Author: Noah Kiedrowski

CVS - Earnings Implosion And Opaque Near-Term

Posted on by Noah Kiedrowski

The pharmaceutical supply chain cohort is simply unable to obtain firm footing in the backdrop consolidation within the sector, legislative backdrop, drug pricing pressures, rising insurance costs and a market that has lost patience with these stocks. All of these factors culminate into sub-par growth with a level of uncertainty as this sector continues to face headwinds from multiple directions. Many of the stocks that comprised this cohort presented compelling valuations in a very frothy market. CVS Health (CVS) was one stock that stood out as compelling value sitting, near multi-year lows in December of 2018. During the market rebound in January and February, CVS began to appreciate to new highs moving from $63 in mid-January to $70 in mid-February or an 11% move to the upside. Upon the release of its Q4 earnings, the narrative quickly changed as the transition to growth and Aneta integration is proving to be much slower than investors had anticipated, yielding an opaque situation near term for the stock. CVS has a healthy balance sheet and growing its dividend while seizing partnerships and acquisitions to propel growth into the future. 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. Regardless, until growth is restored and Aneta is fully integrated to yield a fully functional bumper-to-bumper healthcare colossus, the stock remains range bound. However, the long-term picture looks rewarding for value investors as growth initiatives and acquisitions bear fruit.

Market Challenges

The political backdrop has been a major headwind for the entire pharmaceutical supply chain (i.e., drug manufacturers, pharmaceutical wholesalers, and pharmacies/pharmacy benefit managers). Exacerbating the political climate, the drug pricing debate continues to rage on throughout political and social media circles weighing on the sector. This backdrop erodes pricing power and margins of drugs that ultimately move from drug manufacturers to patients with insurers and other middlemen playing roles in the supply chain web. Continue reading "CVS - Earnings Implosion And Opaque Near-Term" →

Hasbro: "We're Past the Toys "R" Us Debacle"

Posted on by Noah Kiedrowski

The Toys “R” Us bankruptcy has proven to be an albatross around Hasbro’s neck despite the confident, forward-looking narrative that’s been put forth for the previous two quarters by its CEO. The recent fourth-quarter earnings were disappointing, to say the least, capping off its historically best quarter. Revenue declined on an annual and quarterly basis by 12% and 13%, respectively. Despite these Toys “R” Us headwinds, Hasbro remains confident as the company annualizes the inventory glut caused by the liquidation. Hasbro (HAS) has a compelling future across its portfolio with many catalysts on the near and long term time horizon. This confident future was reinforced with an 8% increase in its quarterly dividend payout despite its revenue declines.

Hasbro is setting the post-Toys “R” Us bankruptcy narrative and laying out a business roadmap for long term profitable growth across its brands. This sentiment has been further bolstered by positive commentary from its CEO that the company will absolve itself of this Toy “R” Us related bankruptcy headwind come 2019. There's many current and future growth catalysts for Hasbro in movie franchises such as Marvel, Star Wars and other Disney (DIS) properties (Hasbro is the exclusive toy maker), potential e-sports with Dungeons and Dragons and Magic: The Gathering, newly acquired Power Rangers franchise which will emulate Hasbro’s My Little Pony and Transformers’ Bumblebee within Hasbro Studios and its legacy games such as Monopoly and Nerf.

Jim Cramer’s Mad Money 2018 Interviews

Hasbro’s CEO Brian Goldner has had a string of interviews with Jim Cramer on Mad Money. Over the past year, Goldner has had the tough task of getting out in front of the Toys “R” Us bankruptcy and glut of merchandise. Continue reading "Hasbro: "We're Past the Toys "R" Us Debacle"" →

