Author: Noah Kiedrowski

COVID-19 Market Meltdown - Hysteria Presents Opportunities

Posted on by Noah Kiedrowski

The coronavirus (COVID-19) has wreaked havoc on worldwide supply chains, shipping routes, commerce customer demand, and travel. The broader market sold off in a historic downward move as the coronavirus has spread outside of China. During the last week of February, the Dow Jones and S&P 500 sank by 12% and 11% for the week, respectively. This marked the worst weekly performance since the financial crisis for the markets. The Dow posted its biggest one-day loss ever during the week and tumbled into correction territory, down more than 10% along with the S&P 500 and Nasdaq. This market-wide meltdown is in response to the negative impact that COVID-19 will likely have on the global economy and corporate earnings. A wide array of companies have already issued warnings about their upcoming quarterly earnings. This placed a damper on the outlook for the markets, especially with rising concerns over a potential outbreak occurring in the United States. The OPEC fiasco and plummeting oil prices are exacerbating this market weakness. These events are presenting buying opportunities across the board in high-quality names and the indices on the whole.

The Market Meltdown

The number of new cases in China continued to rise and spiked in South Korea and Italy during the final week of February and the first week of March. During this time, the Dow posted multiple declines of more than 1,000 points. One loss of 1,192 points was the Dow's biggest one-day point loss on record. The Dow was down 14% from a record high during this period. The S&P 500, posted declines of more than 2% multiple times during this two week period as well. The S&P 500 fell 13% below a record high, and this marks the average's fastest decline from a record high into a correction ever, outside of a one-day crash. It's noteworthy to highlight that 96% of the entire S&P 500 is in correction territory, and all 30 Dow stocks are down more than 10% from their respective 52-week highs. Furthermore, the COVID-19 market sell-off has wiped out over $3.5 trillion in market value from its high during the two weeks. Continue reading "COVID-19 Market Meltdown - Hysteria Presents Opportunities" →

Transformation Underway - CVS Health and Aetna Combination

Posted on by Noah Kiedrowski

The combination of CVS Health (CVS) and Aetna is proving to be a success after initial skepticism by investors. CVS has broken out recently due to a string of better than expected quarters, in part attributable to the Aetna acquisition. CVS is generating large amounts of free cash flow, paying down debt, and returning value to shareholders in a variety of ways. To further boost long-term growth prospects, restore growth, and fend off potential competition, CVS combined with Aetna. This combination creates the first through-in-through healthcare company, combining CVS's pharmacies and PBM platform with Aetna's insurance business. The new CVS combines its existing pharmacy benefits manager (PBM) and retail pharmacies with the second-largest diversified healthcare company.

This is a bold and hefty price tag to pay yet necessary to compete in the increasingly competitive healthcare space, changing marketplace conditions, and political backdrop with drug pricing pressures. CVS made a defensive yet acquisition required to enable the company to go back on the offensive. CVS had been beaten down for years, plummeting by over 50% ($113 to $52) from its multi-year highs. As of late, CVS has broken out to the mid $70s on the heels of its positive string of earnings. At current levels, CVS presents a compelling investment opportunity while the company is still in the early stages of its CVS-Aetna combination, which drives shareholder returns.

Challenging Backdrop

The pharmaceutical supply chain cohort, specifically CVS, has been unable to obtain a firm footing in the backdrop of consolidation within the sector, negative legislative undertones, drug pricing pressures, rising insurance costs, and a market that has lost patience with these stocks. All of these factors culminated into sub-par growth with a level of uncertainty as the sector continued to face headwinds from multiple directions. Many of the stocks that comprised this cohort presented compelling valuations in a very frothy market. This allure had been a value trap as these stocks continued to disappoint. It's no secret that these companies have been faced with several headwinds that have negatively impacted the growth and the changing marketplace conditions have plagued these stocks. Continue reading "Transformation Underway - CVS Health and Aetna Combination" →

Facebook Remains Compelling

Posted on by Noah Kiedrowski

Facebook (FB) tanked after announcing its recent quarterly earnings despite beating on both the top and bottom-line numbers. In addition to the strong revenue and income figures, user growth across its platform grew by a robust clip and the company authorized an additional $10 billion for its share repurchase program. The culprit was a sharp rise in spending and expenses to contend with a slew of regulatory, user and legal battles the company is waging on the privacy front. This minor sell-off provides investors with a buying opportunity in top tier large-cap company that continues to grow double digits with a long runway for further growth and monetization of its platforms.

