NJR reported 23Q2 GAAP net income of $1.13 per diluted share and net financial earnings (NFE), a non-GAAP measure, of $1.16 per basic share. That compares with 22Q2 GAAP net income of $1.00 per share and NFE per basic share (NFEPS) of $1.36. I had anticipated GAAP EPS of $1.19 and NFEPS of $1.20. The consensus NFEPS estimate was $1.19. Management said that the company’s performance was “solid” and reaffirmed its fiscal 2023 NFE guidance of $2.62-$2.72.
Continue readingNew Jersey Resources (NJR) 23Q2 Update
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Organon & Co. 23Q1 Update
23Q1 revenues were $1.538 billion, down 1.9% year-over-year, but up 3% at constant currency. GAAP diluted EPS was $0.69, below 22Q1’s $1.36 and below my estimate of $0.88. Non-GAAP EPS of $1.08 was below last year’s $1.65 and also below my estimate of $1.15, which was in line with consensus.
Continue readingMerck (MRK) 23Q1 Update
23Q1 sales fell 9.8% to $14.5 billion, but rose 13.5% excluding Lagevrio, a COVID-19 medicine whose sales have fallen sharply as the pandemic has receded. The sales gain ex-Lagevrio was due entirely to a $1 billion increase in Keytruda sales and a $500 million increase in Gardasil sales.
Continue readingGeneral Electric (GE) 23Q1 Update
GE reported 23Q1 revenues of $14.5 billion, up 14.3% year-over-year; GAAP EPS from continuing operations of $5.61, compared with 22Q1’s $1.17 loss; and non-GAAP EPS of $0.27, reversing 22Q1’s $0.09 loss. I had anticipated a GAAP loss of $0.14 per share and non-GAAP EPS of $0.14.
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Baker Hughes (BKR) 23Q1 Update Report
BKR reported 23Q1 GAAP EPS of $0.57 vs. $0.08 a year ago and my estimate of $0.19. Non-GAAP EPS was $0.28 compared with $0.15 last year and my estimate of $0.29. Revenues of $5.7 billion rose 18.2% vs. 22Q1, 4% better than my projections. Orders of $7.6 billion were down 5% sequentially but up 12% YOY. The excess in GAAP earnings vs. my projections was due entirely to gains on equity investments, specifically strong recoveries in the fair values of its investments in C3.ai and ADNOC. The company delivered $177 million of free cash flow in the quarter, compared with 22Q1’s free cash burn of $147 million (before acquisition expenditures).
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Public Service Enterprise Group (PEG) 23Q1 Update
Public Service Enterprise Group (PEG) reported 23Q1 operating revenues of $3.76 billion, up 62.3% from $2.31 billion in 22Q1. The increase was due to a $1.64 billion surge in net mark-to-market gains on derivatives at PSEG Power, which more than offset modest declines in Power’s wholesale electricity sales volumes and capacity revenue. PSE&G’s operating revenues rose 0.4% to $2.29 billion, as an 8.4% rise in transmission revenues was substantially offset by lower electric and gas distribution revenues.
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Citius Pharma (CTXR) Completes $15 Million Direct Registered Offering
Last night, Citius Pharmaceuticals (CTXR) reported that it had completed its 12.5 million share direct offering, issuing 12.5 million shares at $1.20 per share with attached warrants exercisable at $1.50 per share. In total, the offering generated gross proceeds of $15 million, with net proceeds to Citius of just under $14 million after the $1 million placement agent’s fee.
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Bristol-Myers Squibb (BMY) 23Q1 Update
23Q1 revenues declined 2.7% to $11.3 billion, less than 22Q4’s decline, but were 3% higher than projected. Sales of Eliquis rose 27.3% sequentially and 6.6% YOY to $3.4 billion. Revlimid sales fell 22.6% and 37.4%, respectively, due to patent expiry. GAAP diluted EPS was $1.07, up 81.3% over 22Q1’s $0.59 and 11.5% above my estimate of $0.96. Non-GAAP EPS was $2.05, up 4.3% over 22Q1’s $1.96 and three cents better than my estimate of $2.02. The big jump in GAAP EPS was due mostly to a $1 billion positive swing in other income, most of which was classified as exceptional and therefore excluded from non-GAAP results.
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American Water Works (AWK) 23Q1 Update
AWK reported 23Q1 EPS of $0.91, compared with $0.87 in 22Q1 and my estimate of $0.83. Operating revenues increased 11.4% to $938 million. Billed water service volumes increased 0.4%, with gains among industrial and commercial customers more than offsetting a 1.0% decline in residential volume. The implied average price of water service rose 8.4%, due mostly to $279 million in rate cases and infrastructure charges that became effective after Jan. 1. Operating expenses increased 4.8% due primarily to inflationary pressures which raised the cost of fuel, power and chemicals. Operating income increased 19.9% to $295 million, but that was partially offset be a 15% increase in interest expense, lower pension income and a 150 bp increase in the effective tax rate. Net income rose 7.6% to $170 million, but a higher share count, due to the successful $1.7 billion equity offering in March, restricted the increase in diluted EPS to $5.3% or $0.91 per share.
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Hewlett Packard Enterprise (HPE) 23Q1 Update
HPE reported 23Q1 GAAP diluted EPS of $0.38 vs. 22Q1’s $0.39 and my estimate of $0.37. Net revenue of $7.81 billion was up 12.2% over 22Q1’s $6.96 billion and my estimate of $7.33 billion. All of HPE’s business segments recorded revenue gains in the quarter, with especially strong increases in High Performance Computing (up 28%) and Intelligent Edge (up 24.6%). However, free cash flow (CFOA plus CFIA) was negative $1.5 billion, compared with negative $0.6 billion in the prior year period.
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Campbell Soup Company (CPB) 23Q2 Update
Campbell Soup Company (CPB) reported stronger than expected 23Q2 net sales and profits (vs. my estimates). Net sales were $2.49 billion, 12.5% above 22Q1 and 7% above my estimate. Diluted Non-GAAP EPS was $0.80, up 6% YOY and better than my $0.75 estimate.
