Stock Analyst Notes: Microsoft, PayPal, BASF, Equinor, Edwards, Tesla, Las Vegas Sands, Baxter, RELX, ServiceNow, Ford, More

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Stock Analyst Notes Microsoft, PayPal, BASF, Equinor, Edwards, Tesla, Las Vegas Sands, Baxter, RELX, ServiceNow, Ford, More by Morningstar Equity Analysts | 10/24/2019 10:30:00 AM  Microsoft MSFT reported strong results that were once again well ahead of expectations with upside to revenue, operating margin, and EPS. We are impressed with the company's ability to continue to drive revenue and margins at the scale the company has already achieved, and we think there is more to come. Overall, results continue to reinforce our thesis, centering on customer adoption of hybrid cloud environments with Azure. Microsoft continues to use its dominant position of on premises architecture to allow customers to move to the cloud easily and at their own pace, which we believe will continue over a multiyear period. Adoption of c loud services in the form of SaaS, PaaS, and IaaS remains robust for Microsoft, and the company has passed inflection points where cloud revenue is strong and margins continue to improve. We are maintaining our $155 fair value estimate. We believe wide-moat Microsoft is firing on all cylinders and remains a relatively safe harbor in what has become a volatile software industry over the last several months. For the September quarter, revenue grew 14% year over year to $33.1 billion, while GAAP EPS was $1.38 compared with $1.14 a year ago. Both measures were ahead of us and the Street and all three segments contributed to revenue strength. Intelligent cloud continues to drive the narrative, with Azure growing 59% year over year, which was generally in line with our expectations. For the entire note, click here. Dan Romanoff, CPA We think  PayPal PYPL is well-positioned for growth in the near term, as it benefits not only from the larger secular tailwind of the shift toward electronic payments, but also its focus on faster-growing areas such as e-commerce, mobile payments, and peer-to-peer payments. Even considering this, the company's performance in the third quarter was strong, with the company maintaining its top-line momentum and seeing strong margin improvement. We will maintain our $91 fair value estimate and narrow moat rating.Revenue was up 19% year over year, a jump from the midteens rate over the past few quarters. However, this gap is mainly due the impact of the sale of its receivables portfolio rolling off. The drivers of the company's growth remained fairly consistent, wi th 16% growth in active accounts year over year and 9% growth in transactions per active account. PayPal continues to see even stronger growth in more nascent areas. Mobile volume was up 34% year over year, and Venmo volume was up 64%. The growth in Venmo in particular remains quite impressive, and we are encouraged by the positive trend in the percentage of users monetized, which hit 35% in the quarter. In our view, payment platforms tend to have winner-take-all dynamics, and Venmo's performance suggests it is positioning itself to be a survivor. For the entire note, click here. Brett Horn, CFA Narrow-moat  BASF BASFY reported a 24% decline in third-quarter EBIT over the prior-year period due mainly to lower prices and margins in petrochemicals and isocyanates. This was largely expected. However, EBIT was slightly better than consensus due to improved performance in surface technologies and agricultural solutions. Guidance for a 30% decline in EBIT this year was maintained. We don't expect to make a material change to our forecast or EUR 70 ($19.50) fair value estimate. At current levels, the shares look fairly valued. Highlights of the third quarter included a further deterioration in the automotive sector, BASF calling out a noticeable slowdown in the United States, a good start to the season for agriculture in South America, and the sharp increase i n profits in the surface technologies segment. BASF reported that production in the automotive industry declined sequentially over the first half of 2019. Even more interesting was that global production declined 1% in the third quarter, and this was compared with a low base, given the severe impact of the introduction of the WLTP car test in Europe last year. The U.S. comments were interesting as this is the first time we have seen the U.S. cited as a notable risk, with industrial growth reported to be softening considerably. For the entire note, click here. Rob Hales, CFA  Equinor EQNR reported third-quarter adjusted earnings of $1.1 billion compared with $2.0 billion last year. Net impairments of $2.79 billion, of which $2.24 billion related to unconventional onshore assets in North America, negatively affected net operating income, which was negative $0.5 billion this quarter, down from $4.6 billion the same quarter last year. E&P Norway adjusted earnings