2016年3月2日 星期三

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These High-Quality Stocks Are Misunderstood

The market was unimpressed with the results of these wide-moat companies during earnings season, but we think their positive long-term stories remain intact.

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By Susan Dziubinski | 03-02-16 | 06:00 AM | Email Article

Earnings season is in its final inning--and the game hasn't been pretty. Factset's latest reportestimates that fourth-quarter earnings declined 3.3% year over year, while revenue fell 3.9%. In addition, earnings and revenue growth aren't expected to revive until 2016's third quarter.

 

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Susan Dziubinski is director of content for Morningstar.com®, Morningstar's website for individual investors.

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At Morningstar, we don't give quarterly earnings reports and short-term guidance too much weight. Rather, we focus on a company's long-term sustainable competitive advantages, encapsulated in oureconomic moat ratings. We expect wide-moat companies to deliver superior returns over time. Of course, a company might release information when reporting earnings that will lead an analyst to change his or her moat rating or fair value estimate of the company. But more often than not, short-term earnings disappointments are no more than blips in the long-term picture.

Here are a handful of wide-moat stocks that didn't meet the market's expectations during earnings season. Our analysts remain confident in the long-term prospects of these companies, all of which are trading in 4-star territory as of this writing.

 Amazon (AMZN
Star Rating: 
Moat Rating: Wide
Uncertainty Rating: High 
Fair Value Estimate: $700

Shortly after the online giant released its fourth-quarter earnings, sector strategist R.J. Hottovy wrote:

"The big question from Amazon's fourth-quarter update was the deceleration in gross margin trends and the implications for longer-term margin expansion and cash flow. While it's difficult to find fault in Amazon's net sales growth--up 22%, including 24% growth in North America, 22% growth internationally (constant currency), and 69% growth in Amazon Web Services and implying market share gains in each segment--the market had become accustomed to gross margin gains of greater than 300 basis points in recent quarters, making the 240-basis-point gain to 31.9% stand out and resulting in the first time the company did not exceed the high end of its consolidated segment operating income target range ($1.75 billion reported versus expectations of $0.70 billion-$1.90 billion) in four quarters.

"However, we remain confident that the network effect underpinning our wide moat rating is intact, and we believe the market is overreacting. Regarding fourth-quarter trends, we buy management's assertion that tremendous Fulfillment by Amazon usage by third-party sellers--a claim backed by our conversations with Amazon fulfillment-center representatives--put a strain on fulfillment-center capacity and required additional costs. While this probably means Amazon will invest in additional fulfillment capacity, we view these investments as crucial in maintaining the vibrancy of Amazon's third-party seller community while driving Prime member adoption, which is critical to our longer-term margin assumptions.

"We don't plan material changes to our $700 fair value estimate, as we view the extra capacity as incremental and not the start of a major investment cycle. The capacity investments will push back our previous five-year GAAP operating income target of 6.5% by a year, but the free cash flow impact will be offset by a modest increase in our top-line outlook across each segment. [This is] an attractive opportunity for one of the widest moats in the consumer space today."

 Mondelez International (MDLZ
Star Rating: 
Moat Rating: Wide
Uncertainty Rating: Medium
Fair Value Estimate: $50

Analyst Erin Lash had this to say after the global snack giant (Oreo, Chips Ahoy, Tang, and Trident are among its brands) reported earnings and provided guidance:

"Noise abounded in Mondelez's results, including the impact from the coffee split, the deconsolidation of its Venezuelan operations, and efforts to prune less profitable products. However, after parsing through the firm's underlying fourth-quarter performance (4.7% organic sales growth, 280 basis points of adjusted gross margin expansion to 38.8%, and a 120-basis-point increase in adjusted operating margins to 13.9%), we maintain that Mondelez's competitive edge based on its solid brand mix, entrenched retail relationships, and cost advantage combined with the potential to drive profit improvement longer term is firmly in place.

"In that vein, management disclosed its target for adjusted operating margins to expand to 17%-18% by fiscal 2018 (in line with our 17% forecast), up from around 13% in fiscal 2015 and its target of 15%-16% in fiscal 2016. As we've said, efforts to drive efficiencies in its supply chain and eliminate unnecessary spending across its business should prompt savings in excess of its $1.5 billion target. We continue to believe a portion of these savings will be reinvested behind its brands to support the intangible asset source of its wide moat, with our forecast calling for research and development and marketing spend to edge up to over 8% of sales over the next 10 years (or $3.5 billion), above the nearly 6% of sales ($2 billion) it has historically allocated toward brand reinvestment.

"While we intend to review our near-term assumptions in light of continued headwinds (including persistent foreign-exchange pressure, which management pegs at a 6% hit to its top-line growth in fiscal 2016 and $0.13 per share from its earnings), we don't expect a significant change to our $50 fair value. As such, we think the recent sell-off in the shares is creating an attractive entry point for long-term investors looking to gain exposure to a competitively advantaged player in the global-snacking space."

