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Eric Compton

Morningstar | Tougher Near-Term Market Conditions, but Longer-Term Outlook Remains Unchanged for RBC

Wide-moat Royal Bank of Canada reported OK fiscal first-quarter 2019 results, and our long-term thesis on the firm remains unchanged. As expected, earnings growth has slowed a bit, and after normalizing for the one-time tax-related write-off in the first quarter last year, earnings per share were only up 1%, at CAD 2.15, for the quarter. This fits broadly within our thesis for slowing growth and a more difficult operating environment as loan growth slows, credit costs pick up, and the general environment in Canada and the U.S. remains difficult over the next several years. We are maintaining o...

Eric Compton

Morningstar | Tougher Near-Term Market Conditions, but Longer-Term Outlook Remains Unchanged for RBC

Wide-moat Royal Bank of Canada reported OK fiscal first-quarter 2019 results, and our long-term thesis on the firm remains unchanged. As expected, earnings growth has slowed a bit, and after normalizing for the one-time tax-related write-off in the first quarter last year, earnings per share were only up 1%, at CAD 2.15, for the quarter. This fits broadly within our thesis for slowing growth and a more difficult operating environment as loan growth slows, credit costs pick up, and the general environment in Canada and the U.S. remains difficult over the next several years. We are maintaining o...

Eric Compton

Morningstar | Tougher Near-Term Market Conditions Do Not Change Our Long-Term Outlook for RBC

Royal Bank of Canada is one of the two largest banks in Canada by assets and one of six that collectively hold roughly 90% of the nation's banking deposits. The bank derives two thirds of its revenue from Canada, with the rest spread primarily across the United States and the Caribbean. It has done an admirable job of expanding its nonbank lines of business, running efficient banking operations, and generating some of the best returns for shareholders in the industry. With over CAD 5 trillion of assets under administration and over CAD 650 billion of assets under management, strong global capi...

Eric Compton

Morningstar | Tougher Near-Term Market Conditions Do Not Change Our Long-Term Outlook for RBC

Royal Bank of Canada is one of the two largest banks in Canada by assets and one of six that collectively hold roughly 90% of the nation's banking deposits. The bank derives two thirds of its revenue from Canada, with the rest spread primarily across the United States and the Caribbean. It has done an admirable job of expanding its nonbank lines of business, running efficient banking operations, and generating some of the best returns for shareholders in the industry. With over CAD 5 trillion of assets under administration and over CAD 650 billion of assets under management, strong global capi...

David Whiston

Morningstar | AutoNation's Restructuring Hits 4Q; New CEO Brings Outside Operations Expertise

We are not changing our fair value estimate for AutoNation after the dealer reported a challenging fourth quarter. We will reassess our assumptions in March when we process the 10-K, but we continue to believe the stock offers good value, trading in the $30s. However, we also think that overhangs on the stock will linger for some time. As we wrote in our Jan. 8 note, the company started a restructuring program in the fourth quarter that seeks to cut $50 million in costs. Fourth-quarter diluted EPS from continuing operations of $1.02, which missed consensus of $1.15, includes $9 million, or $0....

Sonia Vora

Morningstar | Saputo Acquires Dairy Crest as Thirst for Deals Continues; Shares Remain Expensive

Narrow-moat Saputo announced its acquisition of Dairy Crest, a United Kingdom dairy producer, for GBP 6.20 a share, or around GBP 975 million in aggregate (approximately CAD 1.7 billion), a 12% premium to the last closing price and a 34% premium to the 90-day volume-weighted average price. The deal, which is expected to close in the second quarter of calendar 2019, should enable Saputo to expand its international presence, marking its first foray into the U.K. market. We posit that acquiring an established player with a solid asset base should allow Saputo to more quickly drive growth in this ...

Charles Fishman

Morningstar | Con Ed Reports Strong 2018 Results; Modest Exposure to PG&E Would Not Affect Our FVE

We are reaffirming our fair value estimate of $78 per share after no-moat Consolidated Edison reported solid 2018 earnings and initiated 2019 earnings guidance. Adjusted earnings per share for 2018 were $4.33 versus $4.12 last year and beat our estimate and the consensus by $0.03. Our 2019 EPS estimate of $4.30 is in the lower half of the new EPS guidance range of $4.25-$4.45. Although Con Ed closed on its Sempra acquisition of solar assets in December, it remains heavily dependent on its regulated utility businesses. In 2018, over 90% of adjusted earnings before holding company expenses were...