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New Jersey Resources (NJR) 23Q1 Update
NJR reported 23Q1 GAAP net income of $1.19 per diluted share and net financial earnings (NFE), a non-GAAP measure, of $1.14 per basic share. That compares with 22Q1 GAAP net income of $1.16 per share and NFE per basic share (NFEPS) of $0.68. I had anticipated GAAP EPS of $0.88 and NFEPS of $0.89. The consensus NFEPS estimate was $0.72.
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Toll Brothers (TOL) 23Q1 Update
Toll Brothers’ 23Q1 EPS was $1.70, up 38% from 22Q1’s $1.24 and above my estimate of $1.37. Revenues decreased 0.6% to $1.78 billion, below my $1.80 billion. Deliveries of 1,826 units fell 5.3%, but topped my estimate. The average sales price rose 9.5% to $958,100, below my $960,000. Adjusted gross margin of 27.5% was 50 bp above guidance and my estimate. The SG&A expense ratio of 11.9% was down 90 bp from 22Q1 and my estimate.
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Mistras Group (MG) 22Q4 Update
Mistras Group reported 22Q4 EPS of $0.09, above 21Q4’s $0.00 and my estimate of $0.02. Revenues of $168.2 million were 1.7% below 21Q4’s $171.2 million and also below my estimate of $171.4. The results met management’s top line and exceeded its bottom-line guidance.
Continue readingCitius Pharmaceuticals (CTXR) 23Q1 Update
Citius Pharmaceuticals (CTXR) posted a 23Q1 loss of $0.02 per share, better than I had anticipated, mostly because of a $3.6 gain on the sale of net operating loss carryforwards (equivalent to $0.02 per share) from the State of New Jersey and also due to modestly lower-than-expected operating costs. The lower level of operating costs is apparently expected to continue, as the company now says that it has sufficient cash to fund its operations until February 2024. (Previously, it had indicated December 2023.)
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Organon & Co (OGN) 22Q4 Update
22Q4 revenues were $1.485 billion, down 7.4% year-over-year, but up 1% at constant currency. GAAP diluted EPS was $0.43, below 21Q4’s $0.80 and below my estimate of $0.54. Non-GAAP EPS of $0.82 was below last year’s $1.18 and a penny below my estimate of $0.83.
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Merck & Co., Inc. 22Q4 Update
22Q4 sales rose 2.2% to $13.8 billion, as a 19.6% gain in KEYTRUDA was mostly offset by declines in Gardasil, Lagevrio and Januvia/Janumet, among others. GAAP diluted EPS declined 21.3% to $1.19 and non-GAAP diluted EPS declined 15.0% to $1.53. The decline was due mostly to a 23% jump in R&D expense, which more than offset improvements in gross margin and the SG&A expense ratio. Management said that the increase in operating costs was due to increased investment to support its portfolio and pipeline. Merck’s revenues were 2.1% above my estimate; its GAAP EPS was $0.01 better; and non-GAAP EPS exceeded my $1.47 estimate by $0.15 and also beat consensus by $0.08.
Continue readingBristol-Myers Squibb (BMY) 22Q4 Update
22Q4 revenue declined 4.8% to $11.4 billion, more than 22Q3’s decline, mostly because of a drop in Revlimid sales due to patent expiry. GAAP diluted EPS was $0.95, down from $1.07 last year but ahead of my estimate of $0.67, due mostly to lower IPRD and intangibles amortization costs. Non-GAAP EPS of $1.82 was slightly below 21Q4’s $1.84, but also above my estimate of $1.75.
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Housing Market Update – March 2023
Housing market data from the U.S. Commerce Dept. and others show sales and production leveled off and even recovered a bit in the final months of 2022 and first two months of 2023. The seasonally-adjusted annualized rate (SAAR) of single-family housing starts has averaged 840,000 units since October, while single-family permits have averaged 770,000. With housing construction still running high relative to the pace of starts, however, housing production could fall further in the months ahead (but probably after the spring selling season).
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American Water Works (AWK) 22Q4 Update
AWK reported 22Q4 EPS of $0.81, compared with $3.56 in 21Q4 (or $0.86 excluding a $2.70 gain for the sale of the Homeowner Services (HOS) business). Operating revenues decreased 2.1% to $931 million. Besides the sale of HOS, 22Q4’s lower revenues and earnings were due in part to the sale of New York American Water. My 22Q4 estimate was $0.78. An 18.6% increase in operating income was more than offset by higher net interest expense, a negative swing in other income (expense) and higher income tax expense (net of the HOS gain on sale).
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General Electric (GE) 22Q4 Update
GE announced 22Q4 revenues of $21.8 billion, up 7.3% year-over-year, GAAP EPS of $1.93, compared with 21Q4’s $3.26 loss, and non-GAAP EPS of $1.24, up 52% over 21Q4’s $0.82. I had anticipated a GAAP EPS of $0.38 per share and non-GAAP EPS of $1.26.
Continue readingGE Healthcare Technologies (GEHC) 22Q4 Update
In its first earnings release since being spun off from General Electric, GEHC reported revenues of $4.9 billion, up 8% YOY (and up 13%, net of acquisitions and currency). Net income from continuing operations was flat at $567 million. GAAP EPS was $1.21 and adjusted EPS, excluding mostly restructuring costs and amortization of acquisition-related intangible assets, was $1.31. I had projected revenues of $4.8 billion and GAAP EPS of $1.06.
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Baker Hughes (BKR) 22Q4 Update
On Jan. 23, BKR reported 22Q4 GAAP EPS of $0.18 vs. $0.32 a year ago and my estimate of $0.29. Non-GAAP EPS was $0.38 compared with $0.25 last year and my estimate of $0.41. Revenues of $5.9 billion increased 7.7% vs. 21Q4 and were in line with my estimates.
