Thursday, May 29, 2014

Walgreen's Growth Prospects

Walgreen investors are used to looking at the company from the highly visible vantage point of its drugstores. However, Fools may have to rethink this assumption because Walgreen has taken significant measures to transform its business, creating several significant growth opportunities. Let's look at three primary strategic growth drivers more closely.

Walgreen's long-term growth opportunity
Before going into detail on these long-term profit drivers, some background on how Walgreen changed its course. The first significant change occurred in 2011 when Walgreen sold its pharmacy benefit management, or PBM, business to Catalyst Health Solutions.

Monday, May 26, 2014

Rockwell Automation Equity Research

There wasn't an awful lot wrong with Rockwell Automation's  recent second-quarter results, but when a stock is priced to perfection, any hiccup will cause a negative overreaction. In truth, its earnings and commentary were slightly more bullish concerning the underlying trading conditions, and investors in companies like Emerson Electric  and General Electric  have reason to look more favorably upon future prospects. Rockwell's numbers were better than they looked.

Rockwell Automation's reports another unusual quarter
Last time around, Rockwell reported an "unusual quarter" in that it was seeing relative strength in areas where other industrial companies were weak, and vice versa. This time, its earnings report was unusual, but for a different reason: namely, because underlying conditions got better, but a combination of foreign exchange effects and tax increases meant that its full-year guidance was left unchanged.

The following table explains the subtleties of its full-year guidance change

Saturday, May 24, 2014

3M Company Earnings Analysis

It's no secret that 3M Co.   is one of the best run companies in North America, and it's also no secret that the company's stock valuation of 20 times current earnings is hardly cheap. The company is best understood as a play on global industrial growth, and in this sense it's useful to compare it to other industrial stalwarts, such as Illinois Tool Works    and Emerson Electric. With this in mind, investors need to ask themselves what 3M needs to do to make it a good value.

3M's relative valueThe graph below offers a look at its valuation compared to Emerson Electric and Illinois Tool Works using enterprise value (market cap plus debt), or EV, over free cash flow:

Thursday, May 22, 2014

How Boeing's Business is Changing

The Boeing Company  gave a mixed set of earnings recently. Its results perfectly highlighted how its internal operations are adjusting to changes in end demand. Simply put, for a variety of reasons, the defense market looks set to go through a sustained period of historically weak demand, while the commercial aerospace sector is seeing a stronger than usual cyclical recovery. Naturally, Boeing isn't alone in having to adjust, as companies like Honeywell International  share the same industry dynamics. With that said, how is Boeing's business changing? In addition, how should Fools measure the company's progress?

Commercial aerospace good, defense bad
It's no secret that defense spending is being pressured by public spending constraints, and particularly with large-scale military hardware.

Wednesday, May 21, 2014

Time to Buy Check Point Software?

IT security company Check Point Software  delivered a good set of results recently, but its guidance disappointed and the stock took a hit. The company has long been known for its high profit margins and excellent cash flow, but the security marketplace is very competitive. Is Check Point starting to feel the heat from competitors like Fortinet  and Palo Alto Networks ? Or, is its guidance too conservative?

Check Point reports a good quarter
A brief look at the results indicates that Check Point's first-quarter earnings came in slightly better than the mid-point of its guidance:

Tuesday, May 20, 2014

Time to Buy Caterpillar and Joy Global?

The relative outperformance of Caterpillar  and Joy Global  in 2014 could easily lead Fools to conclude that the mining sector is making a comeback after a couple of years in the doldrums. Is this the case, or are their stock-specific reasons why these two companies have outperformed?

Caterpillar and Joy Global outperform
Going into 2014, the financial markets were fretting about the potential for emerging market weakness. Not only had a slew of companies reported growth that was less than expected in the BRICs, but fears over the shadow banking system in China, and subsequent defaults, have been at the forefront of concerns. It's usually true to say that if emerging markets catch a cold, then mining and commodities will start sneezing. Moreover, China's torrid pace of capital investment was bound to slow at some time, taking demand for certain hard commodities down with it.

These fears get expressed in the stock prices of mining capital-machinery companies, like Caterpillar and Joy Global. If conditions turn out to be not as bad as expected, then the stocks can see some upside, thanks to value hunters and "relief-rally" buyers coming in.

Sunday, May 18, 2014

Ingersoll-Rand's Upside Potential in 2014

It's not easy to find screamingly cheap shares in the industrial sector right now, as most of the big names seem to be pricing in a cyclical recovery. With that said, Ingersoll-Rand looks decently priced should its end markets pick up. The tricky bit is that its rivals in the climate technologies space, such as Lennox International and Johnson Controls Inc. , have both given results recently that confirmed positive underlying conditions, but not to the extent that many had hoped. The good news with Ingersoll-Rand is that its guidance looks a bit conservative, so any upside surprise is likely to be well received, and here is why.


Friday, May 16, 2014

Honeywell International Equity Research

Earnings season is in full flow and the industrial heavyweights are all giving reports. General Electric Company, Danaher  and Honeywell International  have all recently released their earnings. For want of a better description, these companies are usually lumped together and called industrial conglomerates, but Foolish investors will want to know what makes one more attractive than the other. In other words, why buy a stock like Honeywell International, rather than General Electric or Danaher?

Honeywell International raises guidance, sort of
With a diversified industrial with a market cap of $73 billion, it's going to take a pretty seismic change of fortunes within any one industry in order to significantly adjust earnings guidance. This was certainly the case with Honeywell's latest results. Despite, full-year sales guidance being increased by $100 million to $3.9 billion for its transportation unit, the only change to EPS guidance was to see the bottom end raised by $0.05, resulting in a revised full-year guidance of $5.40-$5.55.