Trillion Dollar Market Capitalization

Recently, Google (GOOGL), Microsoft (MSFT), Amazon (AMZN), and Apple (AAPL) have all crossed the psychological threshold of the $1 trillion market capitalization valuation. This is the exclusive Wall Street club of only the select few. Facebook is the next potential company to be crowned a 1 trillion-dollar company and join the prestigious Wall Street club (Figure 1). Facebook’s current market capitalization sits at $611 billion, implying a $389 billion market capitalization gap. Facebook needs to appreciate roughly 64% from these levels to joins the likes of Apple, Amazon, Google, and Microsoft.

Facebook
Figure 1 – The $1 trillion market cap landscape back in August 2019 with Facebook in close pursuit and even closer to achieving the mark

Facebook’s Unparalleled Growth

Facebook is now testing its all-time highs with a reasonable price-to-earnings multiple when compared to its tech cohort. Facebook continues to post unparalleled growth Continue reading "Facebook Remains Compelling" →

IBM Posts Strong Quarterly Results and New CEO

Posted on by Noah Kiedrowski

International Business Machines (IBM) is fresh off its strong quarterly results, followed up by news that its CEO is stepping down. Each event separately drove the stock higher as investors cheered the duo of better than expected earnings and a change at the CEO level. IBM continues its long turn back to growth, focusing on high-value faster-growing business segments while embracing the future of technology with AI and hybrid cloud architecture via the Red Hat acquisition. Over the past few years, IBM has taken a blended approach of M&A, realigning its business mix to current and future trends, maintaining its dividend payout, and continuing to buy back shares while layering-in the major Red Hat acquisition.

IBM’s stock has been on an upward trend after investors decided to move past its initial displeasure of announcing its RedHat acquisition when shares were sold-off and traded down to ~$108. IBM's executive leadership has set the growth and value narrative, and investors are quickly realizing the value that Red Hat brings to the table while washing away fears that IBM overpaid for the $34 billion acquisition. From the $108 dip, IBM has been in a position of strength and has broken out past $144 after its recent Q4 2019 earnings. Long-term imperatives are beginning to bear fruit in emerging high-value segments that have fundamentally changed its business mix while evolving its offerings to align with new age information technology demands. The Red Hat acquisition will augment its transition away from its dependence on legacy businesses to the future of hybrid cloud, artificial intelligence, and analytics.

Q4 2019 Earnings – Better than Expected

IBM reported Q4 2019 earnings that were better than expected, beating on both the top and bottom line. These results boosted shares by ~4.5%. IBM reported EPS of $4.71 and revenue of $21.8 billion, which was flat year-over-year while beating analysts’ targets. IBM popped the following day to above the $145. The company laid out its growth narrative and Red Hat acquisition catalysts. IBM's revenue was flat across most of its business segments; however, Continue reading "IBM Posts Strong Quarterly Results and New CEO" →

Disney Delivers 26.5M Disney+ Subscribers

Posted on by Noah Kiedrowski

Disney (DIS) just delivered a stellar quarter beating on both the top and bottom lines while continuing to roll out its growth initiatives via streaming. Disney’s growth rotation is still in the early stages with the remediation of its ESPN property and flurry of growth initiatives to meet the demands of the modern-day media consumption trends. In the backdrop, the company continues to dominate the box office year after year with a long pipeline of blockbusters in the queue. Additionally, its Parks and Resorts continue to be a growth avenue with tremendous pricing power albeit the coronavirus will damper its Shanghai and Hong Kong operations. Disney is going all-in on the streaming front and acquired full ownership of Hulu and the company is launched its Disney branded streaming service. Disney Plus launched on November 12th with all of its content (Marvel, Star Wars, Disney and Pixar) which will be a formidable competitor in the ever-expanding streaming wars both domestically and internationally. As a result of its strong Q1 numbers, Disney has hit near all-time highs of ~$150 per share. I’ve been behind Disney for a long time, especially through this transition back to growth when the stock traded below $100 and I still feel that the company offers a compelling long-term investment opportunity given its growth catalysts that will continue to bear fruit over the coming years.

Disney Plus, Hulu, ESPN Plus and Q4 Earnings

Disney’s Q1 earnings easily beat analysts’ expectations with strong gains in its streaming platforms such as ESPN Plus, Hulu and Disney Plus. Disney beat on both the top-line revenue and bottom-line profit. EPS came in at $1.53, beating by $0.09 per share and revenue came in at $20.86 billion, beating by $50 million. Revenue grew by 36% year-over-year and for the fiscal year.
Disney Plus subscribers came in at 26.5 million, well ahead of expectations that were ~20 million. ESPN Plus subscribers came in at 6.6 million and Hulu subscribers came in at 30.4 million. Hulu saw a 33% year-over-year growth in subscribers.

Disney’s business across the board came in strong, posting growth in every category. Continue reading "Disney Delivers 26.5M Disney+ Subscribers" →