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Citius (CTXR) at Sidoti
I recently had the opportunity to view a presentation and ask questions of Leonard Mazur at the Sidoti MicroCap Conference on January 18. Mr. Mazur helped fill in some of the gaps in my knowledge about company and its plans going forward. Here is what I learned:
Continue reading2022 Large Cap Performance Analysis
Large cap stocks, as measured by the Lark Research Large Cap Index (the “Index”)[1] which mirrors the S&P 500, posted a decline of 19.5% in 2022. As in previous years, most of the performance was driven by a handful of stocks. In 2022, those stocks – Alphabet (GOOG, GOOGL), Apple (AAPL), Amazon (AMZN), Meta Systems (META), Microsoft (MSFT), NVIDIA (NVDA) and Tesla (TSLA) – registered a combined loss of 40.2%, dominating (or skewing) the performance of the entire Index.
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Posted in Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Materials, Real Estate, Sectors, Technology, Utilities
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Citius Pharmaceuticals (CTXR) 22Q4 Update
In 2022, Citius Pharmaceuticals completed its Phase 3 trial for I/ONTAK, indicated for the treatment of persistent or recurrent cutaneous T-cell lymphoma (CTCL) and submitted its Biologics Licensing Application to the FDA. It has a PDUFA target date of July 28, 2023. It initiated a clinical collaboration with the University of Pittsburgh to evaluate I/ONTAK in combination with KEYTRUDA (pembrolizumab). CTXR also advanced its Phase 3 trial for Mino-Lok (a treatment to salvage infected catheters), expanding enrollment toward the FDA’s requirement of observing 92 catheter failure events. However, it said that the expansion will delay the completion of the clinical trial for some months. It also initiated a Phase 2b trial for its hemorrhoid treatment candidate, Halo-Lido, and expects a data readout during 23H2.
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Toll Brothers (TOL) 22Q4 Update
Toll Brothers reported fiscal 22Q4 results that were much stronger than I anticipated. 22Q4 diluted earnings per share were $5.63 up 86% from $3.02 in 21Q4 and better than my estimate of $3.93. Excluding a $140 million (estimated $0.94 per share) gain on a legal settlement, adjusted EPS of $4.69 was still well ahead of last year and my estimate.
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GE Healthcare Technologies (GEHC)
GE Healthcare Technologies (GEHC) will be spun-off from General Electric Company (GE) on January 4, 2023. Under the terms of the spin-off, GE shareholders will receive one share of GEHC for every three shares of GE that they own. In total, GE shareholders will receive an 80.1% equity stake in GEHC. GE will retain the remaining 19.9% interest, which it plans to divest over time.
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Hewlett Packard Enterprise (HPE) 22Q4 Update
HPE reported a 22Q4 GAAP loss of $0.23 per diluted share vs. earnings of $0.31 in 21Q4. My estimate called for earnings of $0.37. All of the shortfall was due to a $905 million ($0.68 per share) goodwill impairment charge taken against its High Performance Computing and Artificial Intelligence (HPC & AI) and Software businesses. Excluding this charge and other adjustments, its non-GAAP EPS was $0.57, vs. $0.50 last year and my estimate of $0.57. Net revenue of $7.87 billion exceeded 21Q4’s $7.35 billion and my estimate of $7.57 billion. Free cash flow of $2.0 billion, was up 5.3% YOY and also matched my estimate.
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Campbell Soup (CPB) 23Q1 Update
Campbell Soup Company (CPB) reported much stronger than expected 23Q1 net sales and profits (vs. my estimates). Net sales were $2.58 billion, 15% above 22Q1 and 9% above my estimate. Diluted Non-GAAP EPS was $1.02, up 14% YOY and better than my $0.69 estimate.
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November Housing Market Update
Housing market data from the U.S. Commerce Dept. and others show sales and production falling at a rapid rate. The seasonally adjusted annualized rate (SAAR) of single-family housing starts and building permits has fallen for eight consecutive months by about 30%. With housing construction still running high relative to the pace of starts, it seems likely that housing production will fall further in the months ahead.
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New Jersey Resources (NJR) 22Q4 Update
NJR reported 22Q4 GAAP net income of $0.56 per diluted share and net financial earnings (NFE), a non-GAAP measure, of $0.50 per basic share. That compares with the 21Q4 GAAP loss of $0.01 per share and NFE per basic share (NFEPS) of $0.17.
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Mistras Group, Inc. (MG) 22Q3 Update
Mistras Group reported 22Q3 EPS of $0.14, above 21Q3’s $0.11 and my estimate of $0.23. Revenues of $178.5 million were 2.2% above the year earlier period but also below my expectations. My projections were in line with the company’s implied guidance.
Continue readingBluegreen Vacations Holding Corp. (BVH) 22Q3 Update
22Q3 net income attributable to shareholders was $23.0 million or $1.19 per diluted share, compared with 21Q3’s $23.1 million or $01.06 per share. Revenues grew 17.0% to $250.8 million, but operating expenses rose 19.8% to $152.9 million. The increase in EPS was due to a 12.2% reduction in weighted average shares outstanding as a result of share buybacks completed this year.
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AlerisLife Inc. (ALR) 22Q3 Update
AlerisLife reported a 22Q3 net loss of $8.5 million or $0.27 per share, better than the 22Q2 loss of $8.8 million or $0.28 per share and the 21Q3 loss of $10.2 million or $0.32 per share. I had estimated a loss of $7.5 million or $0.24 per share.
Continue readingDiversified Healthcare Trust (DHC) 22Q3 Update
22Q3 GAAP loss was $0.34 per share and normalized FFO was –$0.06 per share, below my forecast of ‑$0.23 and +$0.01, respectively. The Office Portfolio met expectations, but Senior Housing Operating Portfolio (SHOP) results were disappointing as improved occupancy and higher rental rates were more than offset by significantly higher operating expenses. Non-Segment results were also below expectations.
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Organon & Co. (OGN) 22Q3 Update
22Q3 revenues were $1.537 billion, down 3.9% year-over-year, but up 3% at constant currency. GAAP diluted EPS was $0.92, below 21Q3’s $1.27, but above my estimate of $0.82. Non-GAAP EPS of $1.36 was below last year’s $1.61, but also above my estimate of $1.08.