Wednesday, May 14, 2014

3 Reasons to Like Illinois Tool Works

uying engineering component manufacturer Illinois Tool Works  is never going to be the raciest of investment propositions; however, the company is quietly going about the business of improving its prospects in 2014, and it deserves a close look. The company's recent results produced three key takeaways for investors to like about the stock, and provided plenty of information that would be useful investors in peers like Danaher Corporation   and Rockwell Automation .

Illinois Tool Works' impressive first quarter
Overall operating income increased by 16% even though revenue was only up by 4%. A quick look at a breakdown of operating income reveals how Illinois Tool Works generated its earnings in the quarter.

The red bars in the chart represent the growth rate in the quarter, while the total bars (red plus blue bars) represent the total operating income.

Tuesday, May 13, 2014

Lennox International, Ingersoll-Rand and Johnson Controls on the HVAC market

Heating, ventilation, and air conditioning, or HVAC, company Lennox International is always an interesting one to follow because its results give a good perspective on a market that is very important for so many other companies. For example, companies like Ingersoll-Rand and Johnson Controls  have significant HVAC operations. The sector as a whole is also a useful barometer for the condition of the North American construction markets.

Lennox International gives mixed results
The market took a dim view of Lennox's recent results and immediately marked its stock down a few percentage points. It's a slightly harsh verdict on the earnings report since revenue came in slightly better than analyst forecasts. Moreover, the company maintained its full-year forecast of 3%-7% revenue growth at constant currency, and adjusted EPS of $4.20-$4.40; the mid-point of this range implies nearly 19% growth from 2013.

Monday, May 12, 2014

Dover Corporation Equty Research

Dover Corporation  recently released its first set of quarterly results since the spin-off of its former communication technologies segment, Knowles Corporation . The report was impressive for three key reasons, and Fools should start to think about upgrading their expectations for the company. Here's why.

Bye, bye, Knowles Corporation
The first two factors relate to the spin-off of Knowles Corporation, how it changes the investment proposition with Dover Corporation and, ultimately, the ability of Dover's management to initiate expansion opportunities.

First, the spin-off will remove the vagaries of the handset market from potential Dover Corporation investors. Usually, when thinking about an industrial conglomerate, one needs to compare a host of investing options, all with their individual specific end markets. However, they all tend to be tied to general trends in industrial spending.

Sunday, May 11, 2014

Can GE Continue to Outperform?

It's hard to make the case that General Electric  isn't necessarily the best bellwether for the industrial economy, but I'm going to do it anyway! The argument is that the company's profitability is skewed toward a few large sectors of the economy. Ultimately, a company like Emerson Electric   may prove more indicative of the industrial sector overall, with Rockwell Automation  providing a good proxy for capital spending in the manufacturing sector.

Indeed, understanding General Electric's profit drivers is the key to Fools answering another question. Specifically, just how did the company record 8% revenue growth in its industrial segment in the recent quarter?

General Electric outperforming its peers in the first quarter
The question is relevant because Emerson Electric is expecting underlying growth of only 3%-5% this year, while Rockwell Automation's forecast of 3%-6% growth is pretty similar. With this in mind, is General Electric likely to continue growing its industrial revenue at nearly double what its peers are doing?

Thursday, May 8, 2014

Danaher Corporation Equity Research

Industrial conglomerate Danaher Corporation's  recent results were better than they superficially looked. Even though its second quarter guidance was lower than the market had hoped for, there is good reason to believe that Danaher has upside potential in 2014. Moreover, the earnings report suggested good things for other companies such as dental distributor Patterson Companies   in 2014, but less so for testing and measurement company Agilent Technologies . On balance, the positives outweighed the negatives, but is the company's stock still a good value?

3 reasons why Danaher's results were good
Danaher is the sort of company that often disappears under the radar of investors due to its low dividend yield and its P/E ratio of over 20 times current earnings. Moreover, its less than double-digit forecast EPS growth rate doesn't excite many. On the other hand, it's one of the best run companies in the industrial sector, and has relatively defensive end markets.

Focusing on the recent results, there are three key reasons why investors should like the company's stock.

Sunday, May 4, 2014

What the Industrial Supply Companies are Saying About the Economy

Investors in the industrial sector have faced a significant imponderable over the winter. Severe weather conditions were always going hit quarterly earnings, but they were also going to make it harder to judge the underlying conditions in the industrial economy. With these thoughts in mind it's a good idea to look at industrial supply companies such as Fastenal , MSC Industrial Supply, and WESCO International. Not only are they all exposed to the industrial sector, but they tend to have short-cycle order patterns. In other words, they get the first view on where trends are headed.

Fastenal and MSC Industrial give earnings
At the start of this earnings season, Alcoa came down on the side of those who saw the weather as the primary cause of weakness in the construction industry over the winter. The subsequent results from MSC Industrial and Fastenal offer a pretty similar story. For example, MSC's management talked of a weather-relate "slow start" in December and January, but then its organic growth rate picked up from 2%-3% to "the mid-6% range in February." 

Fastenal's improvement in March can clearly be seen by looking at sales growth at its stores that have been open for more than five years:

IBM's Growth Strategy

It's easy to criticize Wall Street for being too myopic and focused on near-term targets, but is IBM  doing this too? IBM has laid out a specific set of metrics that it intends to hit, and it could be forcing its management to damage its long-term business development by hitting them. It's time to look more closely at what's going on at IBM, and whether its underlying business is being compromised or not.

Why IBM disappointed in its first quarter
It's no surprise that the first quarter conference call saw analysts asking question after question regarding how IBM intends to hit its targets. After all, the company's management has laid them out repeatedly, and appears to want to be judged by them.

For ease of reference, they are: