As earnings season continues, the bulk of the newsletter will be allocated towards speaking on quarterly reports from companies highlighted here at Stocktrades Premium.
However, we felt it would be good to speak on what happened that caused the markets to go from a relatively flat week to the worst week in quite a while, particularly in the U.S. markets.
First, let’s review a new feature coming to Premium in the next few months and an addition to our screeners.
Our model income portfolios & downloadable screener files
We’re happy to announce that when we complete our model portfolio updates in January of 2023, we’ll finally be coming out with our income model portfolios.
Whether it’s yield or dividend growth you’re looking for, our income portfolios, including both Canadian and U.S. stocks, will no doubt become an instant hit here at Stocktrades Premium. Stay tuned for more updates on these new portfolios as we finish up 2022.
We have also enabled our screener files to be downloaded directly so you can view the data. This will give members access to over 55 data points across 800+ stocks and REITs.
In order to use it, just head to our screener and choose the sheet to download in the upper right hand corner.
This was a feature that many members missed (looking at the raw data to screen yourself versus user input). So, we’re happy to bring this back.
Market volatility due to the Fed’s rate hike
With the Bank of Canada raising rates by only 0.5%, there was some speculation that there was an outside chance the Fed would follow.
As such, the markets were volatile around the meeting on Wednesday. But as they usually do, the United States is carving their own path in the fight to tame inflation, as they raised rates by 0.75%.
Initially, the markets shot up due to the news quite extensively. Most major U.S. indexes rose 1.5% or greater in less than an hour. Why? A rate hike of 0.75% was expected. Yes, there was an outside chance of a 0.5% raise, and if this were to have happened, the markets surely would have surged even more.
But, the increase was short-lived as the Fed issued a cautious statement regarding future increases.
In fact, they stated that ongoing rate increases will be appropriate and that the severity of those rate increases depends on the data.
As we’ve witnessed over the last year, the market hates uncertainty. The severity of raises depending on the data, does leave room for uncertainty.
Future aggressive raises by the Fed will ultimately require Canada to counter with similar raises of their own. If our policy rates trend too far below the United States, it will put more pressure on our dollar, which could spur future inflation as exports become more expensive.
As long-term investors, we must be patient enough to let this run its course. But we figured it would be wise to touch on it so members aren’t in the dark.
With that, let’s get to earnings
Keep in mind there were so many companies reporting this week we won’t be going over all of them. It would simply make the newsletter too long.
We’ll cover all of them in the coming weeks.
Constellation Software (CSU)
Foundational Stock Constellation Software posted the first weak quarter in quite some time. The company posted overall revenue growth of 33%, but organic growth shrank 2%, and free cash flow growth was relatively flat, increasing only $3M on a year-over-year basis to sit at $229M.
The shrinking organic growth was caused by currency fluctuations, as the company still did post positive organic growth on a constant currency basis. So, we’re not really that worried.
Overall, the company is approaching 52-week lows, and we view this as a solid opportunity to accumulate shares for the long term.
Pfizer (PFE)
The only U.S. Foundational Stock to report earnings this week, Pfizer reported strong results. Earnings of $1.78 beat estimates by $0.38, and revenue of $22.6B beat estimates by $1.5B.
The company also raised its revenue guidance. It now expects the low end of revenue to come in at $99.5B-$102B, and it increased its earnings guidance from $6.30-$6.45 per share to $6.40-$6.50 per share.
Overall, the company continues to do its thing. Most large-cap, low-beta type stocks like Pfizer were doing quite well until the rate increases started pouring in. Over the long term, however, we aren’t concerned.
Waste Connections (WCN)
While Waste Connections was added to our Growth Bull List earlier this year, there is no question that the company has the stability and historical performance to be considered a Foundational Stock.
On Wednesday, Waste Connections topped estimates on both the top and bottom lines. Earnings of $1.10 per share beat by $0.08, and revenue of $1.888B just passed estimates of $1.875B.
While the company did announce a bump in outlook, it was less than 1% which is largely immaterial. Ultimately, we don’t put much stock into it and consider guidance re-iterated.