Richard Hilgert

Morningstar | Magna's 2018 Results Set Record, 2019 Outlook Unchanged; $57 FVE Maintained

No-moat Magna reported record full-year 2018 diluted earnings per share before special items of $6.71, $0.77 higher than the same period last year and $0.03 better than the sell-side consensus of $6.68. Record revenue of $40.8 billion represented a 12% increase over the $36.6 billion reported for 2017. The 3-star-rated shares of Magna currently trade at a 4% discount to our $57 fair value estimate. Accordingly, we view the stock as reasonably valued relative to our forecasts for revenue, cash flow, and return on invested capital. Revenue growth was healthy across all Magna operating segments,...

Richard Hilgert

Morningstar | Magna's 2018 Results Set Record, 2019 Outlook Unchanged; $57 FVE Maintained

No-moat Magna reported record full-year 2018 diluted earnings per share before special items of $6.71, $0.77 higher than the same period last year and $0.03 better than the sell-side consensus of $6.68. Record revenue of $40.8 billion represented a 12% increase over the $36.6 billion reported for 2017. The 3-star-rated shares of Magna currently trade at a 4% discount to our $57 fair value estimate. Accordingly, we view the stock as reasonably valued relative to our forecasts for revenue, cash flow, and return on invested capital. Revenue growth was healthy across all Magna operating segments,...

Kristoffer Inton

Morningstar | Barrick Confirms That It Explored Acquiring Newmont, Which Is Currently Acquiring Goldcorp

After Newmont’s 2018 earnings announcement on Feb. 21, multiple news sources, including The Globe and Mail, reported that Barrick Gold had considered acquiring Newmont. Barrick, which just recently completed the $6 billion acquisition of Randgold on Dec. 31, issued a press release on Feb. 22 confirming the news that it explored an “all-share nil premium transaction” for Newmont (which is acquiring Goldcorp). Newmont shares trade roughly in line with our fair value estimate, so if a transaction were to occur, we think Barrick would be paying fair value. Given the speculative nature of the news...

Kristoffer Inton

Morningstar | Barrick Confirms That It Explored Acquiring Newmont, Which Is Currently Acquiring Goldcorp

After Newmont’s 2018 earnings announcement on Feb. 21, multiple news sources, including The Globe and Mail, reported that Barrick Gold had considered acquiring Newmont. Barrick, which just recently completed the $6 billion acquisition of Randgold on Dec. 31, issued a press release on Feb. 22 confirming the news that it explored an “all-share nil premium transaction” for Newmont (which is acquiring Goldcorp). Newmont shares trade roughly in line with our fair value estimate, so if a transaction were to occur, we think Barrick would be paying fair value. Given the speculative nature of the news...

Kristoffer Inton

Morningstar | Barrick Confirms That It Explored Acquiring Newmont, Which Is Currently Acquiring Goldcorp

After Newmont’s 2018 earnings announcement on Feb. 21, multiple news sources, including The Globe and Mail, reported that Barrick Gold had considered acquiring Newmont. Barrick, which just recently completed the $6 billion acquisition of Randgold on Dec. 31, issued a press release on Feb. 22 confirming the news that it explored an “all-share nil premium transaction” for Newmont (which is acquiring Goldcorp). Newmont shares trade roughly in line with our fair value estimate, so if a transaction were to occur, we think Barrick would be paying fair value. Given the speculative nature of the news...

Kristoffer Inton

Morningstar | Barrick Confirms That It Explored Acquiring Newmont, Which Is Currently Acquiring Goldcorp

After Newmont’s 2018 earnings announcement on Feb. 21, multiple news sources, including The Globe and Mail, reported that Barrick Gold had considered acquiring Newmont. Barrick, which just recently completed the $6 billion acquisition of Randgold on Dec. 31, issued a press release on Feb. 22 confirming the news that it explored an “all-share nil premium transaction” for Newmont (which is acquiring Goldcorp). Newmont shares trade roughly in line with our fair value estimate, so if a transaction were to occur, we think Barrick would be paying fair value. Given the speculative nature of the news...

