Month: March 2020

Just want to add on to this, the stock is up despite this. This news is not unexpected. I think as a result of the current environment many of the retailers that were already struggling, will not survive. By comparison, on the other side of this, TJX stands to gain share and have plentiful access to inventory. Moreover, TJX tends to perform well in recessions, with only one year of negative same store sales in over 40 years. I know of no other retailer with this record.

 

 

 

TJX just announced they are closing all stores and all e-commerce sites and distribution centers for 2 weeks, drawing down $1B on their credit facility, suspending share buybacks and “evaluating” their dividend. Excluding capitalized leases, they have no net debt. As of their Feb fiscal year end, they had $3.2B in cash and $2.2B in debt. The drawdown will bring their cash balance to $4B. A recent accounting change has required the capitalization of leases which adds another $7.8B in debt to their balance sheet. Basically the accounting change requires companies to take the PV of all future leases and add it to LT liabilities on their balance sheet. This has happened for all retailers, restaurants etc. For this fiscal year, TJX has ~$1.6B in lease commitments. As of February 1, 2020, they operated a total of 4,529 stores in nine countries, the US, Canada, the UK, Ireland, Germany, Poland, Austria, the Netherlands, and Australia, and 4 e-commerce sites.

 

 

FRAMINGHAM, Mass.–(BUSINESS WIRE)– The TJX Companies, Inc. (NYSE: TJX), today announced several actions related to its response to the rapidly changing market uncertainty from the COVID-19 pandemic.

Effective today the Company is closing all of its stores in the United States, Canada, Europe, and Australia for two weeks. In certain regions, including Germany, Poland, Austria, Ireland, and the Netherlands, and a number of U.S. and Canadian locations, the Company had previously closed stores based on several factors, including government or health department requirements. The Company is also closing its online businesses tjmaxx.com, marshalls.com, and sierra.com. Further, the Company is temporarily closing its distribution centers and offices, with Associates working remotely when they can. We know our Associates are very concerned for their health and financial well-being, and we plan to pay our store, distribution center and office Associates for two weeks during these closures.

To further strengthen its financial position and balance sheet, and maintain financial liquidity and flexibility, the Company is taking the following actions:

·         Drawing down $1 billion from its revolving credit facilities.

·         Suspending its share repurchase program.

·         Evaluating its dividend program.

·         Reviewing all operating expenses.

·         Reducing capital expenditures.

The Company also announced today that it is withdrawing its first quarter and full year Fiscal 2021 financial guidance given on its February 26, 2020 earnings conference call. The Company is not providing an updated outlook at this time.

As the COVID-19 pandemic is complex and evolving rapidly, the Company’s plans as outlined above may change.

 

 

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

 

 

$TJX.US

[tag TJX]

[category equity research]

 

 

TJX just announced they are closing all stores and all e-commerce sites and distribution centers for 2 weeks, drawing down $1B on their credit facility, suspending share buybacks and “evaluating” their dividend. Excluding capitalized leases, they have no net debt. As of their Feb fiscal year end, they had $3.2B in cash and $2.2B in debt. The drawdown will bring their cash balance to $4B. A recent accounting change has required the capitalization of leases which adds another $7.8B in debt to their balance sheet. Basically the accounting change requires companies to take the PV of all future leases and add it to LT liabilities on their balance sheet. This has happened for all retailers, restaurants etc. For this fiscal year, TJX has ~$1.6B in lease commitments. As of February 1, 2020, they operated a total of 4,529 stores in nine countries, the US, Canada, the UK, Ireland, Germany, Poland, Austria, the Netherlands, and Australia, and 4 e-commerce sites.

 

 

FRAMINGHAM, Mass.–(BUSINESS WIRE)– The TJX Companies, Inc. (NYSE: TJX), today announced several actions related to its response to the rapidly changing market uncertainty from the COVID-19 pandemic.

