Please let me know if you have any questions.
Thanks,
John
Month: October 2018
SLB 3Q18 earnings results: international markets improving, US constraints remains as expected
Key Takeaways:
Current Price: $59.2 Price Target: $82
Position Size: 1.73% 1-year Performance: -8%
Schlumberger 3Q18 earnings results were slightly above recently lowered expectations. The growth in North America slowed down from last quarter, constrained by pipeline capacity and workers availability (to be resolved by the end of 2019). The sector is however recovering globally. Ongoing improvements of the oil producers investments level helps lift SLB sales, which increased 8% y/y. Operating margin expanded 15bps y/y, and adjusted EPS grew 10% y/y. FCF yield remains attractive at 4.7%. The management team warned of lower profits in 4Q18 vs. 3Q18, as US fracking activity continues to drop.
Segments review:
Drilling sales +15%: Saudi Arabia and Russia drilling activity helped. margin down 24bps y/y
Production: some slow down following strong growth recently: +13% sales growth y/y but flat sequentially, margins flat y/y
Reservoir Characterization: sales -6% but operating margin expanded 470bps thanks to better product mix
Cameron: continued pressure on their Deepwater business, sales flat y/y, and margin deleverage of 356bps
Geographic review:
North America sales +23% y/y
International sales +1% y/y
SLB Thesis:
1. After 5 years of significant underperformance, The Energy Sector is historically cheap and SLB is
historically cheap relative to the sector – despite being one of the highest quality Energy companies
in the world
2. As the leading Global Oil Services company, SLB is well positioned to benefit from (1) Secular
growth in U.S. shale production and (2) Cyclical rebound in global oil production/oil prices
3. SLB is a high quality company within a highly cyclical industry – SLB has generated 16% annual
Returns on Invested Capital over the past 10 years and throws off a lot of free cash flow
4. SLB’s stock is highly levered to increasing oil prices and will not wait for the turn to make its
move. We are also getting closer to a bottom in EPS estimates and SLB protects better than most
energy stocks on the downside due to its high quality nature – strong balance sheet, ROIC, cash
flows
$SLB.US
[tag SLB]
Julie S. Praline
Director, Equity Analyst
Crestwood Advisors
Crown Castle International ($CCI.US) Q 2018: Positioned well for 2019
Crown Castle International Corp. (CCI) had another strong quarter, outpacing guidance and expectations for revenue and AFFO per share. CCI introduced slightly higher guidance for revenues and adjusted EBITDA for the remainder of the calendar year. The company increased its annual dividend to $4.50, a 7% increase YoY. Growth in the towers space continues to be driven by consumer demand for data which leads to investment by mobile carriers. Within the space, CCI is best positioned to take care of carrier needs across towers and small cell/fiber. CCI’s investment in small cells and fiber are performing better than expected and the company’s margins should continue to improve as they increase colocation on their newly developed small cells.
Current Price: $107 TTM Return: 11.1%
Target Price: $125 Position Size: 2%
Continue reading “Crown Castle International ($CCI.US) Q 2018: Positioned well for 2019”
JNJ 3Q18 earnings results
Key Takeaways:
Current Price: $136 Price Target: $163
Position size: 2.67% 1-Year Performance: -1.6%
JNJ reported 3Q18 earnings results that beat consensus thanks to strong Pharma sales again (+8.2% organic). In Pharma, the growth of Stelara, Zytiga, Imbruvica and Tremfya help offset Remicade’s decline due to the generics competition. It is reassuring to see that JNJ’s portfolio of drugs is vast enough to offset the erosion of Remicade. JNJ doesn’t expect a big change in drug pricing in its portfolio in 2019, seeing continued pricing pressure in categories with high competition (diabetes, immunology…). Medical Devices grew an anemic +1.7% organic, similar to last quarter and for the same reasons (weakness in diabetes –pump discontinuation- and Ortho –share decline & pricing pressure). The company expects some innovation to help turn the business in the right direction, and is open to small tuck-in M&A and/or a bigger asset purchase. Their Consumer segment is finally showing positive growth +4.9% thanks to the relaunch of the baby care, women’s health performance, oral care rebound, Beauty and OTC drugs. Guidance for organic sales growth in 2018 was raised by 50-100bps, and operational revenue to $81-81.4B (from $80.5-81.3B), and EPS guidance was lifted by 4 cents. Continue reading “JNJ 3Q18 earnings results”
SSGA Chart Pack – Active Managers and Term Premiums
Good Afternoon,
I have attached the most recent “Chart Pack” put together by SSGA. I included three charts that stood out to me.
Active Managers – return dispersion contracting relative to 2017; higher correlations and less dispersion make it harder to outperform
Growth vs. Value – outperformance of growth approaching level seen in 2000 during Dotcom Bubble
U.S. Treasury Curve – The Fed keeps lifting the short end of the curve while negative term premiums weigh on long end
Here is a link to an article from the NY Fed discussing term premiums if anybody is interested in digging a bit deeper:
http://libertystreeteconomics.newyorkfed.org/2014/05/treasury-term-premia-1961-present.html
Peter Malone, CFA
Research Analyst
Direct: 617.226.0030
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109
By the Numbers – educating the young and the old
Good Morning,
Attached is the updated “By the Numbers” piece from MFS. The statistics that I highlighted this week deal with the client education of Millennials and individuals approaching retirement.
“A greater percentage of Millennials have all of their pre-tax retirement money invested in cash and bonds (20%) than those that have all of their pre-tax retirement money invested in stocks (19%). 2,593 Millennials (ages 20-36 in 2017) were surveyed in the 4th quarter 2017” (source: Transamerica Retirement Survey).
“A 65-year old American male in 2018 is expected to live another 19.2 years (to 84.2 years old), an increase of 5 years in the last 40 years. A 65-year old American female in 2018 is expected to live another 21.6 years (to 86.6 years old), an increase of 3 years in the last 40 years” (source: Social Security Administration).
I found these facts interesting because they are quite relevant to one another despite their differing subjects. This suggests that the long term investment horizon of younger generations is expanding and the ability to take on risk early in your working years is ample. Our ability to educate clients on the long term path to retirement savings will be a value add throughout a client’s investable time horizon.
Thanks,
Pete
Peter Malone, CFA
Research Analyst
Direct: 617.226.0030
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109
US Large Cap Allocation Presentation
Pepsi (PEP) 3Q18 earnings results
Pepsi reported 4.9% of organic revenue growth well ahead of consensus +3.2% outlook, bringing the year-to-date growth to 3.4%. Core EPS (ex FX) grew 9% y/y, while reported EPS grew 18%. Both gross and operating margins contracted this quarter, impacted by higher transportation and commodity (aluminum) costs and additional advertising and marketing expenses. This is a continued trend started earlier this year. A lower tax rate lifted net income by ~$0.07/share vs expectations. North America Beverages improved sequentially, with volume +1% and price +1.5%, the first positive volume growth since 4Q16.
The company raised its 2018 revenue guidance, expecting organic sales to be at least 3% (from ~2.3% before). But reported EPS guidance was lowered by 5 cents due to worse negative FX impact. The CFO replied to a question during the call regarding cannabis, shutting down rumors of entering the cannabis business with cannabis infused drinks. Sadly, this was Indra Nooyi’s last call as CEO, as she is retiring, and a new CEO will lead the company starting tomorrow.
No change to our position size (2.11%) or price target ($123) at this time.
JP Morgan Guide to the Markets Q4 2018
Good Morning,
Attached is the updated JP Morgan Guide to the Markets piece. Below are some of the more timely graphics.