Portfolio Review: April 17, 2017


Keeping an eye on earnings season

We do not like all members of the Focus List the same. For the following two stocks, we will pay particularly close attention to their earnings reports in the next few weeks.

Hurt by slowing operating momentum, CBS ($67; CBS) has seen its Overall score fall to 69, below what we typically want in a Focus List stock. But among media companies, CBS seems especially well positioned. It offers top-tier networks in CBS and Showtime, helping to drive retransmission fees higher. Its online-TV service has gained traction with younger viewers. CBS is also shedding slower-growth assets, such as its radio unit, expected to spin off in the second half of 2017.

Expectations for the March quarter are modest, with the consensus targeting per-share profits of $0.96, down 6%, on 15% lower revenue. Year-ago results were bolstered by election-related advertising spending and the Super Bowl, which moved to Fox this past February. But analyst estimates are trending downward, a potentially troubling trend.

CBS hasn't missed the consensus profit estimate since the December 2012 quarter, though it has a spottier track record for meeting sales targets. The consensus anticipates 8% higher profits for the year. Scheduled to de-liver quarterly results on May 4, CBS remains a Focus List Buy and a Long-Term Buy.

Laboratory Corp. of America ($143; LH) fails to score above 80 for any of the six Quadrix categories, resulting in a pedestrian Overall score of 76. Analyst estimates for the March quarter have dipped over the past 60 days, with the consensus currently projecting growth of 7% for per-share profits and 5% for revenue. Nevertheless, LabCorp's stock has rallied 11% in 2017. It remains attractively valued at 16 times trailing earnings, below the S&P 1500 health-services industry median of 20.

A report surfaced in February that LabCorp was exploring a large acquisition to expand its contract-research organization (CRO) business. But its balance sheet is already heavily leveraged, and investors may not greet a big deal with enthusiasm. LabCorp has a reputation as an aggressive dealmaker, though its current assets seem capable of supplying decent growth without outside help.

For its traditional lab-testing unit, management expects organic volumes to rise 1% this year and seems confident it can keep pushing through price hikes. LabCorp, due to announce results on April 25, is a Focus List Buy and a Long-Term Buy.

Comcast targets new markets

Comcast ($37; CMCSa) signaled its ambition to stretch beyond its traditional cable and NBCUniversal businesses by pushing into a pair of crowded markets. The company announced plans to enter the wireless market by offering an unlimited phone and data plan to current internet subscribers.

Comcast will offer the service, scheduled to launch in the middle of 2017, though its own 15 million Wi-Fi hot spots and Verizon Communications' ($49; VZ) cellular network. The two companies struck a reseller agreement in 2011, allowing Comcast to avoid the burden of building out its own network. Priced at $65 per line, Comcast's wireless plan would undercut services offered by both Verizon and AT&T ($41; T).

Separately, Comcast expects to roll out a video service over the next 12 to 18 months that streams NBCUniversal shows, reported Bloomberg. Few details have been settled. However, regulatory restrictions from Comcast's NBCUniversal acquisition could prevent the company from selling a digital service comprised entirely of its own content until September 2018.

Rival content providers CBS ($67; CBS) and Time Warner ($99; TWX) offer streaming-video services, as do AT&T, Hulu, Netflix ($144; NFLX), and Amazon.com ($896; AMZN). In April, Alphabet ($841; GOOGL) jumped into the fray with YouTube TV. YouTube TV, available in select markets for $35 a month, offers more than 50 live channels. It also lets subscribers save an unlimited number of shows in the cloud, though viewers must sit through commercials for these stored shows. Comcast is a Buy and a Long-Term Buy. Alphabet and CBS are rated Focus List Buy and Long-Term Buy. Amazon.com, AT&T, Netflix, Time Warner, and Verizon Communications are rated B (average).

Technology review

Global shipments of personal computers rose 1% in the March quarter, said industry researcher IDC, marking the industry's first growth since the March quarter of 2012. HP ($69; HPQ) unseated Lenovo as the largest PC maker, taking a 22% share of the market on 13% shipment growth. Apple's ($142; AAPL) shipments rose 4%, pushing its market share to 7%, which ranks fourth-largest.

Although pressure from smartphones and tablets shows no signs of dissipating, the PC industry could be gaining some momentum. IDC says the commercial PC market is in the early stages of a replacement cycle, potentially offsetting continued soft consumer demand. Apple is a Buy and a Long-Term Buy. HP is rated B (average).

In a counter lawsuit, Qualcomm ($53; QCOM) accused Apple ($142; AAPL) of withholding licensing payments for technology used in iPhones. Earlier this year, Apple sued Qualcomm in the U.S., U.K., and China for allegedly using its monopoly position to try to extract excessive royalty fees. Apple is a Buy and a Long-Term Buy. Qualcomm is rated B (average).

Corporate roundup

Alaska Air Group ($89; ALK) said traffic rose 5.5% in March on 5.7% higher capacity. For the March quarter, capacity increased 4.9%, below management's target of 6% growth. Alaska Air, yielding 1.4%, is a Buy and a Long-Term Buy.

Seeking to expand its presence in Europe and northern Africa, auto-parts maker Lear ($133; LEA) won approval from European regulators to complete its pending acquisition of Grupo Antolín's seating unit. Lear first announced the deal, valued at roughly $306 million, in February. Lear is a Focus List Buy and a Long-Term Buy.

Carnival ($58; CCL) hiked its quarterly dividend 14% to $0.40 per share, payable June 16. Management has now raised its dividend at a double-digit rate in each of the past three years. The company also approved up to $1 billion in stock buybacks, equating to roughly 2% of outstanding shares at their current price. Since restarting its stock-repurchase program in the August 2015 quarter, Carnival has spent $2.7 billion to lower its share count 7%, paying an average price of $54 per share. Carnival, yielding 2.8%, is a Buy and a Long-Term Buy.

In potentially its first step into the so-called "robo-adviser" market, J.P. Morgan Chase ($85; JPM) CEO Jamie Dimon wrote in his annual shareholder letter that the bank is developing online tools to give customers automated advice. J.P. Morgan plans to introduce the program later this year. J.P. Morgan is a Buy and a Long-Term Buy.

Rank Changes

No changes were made this week in Dow Theory Forecasts.

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