Fed Chairman Powell Resuscitates Financial Cohort

Posted on by Noah Kiedrowski

The market-wide sell-off in the fourth quarter of 2018 was largely induced by the Federal Reserve and its alleged commitment to sequential interest rate increases into 2019. This was largely viewed as reckless and misguided while turning a blind eye to broader economic data-driven decision making about further interest rate hikes. The stock indices responded to the sequential interest rate hike stance with overwhelming negative sentiment, logging double-digit declines across the broader markets. Many market observers were questioning the Federal Reserve’s aggressive stance as companies issued weakness in ancillary economic metrics (slowing global growth, strong U.S. dollar, trade war, government shutdown, weak housing numbers, retail weakness, auto sluggishness, and oil decline) as an indication that cracks in the economic cycle were materializing. The strong labor market and record low unemployment served as a basis to rationalize increasing rates to tame inflation however these aforementioned economic headwinds appeared to cause the Federal Reserve to pivot in its aggressive stance. As Chairman Jerome Powell began to issue a softer stance on future interest rate hikes, January saw very healthy stock market gains after being decimated for months prior. On January 30th, Jerome Powell issued language that the markets were craving to levitate higher as he left interest rates unchanged and exercised caution and patience as a path forward. Using data-driven decision making as a path forward was cheered by market participants as the broader indices popped for healthy gains on top of the already robust gains throughout January.

Financial Cohort Squeezed

The financial cohort was stuck in a precarious situation in the latter half of 2018. On the one hand, a rising interest rate environment would provide boosts to bottom line revenue as a function of the increased rates on their deposit base. Banks had domestic and global economic expansion tailwinds at their back while posting accelerating revenue growth, increasing dividend payouts, engaging in a record number of share buybacks, benefiting from tax reform and deregulation. Augmenting this positive backdrop was a record number of IPOs, a record number of global merger and acquisitions along with consulting fees regarding mergers and acquisitions and trading around market volatility. All of these elements ostensibly provided an ideal confluence that boded well for the financial sector. JP Morgan (JPM), Citi (C), Wells Fargo (WFC), Goldman Sachs (GS) and Bank of America (BAC) seemed to be poised to continue to benefit from the favorable economic backdrop. Despite all these elements, 2018 was terrible for the financials which performed horribly, especially during the fourth quarter as rapid rate hikes were in the cards. Continue reading "Fed Chairman Powell Resuscitates Financial Cohort" →

IBM Finally Delivers Robust Numbers

Posted on by Noah Kiedrowski

International Business Machines (IBM) finally delivered the long-awaited robust quarterly numbers that retail investors and Wall Street had been craving, lifting the stock by 10% in a single session post-earnings. IBM had been trading in the doldrums for months as the bear market in Q4 2018 took the stock down to the sub $120 level, where it traded for months until its Q4 earnings release broke this negative trend. IBM suffered a stock implosion after its Q3 earnings release that fell short of expectations coupled with its announcement that it will be acquiring Red Hat (RHT) for $34 billion. The combination of bad news in conjunction with the bear market backdrop yielded an IBM stock that traded at a 5-year low of $106 with a 5.9% dividend yield. IBM has had a long turn in restoring growth after posting 20+ consecutive quarters of declining revenue however IBM had posted quarters of revenue growth as of late. This growth has come on heels of its long-term imperatives beginning to bear fruit in emerging high-value segments that has fundamentally changed its business mix while evolving its offerings to align with new age information technology demands. The Red Hat acquisition will ostensibly augment its transition away from its dependency on legacy businesses to the future of cloud, artificial intelligence, and analytics. As IBM transitions to quarterly revenue growth, in the backdrop of its evolution to emerging high-value segments (i.e. blockchain) and bringing the Red Hat portfolio into the fold, IBM presents a compelling investment opportunity, despite its recent pop after earnings were announced. In addition to the evolving business mix in strategic imperatives, IBM offers a great dividend, share buyback program while continuously acquiring companies to drive the business into the future.

Q4 Earnings – 10% Post Earnings Pop

IBM reported Q4 earnings of $4.87 EPS and revenue of $21.76 billion which was a -3.5% year-over-year decline however beat analysts’ targets by $30 million on revenue. IBM popped the following day as the company laid out its growth narrative and Red Hat acquisition. In its faster-growing business segments such as strategic imperatives and Cognitive Solutions, revenue grew by 9% and 2%, respectively. Continue reading "IBM Finally Delivers Robust Numbers" →