To close, the company announced a nice 10.9% raise to the quarterly dividend. The raise effectively extends the company’s dividend growth streak to 13 years. We view WCN as a strong “buy at any time” company.
You can read our full report on Waste Connections here
Savaria (SIS)
After a challenging 2nd quarter in which Savaria missed on the top and bottom lines for the first time in years, third-quarter results were mixed as well. However, improving margins was the result of a significant gain in share price post earnings.
While adjusted earnings of $0.18 missed by $0.01, revenue of $201M beat by $5M. The company is seeing strong double-digit organic revenue growth partially offset by a mid-single-digit impact of forex headwinds.
Along with earnings, Savaria announced that its new factory in Mexico was operational as of November 1st. Finally, the company did re-iterate outlook but expects EBITDA to come in at the low range of $120-$130M. Overall, the company had a decent quarter and is trending in the right direction.
You can read our full report on Savaria here
Parkland Fuel (PKI)
Before we get into quarterly results, it’s important to remind everyone that Parkland warned that profitability would be negatively impacted by falling gasoline prices and lower refinery margins.
It is not surprising to see earnings miss in a big way, and analysts had not had a chance to revise downwards post-warning. That said, earnings of $0.31 missed by $0.56, while revenue of $9.52B and adjusted EBITDA of $328M beat estimates for $8.08B and $325M, respectively.
Of concern, debt ratios did tick higher following acquisitions, and even though it is within the company’s comfort range, it is something to watch in this environment.
For DRIP investors, note that the company is suspending the company-sponsored DRIP program. If enrolled, this can be disappointing, but worth noting it is a step that many companies have begun to take with the advent of the synthetic DRIP offered by brokers.
Overall, there weren’t too many surprises here, and it remains on track to hit EBITDA guidance in Fiscal 2022 and expects to achieve its long-term goal of $2B in adjusted EBITDA by 2025.
We have not completed our full report on Parkland, and we will be getting that to you next week.
Telus International (TIXT)
Telus International posted mixed third-quarter results. The company reported adjusted earnings per share of $0.27 when $0.22 was expected, and revenue of $615M missed expectations by $30.56M.
The main news on the quarter was the company’s acquisition of WillowTree. The acquisition of WillowTree has a total value of USD 1.225B. It has multiple Fortune 500 companies as clients, and overall it adds more than 50 brands to Telus International’s client base in things like mobile app development, web development, and design.
Not surprisingly, in a bear market, the stock took a hit on the news of the acquisition, as the market likely deemed it an overpayment. However, as mentioned, we’re confident in the company’s ability to integrate the acquisition and drive growth.
Year-over-year numbers also look strong, with revenue up 16% on a constant currency basis and adjusted earnings per share up 23%.
The company took a hit on earnings day as it re-calibrated its Fiscal 2022 outlook. It now expects revenue of $2.45B-$2.49B instead of the previous $2.55B issued last quarter. It maintained its earnings guidance and even raised its adjusted EBITDA margin guidance.
Overall, we view the company as a strong option right now, with a double-digit margin of safety at these price levels.
You can view our full report on Telus International here
Lightspeed Commerce (LSPD)
Lightspeed reported second-quarter Fiscal 2023 results that were generally in line with estimates. A loss of $0.53 per share was right on point with estimates, and revenue of $183.7M beat estimates by $770,000.
The company also posted better-than-expected adjusted EBITDA and better-than-expected margins overall due to its performance on the quarter. Year-over-year, revenue is up over 38%, and gross payment volume grew 86% over the same period. Its EBITDA loss as a percentage of revenue came in at -4.6%, which was much lower than the -6.5% expected.
With this type of quarter, you would think the company would at least stay steady on earnings. Unfortunately, some issues on the quarter caused it to drop by over 20%.
First, it warned of headwinds moving forward because of a potential recession. It stated that it will still hit its targeted guidance for Fiscal 2023 but will likely be on the low end. Another issue, and one that has plagued the company for some time, is share-based compensation.
Share-based compensation made up over 40% of the company’s net loss and, in total, 20% of the company’s revenue. In a bull market, investors tend to shrug instances like this off. However, as we are currently in a deep tech bear market, this is seen as a negative. It is currently something we are keeping an eye on at this time.
