Portfolio Review


A new stock and rank changes

With March-quarter results filtering through our Quadrix stock-rating system, we are making several rank changes. Gilead Sciences ($102; GILD), reviewed in Analysts' Choice, is joining the Buy list. The other rank changes are as follows:

CBRE Group ($37; CBG) is being initiated as a Long-Term Buy. CBRE, a provider of commercial real estate services, posted strong March-quarter results, with per-share profits up 28% on 10% revenue growth. CBRE has posted seven straight quarters of double-digit sales growth, a trend analysts expect to continue over the next couple quarters. Consensus profit estimates are rising for 2015 and 2016, currently implying 17% growth in both years. At 21 times trailing earnings, the stock trades at a 12% discount to its five-year average.

We are adding Affiliated Managers Group ($221; AMG) to the Focus and Buy lists. Revenue has risen at least 7% in 11 straight quarters, benefiting from the market's appreciation and a business model that boosts growth by taking ownership stakes in smaller investment-management firms. The stock rallied on a solid March-quarter report and encouraging outlook. Management has raised its 2015 per-share-profit guidance range, with the midpoint implying 20% growth and exceeding the consensus. Affiliated Managers is already a Long-Term Buy.

Ameriprise Financial ($123; AMP) is being downgraded from the Focus List and no longer ranks among our favorite 13 to 17 stocks for 12-month gains. The shares have slumped since missing analyst expectations for both per-share profits and sales in the March quarter. Consensus profit estimates have contracted, but still call for 14% growth for the June quarter and 12% growth for the year. Ameriprise also boosted its dividend 16%, marking its fifth straight year of double-digit dividend hikes. Ameriprise remains a Buy and a Long-Term Buy.

We are removing Corning ($21; GLW) from the Focus List, though the stock retains its Buy and Long-Term Buy ratings. The stock has performed poorly in the past couple months and sold off on the March-quarter report. Glass inventory in the supply chain hovers near levels seen at prior industry peaks, which could be an ominous signal, though management describes these levels as "healthy." Moreover, Corning's Overall score has plunged to 68. Yet Gorilla Glass is seeing strong volume growth, particularly the newest version that commands a premium price, boosting Corning's profit margins.

Travelers ($102; TRV) is being dropped from the Buy List. The property-and-casualty insurer posted disappointing March-quarter profits and sales, hampered by higher weather-related losses. Its Overall score has fallen to 70 due to eroding operating momentum and weak earnings-estimates trends. The consensus currently calls for per-share profits to slump 12% this year on 1% higher revenue. However, the stock should still appeal to income-oriented investors willing to wait out the sluggish operating environment. Travelers remains a Long-Term Buy.

We are dropping Micron Technology ($28; MU) from the Buy and Long-Term Buy lists. The stock's Overall score is still solid at 82, while the Value score of 96 has allure. But Micron has issued disappointing guidance in each of the past two quarters. The stock has recovered 5% since issuing February-quarter results but is down 12% since we first recommended it in the Nov. 3, 2014, issue, lagging the S&P 500's 4% advance. Sell Micron, now rated B (average).

Union Pacific ($107; UNP) is being removed from the Buy and Long-Term Buy lists. The railroad missed on sales and per-share profits in the March quarter, squeezed by the combination of lower volumes and higher labor costs. The Quadrix Overall score has fallen to 55, hurt by below-average ranks for Momentum, Earnings Estimates, and Performance. The stock is up 34% since we added it to the Long-Term Buy List in May 2013 (versus the S&P 500's 25% gain) and up 22% since joining the Buy list in February 2014 (16% for the S&P 500). Union Pacific, now rated B (average), should be sold.

Earnings reviews

For the March quarter, Shire ($237; SHPG) said earnings per share grew 20% to $2.84, well ahead of the consensus of $2.61. Total revenue rose 11% to $1.49 billion on 19% growth from Vyvanse, which treats attention-deficit hyperactivity disorder and generated quarterly sales of $417 million. Shire said Vyvanse's newly approved indication to treat binge-eating disorders could boost annual sales by up to $300 million. Operating cash flow more than doubled in the quarter. Shire is a Focus List Buy and a Long-Term Buy.

Comcast's ($58; CMCSa) March-quarter earnings per share rose 16% to $0.79 excluding special items, easing past the consensus of $0.74. Revenue increased 3% to $17.41 billion, also ahead of analyst expectations. Sales rose 6% for the cable business but slipped 4% for NBCUniversal, as revenue from this year's Super Bowl couldn't offset the effect of telecasts of the Olympics in the year-ago period. Excluding the Olympics and the Super Bowl, NBCUniversal revenue rose 8%. Comcast shed 8,000 video subscribers and gained 407,000 internet subscribers. In April, the number of internet subscribers topped video subscribers for the first time in Comcast's history. Comcast is a Buy and a Long-Term Buy.

CVS Health ($99; CVS) earned $1.14 per share in the March quarter, up 12% and $0.06 above the consensus. Total revenue advanced 11%. The pharmacy-services unit grew sales 18%, while the retail-pharmacy segment posted a 3% gain. Same-store sales crept 1.2% higher despite lower store traffic. The company expects per-share profits of $5.08 to $5.19 for the year; the consensus called for $5.16 at the time of the announcement and has since risen slightly. CVS shares gained on the report and remain a Buy and a Long-Term Buy.

Mylan ($71; MYL) grew March-quarter earnings per share 6% to $0.70 excluding special items to squeeze past the consensus by a penny. Revenue increased 9% to $1.87 billion on balanced growth for the generics unit, up 9%, and specialty unit, up 8%. Management reiterated its determination to acquire Perrigo ($190; PRGO) by the end of the year. The midpoint of Mylan's June-quarter guidance calls for per-share earnings of $0.88, implying 28% growth but falling short of the consensus of $1.03.  Mylan is a Buy and a Long-Term Buy.

Skyworks Solutions' ($95; SWKS) per-share profits surged 85% to $1.15 excluding special items in the March quarter, topping the consensus by $0.02. Sales climbed 58% to $762 million, while operating profit margin expanded to 29% from 21%. For the June quarter, Skyworks expects per-share profits of $1.28, up 54%, on revenue of $800 million, up 36%; both estimates exceeded the consensus at the time of the release. Skyworks is a Buy and a Long-Term Buy.

Rank Changes

CBRE Group ($37; CBG) is being initiated as a Long-Term Buy. Affiliated Managers Group ($221; AMG) is being added to the Buy List and the Focus List. Ameriprise Financial ($123; AMP) and Corning ($21; GLW) are being dropped from the Focus List but remain Buys and Long-Term Buys. Gilead Sciences ($102; GILD) is being added to the Buy List. Travelers ($102; TRV) is being dropped form the Buy List but remains a Long-Term Buy. Micron Technology ($28; MU) and Union Pacific ($107; UNP) are being dropped from the Buy and Long-Term Buy lists. Vanguard Short-Term Corporate Bond ($80; VCSH) ETF now accounts for 18.2% of the Buy List and 17.6% of the Long-Term Buy List.

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