The headlines are flying fast and furious as usual during earnings season.
So, instead of leading off with my usual overview of the markets, I’m using this blog to give you my feedback on what’s happening at several stocks I follow.
Microsoft (MSFT) posted encouraging quarterly profits after last Thursday’s close, with surging cloud revenues and great cost control lifting EPS well above analysts’ estimates. On the other hand, I think it’s important to keep perspective: While Mr. Softy beat the Street’s expectations by a wide margin, operating profits per share rose only 3% year-over-year.
That’s hardly enough to justify the huge 11.8% jump in the stock since Thursday’s close.
Do NOT buy MSFT in here. If you’re of a trading frame of mind, you might even take some profits. Long-term investors should wait for a pullback to initiate or add to positions.
Piedmont Natural Gas (PNY) received a takeover bid from Duke Energy (DUK), another utility in the Machine. As a Piedmont holder myself, I’m delighted with the princely sum Duke is offering: $60 per share in cash, 42% above where the stock was quoted at last Friday’s close, on the eve of the announcement.
As a Duke investor, however, I’m less than thrilled that management agreed to pay 31X estimated 2016 earnings for a regulated utility. It will take absolutely flawless execution — the equivalent of a financial miracle — for this deal to pay off for DUK shareholders.
I’ve been asked whether it makes sense to exchange General Electric (GE) shares for stock in Synchrony Financial (SYF). GE is letting shareholders make the swap as part of GE’s phased exit from the banking business.
The answer really depends on whether you want to own a bank or an industrial company. If you’re underweighted in financials, you might consider doing the swap. SYF, a leading credit-card issuer, is trading at a modest 11X estimated year-ahead profits, leaving plenty of room for appreciation if management steers the ship wisely.
Personally, though, I’ve got enough exposure to financials, so I’m sticking with GE.
Kinder Morgan (KMI) took a few lumps last week after the pipeline operator widened the range of its forecast for 2016 dividend growth. Previously, KMI had looked for the company’s payout to increase 8%-10% next year; now the call is for growth of 6%-10%.
Frankly, I think it’s only prudent, given the ongoing weakness in the domestic oil-and-gas industry, for KMI to temper investor expectations. The stock continues to yield a generous, and safe, 7.5%. If the company raises its payout by only 6% in 2016, so what?
Wall Street is crazy to demand more, and even crazier to hammer the stock when the Street’s childish demands go unmet.
Finally, AbbVie (ABBV). Fickle Wall Street has changed its mind — surprise, surprise! — about the FDA warning letter ABBV received last Thursday concerning two of the company’s hepatitis treatments.
The emerging view seems to be that the impact on ABBV’s earnings next year may not amount to more than about 2%, and perhaps 4% in the out years. So all the hysterical screaming last week, by short sellers and others with an interest in getting you to panic, was, as usual, a diversionary tactic.
