Portfolio Review: February 8, 2016


Earnings roll call

Health care

In the December quarter, Gilead Sciences ($86; GILD) grew earnings per-share 37% to $3.32 excluding special items, topping the consensus estimate by $0.32. Total revenue climbed 16% to $8.51 billion, also surpassing the consensus. Sales of Gilead's newest hepatitis C drug Harvoni jumped 59% to $3.35 billion. Gilead raised its quarterly dividend 10% to $0.47 per share, payable in the June quarter. The company also announced a fresh $12 billion share-repurchase plan, equating to roughly 11% of outstanding shares.

The market for hepatitis C drugs got a bit more crowded after Merck ($50; MRK) won U.S. approval to sell Zepatier, a new once-daily pill. Zepatier's list price is $54,600 for a 12-week regimen, undercutting Harvoni's $94,500 price tag. The new competition for Harvoni coincides with the Massachusetts attorney general's office opening an investigation into whether Gilead's hepatitis C drug prices violated state laws for unfair trade practices. Gilead expects product sales, which represented 98.5% of 2015 total revenue, to decline 4% to 7% this year — slightly worse than the consensus, though Gilead is known for its conservative guidance. In other news, Gilead said John Martin will resign from his post as CEO but remain the company's chairman. COO John Milligan will replace Martin as CEO. Gilead is a Focus List Buy and a Long-Term Buy. Merck is rated B (average.)


Alphabet ($749; GOOGL), the parent company of Google, said December-quarter earnings per share jumped 28% to $8.67 excluding special items, ahead of the consensus of $8.11. Revenue, up 18% to $21.33 billion, also exceeded analyst expectations, as the 17% gain in paid clicks more than offset the 5% decline in cost-per-click. Management credited the growth to consumers' increasing use of mobile search, strong advertising demand for holiday shopping, and the YouTube video service. Alphabet's shares rallied on the report, overtaking Apple ($96; AAPL) as the largest company in the world by stock-market value. Alphabet and Apple are rated Focus List Buy and Long-Term Buy. For more on Alphabet, see our profile in Analysts' Choice.

In the December quarter, Skyworks Solutions ($66; SWKS) earned $1.60 per share excluding special items, up 27%, and $0.02 above the consensus. Sales grew 15% to $927 million. For the March quarter, Skyworks expects per-share profits of $1.24, up 8%, on revenue of $775 million, up 2%. At the time of the announcement, the consensus had projected earnings of $1.33 per share on $818 million in sales. Management conceded its guidance is conservative, and shares rose on the results. Skyworks is a Buy and a Long-Term Buy.

Consumer discretionary

Comcast ($58; CMCSa) reported December-quarter earnings per share of $0.81 excluding special items, up 5% but a penny below the consensus. Revenue climbed 9% to $19.25 billion, ahead of analyst expectations. Sales rose 6% for the cable business and 13% for NBCUniversal, driven by growth of 39% for theme parks and 26% for filmed entertainment. The company added a net 89,000 video customers — the most in any quarter in eight years and up from 6,000 added in the year-ago period. Continuing its exploratory push into wireless telecommunications, Comcast has registered to bid in an auction for wireless spectrum next month. The company hiked its quarterly dividend 10% to $0.275 per share, payable April 27. Comcast also beefed up its stock-buyback program, with plans to repurchase $5 billion of shares this year, nearly 4% of the share count. Comcast is a Focus List Buy and a Long-Term Buy.

Lear ($98; LEA) said per-share profits surged 41% to $3.20 excluding special items in the December quarter, topping the consensus by $0.33. Lear last missed the consensus profit estimate in the September 2011 quarter. Sales increased 4%, or 11% excluding currency translation. Lear's seating unit grew sales 7%, overcoming a 5% decline at the electrical unit. Management dismissed concerns that automobile sales may be nearing a peak. Lear says it has yet to see any signs of a downturn, noting favorable trends for jobs, wages, inflation, interest rates, and gasoline prices. Lear is a Focus List Buy and a Long-Term Buy.


CBRE Group ($26; CBG) said December-quarter earnings per share jumped 19% to $0.81 excluding special items to ease past the consensus by $0.03. Sales surged 33% to $3.70 billion, comfortably ahead of the consensus of $3.39 billion. CBRE delivered double-digit sales growth across all three geographic markets, based on local currency, with investment revenue up 14% (22% at local currency). Looking ahead to 2016, CBRE expects per-share profits of $2.27 to $2.37, implying growth of 11% to 16%. The consensus was $2.29 at the time of the announcement. Management expects leasing and capital-markets revenue to support its growth. CBRE is a Focus List Buy and a Long-Term Buy.

In the December quarter, Jones Lang LaSalle ($119; JLL) grew per-share profits 5% to $4.53 excluding special items, missing the consensus estimate of $4.78. Unfavorable foreign-currency trends reduced earnings by $0.42 per share. Revenue advanced 8% to $1.89 billion, roughly in line with the consensus. Although Jones Lang assured investors operating growth will continue this year, its shares fell on the mixed results. The stock, currently projected to grow profits 5% on 7% higher sales, trades at a reasonable 11 times estimated year-ahead earnings. Jones Lang, earning a Quadrix Overall score of 92, remains a Focus List Buy and a Long-Term Buy.


C.H. Robinson Worldwide ($65; CHRW), a third-party logistics provider, grew December-quarter earnings per share 14% to $0.88, squeezing past the consensus by a penny. Total revenue dipped 4% to $3.21 billion, missing the consensus of $3.35 billion. But total net revenue, which tends to be a better signal of operating performance because it excludes transportation and related services purchased on its clients' behalf, advanced 14% to $571 million. North American truckload volumes rose 5%, though rates fell 3%. C.H. Robinson is a Focus List Buy and a Long-Term Buy.

Robert Half International ($39; RHI) reported per-share profits of $0.71 in the December quarter, up 15% and $0.01 above the consensus. Sales climbed 7% to $1.30 billion, driven by 10% growth in the U.S. Robert Half, which offers specialized staffing services in the accounting and finance fields, says the U.S. job market remains healthy, while the economic backdrop continues to improve overseas. Robert Half is a Buy and a Long-Term Buy.

Corporate roundup

Alaska Air Group's ($67; ALK) traffic rose 10.4% in January. Capacity expanded 12.4% for the month, below management's 13.5% growth target for the March quarter. Alaska Air is a Focus List Buy and a Long-Term Buy.

Wells Fargo ($48; WFC) agreed to pay $1.2 billion to settle claims regarding improper lending practices for Federal Housing Administration mortgages. The bank said the lawsuit would reduce its previously announced 2015 earnings by $0.03 per share. Last month Wells Fargo said it earned $4.15 per share in 2015. Wells Fargo is a Buy and a Long-Term Buy.

Rank Changes

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