TickerTalk Headlines for June 29th
In this newsletter:
What's Behind Walgreens Stock Plunge: What Investors Can Do Next
After years of a downtrend in their price, shares of Walgreens Boots Alliance Inc. (NASDAQ: WBA) have thrown in the towel this time. In a single day, the stock is down over 25% in a sign that can’t be taken in any other way than a ‘run’ message. However, some remain hopeful about the stock recovering, but that would be severely disconnected from current fundamentals.
Today, investors get a chance to audit the main drivers behind Walgreens and come to a better-educated conclusion as to whether the stock is worth keeping on a watchlist. More specifically, investors should watch the developments between Walgreens and its main competitor, CVS Health Co. (NYSE: CVS), because the trends could not be more apparent.
Last but not least, savvy investors understand that it isn’t just Walgreens and CVS at stake in this turbulent time but also entities that back Walgreens locations, such as its landlords. According to the saying, one man’s trash is another man’s treasure, so here is how to figure out where the real treasure hunt will end up.
Walgreens vs. CVS: Financials Break Down the Competition
There is, of course, a good reason for the price crash on shares of Walgreens, and it’s got everything to do with the company’s financials. For starters, investors can break apart the latest quarterly results to figure out what happened behind the scenes.
While the company’s press release points to earnings per share (EPS) nearly quadrupling, the reality couldn’t be further. Therefore, net income and EPS can be easily manipulated. In contrast, other metrics like free cash flow (operating cash flow minus capital expenditures) cannot.
This is why investors should focus on that instead, and here’s what they would find: a net operating outflow of $314 million, minus $1.1 billion in capital expenditures, for a negative free cash flow of over $1.3 billion. Since a company cannot run without cash flow, seeing what management did next makes sense.
The plan is to close a ‘significant’ amount of Walgreens locations, assuming they are unprofitable. While this could free up some cash and cut overhead expenses, it won’t be enough to offset the unprofitable operations that lie at the heart of the company.
Because Walgreens has no free cash flow, it cannot fund its operations further without taking on debt or diluting shareholders. Because of this, the stock’s 8.2% dividend yield should be nothing short of a red flag to investors, a bait to avoid.
On the other hand, here’s what can be said about CVS’s financials. The company’s latest quarterly results show investors operating cash flow of $4.9 billion, leaving them with positive free cash flow even after $705 million in capital expenditures. What management chose to do with this capital was also the right thing.
Up to $3 billion was set aside to repurchase stock, compounding the upside effects for existing shareholders. This trend must be why analysts at J.P. Morgan Chase saw it fit to boost CVS’s valuations to $86 a share, daring it to rally by 47.2% from where it sits today.
Now that the dust is settled, investors can zoom out of this dramatic price action and find themselves with the next best thing, Walgreens’ landlord Realty Income Co. (NYSE: O), a real estate investment trust (REIT) known for paying monthly dividends instead of quarterly.
The Best Income a Dip Can Buy: Realty Income Stock
As Walgreens’ landlord, Realty Income stock is exposed to the closure of hundreds of locations. However, markets habitually exaggerate things, so here’s just how exposed they really are.
According to Realty Income’s latest quarter, the company only derived 3.4% of its rental income from Walgreens. This is not significant enough to justify a more than 1% sell-off in an otherwise low-volatility stock.
When the market realizes how little this event means for Realty Income, it will be too late for investors to squeeze a potential discount. Speaking of discounts, the stock’s valuation is so low that its annual dividend yield has jumped to 6%, the highest in company history (excluding COVID sell-offs).
According to those at Stifel Nicolaus, Realty Income stock is worth up to $65 a share, daring it to rally by as much as 24% from where it trades today. More than that, Wall Street still expects to see 3.8% EPS growth in Realty Income this year, keeping up with inflation and GDP growth.
Assets to Supercharge Your Retirement (Ad)
4 out of 5 Americans believe we're on the brink of a retirement crisis.
Luckily, in these unprecedented times, we have an unprecedented solution.
Once considered a "fringe" investment, the crypto market is now taking the world by storm.
General Mills Stock Drops After Revenue Miss in Fiscal Q4 2024
General Mills (NYSE: GIS) lies within the consumer staples sector and ranks in the top 10 largest food and beverage companies in the United States by revenue. In 2024, the share price is essentially where it started for the year, with a total return of just under 0%.
