Sonic Healthcare – Income Play with Capital Growth
Sonic should grow earnings by 8% in FY17 and pay a 4% dividend yield. We’re buying this name and selling tight covered call options to enhance the income whilst allowing for moderate capital growth.
Brambles – Buy Signal (Valuation Support)
We’ve been buying BXB and selling covered calls at $11 into May as a relatively defensive income play.
James Hardie
Shares of James Hardie have opened over 3% lower on an announcement that a weaker-than-expected December quarter has forced the company to cut earnings guidance.
Shares traded down to a 3-month low of $19.60 as the the company announced that the group’s net profits fell 6% to USD 52.6 million.
This prompted a warning that earnings for the financial year up to March would come in at between USD 245 and USD 255 million, versus expectations of between USD 252 to USD 269 million.
Amazon Shares Lower On Weaker Guidance
Shares of Amazon are down over 4% to $805.40, in after-hours trade, as negative Q1 revenue guidance overshadowed a solid Q4 earnings report.
Q4 earnings were announced at $1.54 per share versus a consensus of $1.35 per share. Q4 revenues came in at $3.5 billion versus $3.6 billion, which reflects a 47% increase on a year-on-year basis.
The Q4 revenue miss disappointed shareholders, but the Q1 guidance miss is what is really driving the stock price lower.
The company gave Q1 guidance in the range of $33.25 to $35 billion, lower than the expected range of $34.52 billion to $36.95 billion.
Key chart support for Amazon is now seen at or near $700.00.
Visa Hits All-Time High After Q1 Results
Q1 earnings results for Visa Inc. beat expectations on both the top and bottom lines.
Visa posted earnings of 86 cents per share on Q1 revenues of $4.5 billion. Analysts’ expectations were for earnings of 78 cents per share on Q1 revenues of 4.278 billion, the higher revenue number reflects a 25% increase on year-on-year basis.
Visa shares have rallied over 3% today to an all-time of 85.40 as payment growth came in at $1.9 trillion, up 47% on a year-on-year basis for the three months ending September 30, 2016.
Looking ahead, Visa affirmed its positive outlook with annual net revenue growth expected in the 16 to 18% range for 2017.
Tabcorp – Value Emerging
Tabcorp is a relatively defensive income opportunity for portfolios, with earnings supported by potential synergy savings after the Tatts integration.
The company continues to progress the merger proposal with Tatts and the ACCC is scheduled to release its statement of issues on the 23rd of February.
By applying a covered call option, we’re able to allow 5 – 10% capital growth from the current price, whilst still generating 10%+ in annualised cash flow from the dividend and call option income.
We expect modest earnings growth into FY18, which will place the stock on a forward yield of 5%. TAH goes ex-div on the 7th of Feb paying out $0.125
Our buy range for Tabcorp is between $4.20 & $4.50.
US Market – Leading Indicators
We’ve been watching the rollover pattern in GE and the recent break of price support in Goldman Sachs as potential leading indicators. We now add UPS and FedEx as two additional stocks of interest.
FedEx Corporation is expected to report earnings in March. The report will be for the fiscal quarter ending Feb 2017. The consensus EPS forecast for the quarter is $2.62 whereas, EPS for the same quarter last year was $2.51.
United Parcel Services, (UPS), reported quarterly earnings and revenue that missed Wall Street’s expectations. Fourth-quarter earnings of $1.63 per share on revenue $16.93 billion and weak 2017 guidance, ($5.80 to $6.10 per share), has resulted in heavy sell-side pressure in the stock.
A point of note: In 2016, UPS re-purchased 25.5 million shares for about $2.7 billion.
The graphs below show a concerning trend of downside risk.
Chart – FedEx
Tabcorp Half-Yearly Result
Shares of Tabcorp have opened 3.5% lower as the betting company posted a 5% rise in half-yearly profits.
The firm reported an interim dividend of 12.5 cents fully franked, which was 4% higher than this time last year.
The underlying net profit of $102.7 million for the half year ended December 31st was up from $97.5 million a year ago.
Facebook Q4 Earnings
Shares of Facebook traded to an all-time high of $137.00 just after posting better-than-expected Q4 earnings and revenue results.
The social media giant announced adjusted EPS of $1.41 per share on quarterly revenue of $8.81 billion. These numbers exceeded the street’s estimates of $1.31 per share on revenue of $8.532 billion.
In addition, Facebook announced that Daily active users increased 18% year-on-year to 1.23 billion, while monthly active users grew 17% to 1.86 billion.
However, during the earnings call, CFO, David Wehner indicated that expenses will increase in 2017.
Boral – FY18 Earnings Review
We thought it worthwhile to review the earnings outlook for Boral, post the acquisition of the Headwaters Group.
In FY18 revenue grows to $6.2b, EBITDA $1b, EPS $0.38 and DPS of $0.24 placing the stock on a 4% forward yield.
We’re cautious of the risks for Boral in achieving these targets and it appears the stock is relatively full value at the current price.
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