fell to $1.7 billion from $3.4 billion last year, and E&P international adjusted earnings fell to $435 million from $1.0 billion, largely due to lower average prices and volumes for liquids and gas despite the startup of new fields. Equity production of 1,909 thousand barrels of oil equivalent per day during the quarter slipped from 2,066 mboed produced last year, but full-year guidance of flat v olumes stands, particularly as the new fields step up production to bolster volumes. Long-term guidance of a 3% CAGR for production through 2025 is unchanged. Marketing and midstream segment reported adjusted earnings fell to $448 million from $481 million last year on weaker gas results and narrower processing margins. Cash flow rose to $4.2 billion from $2.7 billion last quarter despite lower earnings, primarily due to lower tax payments and a decrease in working capital. Equinor also launched a new $5 billion share-buyback program in September and has settled $0.1 billion this quarter as part of the first $0.5 billion tranche. For the entire note, click here. Allen Good, CFA  Edwards Lifesciences EW delivered unexpectedly strong quarterly growth in its Sapien transcatheter aortic valves, likely driven by strong demand from the indication expansion to include patients at low-risk for surgical replacement. After incorporating more optimistic projections for Sapien sales in the U.S. through next year, and outside the U.S. through the longer term, this wasn't material enough to bump up our fair value. We remain confident in Edwards' narrow economic moat and its ability to create meaningful innovation that should generate economic profits through the long term. We find Edwards' performance in Europe to be particularly instructive now that rival Boston Scientific has launched its Lotus TAVR product in the U.S. and Abbott's Portico device is on the ho rizon. In Europe, Edwards has hung onto its leadership position in a TAVR market that features four competitors, even though it was second to market. We chalk this up to Sapien's technological merits, a steady stream of improvements to the product line, and substantial training and support for practitioners and centers that have adopted the use of Sapien. Though Boston's domestic rollout of Lotus remains in the early days, we continue to think the product can garner minority share as practitioners try the product, but we remain skeptical that it can unseat Sapien as the market leader. For the entire note, click here. Debbie S. Wang  Tesla TSLA reported third-quarter results with a surprise profit that blew away consensus. Adjusted diluted EPS of $1.86 easily beat consensus of a $0.42 loss and Tesla had a GAAP profit of $0.78 per share. GAAP free cash flow of $371 million declined from the prior year quarter's figure of $881 million but the company finished the quarter with a comfortable cash figure of $5.3 billion. Revenue declined year over year by 7.6% to roughly meet consensus of $6.33 billion. Total deliveries rose 16% year over year to 97,186 and by 1.9% sequentially. Model 3 should lead growth for the next several quarters until the Model Y crossover is at decent production volumes. The sedan's deliveries grew sequentially by 2.7% but rose by about 42% year over year, while Model S and X combined de liveries fell 36.9% year over year. The company is "highly confident" its 2019 total vehicle deliveries will exceed 360,000 and we agree but the top end of prior delivery guidance of 400,000 was not mentioned. The stock rose 20% after hours on Oct. 23 due to the EPS beat and Tesla saying the Model Y will now start production next summer instead of in late 2020. Although the S and X are higher priced than the Model 3 and Model Y, we agree with CEO Elon Musk that the 3 and the Y are the future of Tesla as these vehicles will bring the volume it needs to get more scale. For the entire note, click here. David Whiston, CFA, CPA, CFE Despite geopolitical uncertainty (trade war and Hong Kong protests), mass gaming at narrow-moat  Las Vegas Sands LVS and in the broader Macau market remains resilient, supported by infrastructure development and a growing middle income class in China. As a result, we don't plan to materially change our $77 fair value estimate, which incorporates average annual sales and EBITDA growth of 6% and 5%, respectively, from 2019-23, leaving shares undervalued. Sales at Sands Macau (60% of total EBITDA) dropped 1.9% in the quarter, beating the industry gaming revenue decline of 4.1%. The company benefited from its high mix of mass play (90% of gambling profits), which has been more resilient than high-end VIP betting. Sands' Macau mass market table win grew 9.3% in the quarter, near the 11% industry increase, while the company's VIP win per table fell 36.1% versus the market's VIP gaming sales drop of 21.3%. Although Sands' mass play tracked below the industry in the quarter, we attribute the difference to the $2.2 