 Nestle (NSRGY
Star Rating: 
Moat Rating: Wide 
Uncertainty Rating: Low
Fair Value Estimate: $84

After Nestle reported, Lash wrote:

"Nestle narrowly missed our forecasts in 2015, with full-year organic growth of 4.2%. This is below our expectations of medium-term growth, but we think Nestle executed fairly well in 2015, given the tepid prevailing macroeconomic drivers. We forecast another below-par year in 2016 but believe that the firm can return to 5% revenue and 6% earnings growth in the medium term. For the time being, we are reiterating our CHF 83 and $84 fair value estimates for the ordinary shares and ADRs, respectively. Nestle's broad product portfolio and strong cash flows (it converted more than 11% of sales to free cash flow in 2015, at the high end of its peer group) gives it an entrenched position in the supply chain of its customers and an ability to react to new entrants. These results lend support to our wide moat rating, which remains in place. We think the stock offers investors some upside from current levels.

"Full-year organic growth of 4.2% was in line with the first nine months of the year. The uplift from the restocking of Maggi in India in November failed to materialize, implying a slight deterioration in performance in the fourth quarter. Nevertheless, organic growth at the high end of the packaged-food industry, coupled with a fairly healthy balance between volume growth and price/mix, indicates fairly solid execution. The Americas segment delivered 5.5% organic growth, boosted by successful new launches in U.S. frozen foods. This is likely to be seen as a significant positive by investors. However, price increases in inflationary Latin American markets are the key driver of organic growth (volumes ticked up just 1.6%), and this is not likely to be profitable growth because of the increases in material and labor costs in those markets. "

 Time Warner (TWX
Star Rating: 
Moat Rating: Wide
Uncertainty Rating: Medium
Fair Value Estimate: $85

Analyst Neil Macker noted the following after Time Warner reported fourth-quarter results and provided guidance:

"Time Warner reported fourth-quarter results below expectations as foreign exchange continued to negatively affect top- and bottom-line results. Despite the weak results, management did raise its earnings per share guidance for 2016 to $5.30-$5.40 from $5.25. We are maintaining our wide moat rating but lowering our fair value estimate to $85 per share from $94 to account for lowered ad and HBO subscription revenue expectations. Now trading in 4-star territory, the stock may offer an attractive entry point for investors with a longer-term investment horizon.

"Revenue at Turner increased 2% to $2.7 billion as ad revenue improved 5%, offsetting flat quarters for the other segments. Advertising revenue was driven by additional MLB playoff games and improved ratings at CNN due to the presidential primaries. However, this growth was more than offset by higher programming costs including MLB rights. HBO growth of 6% was driven by a 20% increase in content revenue due to international library licensing. Warner Bros. revenue declined 15% as the division suffered from tough theatrical comps with The Hobbit and Interstellarin theaters a year ago. Adjusted operating margin fell 160 basis points to 19.6% as the decline at WB offset selling, general, and administrative expense improvements from last year's restructuring plan."

 VF (VFC
Star Rating: 
Moat Rating: Wide
Uncertainty Rating: Medium
Fair Value Estimate: $78

After VF released earnings, senior analyst Bridget Weishaar had this to say about the company, whose leading lifestyle brands include The North Face, Timberland, Vans, Lee, Wrangler, and Nautica:

"Fourth quarter marked a rare instance where wide-moat VF Corp missed its plan and announced 2016 guidance below our expectation as foreign exchange rates, warmer weather, and weakened apparel demand combined to create significant near-term headwinds. However, we think VF's moat is firmly intact with Jeanswear and Outdoor & Action Sports (about 80% of revenue) posting fourth-quarter mid-single-digit constant currency revenue growth (excluding the impact of the 53rd week), indicating continued market share gains. Furthermore, the margin expansion story is also intact with ongoing pricing power and mix shifts toward Outdoor & Action Sports, Direct to Consumer, and International expected to support a 50-basis-point margin expansion (on a constant-currency basis) in 2016 despite the weaker top-line demand. Finally, we see the possibilities of an acquisition, divestiture of underperforming brand(s), and about $1 billion in share buybacks providing further catalysts to driving shareholder returns.

"As such, we see little change to our fair value estimate or our belief that top-line growth will return to high-single-digit levels and that operating margin will expand to the mid-teens over the next five years. We think that current stock weakness provides an attractive opportunity to invest in a wide-moat company in the apparel space."

 Wal-Mart (WMT
Star Rating: 
Moat Rating: Wide
Uncertainty Rating: Low
Fair Value Estimate: $75

Analyst Ken Perkins wrote this about the retailer after it released fourth-quarter results and provided guidance:

"We do not expect to make a material change to our $75 fair value estimate for Wal-Mart after reviewing the firm's fiscal 2016 fourth-quarter earnings and fiscal 2017 guidance. The shares initially fell after the firm reported results, in part because of weak sales growth from Sam's Club, international markets, and e-commerce, and in part because of fiscal 2017 sales guidance that was below expectations. However, management's 3%-4% sales guidance offered in October remains unchanged after adjusting for currency headwinds and the firm's decision to close some Brazilian and U.S. stores.

"While Wal-Mart shares have bounced off lows, they still trade at a discount to our fair value estimate. With an earnings yield above 6% (3% dividend yield) and the company repurchasing more than 5% of its shares outstanding each year, Wal-Mart's shares are priced to deliver solid long-term returns even if profits merely stabilize. Given that profits could again grow as wage and e-commerce investments moderate over the next one to three years, we believe the risk/reward opportunity in owning Wal-Mart is attractive in today's uncertain macroeconomic and market environment."

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