Effective today the Company is closing all of its stores in the United States, Canada, Europe, and Australia for two weeks. In certain regions, including Germany, Poland, Austria, Ireland, and the Netherlands, and a number of U.S. and Canadian locations, the Company had previously closed stores based on several factors, including government or health department requirements. The Company is also closing its online businesses tjmaxx.com, marshalls.com, and sierra.com. Further, the Company is temporarily closing its distribution centers and offices, with Associates working remotely when they can. We know our Associates are very concerned for their health and financial well-being, and we plan to pay our store, distribution center and office Associates for two weeks during these closures.

To further strengthen its financial position and balance sheet, and maintain financial liquidity and flexibility, the Company is taking the following actions:

·         Drawing down $1 billion from its revolving credit facilities.

·         Suspending its share repurchase program.

·         Evaluating its dividend program.

·         Reviewing all operating expenses.

·         Reducing capital expenditures.

The Company also announced today that it is withdrawing its first quarter and full year Fiscal 2021 financial guidance given on its February 26, 2020 earnings conference call. The Company is not providing an updated outlook at this time.

As the COVID-19 pandemic is complex and evolving rapidly, the Company’s plans as outlined above may change.

 

 

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

 

 

$TJX.US

[tag TJX]

[category equity research]

 

 

 

·         I am recommending that we sell Hilton. This is ~2% position in focus equity.

·         Given the evolving environment, I think the risk of long-duration, extreme measures to contain the virus globally are rising.

·         As a result, while I feel Hilton has enough capital to endure a long global lockdown, and no meaningful debt maturities for several years, it does raise the risk of potentially tripping a covenant on their debt. I think this is remote and very low probability. However, given such a broad sell off, I think there are places we can redeploy the proceeds that have lower tail risk as the situation worsens globally.

·         To be clear, I am not seeing anyone sounding an alarm related to their debt. I’ve talked to mgmt. and they are not suggesting this, I haven’t seen any notes from the sell side or any signs in the bond markets that raises my level of concern here. While the spread on their debt has widened, it’s widened less so than issues of similar quality and maturity.

·         This move is out of an abundance of caution and is a name we may look to re-enter as we gain more clarity on the current situation.

·         For now, we are currently looking at potential new names to add as a replacement.

 

 

 

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

 

 

$HLT.US

[tag HLT]

[category equity research]

 

 

Hilton’s CEO yesterday afternoon said they plan to close most of their hotels in major US cities and that global occupancy rates could fall to 10% to 15%. All the hotel operators are trading down dramatically today including HLT down 17%, MAR down 21%, CHH down 14%, and Hyatt down 14%. Executives from major hotel and casino companies met with President Trump yesterday as the hospitality industry is seeking $150B in emergency funding with most of that to cover lost wages for employees.

 

As of now, hoteliers say they are expecting a quick rebound. A new survey from the Lodging Industry Investment Council (the hotel industry’s preeminent think tank) released yesterday highlights that many expect a quick bounce back later in the year after the impact from the coronavirus pandemic settles. The LIIC survey shows 27% expect a full recovery in six months, while 48% anticipate “full normalization within six months to a year” and 75% expecting that within a year. 43% of LIIC anticipates issues with the Federal Government and/or State Governments potentially commandeering hotels for use in housing virus inflicted patients or other related purposes.

 

Sarah

 

Recommending we add ADBE to 2.5% and trim CSCO by 100bps. The proceeds from CSCO, along with the proceeds from Fairfax, will help fund the ADBE position. The rest will come from IVV.

 

Investment thesis on ADBE:

• Market leader with technology, switching cost and network effect driven moat.
• Benefiting from secular growth driven by digital transformation, device proliferation, rising content creation and evolving content mediums including voice, augmented reality and virtual reality.
• Recurring revenue (~90%) and diverse industry end markets provide resilience in a downturn.
• Capital light model with high FCF margins and ROIC. Secular growth plus modest operating leverage combined with share buybacks leads to strong long term value creation.

 

Reasons for trimming CSCO:

·         No change in log-term thesis. The rationale for trimming is that due to the changing environment, catalysts look to be longer term in nature than originally anticipated.

·         Long-term, Cisco stands to benefit from a product refresh cycle and evolving network demands that ultimately are driven by increasing data traffic. With rising data traffic, technologies are changing (cloud, 5G, IoT, WiFi 6, AI) and networks are becoming more complex – Cisco’s products help companies solve for that by helping them simplify, automate, and secure their infrastructure.