billion renovation at its Sands Cotai property (expected to create disruption through next year). We see this renovation supporting long-term sales share gains and buoying its already robust Macau position, where it has 50% and 80% of Cotai room and market convention space share, respectively. For the entire note, click here. Dan Wasiolek Narrow-moat  Baxter International BAX reported third-quarter operating results that roughly met expectations on the reported metrics. However, the company did not report significant figures, such as earnings per share, as the firm launched an internal investigation into its reporting of foreign currency-related items. While we suspect the ultimate result of this inquiry will be manageable given the limited magnitude of transactions being investigated, the stock has fallen over 10% in early trading. We already viewed Baxter's shares as overvalued, and we do not anticipate changing our fair value estimate based on this announcement. In the quarter, Baxter's sales grew 5% operationally to $2.9 billion, which was in line with management's previous expectation, an d 3% on a reported basis. By segment, renal benefited from ongoing growth in patients served (7% in the quarter), which was offset somewhat by a discontinued hemodialysis product set and temporary supply constraints in its Revaclear dialyzer. Acute therapies performed well in the quarter, helped by the launch of a next generation PrisMax system for the support of kidney failure patients in acute care settings. Momentum continued in medication delivery and clinical nutrition, which have seen some improvement after hurricane-related issues in 2017 caused supply shortages and customer switching. Advanced surgery also turned in strong results helped by a competitive recall. For the entire note, click here. Julie Utterback, CFA Narrow-moat  RELX RELX offered up a reassuringly predictable trading update, with the performance for the first nine months of the year almost bang in line with our expectations. Organic revenue growth came in at 4%, a level the company has been hitting since 2016 as the drag of legacy print businesses declined and the faster-growing elements of the business, including decision-making tools like LexisNexis, began to move the needle. Management also reiterated its full-year guidance. We maintain our GBX 1,510 fair value estimate and believe the shares are moderately overvalued at current levels. Divisionally, there was little in the way of surprises, Risk and business analytics continued to lead the charge from a growth perspective, increasing 7% year over year. Sc ientific, technical, and medical grew 1% over the period, slightly below the 2% level we have witnessed over the last few years; however, with little in the way of worrying commentary we are mindful that this may just be a temporary blip. The legal and regulatory and exhibitions businesses grew at 2% and 6%, respectively, exactly in line with our expectations and growth levels displayed over the last two to three years. Longer term, we believe RELX will continue to perform strongly as it positions itself to continually transition from print products to database products to higher-value decision-making tools such as ClinicalKey. For the entire note, click here. Michael Field, CFA After  ServiceNow NOW announced in line revenue and modestly lowered full-year guidance due to foreign currency headwinds, the company released full results for the third quarter. The only real news was big upside to EPS. It surely has been an eventful couple of days for the company, as outgoing CEO John Donahoe and incoming CEO Bill McDermott were both featured on the earnings call to discuss the announcement from Oct. 22. We come away from the call and our separate conversation with the company believing that investors should expect more of the same in terms of product innovation and sales execution. Results are a little bit of an afterthought, but we think they support our thesis centering on the company's land and expand strategy. ServiceNow continues to leverage its str ength in workflow automation to penetrate existing customers more deeply in IT and more broadly with HR and customer service specific products. We maintain our wide moat, positive trend, and fair value estimate of $301.  