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Merck & Co (MRK) 22Q3 Update
22Q3 sales rose 13.7% to $15.0 billion with double-digit gains in KEYTRUDA and GARDASIL/GARDASIL 9. GAAP diluted EPS fell 29.0% to $1.28; but non-GAAP diluted EPS rose 5.6% to $1.85. The company recorded an $887 million ($0.27 per share) asset impairment charge related to ArQule, Inc., which was acquired in 2020. It also recorded $690 million in upfront and option payments on three collaborations. Merck’s revenues were 8.4% above my estimate of $13.8 billion. Its GAAP EPS was $0.07 below my estimate of $1.34; but non-GAAP EPS exceeded my $1.64 estimate by $0.21.
Continue readingAmerican Water Works (AWK) 22Q3 Update
AWK reported 22Q3 EPS of $1.63, up 6.5% from $1.53 in 21Q3 and above my estimate of $1.52. Operating revenues decreased 0.9% to $1.08 billion, as regulatory rate increases were more than offset by lost revenues from the sales of the Homeowner Services (HOS) and New York American Water (NYAM) businesses.
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Public Service Enterprise Group (PEG) 22Q3 Update
Public Service Enterprise Group (PEG) reported 22Q3 operating revenues of $2.27 billion, up 19.4% from 21Q3. The increase in revenues was due mostly to higher gas supply sales to third parties at PEG Power and higher commodity revenues, including higher electric sales volumes and higher gas BGSS prices at PSE&G. GAAP EPS was $0.22 vs. a loss of $3.10 a year ago. Most of last year’s loss was due to an impairment charge associated with the sale of its fossil generating assets. On a non-GAAP basis, operating earnings were $0.86, down from $0.98 in 21Q3.
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Bristol-Myers Squibb (BMY) 22Q3 Update
22Q3 revenue declined 3.5% to $11.2 billion, mostly because of a drop in Revlimid sales due to patent expiry. GAAP EPS increased 8.5% to $0.75, but that was slightly below my estimate of $0.77, due mostly to a higher income tax provision. Non-GAAP EPS of $1.99 was above 21Q3’s $1.93 and my estimate of $1.84, as more expense items were classified as specified and thus excluded in the calculation of Non-GAAP net income and EPS.
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General Electric (GE) 22Q3 Update
GE announced 22Q3 revenues of $19.5 billion, up 0.5% year-over-year, a GAAP loss per share of $0.14, compared with 21Q3’s $0.54 profit, and non-GAAP EPS of $0.35, below 21Q3’s $0.53. I had anticipated a GAAP EPS of $0.44 per share and non-GAAP EPS of $0.75.
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Baker Hughes (BKR) 22Q3 Update
BKR reported a 22Q3 GAAP net loss of $0.02 per share vs. 21Q3’s profit of $0.01. Non-GAAP adjusted EPS was $0.26 vs. $0.16. I had anticipated 22Q3 GAAP EPS of $0.18 and Non-GAAP EPS of $0.30. BKR’s 22Q3 non-GAAP EPS exceeded the consensus estimate by a penny.
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Initiating Coverage of New Jersey Resources Corp (NJR)
NJR reported 22Q3 GAAP net income of $0.14 per diluted share and a net financial loss (a non-GAAP measure) of $0.04. That compares with the 21Q3 GAAP loss of $1.16, owing to an impairment charge on its investment in the proposed Penn East pipeline, and a net financial loss of $0.15. The company increased its full year net financial earnings (NFE) guidance by $0.10 to $2.40-$2.50, the second such increase this year.
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September Housing Market Update
- The average rate on the 30-year mortgage has risen above 6.00% in response to the latest hike in the Fed Funds target rate. Freddie Mac’s Primary Mortgage Market Survey pegged the average rate at 6.29% this week.
- The CME’s Fed Watch tool now shows a 73% probability of a 75 bp rate hike and a 27% probability of a 50 bp hike in November. FOMC participants expect the Fed Funds target to rise to about 4.40% by year-end, which is a 125 bp increase from the current level. That could be achieved with increases of 75 bp in November followed by 50 bp in December. Incoming economic data will influence the Committee’s decisions.
- After outperforming the broader market from early April to early August, homebuilding stocks have since underperformed. Since the mid-August highs, my Index has fallen 17.5%, worse that the 13.7% decline in the S&P 500 and the 16.7% decline in the Russell 2000. The Index is still holding at the “possible support” range, but just barely. Like the broader market, homebuilding stocks have now fallen back to their June lows. A break below this level could signal another consequential downward move.
- In spite of the FOMC’s rate hike and the rise in mortgage rates, homebuilding stocks outperformed the broader market last week. My Index declined 2.7%, less than the drops of 4.7% in the S&P 500 and 6.6% in the Russell 2000. About half of the decrease in the Index was due to steeper drops in Beazer Homes USA (BZH) and Hovnanian Enterprises (HOV), both of which are more vulnerable to rising interest rates owing to their higher debt levels. D.R. Horton (DHI) and Lennar Corp. (LEN) were up on the week. NVR and PulteGroup (PHM) slipped about 0.5%. This performance is encouraging but not definitive.
Posted in Consumer Discretionary, Housing, Market Commentary, Real Estate, TOL
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Baker Hughes (BKR): Initiating Coverage
Five years after its merger with GE Oil & Gas, Baker Hughes Company (BKR) is adjusting to changes in its market environment, including the fallout from the war in Ukraine, supply chain disruptions, inflation and challenges and opportunities in the transition to a zero-carbon future.
Continue readingCampbell Soup (CPB) 22Q4 Update
Fiscal 22Q4 net sales of $2.0 billion increased 6.1% YOY. GAAP diluted EPS was $0.32, below 21Q4’s $0.95. Non-GAAP adjusted EPS of $0.56 exceeded 21Q4’s $0.52. These results were generally in line with my expectations.
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Hewlett Packard Enterprise (HPE) 22Q3 Update
HPE’s 22Q3 GAAP diluted EPS was $0.31 vs. $0.29 in 21Q3 and better than my estimate of $0.26. Non-GAAP EPS was $0.48, compared with $0.47 last year and my estimate of $0.46. Net revenue of $6.95 billion exceeded 21Q3’s $6.90 billion, but was below my estimate. Free cash flow of $587 million, was up 11.6% YOY and reversed 22Q2’s cash burn, but was also below my estimate.
