Author: Julie Praline

SLB 2017 earnings recap: positive outlook for 2018

SLB reported strong 4Q17 revenue at +15%y/y and adjusted EPS +57%, above consensus expectation.  This was driven by a better pricing environment and growth in North America activity. The management team is targeting to return to its prior cycle margins and ROIC, if not above. We are maintaining our position size and price target. Continue reading “SLB 2017 earnings recap: positive outlook for 2018”

Energy Update January 2018: SLB & XOM

Oil view positive for 2018:
• Late cycle has historically favored the energy sector
• We are coming at a FCF inflection point: cost cutting has been done in a low oil price environment. Recent increase in oil price will be incrementally positive for energy companies
• Volume growth
• Valuation

Adding 50bps to XOM to get to a full 2% position
XOM is seen as a defensive holding compared to peers:
• Strong balance sheet
• Top FCF & dividend coverage ratio
• History of finding good balance of reinvesting in the business and returning capital to shareholders
• March 2018 Analyst Day will provide some updates on potential buyback, could be a catalyst for the stock

Schlumberger Update 2018
In a lower for longer oil price environment, service companies that are able to provide a differentiated offer and/or evolve their business model will be able to exceed last cycle’s peak earnings (reached in 2014). We believe SLB has been able to evolve its business and remains a quality company that has attractive growth driver for the coming years.
1. Schlumberger Production Management (SPM) project: key growth driver, recent projects could add $1B in sales in 2018
• High growth/high margin business with less competition
• Less cyclical with better ROIC
• Attractive offering for cash constrained E&P that are looking to partner with service providers to lower production decline rates and/or increase production. SLB gets a portion of incremental profits created by its service

2. Pick up in offshore activity would benefit SLB the most vs. peers
• SLB clients’ project planning at a 2 year high
• Erosion in international pricing is slowing
• International activity has bottomed in 3Q17

3. Shareholder return to improve
• Top line & margin recovery
• Dividend yield 3%, could be increased in 2018 (better cash flow from operations + stable capex)

CVS 2018 Initial Guidance

Yesterday CVS provided its initial 2018 guidance, which came as a surprise as the management team had previously announced that its guidance would be provided along 4Q17 earnings call. We believe this move is to reassure the investment community on its business growing in line with their expectations (ex-acquisition). Clarity on growth is driving a relief rally in the stock this morning. Continue reading “CVS 2018 Initial Guidance”

Sensata Analyst Day Review – Increasing Price Target to $61

Yesterday Sensata had its Analyst Day and provided 2018 guidance above expectations (the stock reacted positively, up +8%). Additionally, ST’s management gave an upbeat view on the business next three years, and is forecasting a 2-3X acceleration in revenue growth, after three years of below expectations growth.
Following the event, I am updating my price target to $61/share, from $51 prior. This is to reflect the better business trends in the coming three years than previously thought and a re-rating of the stock. A 16-17x P/E is reasonnable, leaving ST’s multiple below peers as the company is still highly levered to the auto business (peaked in the US). I recommend we hold the position.
Below is a summary of the information provided during the event. Continue reading “Sensata Analyst Day Review – Increasing Price Target to $61”

CVS / Aetna Merger Commentary

Last night CVS announced a definitive agreement to acquire Aetna (a Health Insurance Company), for $207/share, financed by 30% new equity and 70% new debt ($45B)/cash on hand. The transaction is expected to close mid-2018. This deal greatly increases CVS’s pro forma leverage to 4.6x (current 2.9x). In order to deleverage quickly, CVS will stop its share buyback program and maintain its dividend flat, until the leverage ratio goes down to low 3x, which I expect to happen within the 2 years post deal. The synergies seen by the management team are currently at $750M in the second year of the deal, which should create EPS accretion in the low to mid-single digit range. Continue reading “CVS / Aetna Merger Commentary”

Medtronic 2Q18 results: relief rally yesterday as management showed optimism for the rest of the year

Medtronic reported improving results yesterday, and reiterated its FY18 revenue and EPS outlook despite production disruptions. This was well perceived by the market, as MDT had become a low expectation story in the recent quarters. Price target unchanged at $88. Continue reading “Medtronic 2Q18 results: relief rally yesterday as management showed optimism for the rest of the year”