Several companies reported difficult earnings reports, including 3M, UPS, WWE, and Xilinx. No changes to the newsletter portfolios.
—
In alphabetic order by ticker symbol: MMM, CMG, FCX, HSY, TSLA, UPS, WM, WWE, XLNX
—
3M (MMM): Our $175 fair value estimate remains unchanged following one of 3M’s worst quarterly reports in a long time. Not only did this industrial conglomerate miss both the top- and bottom-line in its first-quarter results April 25, but it also reduced its fiscal 2019 earnings guidance to the range of $9.25-$9.75 from $10.45-$10.90 previously, well below the consensus forecast. Clearly, the quarterly performance and outlook were poor, but 3M’s shares were also overpriced. The company finished the trading session down 13%. Enterprise valuation matters. The drop should not have been too surprising. View 3M’s stock page >>
—
Chipotle (CMG): We’ve been making some fantastic moves in the Best Ideas Newsletter portfolio of late, not only in the decision to add Chipotle before its surge, but also in the decision to remove it prior to a very difficult trading session following the release of its first-quarter results April 24. We think the burrito-making giant is back, and its comparable restaurant sales increase of nearly 10% during the first quarter spoke to that. The company still has to put some of the legacy issues behind it, however, as Chipotle recently disclosed it had received another subpoena regarding a prior food scare. We’re not worried about the outcome of the investigation, but we’re not looking back either. Chipotle was a huge winner in the Best Ideas Newsletter portfolio. View Chipotle’s stock page >>
—
Freeport McMoRan (FCX): We don’t spend too much time on volatile commodity players, given the ebbs and flows of commodity prices themselves. Much of the analysis regarding a commodity player is focused on the cost structure, but most of the economic profit generation is dependent on the level at which commodity prices are realized (something very difficult to predict). Freeport’s first-quarter 2019 results showed that both copper prices and production fell, pushing revenue lower by more than 22%. The company is doing a better job with respect to operating cash flow conversion, however, as it upped its full-year guidance for operating cash flows to $2.3 billion. We’re still not interested. View Freeport McMoRan’s stock page >>
—
Hershey (HSY): The chocolate maker is back to all-time highs again. The company’s first-quarter numbers, released April 25, showed a beat on both the top- and bottom-line thanks to ongoing product innovation and healthy gross margins. There’s just something about the Hershey brand that continues to give it pricing power across its product suite. Hershey reiterated its prior earnings guidance for fiscal 2019 in the range of $5.63-$5.74, the midpoint above consensus expectations. We like Hershey, but we’d like to see it at a better price to consider it in the newsletter portfolios. View Hershey’s stock page >>
—
Tesla (TSLA): We’re not going to humor you on this one. Tesla’s shares are un-ownable, in our view. The stock has now fallen to under $250 per share, well off its 52-week highs of nearly $390. The Valuentum Buying Index nailed this call, with the company registering among the lowest ratings of a 2 in June 2017, when shares were north of $370 each. Our fair value at the time stood at $253. We expect a modest downward revision to our fair value estimate following Tesla’s first quarter report, and given the cult status of the stock, we continue to stay as far away as possible. View Tesla’s stock page >>
—
UPS (UPS): UPS traded off rather aggressively after it reported first-quarter earnings April 25. It missed on both the top and bottom lines, but the midpoint for fiscal 2019 earnings guidance still resides above consensus. The outlook for adjusted free cash flow for the year may have been a little light, but we didn’t see anything that should have driven such a large sell-off. Shares closed right at our fair value estimate. View UPS’ stock page >>
—
Waste Management (WM): Waste Management is one of our favorite companies. If you read the chapter on competitive advantage analysis in our book Value Trap, you’ll understand why. Garbage has to go somewhere, and demand for Waste Management’s services is recession-resistant, to a very large degree. Trash takers are notorious roll-up plays, and we have no qualms with its recent deal to acquire Advanced Disposal Services. Its first-quarter earnings report, released April 25, showed a revenue and earnings beat. View Waste Management’s stock page >>
—
WWE (WWE): World Wrestling Entertainment seemed to have hit a snag during its first-quarter results, released April 25. Revenue fell nearly 3%, as it put up a GAAP loss of $0.11 (-$0.11). The company’s cost structure continues to be a bit bloated, even as its media monetization improved. By comparison, the same quarter last year saw a strong operating gain at the company. Management pointed to “Superstar absences” during the past two quarters, but there may be more at work here. We’re going to stay on the sidelines. View WWE’s stock page >>
—
Xilinx (XLNX): Xilinx reported fiscal fourth-quarter results April 24 that showed a solid revenue beat but non-GAAP earnings came in below expectations. The company issued upside fiscal first-quarter revenue guidance, but the market didn’t like the news, nor its announcement that it will acquire Solarflare. As with Chipotle, it seems we did an excellent job adding Xilinx to the newsletter portfolio right before it surged and removing it right before it encountered trouble. Shares dropped 17% April 25. View Xilinx’s stock page >>
—–
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.
Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.