Notes and Analysis from Merck’s Investor Day

On June 20, Merck held an investor day, its first in five years, to highlight its goals and objectives and provide a broad perspective on its five-year performance outlook.  Although its blockbuster cancer treatment, KEYTRUDA (pembrolizumab), has been a spectacular success, investors have been concerned about whether the company has growth potential from other medicines in its pipeline, especially looking out to 2023 when the Januvia/Janumet franchise faces a steep slide in sales following patent expirations.  During the presentation, management expressed confidence about the company’s growth prospects through 2023 and over the longer term.

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Bluegreen’s Share Price Plunges on Bass Pro Contract Cancellation

Shares of Bluegreen Vacations Corporation (BXG) received a double whammy in May from the parent company BBX Capital’s (BBX) decision to back out of its offer to buyback BXG’s public float – equal to 10% of outstanding shares – and by Bass Pro Shop’s decision to cancel its marketing arrangement with BXG.  Since the May 22 close of trading, the day before BBX announced that it would not proceed with its plan to take BXG private, the stock has lost nearly 50% of its value.

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A Solid 2019 First Quarter for New Home Sales

As anticipated, the market for new single-family houses rebounded from a steep 2018 fourth quarter slide to post modest gains in the 2019 first quarter against fairly strong 2018 first quarter levels.  The primary driver of the housing rebound has been the decline in mortgage rates from the recent peak of 4.94% during the first week of November to 4.10% during the week of May 6, according to Freddie Mac.  With unemployment low and consumer confidence high, many potential buyers do not want to lose the opportunity of homeownership (or trading up to a larger home).  If economic conditions remain positive, the new homes market should see at least modest gains in 2019, especially as year-over-year comparisons become more favorable as the year progresses.

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Impairments Spark a Sell-Off, But Position BZH for an Earnings Rebound

Beazer Homes (BZH) reported a fiscal 2019 second quarter loss of $3.28 per share, compared with earnings of $0.36 per share in the comparable prior year quarter.  The loss included a large impairment charge and a much smaller gain on debt extinguishment totaling roughly $3.08 per share.  Excluding those items, fiscal second quarter earnings would have been about $0.20 per share.

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The Outlook Begins to Improve (Gradually) for BHGE

The net income and EPS figures for the 2019 first quarter for Baker Hughes, a GE company, are confusing as presented.  The company reported net income (before income or loss allocated to the non-controlling interest, which is GE) of $71 million, compared with a loss of $19 million in 18Q1.

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Peabody Energy: Maintaining Guidance Despite Disappointing in Q1

Peabody reported a sharp decline in its 2019 first quarter revenues and profitability (even though its earnings per share rose).  The declines were due to lower volumes, lower prices and higher costs in its seaborne metallurgical (SMC) and Powder River Basin coal businesses.  Management’s guidance had anticipated a decline, but it turned out to be worse than anticipated.

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United Parcel Service (UPS) 18Q1 Results

UPS reported 19Q1 EPS of $1.28, down from $1.55 a year ago. Non-GAAP EPS, which excludes the after tax impact of transformation strategy costs – i.e. costs that “will create efficiencies across the enterprise and produce higher-quality revenue growth” – were $1.39 per share, which was still well below both the prior year period and market expectations.

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Meritage Homes (MTH) 18Q1 Results

Meritage reported 18Q1 diluted EPS of $0.65 per share, down from $1.07 last year, but a penny ahead of consensus estimates.  Home closing revenue declined 4% to $698.7 million, as a 2% increase in unit closings was more than offset by a 6% decline in the average selling price to $396,000.  The decline in the average selling price was due mostly to a shift in mix to a higher proportion of entry level homes.

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AT&T (T) 18Q1 Results

AT&T reported diluted EPS of $0.56 per share, down from $0.75 a year ago.  Non-GAAP adjusted EPS of $0.86 per share was up slightly from $0.85 last year and in line with consensus estimates.   The difference between GAAP and non-GAAP EPS reflects amortization and integration costs associated with the Time Warner and other mergers and non-cash actuarial gains and losses on benefit plans.

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PulteGroup (PHM) 18Q1 Results

PulteGroup reported first quarter earnings of $166.8 million or $0.59 per share, even with a year ago, but still well ahead of the consensus estimate.  Revenues were just short of $2.0 billion, up 1.4% from the prior year.  Unit closings were essentially flat – 4,635 vs. 4,626 – but the average selling price increased 1.9% to $421,000.  Home sales revenues increased 2.0% to $1.95 billion, but land sales and other revenues and financial services revenues both declined.

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