Shares have pulled back 27% since their recent peak and while we are somewhat cautious on more aggressive growth companies in the current volatile environment, we think there is upside to a high-quality growth stock at these levels. Subscription revenue grew 33% year over year to $835 million, in line with the Street and slightly shy of our model. Non-GAAP EPS was $0.99, 9 cents better than our above-consensus estimate. For the entire note, click here. Dan Romanoff, CPA We are not changing our  Ford F fair value estimate after the company reported mixed third-quarter results. Adjusted diluted EPS of $0.34 beat consensus of $0.26 while a 2% year-over-year automotive revenue decline from foreign exchange met consensus. Free cash flow excluding the finance arm and pension contributions was $207 million, up from $115 million in the prior year's quarter while automotive EBIT declined 5.2% to $1.3 billion. North America automotive earnings were the only profitable region for the auto business, but its earnings rose just 2.7% to $2 billion as a $700 million pricing tailwind was offset by $700 million in higher warranty and materials costs. The segment also left money on the table due to launch problems with the new generation Explorer and Lincoln Aviator in the newly renovated Chicago plant causing lost wholesales of 25,000 combined units. China narrowed its loss to $281 million, from a $378 million loss in 2018's third quarter. Ford Credit's metrics remain healthy. We are glad to hear management say automotive fixed costs will decline in 2019 and year to date free cash flow excluding Ford credit is up 80% to $2.3 billion however, other problems worsening since Ford last reported results led to a 2019 guidance cut. Adjusted diluted EPS is now expected at $1.20-$1.32 (we model $1.25), down from $1.20-$1.35. For the entire note, click here. David Whiston, CFA, CPA, CFE  Royal Bank of Scotland RBS reported a poor third quarter, with a loss of GBP 209 million versus a profit of GBP 580 million in the same period last year. Drivers of these results were GBP 900 million in provision charges for payment protection insurance claims and a poor performance in NatWest markets. The remaining business segments showed more resilience, although results in the quarter left much to be desired as well. As we digest this quarter and RBS' performance year to date, it becomes apparent that our near-term outlook for the group is out of reach. Net interest margins in the retail segment are trending lower, reflecting a lower yield curve; new lower-margin loans are replacing higher-margin back-book loans; continued uncertainty around Brexit is slowing commercial asse t growth; and a flattening yield curves and reduced liquidity in global fixed-income markets is affecting rates income generation. We plan to update our model given this more subdued outlook and expect a reduction in our fair value estimate of more than 10%. Our no-moat and stable trend ratings are unchanged. RBS booked GBP 900 million in PPI provisions in the third quarter, corresponding to the top of its previously announced range of additional charges, after PPI claims spiked towards the end of the August deadline. This brings the total RBS has put aside for this issue to GBP 6.2 billion, of which GBP 5 billion has already been utilised. For the entire note, click here. Niklas Kammer  Lam Research LRCX reported fiscal first-quarter results consistent with the firm's guidance. Positively, management increased their wafer fab equipment forecast from low $40 billion to mid-$40 billion. We note this is consistent with our assumptions for WFE, and we expect Lam to return to top-line growth in calendar 2020. Given TSMC's recent capital expenditure hike and Micron's tempered outlook for its own capital expenditure plans, our overall WFE expectations for 2019 and 2020 are relatively unchanged. We are raising our fair value estimate to $220 per share from $200, thanks to Lam's positive outlook for the rest of 2019 and 2020. Shares rose 6% during after-hours trading, but remain overvalued in our view and we would recommend a wider margin of safety before investin g in narrow-moat Lam. First-quarter revenue was down 7% year-over-year and 8% sequentially to $2.17 billion. Specifically, memory sales fell 23% year-over-year, as major customers such as Samsung and Micron have been decelerating output and postponing capacity expansion plans to navigate the tepid demand environment. CEO Tim Archer expects NAND inventories to decline to normalized levels in the first half of 2020, leading to a recovery in relevant investments. However, Archer expects DRAM inventories to remain elevated until the second half of 2020. Given that Lam's fiscal year ends in June, we assume revenue is only modestly up in fiscal 2020, followed by a healthy double-digit growth year in fiscal 2021. For the entire note, click here. Abhinav Davuluri, CFA We see three takeaways from narrow-moat  eBay's EBAY third-quarter update, its first since the departure of CEO Devin Wenig. First, competitive and regulatory (sales tax collection among small sellers) headwinds will likely pressure gross merchandise volume growth, neutralize the efficiency plan, and keep revenue and operating profit growth confined to the low- and mid-single-digit range near term. EBay's updated 2019 outlook for revenue of $10.75 billion-$10.80 billion (2%-3% growth) and adjusted EPS of $2.75-$2.78 strikes us as realistic, as does its initial 2020 outlook for low-single-digit revenue and EPS growth. We expect modest acceleration in subsequent years due to