·         The difficult thing for Cisco right now is that these technologies are still early stages and still a looming benefit.  Before the outbreak of the coronavirus, they were facing some headwinds in IT spending which I think in the medium term may increase. It’s a chain reaction of technology changes/upgrades that leads to spending on CSCO’s products, which I think companies can put off for a period of time, but not indefinitely.

·         When we added to CSCO last fall, CSCO was unique in terms of its discount to intrinsic value…the opportunity set is changing.

 

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

 

$CSCO.US

[tag CSCO]

[category equity research]

 

$ADBE.US

[tag ADBE]

[category equity research]

 

Fed Fires Bazooka at Coronavirus

 

Back in July 2008, then-Treasury Secretary Hank Paulson said he wanted a “bazooka” to deal with financial threats to Fannie Mae and Freddie Mac.  Paulson wanted Congress to give him an unlimited credit line for these enterprises.  This time around, it’s the Federal Reserve firing a bazooka at the Coronavirus, with more possibly to come. 

 

Continue reading “First Trust Advisors – Fed Action”

Good afternoon,

As portfolio managers are looking to rebalance portfolios, I would like to offer some options to consider:

Trim CVS: there is a risk until the elections later this year, so even with the pullback it had and cheap valuation, it might not bounce back like others once the market starts to recover

Add to:

ST: see note sent this am

STZ: see note sent this am

ZTS: stock weight has pulled back under 2%, and is below where we bought it initially.

 

 

 

Julie S. Praline

Director, Equity Analyst

 

Direct: 617.226.0025

Fax: 617.523.8118

 

Crestwood Advisors

One Liberty Square

Suite 500

Boston, MA 02109

 

www.crestwoodadvisors.com

 

 

Sensata has traded down ~33% YTD due to car manufacturing disruptions from the coronavirus (plant closures globally and supply chain disruptions). Sensata’s new CEO announced yesterday that their own plants were functioning close to normal levels. A reminder that 60% of ST’s business is related to the auto end market, and ~17% of their sales come from China (~30% in Asia, 28% Europe, 42% Americas).

Continue reading “Sensata comments”

Since the stock is down ~30% since the virus hit, you might wonder why this consumer staples stock doesn’t act more defensive. Here are some explanations:

 

·         Other beer competitors have cited lower consumptions outside of home due to less attendance in bars and restaurants because of the virus.  

 

·         A reminder that STZ products are consumed only in the US, and as of last week the company has not seen any change in consumption levels in the US. This of course can change at any time.

 

·         The Mexican president will get to vote in a couple weeks on the new brewery plant in Mexicali. Local activists have been protesting the plant for the past 4 years as they argue it will put a strain on water availability for Mexican residents. STZ has been pushing back, saying they are not the major water user (agriculture is), and that they might look to build the plant somewhere else. This plant delay could be a risk for producing enough beer to support demand in the future.

 

·         Some survey was published showing Americans are less likely to buy Corona due to its name…. I’ll leave it at that…

 

Here’s a quick scenario analysis of what valuation looks like if this year’s top line growth and FCF margin drops to similar levels as 2008 (in FY21)> As this model illustrate, even with a big drop in demand and a FCF margin cut nearly in half, STZ has upside from today’s lows.

 

 

 

Julie S. Praline

Director, Equity Analyst

 

Direct: 617.226.0025

Fax: 617.523.8118

 

Crestwood Advisors

One Liberty Square

Suite 500

Boston, MA 02109

 

www.crestwoodadvisors.com

 

 

Disney to Close Disneyland Park & Disney California Adventure

By Linly Lin

(Bloomberg)

 

Disneyland Park and Disney California Adventure will be closed from March 14 through the end of the month, after Disney reviewed the guidelines of the Governor of California’s executive order.

The Hotels of Disneyland Resort will remain open until Monday, March 16

Downtown Disney will remain open

There have been no reported cases of COVID-19 at Disneyland Resort

 

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

 

 

$DIS.US

[category equity research]

[tag DIS]