Research Blog – INTERNAL USE ONLY

STZ 3Q FY20 earnings summary

Key takeaways:

Current Price: $192 Price Target: $226
Position Size: 2.70% 1-Year Performance: +11.5%

Constellation Brands published their 3Q FY20 earnings this morning. Beer sales continue to shine (+8.3%) while margins expanded +200bps (a combination of pricing and lower COGS). The premium wine business is doing well, up 9%, although this number remains muted by the sales decline of the <$11/bottle wine brands that are in the process of being divested. Innovation and premiumization is the focus of the new CEO. As proof, the company is already taking orders from distributors for their upcoming launch of Corona Seltzer in the Spring. Their internal research showed that the Seltzer category is taking shares from beer (premium domestic & craft but not from imported beer), wine and spirit categories. They think the seltzer category can grow 2-3X from where it is today. Regarding the Canadian cannabis market, STZ remains bullish, with increased conversion of the illicit market to legal one (23% legal purchase in 2018 vs. 50% in 2019). Overall this was a good quarter, but we look forward to a “cleaner portfolio” once the lower priced wine & spirit brands are divested (with cash proceeds used to repay debt), as well as new innovations on the cannabis/drinks front.

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

[tag STZ]

[category earnings]
$STZ.US

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

JPIN – YTD Commentary

Thesis
JPIN invests in international equities in developed markets. We expect JPIN to add value over the benchmark (MSCI EAFE) by two ways: 1) enhanced returns through a multi-factor security selection approach combining value, quality, and momentum factors; 2) enhanced risk control through more balanced country and sector allocations. We expect attractive risk-adjusted return characteristics over the long term from JPIN.

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Overview
Year to date, JPIN has underperformed the benchmark (MSCI EAFE) by 6.37%, largely due to poor stock selection in Japan and overweight country selection in South Korea. While both heavily weighted on underperformance, JPIN showed promise through successful stock selection and allocation in the UK, Finland, and Spain.
YTD Summary

  • JPIN has returned 13.91%, while the MSCI EAFE has returned 18.15%
  • South Korea and Japan attributed to 92.5% of the underperformance to our benchmark
    o South Korea attributed to over 56% of this relatively worse performance (Note: South Korea is not included in the MSCI EAFE index)
  • When comparing to the FTSE index (which includes South Korea), JPIN underperformed by 3.39% YTD
    o FTSE returned 17.31%
    o South Korea and Japan attributed to almost 83% of this underperformance, where both countries detracted by about the same amount
    Optimistic Outlook
  • We continue to hold this fund and believe in our thesis due to the fund’s multi-factor approach, which we see bringing relatively positive returns over the long-run
  • The largest detractor was the overweighting in South Korea, which has underperformed year to date; historically, South Korea has been a strong performer
  • JPIN’s strategy has stayed consistent through tough times producing strong risk-adjusted returns
  • Besides Japan’s poor stock selection this year, overall stock selection has been a positive for JPIN historically, and we believe will continue to do so

[Category Mutual Fund Commentary]

JP Morgan College Planning Guide

Good Morning All,

Attached is a piece that I received from JP Morgan concerning college education funding and the many long and short term planning elements that get intertwined with higher education.

There are a lot of impactful graphics focused on the magnitude of costs and ways to quantify the value of a college degree. JPM always does a great job with these types of reports so worth reading through.

Thank You,

Pete

Peter Malone, CFA

Portfolio Manager

Direct: 617.226.0030

Fax: 617.523.8118

Crestwood Advisors

One Liberty Square

Suite 500

Boston, MA 02109

www.crestwoodadvisors.com

JPM College Planning Guide.pdf

HLMEX – Q3 2019 Commentary

HLMEX – Q3 2019 Commentary

Overview:

The Harding Loevner Emerging Markets Equity Portfolio outperformed its benchmark during the quarter and YTD. Outperformance can be mostly attributed to strong performance of high-quality stocks, as well as weighting, where HLMEX was underweight materials and overweight IT. Stock selection was also strong in IT and healthcare which helped returns.

Continue reading “HLMEX – Q3 2019 Commentary”

TJX 3Q20 Earnings Update

Current Price: $60 Price Target: Raising to $65 from $60

Position Size: 3.4% TTM Performance: 22%

TJX is up on a strong earnings report and raised guidance. They beat on revenue and EPS, with SSS up 4% vs guidance of 1-2% (which they lowered last quarter). Off-price continues to outpace the rest of retail. Management’s commentary on the call around their inventory positioning and general environment for Marmaxx was very, very positive. Full year SSS and EPS guidance increased.

Key takeaways:

· Revenue beat on same store sales of +4% vs expected +2.6%.

· Traffic was again the biggest driver of SSS. E-commerce sales are not included in SSS numbers.

· Marmaxx (their largest segment) – comp sales increased 4%, lapping a very strong 9% increase last year.

· International had the strongest SSS of +6% – they continue to take share despite the uncertainty of Brexit and a tough retail environment in Europe.

· GM were better than expected but offset by higher SG&A. Higher payroll costs and escalating freight expenses from rising home-furniture penetration are margin headwinds.

· Excellent inventory availability – specifically, mgmt talked about growing e-commerce channels being a source of inventory supply as online merchants struggle to appropriately gauge their own inventory levels – almost all the goods they’re selling on websites are imported goods with long lead times. They are trying to predict sales by category and item, but don’t have all the history that a brick and mortar retailer would have. This highlights part of TJX’s competitive advantage – their scale and centralized merchandising. The efficacy of this is reflected in high inventory turns, which allows them to be very liquid and very opportunistic w/ inventory buys. They buy in season and continuously flow merchandise to stores.

· Tariffs – Q4 guidance includes small negative impact from tariffs. Thus far, they have benefited from vendors buying in merchandise earlier due to tariffs, which has resulted in more availability for TJX. But given TJX’s high turns, they buy-in inventory on a much shorter-term basis, so they don’t have visibility yet into 2020 and the potential impact from tariffs. They do not directly source a significant amount of goods from China.

· M&A – They disclosed a $225million investment in 25% of Familia, a major (275 store) off-price apparel/home retailer in Russia that could double its store base in the next 3-5 years. They are Russia’s only major off-price retailer. TJX may take a larger stake in the future.

· Chart below demonstrates TJX’s resistance to e-commerce and economic cycles. Despite the ramp in e-commerce share of retail over the last several years, of the companies listed below TJX is nearly half of aggregate incremental spend. The companies listed below represent more than 2/3 of the ~$275B in US apparel retail sales. Additionally, in the ’08 to ’09 period they were one of few retailers that continued to grow and post positive SSS.

Continue reading “TJX 3Q20 Earnings Update”