advertising/payments, but it's still difficult to identify a tangible path to matching the l ow-double-digit growth we expect from the global online commerce industry. Second, there will be few shifts in strategic priorities under interim CEO Scott Schenkel, with an emphasis on enhancing eBay's buyer and seller experience (prioritizing buyer retention) and developing nascent payment intermediation and advertising businesses. We like that the company is moving forward with its operational efficiency plan--focusing on marketing, research and development, corporate, and procurement optimization--which is expected to drive 2 points of additional margin expansion in the next two years, implying 30% margins by 2021. For the entire note, click here. R.J. Hottovy, CFA  Xilinx XLNX reported fiscal second-quarter earnings in line with revenue and profitability expectations but provided disappointing guidance akin to Texas Instruments the day before. The chief culprit is the wired and wireless group, as the removal of revenue expectations from Huawei is exacerbated by the expected transition from the firm's FPGAs to ASICs across all customers for some 5G baseband applications. Other core markets will also be impacted by weaker macroeconomic-related headwinds. We will be interested to see if Intel's Altera FPGA business is also impacted by these issues during its earnings report on Oct. 24. Shares were down modestly during after-hours trading and are near our unchanged fair value estimate of $90 per share. Shares have pulled back about 30% in th e past six months but are now only fairly valued and we recommend prospective investors seek a wider margin of safety before investing in narrow-moat Xilinx. Fiscal second-quarter revenue grew 12% year over year to $833 million, slightly ahead of our expectations. Data center group sales increased 24% year over year thanks to stronger demand from a key storage customer and broad-based growth from hyperscale customers. Xilinx enjoyed significant year-over-year strength in aerospace & defense partially offset by flat industrial sales. Meanwhile, automotive recovered to grow double-digits year over year. For the entire note, click here. Abhinav Davuluri, CFA No-moat  Hewlett Packard Enterprise's HPE analyst day focused on substantiating its claim to be the edge-to-cloud platform-as-a-service vendor. To stay ahead of customers migrating IT costs from capital expenditures toward subscriptions, HPE's entire portfolio will be offered as-a-service by 2022. In our view, HPE is wisely focusing on growing its offerings to cater to the explosion of data occurring by workloads moving closer to users, alongside the proliferation of Intenet of Things devices and 5G networks. HPE is placing itself as the simplified management solution to harness all the data from wired and wireless on-premises networks, and private and public clouds. While HPE should benefit from more dispersed workload traffic causing a higher demand for its serv ices, we remain hesitant about the potential upside of this name, and we are maintaining our $15 fair value estimate. We view shares as fairly valued, and advise investors to wait for a wider margin of safety. We expect strong spending in areas like wireless connectivity and edge computing to help HPE mitigate headwinds in its traditional server and storage sales. The as-a-service model should create headwinds for revenue and free cash flow in the coming years, but we believe this model shift is better for HPE's long-term business viability in the networking ecosystem, and the shift will be gradual. For the entire note, click here. Mark Cash More capital to deploy in the short-term and new banking revenue in the longer term can help differentiate narrow-moat  Ameriprise Financial AMP. The company reported net income of $543 million, or $4.04 per diluted share, on $3.3 billion of net revenue in the third quarter of 2019. Net income increased 8% from the previous year on a GAAP basis and decreased 1% on an operating basis that primarily excludes the effect of model assumption changes for the company's insurance and annuity businesses. Net revenue increased 1% from the previous year and 2% sequentially. Growth in client assets and related investment management fees was partly offset by lower net investment income from likely lower yields on fixed income, as interest rates have fallen in the United States. W e don't anticipate making a significant change to our $162 fair value estimate for Ameriprise. Ameriprise closed the sale of its auto and home insurance business to American Family Insurance in October, which freed up capital. At the end of the third quarter, Ameriprise had $1.8 billion of excess capital. After the auto and home business sale, excess capital should now be closer to $2.6 billion. Repurchases near current market prices aren't materially accretive, but the extra capital gives management flexibility to be opportunistic. Bank