Hey there.
Just as a reminder before we get into some earnings reports and an acquisition, we’ve started to post these weekly newsletters on our website. So, you can head here to see all our Premium content, and can bookmark the page in case you ever miss an e-mail.
These e-mails every Sunday have evolved to the point where they are a core part of Stocktrades Premium, so we decided to permanently place them on the website incase an e-mail were to hit your junk mail folder, or you were to simply miss it.
In terms of earnings season, we kicked it off the right way here at Stocktrades Premium with our small cap construction company on the Bull List Aecon (TSE:ARE) posting exceptionally strong earnings.
The company posted earnings per share of $0.27 and revenue of $971M. These were considerable beats on expectations of $0.10 in terms of earnings and $908M in terms of revenue.
This is a company that was expected to be significantly impacted by COVID-19, and we can now tell that reduced restrictions are having a positive impact, and the company was more optimistic in its most recent quarterly report.
The company gained 11% Friday on news of the strong earnings. However, this is a company that is still trading at a discount to historical averages.
And, it also does pay a very strong dividend, yielding 3.41% with the dividend accounting for only 25.45% of free cash flow. This has made it one of the easier Bull List stocks to remain patient with.
If you are wondering whether or not Aecon is still a strong play moving forward, we believe the answer is yes. However, the swift price action upwards on earnings has caused the stock to go into overbought territory. So, that is something to keep an eye on.
You can view our updated report of Aecon here
Magna International’s Acquisition
If you’re like me (Dan) the purchase of Magna International right before this major acquisition, especially one that is expected to cause short-term earnings dilution, can be frustrating.
However, it’s important to understand that the acquisition of Veoneer has the potential to further diversify Magna, as it continues towards its goal of being the top automobile company in the world.
Veoneer specializes in advanced driver assistance technology. Think of things like autonomous driving, restraint controls, and safety systems to predict the movement of other vehicles and pedestrians, detecting undriveable road surfaces and road edges.
The company has many more products than I listed above, but it should give you somewhat of an idea what Veoneer does.
The company’s customer portfolio contains major companies like Ford, Honda, GM, BMW, Volvo and Daimler and in terms of diversity, it has 41%, 34% and 25% of its revenue come from Europe, the Americas and Asia respectively.
The acquisition further expands Magna’s footprint in a high-growth industry. Which by the way, is one of the core concepts of our overall thesis with Magna. The expansion into EV and other high-growth verticals to further drive value for shareholders.
There were a few catalysts to spark a sell-off on Friday. One would be the fact that Magna paid a pretty penny for a company which has overall struggled to drive growth. However, Magna management has stated they are very confident that Veoneer’s products will be better suited inside a company of Magna’s scale.
Secondly would be the fact that the acquisition has driven Magna’s leverage ratios to the higher end of its guidances. As a result, management stated they will be stopping its share repurchases for the remainder of the year, and maybe even into 2022.
And finally, the acquisition is expected to dilute earnings over the next few years. This acquisition is likely to take until 2023 or 2024 to prove fruitful, and as a result many investors with a short term mentality likely sold out.
Overall, we’re not concerned with the acquisition in the slightest. In the end, there is a good chance that this acquisition is an overall positive for shareholders.
The short term sell off due to the dilution in earnings, higher leverage and the stoppage of its share repurchases in our opinion provides a strong buying opportunity to take advantage of those who can’t see the long term benefits.
Earnings this week
As we move into earnings season, it will likely be the bulk of the content in these Sunday newsletters. Aecon was the lone company this week, but next week we have a large chunk of Premium featured stocks reporting earnings, including:
- Intact Financial on market close July 27th
- Loblaws on market open July 28th
- Kirkland Lake on market close July 28th
- Real Matters on market close July 28th
- TC Energy on market open July 29th
- Fortis on market open July 29th
- Equitable Bank on market open July 29th
- Restaurant Brands Intl on market open July 30th
So, expect a jam packed week of earnings. And if you’d like to join the discussion live as they come in with Mat and I, along with other Premium members, make sure to join the Discord! (video here on how to do so)