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Nice Speech, Mr. Powell, But Please Pay Attention to Housing
The stock market fell 3.3% on Friday, following Fed Chairman Jay Powell’s speech on monetary policy at the Jackson Hole Fed meeting. Mr. Powell affirmed the Federal Reserve’s commitment to bring inflation down, which will probably take some time and hurt lower-income people and businesses.
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Toll Brothers (TOL) 22Q3 Update
Toll Brothers’ 22Q3 EPS was $2.35, up 25.7% from 21Q3’s $1.87 and above my estimate of $2.22. Revenues increased 10.6% to $2.49 billion, slightly below my projections. Deliveries of 2,414 units fell 7.1%, more than expected, but the average sales price rose 8.7% to $934,700. Adjusted gross margin of 27.9% was 90 bp above my estimate and management’s guidance. The SG&A expense ratio of 10.3%, was down 20 bp from 21Q3 and 10 bp below expectations.
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22Q2 Housing Market Update
Despite an accelerating slide in housing sales and production following this year’s rise in mortgage rates, my homebuilder stock price index has performed in line with its benchmarks since April. At current prices, homebuilding stocks trade at less than four times projected 2022 earnings and less than five times projected 2023 earnings, which already discounts an expected significant decline in future profitability. Here are my other key takeaways on the latest developments in housing:
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Tagged Housing Market, U.S. housing market
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Citius Pharmaceuticals (CTXR) 22Q3 Update
Citius Pharmaceuticals reported a third quarter loss of $8.9 million or $0.06 per share, compared with last year’s loss of $7.3 million or $0.05 per share. As an early stage drug development company, Citius currently generates no revenues. The loss was in line with expectations, reflecting the company’s expanding development efforts, including I/ONTAK, which was acquired last year.
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Diversified Healthcare Trust (DHC) 22Q2 Update
22Q2 GAAP loss was $0.46 per share and normalized FFO -$0.04 per share, below my forecast of -$0.42 and +$0.01, respectively. The Office Portfolio disappointed again, raising concerns about declining occupancy. Senior Housing Operating Portfolio (SHOP) results met expectations.
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AlerisLife (ALR) 22Q2 Update
AlerisLife reported a 22Q2 net loss of $8.8 million or $0.28 per share, better than the 22Q1 loss of $9.7 million or $0.31 per share and the 21Q2 loss of $12.3 million or $0.39 per share. I had estimated a $0.28 loss.
Continue readingBluegreen Vacations Holding (BVH) 22Q2 Update
2022 second quarter net income attributable to shareholders was $17.8 million or $0.87 per diluted share, compared with 21Q2’s $19.5 million or $0.93 per share. The decline in EPS occurred despite a 21.8% increase in revenues to $235.6 million.
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Mistras Group (MG) 22Q2 Update
Mistras Group reported 22Q2 EPS of $0.15, below 21Q2’s $0.20 and my estimate of $0.18. Revenues of $179.0 million were 0.8% above the year earlier period and also below my expectations. While revenues were essentially flat, gross margin was lower and SG&A expense higher than the prior year. Income from operations declined 5.4%.
Continue readingOrganon & Co (OGN) 22Q2 Update
22Q2 revenues of $1.585 billion were flat year-over-year, but up 5% at constant currency. GAAP EPS of $0.92, was below 21Q2’s $1.68 and also below my $1.11 estimate. Non-GAAP EPS of $1.25 was below last year’s $1.72 and also below my $1.34 estimate. In 21Q2, Organon was still part of Merck, so the year-over-year performance figures are not directly comparable.
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Public Service Enterprise Group (PEG) 22Q2 Update
Public Service Enterprise Group (PEG) reported 22Q2 operating revenues of $2.08 billion, up 10.8% from 21Q2. GAAP EPS was $0.26 vs. a loss of $0.35 a year ago. Most of last year’s loss was related to a net $457 million loss on write-down of its ISO fossil assets, which have been sold, offset partially by a gain on the sale of PEG’s solar assets. Excluding that loss, and other gains or losses on derivatives and investments, the company posted non-GAAP operating earnings of $0.64, down from $0.70 in 21Q2.
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Merck & Co (MRK) 22Q2 Update
22Q2 sales increased 28% to $14.6 billion, with LAGEVRIO sales of $1.2 billion, a 26% increase in KEYTRUDA sales to $5.3 billion and a 36% increase in GARDASIL/GARDASIL 9 sales to $1.7 billion. GAAP diluted EPS from continuing operations increased to $1.55, from $0.48 a year ago. Non-GAAP diluted EPS increased to $1.87 from $1.31.
Continue readingAmerican Water Works (AWK) 22Q2 Update
American Water Works Company (AWK) reported 22Q2 EPS of $1.20, up 5% from $1.14 in 21Q2. Operating revenues decreased 6.2% to $937 million, mostly due to the sale of the Homeowner Services (HOS) and New York American Water (NYAM) businesses, offset partially by regulatory rate increases. These same factors contributed to the 3.1% decline in operating income to $327 million. However, interest earned on the senior note taken back on the HOS sale and an increase in other income more than offset the decline in operating income.
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Bristol-Myers Squibb (BMY) 22Q2 Update
22Q2 revenues were higher, GAAP earnings lower and non-GAAP earnings higher than anticipated. Management reduced its 2022 revenue guidance by $1 million to $46 billion due to foreign currency headwinds. It also lowered its GAAP EPS guidance, but left its non-GAAP EPS guidance unchanged. The GAAP earnings change is due to higher expected specified items, either losses on equity investments or acquisition costs, which do not affect non-GAAP results.
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GE 22Q2 Update
General Electric Company (GE) announced 22Q2 revenues of $18.6 billion, up 2.4% year-over-year, a GAAP loss per share of $0.59, two cents worse than 21Q2’s $0.57 loss, and non-GAAP EPS of $0.78, above 21Q2’s $0.22. I had anticipated a GAAP loss of $0.16 per share and non-GAAP EPS of $0.55.