But it hasn’t simply been trading sideways. Year-to-date returns went up into the 12% range in April and May, but fell significantly over the past five weeks. Since releasing its fiscal year 2024 earnings on the morning of Jun. 26, shares have fallen by over 5%. Let’s look at General Mills' business lines, recent financial statements, and future outlook to contextualize this reaction and analyze its prospects going forward.
General Mills’ Business Segments and Products
General Mills lists four segments in its annual report: North America Retail, International, Pet, and North America Foodservice. The firm controls more than 100 unique brands, including Cheerios, Bisquick, and Häagen-Dazs, and operates in over 100 countries. The North America Retail segment is by far the largest, accounting for 77% of operating profit. The company's Pet segment comes in at 12%, North America Foodservice at 8%, and International at 3%.
North America Retail focuses on many food products, including ready-to-eat cereals, frozen foods, and shelf-stable vegetables. The firm’s primary customers are grocery stores and mass merchandisers. Due to the nature of its business, input costs for its products can fluctuate widely based on the prices of commodities like wheat, corn, sugar, and other agricultural products.
The report states that while seasonality affects some product sales, overall demand remains generally balanced throughout the year.
General Mills' Earnings: Earning Per Share Beat, Revenue Miss, and Dividend Increase
Earnings per share (EPS) came in slightly above the consensus $0.99 estimate at $1.01. The firm missed revenue considerably, coming in at $4.71 billion versus $4.85 billion expected. Over the full year, net sales were down 1%, but adjusted operating profit grew by 4% despite this. An increase in net price realization and mix drove this. This means the company was able to charge higher prices for its products, net of any discounts provided. Although the firm sold at higher prices, lower sales volume offset this, resulting in a decrease in revenue in the end. A $241 million reduction in SG&A expenses boosted adjusted operating profit.
Yet, on a quarterly basis, compared to Q4 2023, both revenue and adjusted operating profit showed meaningful declines. Revenue was down 6%, and adjusted operating profit was down 10%. Adjusted diluted EPS was also down 10%. A big disappointment came with the international segment. The firm reported a 68% decline in operating profit from Q4 2023. Brazil's and China's harsh environments contributed significantly to this outcome. In Brazil, customers heavily reduced inventory. In China, a downturn in consumer sentiment in the second half of the year seriously harmed sales of the firm's premium brands like Häagen Dazs.
Another notable point from this release relates to the firm's dividend. The firm announced an increase in its dividend, raising its dividend yield to 3.74%. Increases like this are not uncommon, as the company’s dividend has grown by 4.5% annually over the last three years. The firm offers a solid return of capital to investors in the form of income that's more than double its industry average. The average dividend yield for Processed & Packaged Goods firms sits at 1.8%.
General Mills' Fiscal 2025 Outlook: Gradual Volume Recovery and Cost Savings Expected
General Mills predicts that it will gradually recover from sales volume declines over fiscal 2025. It also hopes to drive continued savings in cost of goods sold (COGS) of 4% to 5%. This will be achieved through its Holistic Margin Management program (HMM), which allowed the firm to mitigate inflation in 2024. It expects this level of savings will increase margins as it sees COGS inflation being in the range of 3% to 4%.
But it doesn’t expect to increase earnings significantly. The guidance midpoint shows adjusted diluted EPS remaining flat over fiscal 2025. Six analysts updated their ratings after the release. Their average price target for the stock is $68. This implies a 7% upside from the Jun. 27, 2024, closing price.
A way to target $500 each week? (Ad)
The average household has just north of $5,000 a month in expenses…
I'm talking about things like healthcare, food, transportation…
Clothing, electricity… Just the bare necessities.
Meanwhile, the average monthly income in the United States is only $4,340 a month…
If we're being honest that's a huge income gap many folks can't fill right now…
But that's exactly why I'm on a mission…
Albemarle Stock: Strong Fundamentals vs. Lithium Volatility
Albemarle Corporation (NYSE: ALB) is a global leader in the production of basic materials for a diverse range of industries, including energy, electric vehicles (EV), and healthcare. The company's commitment to sustainable practices was recently showcased during its fourth annual Sustainability Day event.
