Portfolio Review: November 2, 2015


Buy Jabil Circuit

Jabil Circuit ($23; JBL) provides electronic-manufacturing services, including component procurement, design, production, and testing. Apple ($119; AAPL) generated 24% of Jabil's revenue in fiscal 2015 ended August, up from 18% a year earlier. Shares rallied on robust August-quarter results that included per-share profits from operations rising tenfold on 15% revenue growth. The stock has high exposure to the historically volatile consumer-device market and continues to funnel a significant amount of cash flow into capital expenditures. But it also offers excellent growth prospects, with per-share profits expected to rise 24% in fiscal 2016 on 11% higher revenue. And the stock trades at just nine times estimated year-ahead earnings. Earning an Overall score of 99, Jabil is being added to the Buy and Long-Term Buy lists.

Earnings roll call

Consumer discretionary

For the September quarter, Comcast ($62; CMCSa) said per-share profits increased 10% to $0.80 excluding special items to match the consensus estimate. Sales grew 11% to $18.67 billion, well ahead of the consensus. The NBCUniversal business drove growth, with sales up 21%. The cable operations reported 6% higher sales, as net video losses slowed to 48,000 from 81,000 in the year-ago quarter. In other news, Comcast said it will seek shareholder approval to reclassify its Class A special common stock (ticker CMCSk) as Class A common stock (CMCSa). Comcast is a Focus List Buy and a Long-Term Buy.

Lear ($126; LEA) grew per-share profits 33% to $2.56 excluding special items in the September quarter, topping the consensus by $0.19. Sales crept 2% higher, as 5% growth for the seating unit more than offset a 7% decline for the much smaller electrical operations. Revenue rose 11% at constant currency, even as global vehicle production held flat. Management increased its 2015 outlook for operating earnings and free cash flow, and shares rose on the results. Lear is a Focus List Buy and a Long-Term Buy.


CBRE ($38; CBG) grew September-quarter earnings per share 28% to $0.51, beating the consensus by a nickel. Revenue climbed 19% to $2.71 billion, comfortably ahead of analyst expectations. CBRE also raised its 2015 guidance for per-share profits, which implies growth of 19% to 22% in the December quarter, versus the consensus projection of 15% at the time of the announcement. Shares surged on the news. CBRE is a Buy and a Long-Term Buy.

In the September quarter, Jones Lang LaSalle ($164; JLL) said per-share profits rose 11% to $2.52 excluding special items, topping the consensus of $1.99. Revenue, up 10% to $1.50 billion, also exceeded the consensus estimate as fees rose at double-digit rates across all business units and geographic markets. The company raised its semiannual dividend 7% to $0.29 per share, payable Dec. 15. Jones Lang's stock rallied on the report and remains a Focus List Buy and a Long-Term Buy.

Lincoln National's ($53; LNC) September-quarter earnings per share fell 29% to $1.11, well short of the consensus of $1.50. The company said profits included $0.55 per share in deferred acquisition costs, increased reserve assumptions, and legal expenses — these costs totaled just $0.05 per share in the year ago quarter. But revenue increased 9% to $3.72 billion, comfortably ahead of the consensus of $3.38 billion. Lincoln raised its quarterly dividend 25% to $0.25 per share, payable Feb. 1. Although the results are somewhat disappointing, Lincoln National's story appears to be intact, and the stock remains a Long-Term Buy.

Health care

Centene ($61; CNC) reported September-quarter earnings of $0.84 per share excluding special items, up 38% and $0.06 above the consensus. Total revenue surged 34% to $5.82 billion, also ahead of the consensus. The insurer's managed-care membership rose 24% to 4.8 million. Centene raised its 2015 profit guidance for the third time this year. The midpoint of the new range is $2.87 per share, reflecting 29% growth and exceeding the consensus of $2.81 at the time of the announcement. Centene is a Buy and a Long-Term Buy.

