Portfolio Review: July 31, 2017

7/31/2017


Earnings season roll call

Consumer discretionary

D.R. Horton ($36; DHI) grew earnings per share 15% to $0.76 in the June quarter, squeezing past the consensus by a penny. The homebuilder's revenue advanced 17% to 3.78 billion, also narrowly ahead of expectations. The volume of net sales orders rose 11%, down from 14% growth in the March quarter and 15% growth in the December quarter.

D.R. Horton raised its guidance for fiscal 2017 ending September, implying revenue of $4.0 billion to $4.2 billion in the current quarter (7% to 12% growth), versus the consensus of $4.12 billion at the time of the announcement. The stock slipped on the news but entered the report with a lot of momentum. The stock is up 33% in 2017 and near its highest level in more than a decade. D.R. Horton is a Buy and a Long-Term Buy.

Financials

Citizens Financial Group's ($35; CFG) per-share profits surged 37% to $0.63 in the June quarter, topping the consensus estimate by $0.04. Revenue, up 9% to $1.40 billion, also topped the consensus. Average deposits rose 7%, while average loan growth stood at 6%. Net interest margin also widened.

Management updated its 2017 guidance, now projecting net interest income at the high end of its 8% to 9% growth range and loan-loss provisions lower than previously expected. The bank also backed its prior loan-growth target of 5.5% to 7% for the year. Citizens plans to pay its previously announced dividend hike, a 29% increase to a quarterly rate of $0.18 per share, on Aug. 16; it still expects to increase its dividend to $0.22 per share in early 2018. Citizens Financial is a Focus List Buy and a Long-Term Buy.


Zions Bancorp ($46; ZION) said earnings per share surged 66% to $0.73 in the June quarter, surpassing the consensus by $0.11. Results benefited from 8% growth for net interest income, higher net interest margin, and lower credit losses. Zions' loans increased 3%, its deposit base 4%. The bank will pay its quarterly dividend of $0.12 per share on Aug. 24. Zions raised its distribution 50% last month. Zions is a Buy and a Long-Term Buy.

Health care

For the June quarter, Amgen's ($176; AMGN) per-share profits climbed 15% to $3.27, comfortably ahead of the consensus of $3.11. Sales crept up 2% to $5.81 billion, as Amgen's roster of new products offset declines from its top-selling drugs. Revenue slipped 1% for Enbrel, a rheumatoid-arthritis treatment, and 5% for chemo drug Neulasta; these drugs combined for 46% of the company's total revenue.

The shares fell on the report, likely due to disappointment over management's guidance. Amgen raised its 2017 guidance for per-share profits, though the new range's midpoint of $12.40, implying 6% growth, remains below the consensus of $12.48. Management narrowed its target for 2017 revenue to a range with a midpoint of $22.75 billion, down 1% but above the consensus of $22.69 billion. Amgen is a Buy and a Long-Term Buy.


Laboratory Corp. of America ($161; LH) said June-quarter earnings per share increased 5% to $2.47 excluding special items, topping the consensus by $0.07. Net revenue advanced 5% to $2.50 billion. The diagnostics unit grew sales 8%, overcoming a 3% decline for the smaller drug-development business. LabCorp raised its 2017 outlook for profits and sales, both exceeding consensus estimates at the time of the announcement. Shares rallied on the results. LabCorp is a Long-Term Buy.

Industrials

Alaska Air Group ($88; ALK) earned $2.51 per share excluding special items in the June quarter, up 18% but a penny short of the consensus. Revenue climbed 41% to $2.10 billion, matching analysts' forecasts. Passenger revenue per available seat mile, or unit revenue, increased 1.3%. Although Alaska Air grew its customer base, management described "a number of operational challenges," likely stemming from its December acquisition of Virgin America. Operating expenses surged 50%, largely due to the Virgin deal, rising wages, and 12% higher fuel cost per gallon. Alaska Air remains a Buy and a Long-Term Buy.


For the June quarter, Ingersoll-Rand ($87; IR) said earnings per share from continuing operations rose 8% to $1.49, surpassing the consensus estimate of $1.46. Sales, up 6% to $3.91 billion, also topped expectations. Bookings growth slowed to 3% from 6% in the March quarter. The company now expects 2017 earnings per share of $4.50, the high end of its prior range of $4.35 to $4.50 but still below the consensus of $4.53 at the time of the announcement. Management also sees full-year operating cash flow and free cash flow at the top of its previously announced ranges. Shares fell on the report but remain up 16% for the year. Ingersoll is a Long-Term Buy.

Technology

Facebook's ($166; FB) per-share profits surged 69% to $1.32, well ahead of the consensus estimate of $1.13. Sales, up 45% to $9.32 billion, also topped the consensus. Mobile advertising accounted for 87% of ad revenue, up from 84% in the year-ago quarter. Operating expenses rose by one-third as Facebook's work force swelled 43%. Daily average users grew 17% to $1.32 billion. Operating cash flow jumped 46% to $5.36 billion, marking the 12th straight quarter of growth exceeding 25%. Facebook is a Buy and a Long-Term Buy.


Juniper Networks ($28; JNPR) grew June-quarter earnings per share 14% to $0.57 excluding special items, topping the consensus by $0.03. Sales, up 9% to $1.31 billion, also narrowly surpassed the consensus. Revenue from services (up 9%) and switching (up 32%) more than offset softness in routing (flat) and security (down 12%). Management's September-quarter guidance was roughly in line with consensus estimates, which calls for flat profits on 3% revenue growth. Juniper is a Buy and a Long-Term Buy.


Lam Research ($168; LRCX) earned $3.11 per share excluding special items in the June quarter, up 73% and $0.08 above the consensus, on 51% sales growth. The company projects growth of 50% in sales and 80% in profits for the September quarter, both well above the consensus. Lam is a Focus List Buy and a Long-Term Buy.

Corporate roundup

Applied Materials ($47; AMAT) named Dan Durn as its new CFO, replacing the retiring Bob Halliday. Durn was most recently the CFO at NXP Semiconductors ($110; NXPI). Applied Materials is a Buy and a Long-Term Buy.


J.P. Morgan Chase ($92; JPM) agreed to pay $77 million to settle an investor lawsuit accusing the bank of manipulating benchmark interest rates. Separately, J.P. Morgan formed an online partnership with PayPal ($59; PYPL) that lets Chase customers add their credit cards to PayPal accounts through the digital wallet Chase Pay. J.P. Morgan is a Buy and a Long-Term Buy.


Celgene ($138; CELG) agreed to pay $280 million to settle a U.S. lawsuit claiming the company marketed cancer drugs for unapproved uses. Celgene is a Focus List Buy and a Long-Term Buy.


EQT Midstream Partners ($76; EQM) announced a cash distribution of $0.935 per unit, payable Aug. 14, up 5% from last quarter. EQT Midstream, a master limited partnership (MLP), has now raised its distribution in 17 straight quarters. EQT is a Long-Term Buy.


Rank Changes

No changes were made this week in Dow Theory Forecasts.


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