Wednesday, 29 July 2015

A huge US earnings day - some thoughts on Altria, Goodyear and Eaton

A huge US earnings last 24 hours...and much, much more to follow.  So a few edited highlights from my perspective.

Got to start with Altria given I bought back into the share a little over a month ago (link here)...and what a good last month or so it has been:


So what observations did they make today? Well an upgrade to EPS hopes and an enhanced buyback kind of helps...


...and throw in good market share at their key Marlboro brand too (which no doubt helped contribute to the above).

So - frankly - new highs seem more than reasonable - but actually the shares are down today.  Such are the fickle nature of 'buy on the rumour, sell on the fact markets'. Maybe in the US$58s I dust down the numbers again.  And if the shares fall back below US$50 then I am going to buy more.  Super solid - and a nice near 4% yield too. 

Goodyear next - after concluding that I await a lower price for their European listed peer Michelin yesterday (link here). Well the numbers review don't start off that well with patchy price-mix and inflation largely offsetting cost savings.  Fortunately lower raw material prices (thanks the oil/related price!) contributed positively...

...and actually looking at the raw material / price/mix shift over time...it has been regularly net favourable to the company.  In essence a pretty good job from the Goodyear management.  


And then there is cash flow.  I talked yesterday about the important signalling of a 5% free cash flow yield, so how does the below rank up?  Well US$1.1bn is something closer to a 14% FCF yield...useful when formal debt is x2 ebitda (and there are pension obligations on top of this). 


So at just below x7 EV/ebit the shares don't feel too expensive...even if they are nearer the top rather than the bottom of the recent trading range (slightly unclear from the chart below but they currently trade in the US$29s).  My instinct: quite interesting despite the debt 



And finally Eaton which I have never covered here on Financial Orbit.  So why look at it (briefly) now?  We will come to that in a second...but in the interim what do they do?

Eaton Corporation plc operates as a power management company worldwide. Its Electrical Products segment offers electrical components, industrial components, residential products, wiring devices, and structural support systems, as well as single phase power quality, emergency lighting, fire detection, circuit protection, and lighting products.

So industrial and construction related products.  Certainly cyclical and international.  Here is the interesting graphic from their presentation which struck me: 


Fascinating evolution over time!  Organic growth worsening, corporate expenses lower but nevertheless despite this and lower capex still net lower free cash than hoped for at the start of the year. Oh and a tweak down in EPS in July just for good measure. A great insight into globally focused listed US stocks. Nevertheless it does have the cash flow (5.4% equivalent to EV at the prevailing share price) but also debt at a cool x3 ebitda...

Still trading near one year lows equates into an interesting chart.  I get the impression that if the US dollar turns then this one will as well...but necessarily a bit higher risk. 


Who said there are no interesting US stocks to look at?!

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