Portfolio Review: August 7, 2017

8/7/2017


Earnings reviews

Consumer discretionary

Comcast ($40; CMCSa) reported June-quarter earnings per share of $0.52, up 27% and $0.04 above the consensus. Sales climbed 10% to $21.17 billion, also ahead of expectations. The cable unit posted 5% higher sales, while NBCUniversal grew 17%, driven by filmed entertainment, up 60%, and theme parks, up 16%.

Following three straight quarters of customer additions, the video business lost a net 34,000 subscribers. But Comcast’s up-front advertising season has been strong. Comcast is a Focus List Buy and a Long-Term Buy.


In the June quarter, Mohawk Industries ($252; MHK) earned $3.72 per share excluding special items, up 7% and $0.12 above the consensus. Revenue advanced 6% on growth across all three flooring units.

Mohawk expects to install broad price hikes in the September quarter to help offset rising commodity costs. The company targets September-quarter earnings per share of $3.70 to $3.79, implying 6% to 8% growth and straddling the consensus of $3.74.Mohawk is a Focus List Buy and a Long-Term Buy.


Royal Caribbean Cruises ($117; RCL) grew per-share profits 57% to $1.71 in the June quarter, surpassing the consensus of $1.67. Sales, up 4% to $2.20 billion, narrowly exceeded analysts’ forecasts. Management says booking rates and volumes for the next 12 months remain robust.

Royal Caribbean targets September-quarter earnings per share of $3.45, up 8% and $0.16 above the consensus at the time of the announcement. The company raised its 2017 outlook for per-share profits to $7.35 to $7.45, implying 21% to 23% growth and ahead of the consensus of $7.26. Royal Caribbean is a Buy and a Long-Term Buy.

Health care

Celgene’s ($135; CELG) per-share profits jumped 26% to $1.82 in the June quarter, topping the consensus by $0.04. Sales advanced 19% to $3.27 billion, driven by the growth of Celgene’s three biggest drugs: Revlimid (up 20% and 62% of quarterly sales), Pomalyst (23% and 12%), and Otezla (49% and 11%). Revlimid and Pomalyst fight multiple myeloma, while Otezla treats psoriasis and psoriatic arthritis. Celgene raised and tightened its 2017 guidance for earnings per share to a range with a midpoint of $7.30, versus the consensus of $7.28 at the time of the announcement. In other news, Celgene and development partner Agios Pharmaceuticals won U.S. approval to sell Idhifa, a drug that treats acute myeloid leukemia, an aggressive type of cancer that forms in the bone marrow and typically afflicts older patients. Celgene is a Focus List Buy and a Long-Term Buy.

Technology

Apple ($157; AAPL) grew per-share profits 18% to $1.67 in the June quarter, $0.10 ahead of the consensus. Revenue, up 7% to $45.41 billion, also exceeded expectations. Sales of services rose 22% and Mac sales increased 7%, supporting a seasonally light quarter for the iPhone, up 3%. iPad volumes jumped 15%, the first growth since the December 2013 quarter. Of Apple’s five geographic regions, only China contracted, its sales down 10%.

Looking ahead to the September quarter, Apple gave a sales-guidance range with a midpoint of $50.5 billion, implying 8% growth and comfortably ahead of the consensus of $49.21 billion at the time of the report. The strong guidance hinted that some of the new iPhone models may not be delayed. Apple is rumored to be releasing three iPhone models to mark the device’s 10-year anniversary. In recent years, the new iPhone has typically launched in the second half of September. Shares rallied to an all-time high on the results. Apple is a Buy and a Long-Term Buy.


Citrix Systems ($79; CTXS) reported June-quarter earnings per share of $1.03 excluding special items, up 3% to exceed the consensus estimate by $0.04. Sales rose 2% to $693 million, also narrowly ahead of the consensus. Management’s September-quarter outlook was disappointing, though its updated 2017 outlook brackets consensus estimates for both per-share profits and sales. For now, Citrix remains a Buy and a Long-Term Buy.

Additional reports

EQT Midstream Partners ($77; EQM) earned $1.27 per limited partnership unit, flat with year-ago levels and $0.02 below the consensus. Operating revenue advanced 12% on capacity growth. Management raised its 2017 outlooks for net income, operating profit, and distributable cash flow. EQT Midstream is a Long-Term Buy.


Southwest Airlines ($56; LUV) grew June-quarter earnings per share 4% to $1.24 excluding special items, topping the consensus by $0.04. Operating revenue climbed 7% to $5.74 billion. Higher costs cut into profits, though management expects that pressure to ease in the second half of the year. Southwest expects unit-revenue growth of 1% in the September quarter, lower than some investors anticipated due to hiccups in the implementation of its new reservation system. Citing the early delivery of new airplanes, management raised its 2017 guidance for capacity growth, including 4% to 5% higher capacity in the September quarter. Southwest Airlines is a Focus List Buy and a Long-Term Buy.

Corporate roundup

Alaska Air Group ($86; ALK) said hackers attacked computer systems used by Virgin America in March. Only its staff’s login information was stolen; no customer data was affected. Alaska Air acquired Virgin in December for $2.6 billion. Alaska Air is a Buy and a Long-Term Buy.


The U.S. Food and Drug Administration granted a priority review of a request by Amgen ($174; AMGN) to update the label of its cholesterol drug Repatha. A recent clinical trial found that Repatha, currently used for reducing a certain type of cholesterol, significantly lowered patients’ risk of heart attack, stroke, and death. The FDA will make its decision by Dec. 2. Amgen is a Buy and a Long-Term Buy.


Scana ($67; SCG) shares rallied when the utility company abandoned plans to complete a nuclear power plant in South Carolina after the bankruptcy filing of reactor builder Westinghouse Electric. Toshiba, the parent of Westinghouse, agreed to pay Scana and Santee Cooper, a minority owner in the plant, $2.17 billion as compensation. Scana is a member of our Top 15 Utilities Portfolio.


Laboratory Corp. of America ($160; LH) agreed to acquire Chiltern International for about $1.2 billion in cash. The deal extends LabCorp’s push into the contract-research organization (CRO) market. Chiltern helps biotechnology and medical-device companies conduct clinical trials for products still in the early stages of development; its focus involves testing oncology drugs. LabCorp is a Long-Term Buy.


U.S. auto sales declined 7% in July from the same time last year, as aggressive promotional activity did little to stem the slowdown. Sales slumped 15% for General Motors ($35; GM) and 7% for Ford Motor ($11; F) but rose 4% for Toyota Motor ($114; TM). GM is rated A (above average). Both Ford and Toyota are rated B (average).


Rank Change

ICON ($106; ICLR), already a Buy and Long-Term Buy, is being added to the Focus List.


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