Community Health Systems ($29; CYH) said September-quarter results missed analyst expectations, causing shares to plunge to their lowest level since October 2012. Per-share profits slumped 45% to $0.56 excluding special items, versus the consensus of $0.89. Revenue increased 1% to $4.85 billion. The hospital operator blamed the poor performance on lower admissions and a weaker payer mix. Although the results are disappointing, the sell-off looks overdone and the shares look cheap at less than six times trailing free cash flow. Shares seem capable of bouncing back to $34 to $37 over the next six to nine months. The company will report its full results on Nov. 2, after our deadline. Community Health remains a Buy and a Long-Term Buy.

Gilead Sciences ($108; GILD) reported September-quarter earnings per share of $3.22 excluding special items, up 75% and 12% above the consensus estimate. Sales soared 37% to $8.30 billion, well ahead of the consensus. Sales of hepatitis C drugs Sovaldi and Harvoni surged 70% to $4.80 billion. For the third time this year, Gilead raised its 2015 sales guidance range, but the midpoint of the target range is below the consensus. The stock is a Focus List Buy and a Long-Term Buy.

Shire's ($231; SHPG) per-share profits advanced 11% to $3.24 excluding special items, comfortably ahead of the consensus of $2.89. Total revenue increased 4% to $1.66 billion. In other news, Shire reported positive study results for lifitegrast, an experimental drug designed to treat dry-eye disease. U.S. regulators declined to approve the drug in October. Shire plans to resubmit the drug in the March quarter. Shire is a Long-Term Buy.


For the September quarter, Alaska Air Group's ($75; ALK) per-share profits soared 47% to $2.16 excluding special items, eclipsing the consensus estimate by $0.06. Operating revenue advanced 3% to $1.52 billion. The airline benefited from improved fuel efficiency, rising capacity and traffic, both up 8%, and lower fuel costs, down 42% to $1.82 per gallon. Management expects capacity to rise 12.5% and 13% in the December and March quarters, respectively, before settling back down to resemble historical norms near 7%. Alaska is a Focus List Buy and a Long-Term Buy.

C.H. Robinson Worldwide ($68; CHRW) said earnings per share in the September quarter rose 13% to $0.96, easing past the consensus by $0.02. Total revenue slipped 1% to $3.42 billion, though net revenue rose 12% to $589 million. C.H. Robinson sees net revenue, which strips away transportation and related services purchased on its clients' behalf, as more indicative of operating performance. Total revenue missed expectations and the shares fell on the news. C.H. Robinson is a Focus List Buy and a Long-Term Buy.


Apple ($119; AAPL) grew per-share profits 38% to $1.96 in the September quarter, exceeding the consensus by $0.08. Sales, up 22% to $51.50 billion, also topped expectations. Revenue growth was driven by China, up 99%, and the iPhone, up 36%. Looking ahead to the December quarter, Apple gave revenue guidance with a midpoint of $76.5 billion, implying 3% growth but below the consensus of $77.14 billion. Apple is a Focus List Buy and a Long-Term Buy.

F5 Networks ($121; FFIV) earned $1.84 per share excluding special items in the September quarter, up 17% and $0.10 above the consensus. Revenue, up 8% to $501 million, fell shy of analyst expectations. Management's guidance for the December quarter also came up light, with both per-share profits (projected to rise 2% to 4%) and revenue (4% to 6%) falling short of the consensus (both projected to rise 10%) at the time of the announcement. F5's guidance is disappointing but not disastrous, and we're keeping the stock as a Focus List Buy and Long-Term Buy.

Retailers stumble

Foot Locker ($68; FL) and other retailers slumped after apparel manufacturer VF ($68; VFC) and footwear maker Skechers U.S.A. ($31; SKX) reported disappointing September-quarter results. In August, Foot Locker was incrementally bullish on the remainder of the year, a view bolstered by strong results from key supplier Nike ($131; NKE), issued in October. Foot Locker remains a Focus List Buy and a Long-Term Buy. Nike is rated B (average).

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