subsidiary-related net interest income has been a major driver of earnings at many wealth management firms, and Ameriprise is in the earlier stages of this journey. For the entire note, click here. Michael Wong, CFA, CPA We're maintaining our $119 per share fair value estimate for  BioMarin Pharmaceutical BMRN after strong third-quarter results that put the firm on track to meet the midpoint of prior top-line guidance and the high end of prior bottom-line guidance for the year. While shares reacted positively to the earnings report, we continue to see shares as significantly undervalued, as BioMarin's approved drugs continue to grow and as the firm approaches potential approval of hemophilia gene therapy valrox and achondroplasia drug vosoritide around the end of 2020. In addition, new PKU drug Palynziq continues to grow as expected, and future uptake as well as potential long-term uptake of PKU gene therapy BMN 307 (just entering development) help offset the hit from Kuvan's pate nt loss in late 2020 in the United States. The firm's rare-disease portfolio and our outlook for expanding profitability from these franchises support our narrow moat rating. Based on vosoritide data expected by the end of the year, we see a potential late 2020 approval, and we expect that that the approved indication (for children over the age of 5) will be supported by five years of data in the phase 2 study. We also expect the drug to eventually receive approval in children from six months to five years (phase 2 currently enrolling), and infants (BioMarin is starting a study). For the entire note, click here. Karen Andersen, CFA  Raymond James Financial RJF reported multiple records in its fiscal fourth quarter ended September and healthy growth in full-year results, but near- to medium-term growth looks as if it's dependent on whether the stock market and client assets appreciate. The company reported net income to common shareholders of $1.03 billion, or $7.17 per diluted share, on a record $7.7 billion of net revenue for the year. The $466 million, or 6%, increase in net revenue was primarily driven by higher investment management, net interest income, and investment banking partly offset by lower brokerage revenue. We don't anticipate making a material change to our $91 fair value estimate for no-moat Raymond James. Focusing on fiscal fourth-quarter results, most of the revenue growth was from higher investment management fees. Client assets reached a record $838 billion, which is 6% higher than the previous year and nearly 16% higher than the December 2018 quarter, which included a rout in the U.S. equity market. Net revenue excluding investment management has been about flat since the March-ending quarter of 2019, rising to $1.55 billion from $1.52 billion, illustrating that there's been little growth in trading, investment banking, or net interest income lately. For the entire note, click here. Michael Wong, CFA, CPA  Varian Medical Systems' VAR fourth-quarter results were strong, and the company's 2020 guidance exceeds our expectations. We plan to raise our fair value estimate moderately as we roll our model and update our forecasts. We are maintaining our wide moat rating. Orders in North America rebounded strongly from a fairly weak third quarter, up 10% year over year. The company's 12-month rolling order growth was 8%, materially above that of its closest competitor, despite some concerns in the market about future reimbursement. With a shift to value-based reimbursement, there is broad anticipation, which we partly share, of a gradually stabilizing, if not modestly declining, base of linear accelerators in North America. The Centers for Medicare & Medicaid Services reimbursement ruling fo r 2020 is due shortly, but even if we see a rather forceful push toward the alternative payment model, Varian's product portfolio is well suited to succeed in the new environment. Thus, we think the company's 2020 guidance of 9%-12% revenue growth, which implies continuing healthy uptake in North America, is doable. Supporting strong performance worldwide are the company's latest product introductions. Halcyon continues to enjoy robust adoption with 114 orders in the quarter, 65% of which are in emerging markets. The most recently released Ethos therapy platform saw 17 orders, and the system isn't available for sale yet in the United States. For the entire note, click here. Alex Morozov, CFA Narrow-moat  SEI Investments SEIC reported third-quarter results with revenue generally in line with estimates. Revenue and net income rose 2% and 3%, respectively, as higher asset values drove increases in asset-based revenue. Revenue growth in SEI's investment managers segment was able to more than offset revenue declines in SEI's private banks and institutional investor segments. Overall, there was nothing in SEI's third-quarter release that materially alters our long-term view of the firm. We are