Kristoffer Inton

Morningstar | Barrick Confirms That It Explored Acquiring Newmont, Which Is Currently Acquiring Goldcorp

After Newmont’s 2018 earnings announcement on Feb. 21, multiple news sources, including The Globe and Mail, reported that Barrick Gold had considered acquiring Newmont. Barrick, which just recently completed the $6 billion acquisition of Randgold on Dec. 31, issued a press release on Feb. 22 confirming the news that it explored an “all-share nil premium transaction” for Newmont (which is acquiring Goldcorp). Newmont shares trade roughly in line with our fair value estimate, so if a transaction were to occur, we think Barrick would be paying fair value. Given the speculative nature of the news...

Joe Gemino

Morningstar | Keyera Shatters Market Expectations

No-moat Keyera’s fourth-quarter results shattered expectations. The company reported adjusted EBITDA of CAD 248 million, or CAD 1.18 per share, up from CAD 197 million, or CAD 0.97 per share, in the year-ago quarter. Distributable cash flow was also above expectations at CAD 200 million, or CAD 0.96 per share. Distributable cash flow was also up from CAD 174 million, or CAD 0.90 per share, during the fourth quarter of 2017. Better-than-expected performance was driven by record performance from the marketing segment, liquids infrastructure growth projects, and increased demand for condensate se...

Charles Fishman

Morningstar | Evergy Walks Back EPS Growth Target; No Change to Our FVE

We are reaffirming our $58 per share fair value estimate after Evergy reported 2018 pro forma results, initiated 2019 guidance, and adjusted its annual EPS growth through 2023 to 5%-7% off the midpoint of the new 2019 guidance of $2.90 per share. The EPS growth target had been 6%-8% off Westar Energy’s 2016 actual reported earnings of $2.43 per share. The walk-back was not received well by the market, and the shares were off over 7% in early trading. The new guidance results in a 2021 EPS of $3.20-$3.32 versus the previous range of $3.25-$3.57 that had been reaffirmed as recently as November....

Dave Meats

Morningstar | Restoring Antero FVE to $12 After Incorporating Simplification Transaction

We are restoring our $12 fair value estimate for Antero Resources after incorporating the forthcoming simplification transaction relating to the Antero Midstream subsidiary, which will be treated as an equity investment going forward, instead of being consolidated on the parent's financial statements. This update also includes the company's fourth-quarter financial and operating results. Production rocketed to 3,213 million cubic feet of equivalent per day in the fourth quarter, which was 18% higher sequentially and 37% higher year over year. Even if the prior period had not been affected by ...

Michael Waterhouse

Morningstar | Momenta Reports Solid Novel Drug Progress During Fiscal 2018 Update

Momenta reported solid progress on its novel drug programs during its fiscal 2018 fourth-quarter update. We may adjust our fair value estimate as we incorporate new assumptions, and we are leaving our no-moat rating intact. While we still think Momenta's focus on novel drug candidates holds promise, we continue to view the area as largely unproven territory for the company. Separately, the company reported a year-end cash balance of roughly $449 million, thanks in part to its $230 million equity financing in December. Although management does not expect any further capital dilution before 2020...

Charles Fishman

Morningstar | Pinnacle West Reports Strong 2018 Results and Moves Aggressively Into Battery Storage

We are reaffirming our $85 per share fair value estimate after Pinnacle West reported strong 2018 earnings, reaffirmed 2019 earnings guidance, and increased its weather-normalized sales growth forecast. EPS in 2018 was $4.54 versus $4.35 last year. Earnings beat our estimate and consensus by $0.06 per share. Rate design, modified in the 2017 rate case, pushed more revenue to a fixed charge, which added $0.17 per share in the fourth quarter versus last year and was more than we had expected. Management reaffirmed EPS guidance for 2019 within $4.75-$4.95 per share. Our estimate remains at the ...

Dave Meats

Morningstar | Halcon Announces Major Leadership Shakeup

On Feb. 21, Halcon Resources announced a slew of leadership changes. Chairman, CEO, and president Floyd Wilson  and executive vice president, CFO, and treasurer  Mark Mize are  stepping down to pursue other opportunities, along with Steve Herod, executive vice president, corporate development. James Christmas, who currently serves as lead independent director, will become nonexecutive chairman of the board. A search process for a new CEO will be initiated shortly. In the meantime, the company will be managed by a committee led by David Elkouri, executive vice president and chief legal officer...

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