This is an update to our latest model portfolio report, 35 Stocks for October 2017.
New Actions Required Tomorrow
Sell Side Upgrades and Downgrades Today
In the short sale model, PTC received a price target increase from a sell side firm.
Also of Note
Six long model portfolio companies reported quarterly results today. At this point, it seems like IDCC, EME, EVR, TECK are likely to be rebalanced out of the theoretical long model portfolios, and SIVB and VSH have a solid chance of staying in the long model. SIVB reported a very strong 3Q17 quarter.
For the month to date, the Core Long Model portfolio is up +3.18% on a simple cumulative return basis. This is ahead of the S&P 500 up +1.62% and the S&P 1500 Composite up +1.61%. The Core Long/Short Model is up +1.85%.
(Today, the Core Long Model, S&P 500, S&P 1500 Composite, and Core Long/Short Model were up +0.62%, +0.13%, +0.16%, and +0.41%, respectively).
Ascendere Associates Model Portfolio Stock Selections Tend to Presage Major Sell Side Analyst Actions
Stocks selected in the long model seem to be often followed by subsequent upgrades, and stocks in the short sale model seem to be followed by subsequent downgrades. This makes intuitive sense given that our model portfolio is composed of stocks demonstrating fundamental momentum and consensus estimate momentum.
Of Note in the Long Models Today
InterDigital, Inc. (IDCC)
The company reported better than expected revenue and EPS for 3Q17. Revenue of $97.3m was ahead of consensus of $94.15m, and EPS of $1.00 was above consensus of $0.66. Various ratios for capital efficiency, such as ROA, ROC, ROE, and margins declined sequentially, so we would expect this position to be rotated out of the long model at the next rebalancing period.
Vishay Intertechnology Inc. (VSH)
Prior to the open, the company reported better than expected 3Q17 results. Revenue of $677.88m was ahead of consensus of $660.32m, EBITDA of $135.51m was ahead of consensus of $127.89m, and EPS of $0.42 was ahead of the consensus estimate of $0.37. ROA, ROC, ROE, and margins improved sequentially. Guidance for 4Q calls for revenue of $645-685m versus consensus of $648.3m, and gross margins of 26-28% versus the 27.9% seen in 3Q17 and 26.2% for LTM.
EMCOR Group Inc. (EME)
Prior to the open, the company reported worse than expected revenue and better than expected EBITDA and EPS. 3Q17 revenue of $1,886.69m was below consensus of $1,932.13m, EBITDA of $128.40m was above consensus of $103.84m, and EPS of $1.09 was ahead of consensus of $0.82. ROA, ROC, ROE, and margins improved sequentially. The company is maintaining 2017 revenue guidance of $7.6b, which is below consensus of $7.65b. It raised 2017 EPS guidance to $3.70-3.80 from $3.40-3.60.
Evercore Inc. (EVR)
Prior to the open, the company reported significantly better than expected revenue and EPS but with a big EBITDA miss. Revenue of $402.86m was ahead of consensus of $373.28m, though EBITDA of $93.49m missed consensus of $100.24m, and EPS of $1.22 was ahead of consensus of $1.09. According to the company, the “third quarter decline in Net Income Attributable to Evercore Inc. driven by higher compensation costs associated with talent additions.” According to Capital IQ, ROE was 41.2% in 3Q17, versus 41.0% in 2Q17 and 37.3% in 1Q17. The gross margin declined to 93.6% from 93.7% in the prior quarter, while earnings from continuing operations margin improved to 14.9% from 14.3%. We would not be surprised to see EVR rebalanced out of the long model by a company demonstrating higher fundamental momentum.
Teck Resources Limited (TECK)
Prior to the open, the company reported significantly less than expected revenue, EBITDA, and EPS for 3Q17. Revenue of C$3,129m was C$96.3m less than consensus, EBITDA of C$1,420m missed by C$52.2m, and EPS of C$1.08 missed by C$0.11. ROA, ROC, ROE and margins improved sequentially. We are not aware of any guidance provided based on our brief review.
SVB Financial Group (SIVB)
After the market close, the company reported 3Q17 revenue before loan losses of $532.8m, above consensus of $490.56m and the $471.7m reported in 2Q17. 3Q17 EPS of $2.79 was well ahead of consensus of $2.29. LTM ROE and LTM net interest income margin both improved. This looks like a very strong quarter for this regional bank.
Of Note in the Short Sale Models Today
Under Armour (UAA)
Deutsche Bank cut its price target to $14 from $16 and reiterated its Sell rating, citing a continued difficult sales environment and markdown concerns.
PTC Inc. (PTC)
KeyBanc increased its price target to $74 from $64 and reiterated its Overweight rating, citing a bookings beat, guidance well ahead of FY18 consensus, and underappreciated growth opportunities in Internet of Things.
Spruce Point Capital had the opposite view: “PTC just offered FY18 guidance of $.127-1.37/sh which yet again disappointed investors [relative to consensus of $1.46]. Cash flow continues to remain elusive and it also disappointed expectations in 2017. Free cash estimates for 2018 underscore continued challenges faced by PTC. The guidance range of $190-$200m still shows zero growth from years prior…12 analysts say “Buy” yet none of them can model its earnings and cash flow accurately.”
National Oilwell Varco, Incorporated (NOV)
After the market close, the company reported less than expected revenue and slightly better than expected EBITDA and EPS. 3Q17 revenue of $1,835m was below consensus of $1,862.73m, EBITDA of $167.0m was ahead of consensus of $164.48m, and its loss of $0.07 per share was better than the expected loss of $0.08 per share. ROA , ROC, and ROE stayed in negative territory, though showed some improvement from the prior quarter. The LTM gross margin improved to 3.8% from 0.9% in the prior quarter, and the EBITDA margin improved to (3.4%) from (6.4%). We are not aware of any updated guidance at this time. On October 24 the NOV position was assumed closed at the end of trading for a theoretical short sale gain of +6.16%.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: As a simple quantitative model based on fundamental rankings, the portfolio models do not take into account rumors or pending M&A transactions. Theoretical return data reflect simple cumulative returns (not compound returns) and do not assume the impact of costs such as execution fees, margin fees, slippage, the availability of stocks for short selling, or any other kind of cost. There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. We do our best to provide accurate information in this report, but do not guarantee its accuracy.