Brian Nelson

Netflix Misses Net Subscriber Growth Estimates, Shares Plummet

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By Callum Turcan Shares of Netflix Inc (NFLX) were crushed during the trading session July 18 after the video streaming company posted second-quarter 2019 earnings. The big miss in its net subscriber additions was the main reason why. The company added 2.7 million net paying subscribers to its ranks during the quarter (way below guidance calling for 5.0 million), bringing its total paid subscriber count to 151.6 million worldwide at the end of the second quarter. That’s along with 6.1 million free trial accounts, which could be viewed as a growth pipeline considering some, but not all, of those subscribers will likely become paying members. Most see the big miss on net subscriber additions as the key culprit behind Netflix’s … Read more

Our Reports on Refining Stocks

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Image Source: Rongy Benjamin Structure of the Refining Industry Results of firms in the refining industry are primarily affected by the relationship, or margin, between refined product prices and the prices for crude oil and other feedstocks. The cost to acquire feedstocks and the price at which refiners can sell refined products depends upon several factors beyond their control, including the supply/demand of crude oil and other refined products—which in turn depends on the availability of imports, production, inventories, political affairs and economic considerations. Refining margins are difficult to predict, and we expect them to continue to be volatile in the future. We’ve dropped coverage of the Refining industry: HES, HFC, MPC, PSX, VLO.

The Market is Getting Ahead of Itself with Pool Corp

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Image Source: Pool Corporation – IR Presentation By Callum Turcan Since emerging from the Great Financial Recession, wholesale pool and backyard products distributor Pool Corp (POOL) has been on an upward tear with shares climbing from ~$12 in 2009 to ~$185 as of this writing. This surge is largely why its dividend yield is at 1.2%, considering Pool allocates a considerable amount of cash flows towards dividends. We like Pool’s free cash flows and growth trajectory; however, shares appear overvalued after its epic run. Our fair value estimate for the company stands at $134 per share, up from $113 previously (as of January 2019), and the top end of our fair value range now stands at $168 per share. It’s … Read more

Goldman Sachs May Continue to Suffer

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We don’t find Goldman to be very attractive trading above its tangible book value when its return on capital barely clears its cost of capital in the 10th year of a bull market. By Matthew Warren Goldman Sachs (GS) reported second-quarter 2019 results July 16, with net revenues down 2% to $9.46 billion and diluted earnings per share down 3% to $5.81, which was well ahead of Wall Street consensus for $5.03. As you can see in the below graphic, the Investing & Lending segment was the star in the quarter with revenue up 16% versus last year. This is because the quarter included approximately $500 million of net gains from investments that went public during the quarter. We would … Read more

In the News: Second-Quarter Earnings Season Begins

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Second-quarter earnings season is upon us. The markets aren’t expecting much growth. Core industrial names may not fare well, but thus far, big pharma is solid. We’re not making any changes to the newsletter portfolios. By Brian Nelson, CFA We’re off to the races with second-quarter earnings season. The markets aren’t expecting much, with the consensus for S&P 500 (SPY) companies to experience a 3% earnings decline, according to FactSet. If this happens, this would mark the first time S&P 500 companies, in aggregate, would have posted year-over-year declines since the first half of 2016. The markets have rallied considerably since then, and despite the strong earnings expansion aided in part by corporate tax cuts, the 12-month forward P/E ratio … Read more

Wells Fargo Showing Damage from Scandals

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Image Source: Mike Mozart Wells might be leaking core deposits as compared to peers and paying up for interest earning deposits. By Matthew Warren Wells Fargo (WFC) reported second-quarter 2019 earnings July 16, with revenue flat at $21.6 billion and diluted EPS of $1.30 as compared to $1.16 Wall Street consensus and $0.98 earned in the same period last year. Cost control improved marginally with noninterest expense down $533 million to $13.4B in the quarter, but at an improved 62.3% (versus 64.9% last year) the bank’s efficiency ratio is still meaningfully worse than peers. Since the beginning of 2018, Wells has reduced 18,000 full time employees via cost cutting efforts, but then had to add back the same amount in … Read more

Johnson & Johnson Revises Sales Guidance Higher Yet Again

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By Callum Turcan Consumer packaged goods and healthcare giant Johnson & Johnson (JNJ), a holding in both our simulated Best Ideas Newsletter and Dividend Growth Newsletter portfolios, reported second-quarter 2019 earnings July 16 that received mixed reviews from the market. Shares of JNJ initially sold off before recovering later in the trading day. Quarterly Highlights Revenue in the period dropped by a tad over 1% year-over-year to $20.6 billion on a GAAP basis, but adjusted operational sales (which exclude foreign currency movements, a headwind to Johnson & Johnson’s second quarter performance, and the net impact of A&D activity) rose by almost 4%. There’s underlying demand growth for Johnson & Johnson’s products, but as with all American companies with significant overseas … Read more

J.P. Morgan’s Net Interest Margins to Come Under Pressure

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Image Source: Trending Topics 2019 By Matthew Warren JPMorgan (JPM) reported second-quarter results July 16, with revenue up 4% to 29.6 billion and net income of $2.82 per share ($2.59 excluding a one-time income tax benefit of 23 cents) compared to Wall Street estimates of $2.49 per share. Average total loans were up 2% year over year while deposits grew a healthy 4% on the same basis. Even after distributing $7.5 billion to shareholders in the quarter via dividends and share buybacks, the bank remains extremely well capitalized with a common equity Tier 1 ratio of 12.2%. Despite this robust level of capital, the bank posted a return on tangible common equity of 20% in the quarter, or 18% after … Read more

Our Reports on Stocks in the Sporting Goods Industry

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Image Source: Pool Corp. Structure of the Sporting Goods Industry The seasonal sporting goods industry is heavily tied to sporting trends and relies on large athletic partners to distribute their athletic goods and apparel. Exclusive licenses can help certain firms achieve competitive advantages, and while scale helps, small companies have been able to carve out favorable niches. Unlike other apparel industries, we have yet to see tremendous online competition emerge. Potential firearm regulation could negatively impact sales, but most companies are well diversified. We’re neutral on the space, but continued consolidation could ultimately benefit industrywide pricing and margins. We’ve dropped coverage of reports on stocks in the Sporting Goods industry: CLAR, ELY, JOUT, NLS, POOL.

Citigroup Still Has A Lot to Prove

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  Image Source: Citigroup Quarterly Presentation  By Matthew Warren On July 15, Citigroup (C) reported Q2’19 revenues up 2% year over year to $18.8 billion and adjusted earnings (excluding a gain on its investment in Tradeweb) of $1.83, or 3 cents better than consensus estimates. Expenses in the quarter were down 2%, yielding the 11th consecutive quarter of positive operating leverage and improving efficiency ratios, which currently stands at 56% in the quarter. This has helped boost return on tangible common equity (RoTCE) to 11.9% in the quarter and the first half of the year, quite close to management’s commitment of 12% for the full year. Management has also stated a goal of reaching 13.5% for the same metric for … Read more