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Hewlett Packard Enterprise Company (HPE) 22Q2 Update
Hewlett Packard Enterprise Company’s performance during the first half of fiscal 2022 was somewhat disappointing, due primarily to the residual disruptions from the pandemic and more recent developments, including the conflict between Russia and Ukraine. Although its order book increased by 20% year-over-year in both 22Q1 and 22Q2, supply chain disruptions have delayed the delivery of products and services out of the backlog, which has restrained sales and profit margins. In addition, HPE’s inventory has ballooned this year from 64 to 106 days outstanding. The increase is due to the supply chain constraints, positioning to fulfill planned future shipments and strategic stockpiling.
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Bluegreen Vacations Holding Corp. (BVH) 22Q1 Update
2022 first quarter net income from continuing operations attributable to shareholders was $16.0 million or $0.76 per diluted share, compared with 21Q1’s $3.1 million or $0.16 per share. Revenues improved to $195.1 million from $146.4 million.
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Citius Announces Its Intention to Spin-Off I/ONTAK
Earlier today, Citius Pharmaceuticals issued a press release announcing its intention to spin-off its late stage oncology candidate, I/ONTAK, to a new, standalone publicly-traded company. In making the announcement, the company said that it believed that the market has not adequately valued the potential of its I/ONTAK licensing agreement.
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DHC 22Q1 Update
22Q1 In Line with Expectations. Maintaining Performance Rating and Price Target.
22Q1 GAAP earnings were $1.01 per share and normalized FFO –$0.09 per share, in line with my expectations of $1.04 and –$0.06. Excluding a $327.8 million gain on the sale of JV interests, the performance of the Office Portfolio was moderately below expectations, but Senior Housing Operating Portfolio (SHOP) results were better than anticipated.
Continue readingAlerisLife (ALR) 22Q1 Update
22Q1 Loss of $0.30 in Line with Expectations; Katie Potter Steps Down as CEO; ALR Hires Alvarez & Marsal to Conduct a Comprehensive Operational Review
AlerisLife reported a 22Q1 net loss of $9.7 million or $0.31 per diluted share, slightly better than its 21Q4 loss of $10.6 million or $0.34 per share. I had estimated a $0.28 loss.
Continue readingGE 22Q1 Update
Since reporting disappoint 22Q1 results on April 26, GE’s stock has fallen sharply. Year-to-date, GE’s stock is down 22.6%, worse than the S&P 500 Industrial sector’s 11.7% decline.
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Citius Pharma 22Q1 Update
Citius Pharmaceuticals (CXTR) is a specialty pharmaceutical company focused on the development of five potential products: (1) Mino-Lok, an antibiotic lock solution to treat and salvage infected central venous catheters (CVCs) in patients with catheter-related bloodstream infections (CRBSIs); (2) I/ONTAK, a late-stage oncology immunotherapy for the treatment for cutaneous T-cell lymphoma (CTCL), that was acquired from Dr. Reddy’s Laboratories SA in September 2021; (3) Halo-Lido, a topical formation of halobetasol propionate and lidocaine for the treatment of hemorrhoids; (4) Mino-Wrap, a liquefying, gel-based wrap for the reduction of infections associated with breast implants following breast reconstructive surgeries; and (5) a next generation iPSC mesenchymal stem cell (iMSC) mRNA therapy, which is in pre-clinical development, under license from Brooklyn Immunotherapeutics (BTX).
Continue readingMistras Group, Inc. (MG) 21Q4 Update
21Q4 Results Below Expectations, Lowering 2022 Estimates, Reducing Rating and Price Target
Mistras Group reported 21Q4 EPS of $0.00, slightly worse than 20Q4’s $0.01 and below my estimate of $0.06. Revenues of $171.2 million were 6.5% above the year earlier period and better than I expected. Despite the higher revenues, income from operations declined by 50% compared with the prior year. Against my projections, Mistras’s revenues were higher, but operating costs were much higher.
Continue readingThoughts on the Outlook for Homebuilding Stocks
Homebuilding stocks have had a rough 2022. Year-to-date (through 4/12), my equal-weighted index of 11 publicly-traded U.S. homebuilders has fallen 34.8%. That compares with declines of 7.7% in the S&P 500 and 11.5% in the Russell 2000.
Following a three-fold surge in the index from the March 2020 lows to the May 2021 highs, homebuilding stocks were due for a correction anyway. This year’s 34% fall, though eye-catching, still qualifies as a normal correction from a technical point of view, according to Fibonacci retracement analysis.
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Going to Neutral on Big Pharma
The stocks of large pharmaceutical companies, including Bristol-Myers Squibb (BMY) and Merck & Co. (MRK), which I follow, have outperformed the market significantly so far this year. The pharmaceuticals sector, as measured by the NYSE Arca Pharmaceuticals Index ($DRG) shows a year-to-date gain of 5.2%, as of this post, much better than the S&P 500’s 6.5% decline.
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AlerisLife (ALR) 21Q4 Update
Lowering Estimates and Safety Rating, Withdrawing Performance Rating and Price Target
AlerisLife Inc. (ALR), formerly known as Five Star Senior Living, reported a fourth quarter net loss of $10.7 million or $0.34 per share, slightly worse than the third quarter’s loss of $10.2 million or $0.32 per share. I had estimated a $0.15 loss.
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Toll Brothers (TOL) 22Q1 Update
Since my last report on December 9, 2021, Toll’s stock has fallen 26.3%, much more than the S&P Mid-Cap 400’s 2.6% decline. As I noted back then, shares of Toll and other homebuilders were ripe for a correction following their three-fold advance off the early pandemic lows. Yet, this correction has been more severe than I had anticipated, driven by persistent inflation, rising mortgage rates and most recently the uncertainty of the economic fallout from Ukraine.
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Merck & Co. (MRK) Update
Establishing 2022 and 2023 Estimates, Maintaining Outperform Rating, Setting $85 Price Target
Following the spin-off of Organon, Merck is focused on growing its pharmaceuticals business to offset the looming loss of exclusivity on its $5 billion Januvia/Janumet franchise and others that will follow as the decade progresses. Investors’ concerns about the impact of LOE contributed to the stock’s underperformance in 21H2. Some investors worry that Merck’s pipeline will not sustain its revenues and profits. My estimates anticipate that both will decline slightly in 2023.