maintaining our fair value estimate of $56 per share. In the private banks segment, SEI's largest segment by revenue, revenue decreased 1% due to previously announced client losses. Excluding nonrecurring items, SEI reported net new sales events of $11.5 milli on in this segment. On the negative side, the Department of Interior's deconversion and Wells Fargo's decision to postpone implementation of SEI's upgraded platform will weigh on revenue. On the positive side, private banks' revenue should benefit from the previously announced client win of CIBC's U.S. business.In the investment advisors segment, SEI's largest segment by profit contribution, revenue was flat though expense control led to operating profit growth. Net asset flows during the quarter were negligible, an improvement from the modest outflows seen in previous quarters. The Investment Managers segment continues to be one of SEI's strongest performers. For the entire note, click here. Rajiv Bhatia Narrow-moat  F5 Networks' FFIV 5% year-over-year revenue growth topped consensus estimates as the firm shifts from being a legacy appliance seller, and toward a software and services vendor. Software sales, which now make up 31% of all product sales, grew 91% year over year, and more than offset the 15% decline in hardware-based sales. F5 announced the signing of a multiyear strategic collaboration agreement with Amazon AWS. This collaboration will enable customers to use F5's full portfolio of software-as-a-service solutions for cloud-native workloads, and establishes a congruent application management platform between on-premises, private, and public cloud workloads for existing customers. In our view, this agreement lends credence to F5's offerings in public cl oud, especially as AWS can be viewed as the largest competitor for cloud-native application workloads. We believe the ratcheted-up efforts in software and public cloud are quelling fears about F5's relevance in the hybrid-cloud stack, and we are maintaining our fair value estimate of $181 per share. Although shares increased 9% after reporting, we believe investors can still capture upside on this 4-star name. Compared with the prior year, product sales and services increased by 3% and 6%, respectively. Gross margins expanded by 120 basis points, led by the strong growth in software sales. For the entire note, click here. Mark Cash Despite sluggish demand across  Fortune Brands' FBHS new construction and repair and remodel markets, the narrow-moat home products manufacturer grew sales almost 6% year over year to $1.46 billion. The firm also managed to grow its adjusted operating margin 7%, and adjusted operating margin expanded 10 basis points to 13.9%. However, adjusted EPS only increased $0.02 year over year (to $0.95) due to higher interest expense and lower other income compared with the year-ago quarter. Fortune Brands' plumbing segment had a standout performance; plumbing sales grew over 11% with adjusted operating margin expanding 150 basis points to 21.8%. The doors and security segment, which reported an 11% increase in sales, also contributed to Fortune Brands' top line; however, t he segment's growth was entirely driven by the contribution of its Fiberon business, which was acquired in September 2018. Excluding acquisitions and foreign currency translation, Fortune Brands reported 3% organic sales growth. While we thought Fortune Brands' third-quarter performance was solid given the tempered backdrop, the firm's reported revenue and adjusted EPS missed the consensus estimate by 2% and 3%, respectively, likely due to challenged organic growth and profitability from Fortune Brands' cabinets and doors and security segments. The Fiberon acquisition masked flat door sales and lower security sales during the quarter. For the entire note, click here. Brian Bernard, CFA, CPA  PTC PTC ended its fiscal year on a high note, posting revenue and operating margin near the top of its guidance range, and bookings above the top end of range. In addition to solid results, PTC announced the pending acquisition of Onshape, a SaaS-based CAD software provider. The rebound in bookings, especially in CAD, is likely to assuage concerns after last quarter's weak bookings number sent shares tumbling. We maintain our fair value estimate of $79 per share for narrow-moat PTC. While we see reasonable upside to our fair value estimate, we note the recent volatility in results and recommend a greater margin of safety before investing. We believe the acquisition of Onshape demonstrates foresight in preparing for a CAD industry shift toward SaaS. PTC cited an independent McKin sey study forecasting a 35% CAGR for SaaS CAD over the next five years, when it is expected to account for 20% of total CAD industry revenue. We note that other competitors such as Autodesk, with its Fusion solution, are already serving the CAD market with a SaaS product, and this acquisition should help