A Process of Adjustment for the Homebuilders

2018 has been rough for homebuilding stocks.  The Lark Research Homebuilder Stock Index, which is an equal-weighted measure of the price performance of ten publicly-traded homebuilders, was down 19.9% year-to-date through August 3rd, far worse than the gains of 6.2% in the S&P 500 and 9.0% in the Russell 2000.
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GE Part 3: Contemplating GE Capital

Besides the recent weakness at Power and Oil & Gas, GE has been grappling with legacy issues at GE Capital.  Although it has been downsizing for more than a decade now – reducing its assets from $660 billion at the end of 2008 to $136 billion at June 30, 2018 – GE Capital still represents 40% of GE’s consolidated assets and it has not reported a profit since 2014. Continue reading

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GE Part 2: Assessing GE’s Value

On June 26, General Electric (GE) announced the outcome of its strategic review. Besides divestiture actions already announced, the company said that it will spin-off its Healthcare business over the next 12-18 months and distribute its 62.5% stake in Baker Hughes, a GE company (BHGE) over the next two to three years. Those actions would leave GE with three core businesses – Aviation, Power and Renewable Energy. Continue reading

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GE Part 1: 18Q2 Results

General Electric reported disappointing 2018 second quarter GAAP earnings attributable to shareholders of $736 million or $0.07 per share, down 30% from $1.03 billion or $0.10 per share last year.  Adjusted (Non-GAAP) EPS, according to the company’s definition, was $0.19 per share, down 10% from $0.21.  Non-GAAP EPS exceeded consensus estimates by a penny. Continue reading

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StoneMor’s Unit Price Plummets as it Files its Delayed 10-K

Since peaking at $32.01 in July 2015, the MLP units of StoneMor Partners LP (STON) have lost nearly 90% of their value.  The steepest part of the decline began in October 2016, just before STON cut its quarterly distribution in half and its CFO Sean McGrath resigned.  In early 2017, the company delayed the filing of its financial statements with the SEC because of errors that it discovered in the reporting of cemetery revenues and deferred revenues.  Subsequent quarterly filings were also delayed, and the company has not yet completely caught up on its filing requirements. Continue reading

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Bed Bath But Not Beyond Hope

  • BBBY has lost 70% of its value over the past three years. Profits are down sharply mostly because of price competition. Store comparable net sales have been falling mid-single digits, offset by growth in online/mobile sales and other areas.
  • Management is seeking to grow revenues in key product categories, increase store traffic, deleverage gross margin and SG&A expenses, reduce lease costs, upgrade digital offerings and improve working capital management.
  • Management’s guidance and goals suggest that EPS will decline through fiscal 2019 but at a slowing rate.
  • At 9 times 2018 EPS and 10 times 2019 EPS, BBBY trades at a discount to peers. My price target is $30, assuming a return to EPS growth in 2020. Meanwhile, the stock has an attractive and reasonably safe 3.2% dividend yield.
  • From a technical perspective, the stock looks like it will retest the recent May 9 low. If it does successfully, it may then face resistance as it bounces back to the $21-$24 range.

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Arch Coal (ARCH) 18Q1 Update

2018 First Quarter Results. On April 26, Arch Coal reported disappointing 2018 first quarter results. Adjusted EPS for the quarter was $2.95, up from $2.82 last year, but behind the consensus forecast of $4.22.  Revenues declined 4.3% to $575.3 million, $20.4 million below consensus. Total tons sold declined 7.8% to 23.7 million. All three of Arch’s business segments – the Powder River Basin, Metallurgical and Other Thermal suffered volume declines. Continue reading

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An Update on Senior Housing Properties Trust (SNH)

Pressure from Declining Occupancy; But SNH Has Sufficient Financial Flexibility to Cope for Next Two Years or More. Continue reading

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Consolidated Water 18Q1 Update

CWCO reported first quarter net earnings attributable to stockholders $2.1 million or $0.14 cents per diluted share.  That compares with 17Q1 net income of $2.6 million or $0.18 per diluted share.  Revenues declined 2.2% to $15.7 million. Continue reading

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18Q1 Housing Update

  • The rate of growth in housing production decelerated modestly in 18Q1, but growth in new home sales remained solid.
  • In 18Q1 conference calls, builders said that the housing market remains strong, with gains in jobs and wages and limited inventories more than offsetting the negative impact of rising prices and mortgage rates.
  • Average unit deliveries for nine publicly-traded builders increased 9.9% and net new orders 12.9% in 18Q1, helped in part by acquisitions.
  • Homebuilding stocks fell sharply after peaking in January. Year-to-date, (thru 5/4), they are down 8.7% on average.
  • Despite a sharp run-up in since February 2016, the average builder’s shares are valued at 10.3 times anticipated 2018 earnings and 9.2 times projected 2019 earnings.
  • Assuming no change in forward multiples, homebuilder shares can outperform the broader market if the builders can achieve forward earnings targets.

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