Continue readingDHC 21Q4 Update
Lowering Estimates for 2022 and Adding 2023, Lowering Price Target to $5.00
DHC reported 21Q4 normalized FFO of –$0.09 per share, compared with 21Q3’s ‑$0.05 and 20Q4’s +$0.09. Although the Office portfolio posted another solid quarter and the Senior Housing Operating Portfolio (SHOP) occupancy improved by 120 bp, SHOP operating costs were high, due mostly to the tight labor market. On a positive note, management says that its operators have been able to begin raising rental rates to help cover higher operating costs.
Continue readingBristol-Myers Squibb Update
Raising 2022 Estimate and Adding 2023, Maintaining Outperform Rating and Price Target of $73
Bristol-Myers Squibb Company (BMS) achieved many operational milestones in 2021, advancing its development pipeline through clinical trials, new drug applications and regulatory approvals. At its November Investor Event, management said that it would further advance these initiatives in 2022 and beyond, bolstering its early- and mid-stage pipeline through internal development, licensing agreements, partnerships and acquisitions. Facing the headwinds from loss of exclusivity (LOE) for some of its key products, the company must generate significant revenues from new medicines and grow revenues of its existing brands through new indications and product extensions.
Continue readingThe Drivers of Large Cap Stock Performance in 2021
Estimated Returns by Sectors, Industry Groups and Industries
Large cap stocks, as measured by the Lark Research Large Cap index (the “Index”) which currently mirrors the S&P 500, turned in another impressive performance in 2021. The Index posted a price return of 26.8%, much better than 2020’s solid 16.9% return.
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DHC Announces Sales of Joint Venture Interests in Certain Office Properties
Sales Raise Over $1 Billion, Giving the Trust the Means to Retire the 9.75% Senior Notes due 2025 When They Become Callable in June 2022.
DHC announced on January 31 that it has entered into a joint venture with two institutional investors on 10 of its Office properties. The joint venture is valued at $703 million and will have $456.3 million of secured debt. The JV investors will pay $196.5 million for an 80% equity stake. DHC will receive cash proceeds of $653 million and retain a 20% equity interest. The 10 properties are valued at $657 per sq. ft. The $703 million estimated value equates to a capitalization rate of 4.98%, based upon full year 2021 actual cash net operating income (NOI).
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Notes and Analysis from Campbell Soup’s Fiscal 2022 Investor Day
Since 2019, Campbell Soup Company has jettisoned several businesses to focus on its core Meals and Beverage (M&B) and Snacks segments. It has also acquired new growth platforms in Pacific Foods and Snyder’s-Lance. Its $1 billion enterprise cost savings program is now 83% complete.
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Mistras Group: Waiting for the Full Recovery
Mistras Group is a leading provider of non-destructive testing (NDT) and related asset protection services that monitor the condition of critical infrastructure and equipment to ensure safe and efficient operations and maximize uptime. The company’s business has suffered during the pandemic from the decline in usage that temporarily reduced the frequency of maintenance and repair. Although its revenue has rebounded well off the lows, its 21Q3 performance and 21Q4 guidance suggest at least a pause in its recovery. Accordingly, investors may be concerned that its recovery will be incomplete.
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Toll Brothers (TOL) 21Q4 Update
Toll Brothers reported stronger-than anticipated fiscal 21Q4 results that once again exceeded my and the consensus estimates. Its diluted earnings per share were $3.02, up 95% from $1.55 in 20Q4. My estimate was $2.51 and the consensus estimate was $2.50.
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Organon 21Q3 Update
Organon reported 21Q3 GAAP EPS of $1.38 which exceeded my estimate of $1.31. Revenues were in line with my estimates and operating costs were lower, except for a $25 million increase associated with the acquisition of in-process research & development.
Continue readingSJI 21Q3 Update
SJI reported a 21Q3 GAAP net loss of $25.8 million or $0.23 per share, wider than 20Q3’s net loss of $10.3 million or $0.10. On an economic earnings basis, which adjusts for fluctuations in the fair market value of derivatives and other unusual or one-time costs, the 21Q3 net loss was $18.8 million or $0.17 per share, compared with 20Q3’s net loss of $6.0 million or $0.06 per share. I had anticipated GAAP and economic earnings net losses of $0.16 per share.
Continue readingNotes and Analysis from HPE’s 2021 SAM
At its 2021 Securities Analyst Meeting (SAM), the management of Hewlett Packard Enterprise Company (HPE) said that the workplace changes advanced by the pandemic are proving the validity of its edge-to-cloud strategy. HPE has experienced stronger than anticipated growth in revenues this year, as enterprises have enhanced their edge, cloud and data capabilities. HPE continues to strengthen its portfolio in these areas, focusing especially on fast-growing niches through internal development and acquisitions. The company forecasts that its mix of growth businesses will increase from 25% of total revenues today to 35% of revenues in fiscal 2024.
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DHC 21Q3 Results
Diversified Healthcare Trust (DHC) reported 21Q3 normalized FFO of –$0.04 per share, compared with 21Q2’s $0.05. The loss came despite a 40 bp improvement in SHOP occupancy. Operating costs remain high and senior living operators are discounting resident rates more because of the slow improvement in occupancy industry-wide. DHC’s Office portfolio’s 21Q3 performance met expectations.
Continue readingFive Star Senior Living 21Q3 Update
Again Lowering EPS Estimates; Reducing 6-12 Month PT and Maintaining Outperform Rating
Five Star reported a third quarter net loss of $10.2 million or $0.32 per share, less than the second quarter’s loss of $12.3 million or $0.39 per share. I had estimated a loss of $0.18.
The $0.14 shortfall from my estimate was due mostly to a $3.3 million or $0.10 per share charge on the termination of three senior living community (SLC) leases. The remaining $0.04 shortfall was from higher than projected losses on the core business, mostly from lower average revenue per occupied room (RevPOR) and a decline in expenses reimbursed by DHC.
