Friday, 25 July 2014

US reporters over the last 24 hours...and a few levels (Visa, Amazon, Stanley Black & Decker, Moody's)

Four stocks that have reported (as I write) over the last 24 hours in the US market - and which I have written about in recent months - are Visa, Amazon, Moody's and Stanley Black & Decker.  Any takeaways or opportunities from the numbers just released?

First Visa.  At the end of June (link here) I wrote an extensive study concluding:

'In hindsight the sub US$200 print on Visa back in April/May was an opportunity.  At this level the share was trading around x14 EV/ebit which for a double digit growth company with some structural tailwinds and a good balance sheet is very reasonable'. 

It is with interest that I note the shares are once again approaching US$200 (US$214, down c. 4% on the day as I write) following a results disclosure that negative FX issues would push revenue growth potentially to a (high) single digit level:

Fundamentally however the growth of the stock (17.5-18.5% EPS growth), free cash flow generation and structural opportunities in a world of increasing non-cash focus still shines through.  I still like the sub US$200 level as discussed last month but do note that the company bought shares back at an average price of US$207 during the last quarter which is an interesting signalling level.

Another stock I wrote up reasonably recently was Amazon where I established a position sub US$300 a couple of months ago when the stock was particularly weak.  Further weakness has occurred today however the stock is not back to those May levels yet:

The reason for the big fall today is nicely captured by this chart - unanticipated operating losses. 
So is there a problem?  Well, not really.  Sales are up 23% year-on-year, free cash flow totalled around US$5bn (3.5%+ free cash flow yield) for the last rolling year and expansionary spend...remains high.  Still building a business for tomorrow?  Yes.  Anywhere close to the US$300 offers solid risk-reward.  I am certainly looking for an opportunity to augment my position. 

I may have purchased Amazon well (so far still) a couple of months ago but I feel a bit of frustration with Stanley Black & Decker.  My hoped-for US$75 level may did not quite hit (very, very close on two occasions year-to-date) and hence I missed out on a solid re-pricing as shown below:

Still with flat pricing and sequentially poorer organic sales growth trends in all regions the share price bump (assisted by higher margins and hence a push up in guidance) looks to have factored this in.  At prevailing not one that interests me. 

As for missing out on the trading opportunity for the sake of a US$1 or so on the share price - that's the way it goes in investments sometimes. 

Finally Moody's.  Earlier in the year I opined on both Moody's and its great peer/competitor McGraw-Hill Financial concluding with the former that:

'...the repeat nature of much of their business aligned with a relatively small number of peers provides a good underlying combination for continued progress...Watch for the mid US$70s.  At the margin Moody's slightly preferred due to its lower legal risk.  Mr Buffett appears to agree - he is a shareholder in this name too (albeit with a reduced position - well it has doubled etc in the last year)'

Since then there was a flirtation with that level in April but generally the share has responded well and trades in the early US$90s now...having also handsomely outperformed its peer McGraw Hill Financial handsomely too (less overt litigation risk as detailed at the above link):

Numbers for the full year were upgraded following another very solid mid-teens growth period:

Thoughts?  The story rolls on although given what I previously described as 'leftfield risks' still exist I do not really want to pay more than say x12 EV/ebit.  This would suggest a sub US$80 share price.  Keep watching - and McGraw-Hill Financial too (for a sub US$75 print).  Volatility is opportunity in this grouping.

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