In alphabetical order by ticker symbol: AGN, EA, ENR, LYFT MYL, PZZA, S, WEN.
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Allergan (AGN): Allergan’s first-quarter report, released May 7, came in better than expected, despite the headline numbers not looking that great. GAAP net revenue declined 2% on a year-over-year basis, while it posted a rather large operating loss. The Botox maker continues to advance its pipeline, and it raised its non-GAAP top and bottom-line guidance for fiscal 2019. However, we can’t get comfortable with the huge discrepancy between GAAP and non-GAAP bottom-line guidance. The former calls for a loss of $5.70 per share on the year, while the latter calls for a gain of $16.55 per share on the year. What’s worse, the GAAP bottom-line earnings guidance number was revised down in the press release from a gain of $1.14 per share, while the non-GAAP number was revised up. The numbers at Allergan aren’t lining up to our liking, and we just can’t get excited about the stock as a result. View Allergan’s stock page >>
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Electronic Arts (EA): The company perhaps best known for its high-quality franchises such as EA Sports, The Sims and Madden NFL reported strong fourth-quarter fiscal 2019 numbers May 7 that showed revenue advancing nearly 8% and GAAP earnings per share of $0.69, beating consensus by a dime. The company’s business will always be hit-or-miss depending on consumer preference of its gaming suite, but EA’s live services businesses has been helping to smooth out some of the ups and downs. Management believes “fiscal 2020 will be a year of continued growth for (the) industry,” and the company remains extremely healthy. Fiscal 2020 targets include net revenue of $5.375 billion and net income of $2.595 billion, the latter inclusive of a one-time tax benefit of $1.5 billion ($5 per share). We think the market has EA’s shares priced about right. View EA’s stock page >>
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Energizer (ENR): Energizer reported a messy fiscal second-quarter report May 7 that revealed a GAAP net loss. During the period, the company acquired Battery and Auto Care businesses, which hurt gross-margin performance significantly, but it’s not all mix. Its financial outlook for fiscal 2019 is calling for gross margins on its legacy business to decline 70 basis points due in part to currency headwinds. Excluding acquisition and integration costs, consolidated gross margin rates are expected to fall 400-440 basis points during fiscal 2019. Although organic net sales are expected to advance 3%-3.5% during the year, adjusted earnings from continuing operations for 2019 was reset lower to the range of $2.90-$3.00 per share (it had just been increased to the range of $3.45-$3.55 in February). Energizer’s preliminary view for fiscal 2020 is calling for adjusted earnings from continuing operations of $3.25-$3.45 per share, below its previous range for fiscal 2019. Long-term debt stood at $3.6 billion at the end of the March quarter. We value shares in the mid-$50s, but the wishy-washy guidance has us firmly on the sidelines. View Energizer’s stock page >>
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Lyft (LYFT): The market is still getting used to Lyft’s financial reporting, with the ride-sharing service reporting a huge miss on the bottom line, despite handily beating on the top line when it reported first-quarter results May 7. The net loss amounted to $48.53 per share in the quarter, not a typo, and most of it came from weakness on the operating line (general and administrative expenses spiked). Revenue nearly doubled on a year-over-year basis during the period, however, but net losses of $1.14 billion in the quarter are enough to give anyone pause, even optimistic investors. For fiscal 2019, revenue is targeted in the range of $3.275-$3.3 billion, while adjusted EBITDA is targeted at a loss between $1.15-$1.175 billion. We don’t have any interest in Lyft shares, and its rival is eagerly awaiting its IPO. Uber’s (UBER) public debut is scheduled for May 10. View Lyft Takes a Fall >>
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Mylan (MYL): Mylan’s shares were rocked after it reported its first-quarter results May 7. The company’s top line fell 6.7% and it registered a GAAP loss during the period. Adjusted free cash flow dropped to just $27 million during the first quarter, down from more than $660 million in last year’s comparable period. The company also said it would not be “providing forward looking guidance for US GAAP reported financial measures or a quantitative reconciliation of forward-looking non-GAAP financial measures.” The market doesn’t like the lack of transparency, and management provided little news regarding its strategic review launched last August. For fiscal 2019, Mylan continues to target adjusted earnings in the range of $3.80-$4.80 per share and adjusted free cash flow in the range of $1.9-$2.3 billion, but it’s likely Mylan will come up a short of its targets, in our view. View Mylan’s stock page >>
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Papa John’s (PZZA): Papa John’s shares have been in a world of hurt since they peaked at nearly $90 in late 2017. The company has been mired in public relations issues as it relates to its founder John Schnatter, but it looks as though it is putting its missteps behind it. Though revenue still faced double-digit pressure and the company posted a GAAP loss during its first quarter of 2019, both top and bottom-line results came in better than expected. Systemwide North America comp sales still fell 6.9%, and free cash flow fell to $3.1 million during the quarter, down from $27.4 million in last year’s quarter, however. It’s clear to us that Domino’s (DPZ) is still very much the better play on pizza, and we don’t think a comeback is guaranteed at Papa John’s. We’re staying on the sidelines for the foreseeable future. View Papa John’s stock page >>
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Sprint (S): Sprint has been dead money for years, and its proposed merger with T-Mobile (TMUS), if approved, may save the company from inevitable demise. Sprint reported fourth-quarter fiscal 2018 results May 7 that showed a net loss of $2.2 billion and an operating loss of $1.7 billion. Fourth-quarter wireless service revenue edged up 1% on a year-over-year basis, and the company continues to make progress on its mobile 5G network, but adjusted free cash flow came in at -$914 million (negative $914 million) for fiscal 2018, as the business remains far too capital intensive in a ultra-competitive, cutthroat pricing environment. Net debt stood at ~$33 billion at the end of March. We’re not interested in shares, and hope the deal gets done with T-Mobile. View Sprint’s stock page >>
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Wendy’s (WEN): Wendy’s has mounted an unbelievable comeback since the doldrums of earlier this decade when it struggled with a massive debt load and dim prospects. During the first quarter, report released May 8, adjusted revenue advanced 8.8%, while operating profit surged nearly 20%. Adjusted earnings per share climbed more than 27% in the period, to $0.14, handily beating consensus forecasts. Free cash flow of $48 million was also 17% better than last year’s mark. North America same-restaurant sales growth was 1.3% during the first period of the year, down a bit on a year-over-year basis, but still a healthy showing. Management is targeting $275 million in free cash flow during 2020. We expect to raise our fair value estimate for shares. View Wendy’s stock page >>
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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.