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21Q3 Housing Market Update
The housing market has been quite strong since shortly after the onset of the pandemic, fueled by low interest rates, pent-up demand and a strong desire among urban apartment dwellers to escape the coronavirus. New home sales from May 2020 until April 2021 were estimated at an average annual pace of 900,000 units, the highest since 2006. Pending sales of existing homes have followed a similar pattern. After the slowing of sales from an unsustainably high pace this past spring, there are tentative signs that sales are on the rise again, but there are also legitimate questions about the likely strength and durability of the rebound.
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Toll Brothers 21Q3 Update
Toll Brothers reported stronger-than anticipated fiscal 21Q3 results that once again exceeded my estimates. Its diluted earnings per share were $1.86, up 71% from $0.59 in 20Q2. My estimate was $1.48 and the consensus estimate was $1.53.
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PSEG’s 2021 Investor Day
Public Service Enterprise Group held its 2021 Investor Day on Sept. 27, 2021. At the meeting, management offered the following guidance:
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So. Jersey Industries: High Dividend Yield With Moderate Upside Price Potential
SJI’s utility businesses – South Jersey Gas Company (SJG) and Elizabethtown Gas Company (ETG) – are its core growth engines. Representing 70%-80% of consolidated profits, they have grown by pursuing regulatory-approved infrastructure investment programs and gaining customers from new construction and alternative heating conversions. SJI also pursues growth its nonutility businesses; but its performance there has been mixed.
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Organon (OGN) 21Q2 Update
21Q2 Performance in Line with Expectations; Raising Performance Rating and Lowering Price Target
21Q2 GAAP EPS of $1.68 was lower than 20Q2’s $2.14. Although sales increased 4.5% to $1.6 billion, costs were higher as a result of new tolling arrangements with Merck and certain costs associated with the spin-off and becoming a separate public company. Still, the results were in line with my expectations. Organon has initiated a quarterly dividend of $0.28.
Continue readingDHC 21Q2 Update
Progress on Strategic Repositioning; Performance in Line with Expectations; Upgrading Performance Rating; Maintaining Price Target of ~$7.50.
DHC reported 21Q2 normalized funds from operations (FFO) of $12.2 million or $0.05 per share, lower than 20Q2’s $0.25, due mostly to a 780 bp decline in senior housing operating portfolio (SHOP) occupancy. Although SHOP occupancy was down vs. the prior year, it increased 140 bp sequentially, suggesting that a bottom is in. Still, the pace of the rebound is uncertain due to the Delta variant, among other factors. DHC’s office portfolio also reported a drop in profits mostly due to previous asset sales and a 100 bp decline in occupancy. However, strong lease-ups and the added contribution from redevelopment projects should improve its profitability going forward.
Continue readingFive Star Senior Living 21Q2 Update
Five Star reported a second quarter net loss of $12.3 million, reversing last year’s $3.0 million net profit. On a per share basis, the loss was $0.39, compared to net income of $0.10 and below my estimate of a loss of $0.11.
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Tagged Diversified Healthcare Trust, Five Star Senior Living
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American Water Works 21Q2 Update
2021 Second Quarter Results in Line with Expectations. Maintaining Neutral Rating.
AWK reported 21Q2 EPS of $1.14, up 17.5% from 20Q2. Operating revenues increased 7.3% to $999 million. Operating income rose 5.4% to $330 million. Operating margin eased 60 bp from 33.6% to 33.0%, due to a refund of excess accumulated deferred income tax. That refund was offset by a comparable drop in income tax expense, as evidenced by the drop in the effective tax rate from 24.1% to 17.5%. Thus, net income increased 17.6% to $207 million.
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Bristol-Myers Squibb: Initiating Coverage
Initiating Coverage with an Outperform Rating. Prospects Beyond 2022 are Favorable.
With the acquisitions of Celgene in 2019 and MyoKardia in 2020, BMS has substantially transformed its business and repositioned for growth. Drugs added to the portfolio from the two acquisitions produced 40% of its total revenues in 2020. The company has launched six new products since 2020, including two CAR-T immunotherapies, a class of treatments that has produced miraculous responses in fighting blood cancers. It plans to launch two potential first-in-class treatments in 2022 that have good commercial potential. BMS also has a broad early-to-mid stage pipeline with more than 50 new compounds in clinical development.
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PSEG: A Possible Rocky Transition to T&D
It has been a year since PSEG announced a strategic review to explore divesting its fossil fuel generating assets. Since then, management has said that it is pleased with the interest shown by potential buyers in its 6,750+ MW portfolio of mostly natural gas-fired generating plants. The move would complete PSEG’s transition to a regulated utility (with a fleet of carbon-free nuclear generating plants).
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Bluegreen Vacations Holding Corp. Stands to Gain as Domestic Travel Improves
On May 5, 2021, Bluegreen Vacations Holding Corporation (BVH), formerly known as BBX Capital Corporation, completed the acquisition of the 7% publicly-traded ownership stake of Bluegreen Vacations Corporation (BXG) that it did not already own through a statutory short-form merger under Florida law. BXG shareholders received 0.51 shares of BVH’s Class A common shares in the merger. On April 5, the day of the merger announcement, BXG shares rallied 18.8%. BXG is now a wholly-owned subsidiary of BVH.
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HPE 21Q2 Results
The Company Reported Stronger Than Expected 21Q2 Results, But Its Upwardly Revised Guidance Was Somewhat Disappointing.
HPE reported fiscal 2021 second quarter GAAP earnings of $0.19 per share, well above its most recent guidance of $0.02-$0.08 per share and ahead of my estimate of $0.12. Its Non-GAAP earnings of $0.46 also exceeded its guidance of $0.38-$0.44 and my estimate of $0.42. Revenues of $6.7 billion were exactly in line with my projections.
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Update on Hewlett Packard Enterprise (HPE)
HPE has posted two consecutive quarters of stronger-than-expected results. Although the quarterly figures still lag behind the prior year, the recent strength suggests that its business is rebounding strongly off the bottom. As noted by management, HPE’s business portfolio, which sports beefed-up offerings in cloud services, edge networking and high performance computing (HPC), is well positioned coming out of the pandemic as organizations pursue greater flexibility in their IT operations to improve their ROI and seek a more permanent role for work from home. HPE also appears to be benefiting from a catch up in customer IT spending after pandemic-related delays.
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