Category: Equity Earnings

GS on Trade

Hi,

Goldman Sachs published a good article today on trade and tariffs.  Many of the article’s points parallel the points in our recent Perspective “Tariff Man”.

  • Base case -0.5 in GDP, with all threatened tariffs at -1.3% GDP
  • Concern that Huawei  ban has solidified nationalist resentment against US
  • Tariff skirmishes has turned to a trade war

The article adds a lot of detail on other implications of trade war, one of which is higher prices.  They are expecting +.2% base case and up to +1.2% in PCE increase given all threats.

GS trade 3.0

Thanks,

John

 

Update on Apple and Tariffs

Yesterday Apple’s Taiwanese manufacturing partner Hon Hai Precision (better known as Foxconn) told investors they have enough capacity outside of China to assemble iPhones for the US market. Most iPhone components are sourced outside of China but labor intensive assembly occurs within China. Apparently 25% of Foxconn’s production capacity is outside the mainland. This addresses concerns that Apple would need to either raise prices ~13-15% to offset potential tariffs or take a margin hit. Foxconn also indicated that investments are being made in India for Apple to expand production plants as a way to diversify the supply chain away from China.

$AAPL.US

[tag AAPL]

[equity research]

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

Medtronic 4Q19 earnings summary

Key Takeaways:

Current Price: $91 Price Target: $100

Position Size: 2.88% TTM Performance: +4%

Medtronic released their 4Q FY19 results this morning, with organic revenue growth of 3.6%, a +140bps adjusted operating margin expansion and +8.5% adjusted EPS growth. Spine sales combined with its recently acquired Mazor spinal robot grew the most in 2 years (+5.6%), a favorable sign for its upcoming general surgery robot that will be revealed in the fall. Sales were negatively impacted in the quarter by an unexpected sterilization plant closure (should be back up and running in 1Q) and lower sales in heart devices. But overall FY19 results were solid, with organic growth of 5.5%, 50bps margin improvement and a free cash flow conversion of 83%. Continue reading “Medtronic 4Q19 earnings summary”

#researchtrades Increasing US Small Cap, Decreasing US Large Cap

Good Morning,

As a follow up to our earlier meeting, we will be increasing our exposure to U.S. Small Caps (IJR) and reducing exposure to U.S. large caps. Below are the trade amount (bps) across the different models. Also, attached is the presentation. Please let me know if there are any questions.

Thank You,

Pete

[Asset Allocation]

Peter Malone, CFA

Research Analyst

Direct: 617.226.0030

Fax: 617.523.8118

Crestwood Advisors

One Liberty Square

Suite 500

Boston, MA 02109

www.crestwoodadvisors.com

Apple lawsuit

There was a Supreme Court ruling yesterday, which allowed a lawsuit from a group of iPhone users who accused Apple of overcharging for apps. The ruling didn’t express an opinion on the merits of the case it only affirmed the plaintiffs right to sue Apple and for the case to proceed in a lower court. The plaintiffs argue that developers mark up app prices to recoup a 30% commission which Apple imposes on most App Store sales. They’re asking for financial damages and allege anti-competitive behavior. It could take a couple of years before there is any concrete action to follow yesterday’s ruling. The plaintiffs still have to prove Apple had monopoly power and abused it and that the 30% Apple charges app developers is an anti-competitive overcharge. Google, which operates its own app store, Google Play, allows Android users to access apps from other sources. Apple could take that same approach.

Apple typically charges a 30% fee which is typically reduced over time. Services revenue is ~20% of total revenue. Fees from app developers is a subset of that.

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

Disney sells remaining RSNs

Disney announced after the close on Friday that they reached a deal to sell the remaining 21 of the 22 regional sports networks that they had acquired from Fox. They announced the sale of the other RSN, the YES network, a few weeks ago. The company was required by the DoJ to sell the RSN’s (w/in 90 days of the deal closing) due to their ownership in ESPN. They received $10.6B for the networks, which was in the range of what was expected. This, along with the $15B raised from selling Fox’s 39% in Sky to Comcast, should help bring Disney’s leverage ratio below 2x.

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

Update on S&P Earnings

To date, 78% of the companies in the S&P 500 have reported actual results. So far, sales and earnings growth expectations for the quarter have improved.

· 76% of companies have beat on EPS, above the 5 year average. 60% have beat on sales, also above the 5 year average.

· The blended revenue growth rate for Q1 2019 is 5.2%, which has slightly improved.

· The blended earnings decline for the first quarter is -0.8%. Before companies started reporting results, Q1 EPS was expected to be down ~3.5%.

· Positive earnings surprises reported by companies in multiple sectors (led by the Health Care sector) were responsible for the decrease in the overall earnings decline.

· 6 sectors are reporting YoY growth in earnings, led by the Health Care and Utilities sectors. 5 sectors are reporting a YoY decline in earnings, led by the Energy, Tech, and Communication Services.

· 9 sectors are reporting YoY growth in revenues, led by the Health Care and Communication Services.

· For CY 2019, analysts are projecting earnings growth of 3.6% and revenue growth of 4.7%.

· The forward 12-month P/E ratio is 16.8. This P/E ratio is above the 5-year average of 16.4 and above the 10-year average of 14.7.

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

HILIX – Q1 2019 Commentary

HILIX – Q1 2019 Commentary

The Hartford International Value Fund underperformed its benchmark during the quarter and has now lagged over the past twelve months. During Q1, underperformance was driven by stock selection in financials and materials. The team remains focused on long term results investing in companies that are out of favor but have strong balance sheets and growth potential.

Continue reading “HILIX – Q1 2019 Commentary”