A Focus on Sustainability: Albemarle's Annual Event
Albemarle Corporation demonstrates a commitment to sustainable practices through its annual Sustainability Day event. The fourth iteration of this event showcased the company’s progress towards its environmental, social, and governance (ESG) goals as outlined in its 2023 Sustainability Report, titled "All the Elements for a Better World." The event featured key company executives, including the CEO and Chairman, who highlighted the company's ongoing efforts in responsible sourcing, water stewardship, and community engagement. While the event focuses on Albemarle’s sustainability, it also underscores its dedication to responsible operations and transparency, crucial for building long-term trust with investors and stakeholders. The complete Sustainability Report is available on Albemarle's website for those seeking further details on the company's sustainability initiatives.
Albemarle's Operational Highlights: Driving Growth and Transparency
Albemarle continues progressing on key projects, including its Kemerton I lithium hydroxide plant and the Salar Yield Improvement Project. The company's focus on expanding production capacity is crucial to meet the growing demand for lithium from the EV battery market and other sectors. Albemarle has conducted bidding events for spodumene concentrate and lithium carbonate to promote price transparency in the often-opaque lithium market. The company plans to expand these auctions to provide a more precise global price reference point for lithium. This increased transparency is expected to benefit Albemarle and its customers, fostering greater stability and predictability in the market.
Albemarle Stock: A Look at Recent Performance
Albemarle stock has exhibited volatility in recent trading sessions, mirroring the broader fluctuations within the lithium market. The stock experienced a notable surge in the previous trading session, driven by positive market sentiment surrounding the company's plans to conduct additional lithium auctions. These auctions aim to increase price transparency and strengthen supply contracts with automakers.
However, the stock has retraced some of these gains in the current trading session, suggesting that investors are cautiously assessing the impact of Albemarle's auction plans and remain attuned to the broader market dynamics affecting lithium prices.
The stock's 52-week range underscores the potential for significant gains and losses. Albemarle’s analyst community has placed a "Hold" rating for Albemarle, with a consensus price target suggesting a potential upside for investors. Despite this positive outlook, the high implied volatility in Albemarle’s stock options signals a continued expectation of significant price swings in the future. This volatility presents risks and opportunities for investors seeking exposure to the lithium market.
Assessing Albemarle's Financial Strength
Albemarle's financial performance in recent earnings reports reflects the challenges of a volatile lithium market. In the first quarter of 2024, the company reported net sales of $1.36 billion, a significant decline from the $2.58 billion reported in the same period last year. This decline can be primarily attributed to a decrease in lithium prices. However, it is essential to note that sales volumes increased during this period, indicating continued demand for Albemarle's products. Despite the revenue decline, the company maintains a healthy debt-to-equity ratio of 0.37, demonstrating robust financial health.
Albemarle's capital expenditures for the first quarter of 2024 reached $579 million, underscoring the company's commitment to investing in growth projects. While this investment strategy impacts short-term cash flow, it positions the company to capitalize on the anticipated long-term growth in the lithium market. Albemarle's recent $2.3 billion public offering of mandatory convertible preferred stock further strengthens its balance sheet and provides additional financial flexibility for strategic investments.
Forecasting Albemarle's Growth Potential Despite Market Volatility
Albemarle's future outlook is intricately linked to the dynamics of the lithium market. While projected earnings growth for the company remains positive, the volatility of lithium prices presents a significant variable. Analysts anticipate Albemarle's earnings per share (EPS) to grow significantly in the coming year, with some analysts anticipating 171% gains, reaching $5.61. However, investors should remain aware of the potential impact of fluctuating lithium prices on the company's financial performance.
Despite market challenges, Albemarle's strong market position, strategic investments, and commitment to sustainable practices provide a solid foundation for long-term growth. The company's focus on price transparency and strengthening relationships with automakers positions it favorably in the evolving lithium market.
Albemarle Corporation presents a compelling investment opportunity for those seeking exposure to the growth of the EV battery market and the broader clean energy transition. While lithium price volatility poses a risk, the company's strong fundamentals, strategic initiatives, and commitment to sustainability suggest a positive long-term trajectory.
How a $0.25 cent option contract makes my top traders feel (Ad)
If you don't know me, I've been in the markets for over 40 years… but recently, I've discovered a breakthrough that might be my favorite strategy of ALL time!
While I kept the finer details of these $0.25 Cent Trades under wraps until recently…
TickerTalk is your daily email briefing covering top stories influencing the stock market. Stay informed, stay ahead.
MarketBeat Media, LLC dba TickerTalk
345 N Reid Place, Suite 620, Sioux Falls, SD 57103.
contact@tickertalk.com
没有评论:
发表评论