keep PTC on equal footing for secular industry trends. Revenue grew 9% year over year in constant currency, even with a 1300 basis point increase in subscription mix, which demonstrates the success the firm is having in converting to a wholly subscription-based model. To that end, 97% of software revenue is now recurring. For the entire note, click here. Dan Romanoff, CPA  Scor SCRYY reported results for the first nine months of the year, with a solid result of EUR 401 million in net income. We maintain our EUR 40.0 fair value estimate and no-moat rating.The business continues to expand into non-life in particular with over 10% growth in written premium at constant exchange rates in that division. This has largely been driven by managements newish drive in the United States where we think a better current outlook for the rate environment is making it an attractive geography. The combined ratio may look elevated compared with the prior year, but we think this is still a pretty good result. The year-to-date cat impact is 60 basis points above budget, but the overall result of 95.7% is still very good and has been buoyed by a EUR 60 million reserve rel ease. The life division, Scor's traditional strong point, appears to be a bit more mixed. Written premiums are down 250 basis points at constant rates. However, this is largely the result of some business being renewed as fee income, rather than premium, and adjusting for this, the division reported 380 basis points of top-line growth. This growth continues to be driven by expansion into Asia but while doing this, management are maintaining discipline and have delivered a better-than-prior-period 720 basis points of technical margin.Other financial metrics look good across the board. For the entire note, click here. Henry Heathfield, CFA No-moat  Husky Energy HUSKF reported its second disappointing quarter in a row, even after we lowered our forecasts. The company's third-quarter results missed both ours and consensus expectations. The company recorded adjusted EBITDA of CAD 892 million compared with our estimates of CAD 1,068 million. The company's adjusted cash flow from operations of CAD 818 million also missed all expectations. The results were driven by weak results from the company's downstream and upgrading segments and lower upstream production. Combined, the firm's four downstream operating segments generated adjusted EBITDA of CAD 456 million, significantly less than all expectations, driven by lower refining margins resulting from tighter differentials and unfavorable FIFO inven tory adjustments in the U.S. refining business. Production increased by 10% from the first quarter to 299 thousand barrels of oil equivalent a day as result of completed turnarounds at the Sunrise and Lloyd Thermal projects. A significant of portion of Husky's production is based in Saskatchewan and isn't subject to Alberta's production curtailments. As such, Husky can continue to prioritize maintenance activities depending on the pricing environment. Even with the weak quarter, we don't expect any material changes to our $11 (CAD 14) fair value estimate or no-moat rating. Joe Gemino, CPA Narrow-moat highway broker  Echo Global Logistics' ECHO third-quarter gross revenue declined 13% year over year, below our expectations, as the spot market has all but dried up and rate competition in contract renewals has intensified more than we anticipated. The industry is emerging from the unprecedented truckload capacity crunch last year (which previously supported unusually robust pricing); thus, we've been expecting a continued pull back as conditions normalize this year. However, we believe recent incremental deterioration in freight demand (partly linked to softening industrial end markets) is pushing many brokers to take sell-rates down significantly in order to get to the top of shippers' routing guides, where most freight opportunities currently re side. Relative to the same period last year, Echo's gross revenue decline reflects 15% lower average truckload revenue per shipment on the back of these factors as well as from excess truckload market capacity and tough comps. Truckload shipment volume fell 2% due mostly to the precipitous decline in spot opportunities, though on a positive note, contracted volume rose 8% as the firm is winning new business (albeit at lower margins). Total gross margin (net revenue/gross revenue) was flat year over year at 17.3%, as declines in pricing to shippers, especially on committed business, have caught up to declines in rates Echo pays to truckers. This translated into net revenue falling about the same amount as gross revenue (13%). For the entire note, click here. Matthew Young, CFA Sponsored Links Buy a Link Now		Free Issue | Morningstar's Stock Newsletter >> Morningstar StockInvestor is celebrating over 10 successful years of high-quality stock investing. 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