Month: May 2019

Share price: $54 Target Price: Raising to $60 from $55

Position size: 2.2% TTM return: 12%

Key Takeaways:

· Slight beat on revenue and EPS, guidance maintained. Revenue was $283 (+5%) vs street $282 and EPS was $0.44 vs street $0.43.

· Adjusted EBITDA was $137 million, an increase of6%. Adjusted EBITDA margin was 48.4%, an increase of 50bps.

· By segment, management continues to expect mid to high-single digit growth in Servicing, high-single to low-double digit growth in Origination, and low to mid-single digit growth in Data & Analytics.

· Data analytics segment (~15% of revenue) revenues were up 6% driven by growth in their property data and portfolio analytics businesses. This segment is lower margin, but margins are improving – EBITDA margins were up 200bps for the quarter.

· Software Solutions segment (~85% of revenue) was up 4% driven by higher average revenue per loan and loan growth on their core servicing software solution.

o Within this segment servicing (~75% of revenue) grew 4%. This is steadier than their originations revenue. They continue to dominate first lien loans with 62% share and are growing share in second lien loans. They have high-teens share of second lien and expect to reach 30% once current commitments are implemented.

o Originations (~10% of total revs) made up of new loans and refi’s. Grew 7% primarily driven by 25% growth in their loan origination system solutions from new clients, partially offset by lower professional services and the effect of lower refinance origination volumes.

· Despite the economy being strong, their end markets (U.S. mortgage originators and Servicers) are actually weak. “Based on market conditions we’re in the midst of our clients recession. I know the economy is doing well and other industries are doing well, but with rates rising, it’s caused pain.”

· BKI has consistently performed well through a tough time for their end clients, partly because they’re providing them with solutions that solve their problems like increasing efficiency and maintaining regulatory compliance.

Continue reading “Black Knight 1Q19 Earnings”

Key Takeaways:

Current Price: $57 Price Target: $90

Position Size: 1.60% 1-year Performance: -20%

This morning CVS published its 1Q19 earnings results and gave an update on its 2019 outlook. Both surprised to the upside, in addition to a new cost cutting program named “Enterprise Modernization Initiative”. The new cost cutting plan will look for productivity improvements across the operations (mostly rationalization of IT) and is expected to generate $1.5-$2B in savings by 2022, on top of synergies with Aetna. CVS raised its FY19 EPS guidance range to $6.75 to $6.90 from $6.68 to $6.88. The company did not want to comment on the 2020 outlook only noting that FY20 PBM selling season was expected to have a mid-90%’s retention rate. Overall we are pleased to see some relief on this story, and maintain our positive view on the name long-term. Continue reading “CVS 1Q19 earnings summary”

Apple beat on revenue and EPS and issued solid guidance. Midpoint of 3Q revenue guidance was better than street. Key positive is that the beat was driven by better than expected iPhone and services revenues. Better Q3 guidance suggests demand for iPhones has stabilized after a disappointing holiday period. Increasing their buyback program by $75B as they head to their goal of net cash neutral.

Key Takeaways:

· Q2 revenues of $58 billion, beating estimates of $57.5B.

· Q2 EPS of $2.46, beating expectations of $2.37.

· Q3 forecast of between $52.5B and $54.5B, beating estimates of $52.22B.

· Q2 iPhone revenues of $31B, beating estimates of $30.5B. iPhone revenue down YoY, but better than expectations and mgmt. said sales improved throughout the quarter.

· They saw strength across all segments except the Mac.

· Services revenue of $11.45B, +16%, an all-time record. Accounted for 20% of sales and 1/3 of gross profit.

· Wearables +50% on strong Apple watch results and huge demand for air pods.

· iPad up 22% – strongest iPad growth in 6 years due to their strategy shift: new Pro models last year and new cheaper, mid-range models (the iPad mini and iPad Air) this year.

· Europe, Greater China, and Rest of Asia Pacific segments were all down YoY, but the Americas and Japan were both up slightly. Greater China sales down 22% YoY.

The following excerpt from the call highlights Apple’s opportunity to grow services given their massive installed base of over 1.4 billion active devices:

“We believe we’re really just beginning to tap into what we can do to help our users actively manage their health and well-being. For example, last month Stanford Medicine reported results of the Apple Heart Study, the largest study ever of its kind, which enrolled over 400,000 participants from all 50 states in a span of only eight months. And hundreds of institutions are now supporting health records on iPhone with recent additions including Michigan Medicine and UT Health Austin.

In February, we announced that we are working with the U.S. Department of Veterans Affairs to make health records on iPhone available to veterans. This will be the first record sharing platform of its kind available to the VA, which is the largest medical system in the U.S. providing service to more than nine million veterans across more than 1,200 facilities.”

Valuation:

· Returned over $27B to shareholders through share repurchases and dividends. Board authorized an additional $75 billion for share repurchases.

· The stock is undervalued and substantial buyback from management’s goal of net cash neutral will support valuation.

· Trading at close to a 1.8% dividend yield, a ~6% FCF yield.

The Thesis for Apple:

• One of the world’s strongest consumer brands and best innovators whose product demand

has proven recession resistant.

• Halo effect -> multiplication of revenue streams: AAPL products act as revenue drivers

throughout portfolio – iPhone, iPod, MacBooks, iPad > iTunes, Apps, Software, Accessories,

• Strong Balance and cash flow generation.
• Increasing returns to shareholders via dividends and buybacks.

$AAPL.US

[tag AAPL]

Sarah Kanwal

Equity Analyst, Director

Direct: 617.226.0022

Fax: 617.523.8118

Crestwood Advisors

One Liberty Square, Suite 500

Boston, MA 02109

www.crestwoodadvisors.com

Key Takeaways:

Current Price: $49.7 Price Target: $61

Position Size: 2.01% 1-year Performance: -0.2%

Sensata released its 1Q19 results this morning, in line with Street expectations but better than ours, as companies we monitor had recently been incrementally more negative on the global auto market. Organic growth was ~1%: HVOR outgrew the market growth by 850bps, as did their auto business outperforming by 490bps, thanks to continued strong content growth. Margin pressure should abate as new products grow in volume. They lowered their guidance for the year based on weaker end markets in auto in China and Europe, which is not surprising. The company is continuously looking to streamline its operations to drive higher productivity and react better to lower volumes. Buybacks reduced share count by an impressive 8.3% (a 4 cent boosts to the $0.85 adjusted EPS this quarter). Overall we see the secular growth drivers intact for Sensata, while recent weakness in auto continues to pressure end markets in the near term. Continue reading “Sensata (ST) 1Q19 earnings summary”