it in the direction we want and need as shareholders.  Their focus is on the right trends and growth while also looking to cut costs and be more efficient.  Guidance may be seen as a concern for some, but I find it to be more of a floor to build off of.  There are downsides and risks here, though.  The stock is already priced around 21 times this year's expected earnings as per guidance.  With interest rates seemingly more likely to rise, I don't believe there's a lot of room for the stock to run a lot higher.  I'm going to guide to an earnings expectation of $5.14 for next year, anticipating things will be better than they currently feel.  This is a couple cents lower than my original estimates as a sign of my own cautiousness.  That sets my price target at $108 for 2017.  While I certainly feel that the company is performing in a way that deserves to get a higher multiple than Coke (which it doesn't today), I don't expect we'll see the multiple get higher.  I expect to see the stock performance of CPG companies to under perform the S&P 500, but I want to keep a position for diversification.  As such, I find the stock to continue to be a core holding and rank it at a 2.  However, I wouldn't look to buy more shares until around the $100 mark - a point I find not to be out of question, given our current macro and economic environments.   

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.

Wednesday, February 15, 2017

Trade: Ionis Pharmaceuticals

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Today I added and filled my position in Ionis Pharmaceuticals.  I have come to the point between timing and the company's technicals that this is the best timing I may be able to hit.  The company announced its fourth quarter earnings results for Tuesday February 21 and with the stock pulling back during the day, I took my best chance to get the stock below $47.  I would have preferred $43, but that just didn't seem possible.  I feel it is likely we'll hear more about phase 3 results before or during this earnings call, as this has become a regular pattern from the company.  Since most of these readouts will have impacts on drugs that will likely go commercial this year, I feel the stock is more likely to rise off of these announcements than fall.  I believe the stock has potential to get to and through 52-week and all time highs over the next 12 to 18 months driven by a number of drugs going commercial while others in the pipeline continue through their own paces.

If I continued to micromanage the prices, I was likely to remain frozen and miss opportunities as I have in the past.  The overall market has been booming and could pull back, but for IONS, the stock hasn't performed in suit.  Therefore I felt like this was a comfortable move with the data I worked with.  The rest I leave to time and the company's ability to deliver.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.