Author: Julie Praline

Starting a 2% position in Constellation Brands (STZ) #researchtrades

We are recommending buying a 2% position in STZ (Constellation Brands), funding from cash.

Investment thesis:

· Adding STZ helps position our portfolio to be more defensive at this stage of the economic cycle

· STZ is down ~20% YTD, giving us a good entry point

· STZ continues to have HSD top line growth and high margins that should incrementally improve going forward

· STZ comes out of a heavy capex investment cycle to support its growth: FCF margins are set to inflect thanks to lower capex

Company description:

$35B market cap, $8B in sales, $1.2B in FCF

STZ owns the fastest growing beer portfolio in the US and is the #1 multi-category alcoholic beverages supplier in the US

The firm generates over 97% of its revenue in the U.S.

100 brands including:

v Imported beer: Corona, Modelo, Pacifico: owns the rights to distribute in the US

v Craft beer: Ballast Point

v Wine: Robert Mondavi, Black Box, Clos du Bois

v Spirits: Svedka

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

STZ presentation – CRESTWOOD.pptx

JNJ down today on baby talc powder Reuters article

Reuters had an article today saying JNJ knew about the asbestos in its baby talc powder for decades and did not alert authorities.

This issue is not new (JNJ has faced lawsuits for years, 5 appeals are being done by JNJ) so it is surprising to see such a big price move again on this topic (last one was in February).

JNJ is defending itself against this article citing plaintiffs’ attorneys are distorting historical documents and creating confusion on purpose for personal financial gains…

FYI the US FDA study found no asbestos fibers in any of the samples containing talc that were tested.

Bloomberg sees a $10-20B settlement risk for JNJ (sales are currently $81B, net income $22B, FCF $21B) so it is not as negligible as some other sell-side analysts are assuming (for example Wells Fargo sees a $1.5B risk)

[tag JNJ]

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

Why remain invested in the energy sector?

Please find below some talking points regarding our exposure to the oil sector:

Why is the energy sector down since the October’s peak oil price?

2019 forecast shows growing inventory levels (lead in part by the US shale production that increased much faster than anticipated)

A reminder though that 80% of the global supply is from international countries

OPEC sees a slowing global economy, especially from emerging markets, reducing demand for oil

This leads to a return of supply/demand imbalance and thus a lower oil price

President Trump is rooting for lower oil prices, advising Saudi Arabia to not cut production at the coming OPEC meeting (Dec 6th). OPEC countries seem to be in favor of a cut. Continue reading “Why remain invested in the energy sector?”

Medtronics (MDT) 2Q FY19: continuation of 1Q FY19 growth trend

Current Price: $92.8 Price Target: $100

Position Size: 3.11% TTM Performance: +14.5%

Key Takeaways:

Medtronic released their 2Q FY19 results this morning. MDT had an impressive +7.5% organic growth, thanks to +27.5% upside in Diabetes (mini pump demand), but also high growth in brain & pain therapies. EPS grew 13% y/y. Operating margins improved 80bps (ex-FX) thanks to company-wide savings. The company is raising its FY19 organic growth guidance by 50bps (+5.0-5.5%) based on the 1st half good results, as well as key pipeline products expected to drive growth in 2H19. But due to China tariffs, M&A dilution and FX impact, it is maintaining its EPS guidance for the year. Looking forward to FY 2020, Medtronic expects the launch of a surgical robot, helping sustain good top line growth. Overall this was another good quarter for the company, and the CEO sounded very upbeat on the pipeline potential for the company going forward, with a goal to innovate more but also disrupt the market.

Continue reading “Medtronics (MDT) 2Q FY19: continuation of 1Q FY19 growth trend”

CVS 3Q18 earnings: good core business results and better synergies with Aetna ahead

Key Takeaways:

Current Price: $77.77 Price Target: $90

Position Size: 2.25% 1-Year Performance: +10.3%

The stock is up today after releasing good Q3 earnings results, and positive comments regarding their Aetna acquisition. Total sales were up +2.4%, and EPS +15.5% (mostly on lower tax). CVS’s PBM retention rate for next year remains high at 98% (previous number was ~95%), showing that the AET deal is not disrupting their PBM business at this point. 2018 guidance on CVS’s core business was reiterated, but 4Q results should be diluted by the AET deal costs. The Aetna transaction should close before Thanksgiving, and CVS’s management team seems incrementally more positive on the level of expected synergies (now to exceed $750M). Synergies will come from reduction in corporate expenses, integration of operations and medical costs reduction (integration of pharmacy and medical claims, leveraging the clinical data and utilizing CVS’s community assets: points of distribution and health professionals). The overall goal will be to reduce expensive hospital admissions and provide better management to the complex chronic disease cases. CVS will provide clearer details on the combined entity’s earnings guidance in February 2019. The Analyst day will also move to June (from December). Overall we remain positive on the name.

Continue reading “CVS 3Q18 earnings: good core business results and better synergies with Aetna ahead”

XOM 3Q18 earnings: clear improvement from last quarter

Key Takeaways:

Current Price: $81.86 Price Target: $86

Position Size: 1.83% 1-year Performance: -1.6%

Exxon reported 3Q18 results, with a clear production improvement from last quarter. Its Refining activity outperformed thanks to improved utilization, better reliability and lower maintenance activities (although the later should pick up in 4Q18). XOM continues to see organic growth opportunity in its portfolio. The management team continues to see its dividend as the key method to return capital to shareholders, rather than share buybacks. On the ESG front, XOM is facing some prominent lawsuits regarding climate change costs and how the company might have misled investors. The financial risks of those lawsuits should be minimal to XOM’s operations. The bigger impact on the company’s operations would however be the reclassification of oil & gas waste from solid to hazardous materials, which would add disposal costs to the entire industry. The EPA decision should come in March. No change to our price target or position size.

Continue reading “XOM 3Q18 earnings: clear improvement from last quarter”