We’re dead in the middle of earnings season, with multiple companies highlighted here at Stocktrades reporting.
We’ll put the most interesting reports inside of the email this week, but with over 16 reports updated on the website this week alone, you’ll want to head to the website and find commentary on the companies if you don’t see them here.
Lets jump right into it, starting off with the moves I made this week.
My portfolio moves
I made a few routine moves in my portfolio this week along with one company I added to based on pricing weakness.
First off, I added to my Blackrock (BLK) position. This was nothing more than a routine dollar cost averaging strategy. I attempt to add to all of my core positions at least once a quarter with weekly contributions, and it helps allocations stay relatively level.
If a position has increased to the point it makes up a larger allocation in my portfolio, I’ll typically hold off. However, outside of that, I simply continue to add to all my holdings with regular contributions over the course of the year.
Secondly, I added to my Boyd Group Services (TSE:BYD) position. This is partly an attempt to dollar cost average but is also a little bit of a timing situation as I believe Boyd is a bit oversold here and I’m happy to accumulate shares at what I feel are at a discount. I explained my reasoning in the previous newsletter, which you can view on the website.
Finally, I added a decent chunk to my Starbucks (SBUX) position. I had some time to go through the company’s quarter, listen to the conference call, and although the results were relatively weak, I do believe they will be transitory.
Despite guiding to flat growth in 2024, I don’t believe weakness in consumer spending will continue over the long haul. The brand has a strong reputation in North America, and once there is some pressures removed from the consumer, primarily coming from lower policy rates, I do think consumers will be willing to go back to Starbucks.
Adding to my position today is a long-term add. There will zero doubt be volatility over the course of the next year here for Starbucks. However, the come is trading at one of the lowest cash flow multiples in the last 10+ years, and I’ll continue to accumulate shares while it does.
As always, you can view my overall portfolio inside the Premium platform by going to the “Premium” menu area and selecting Dan’s portfolio. All of my transactions are available on the website as well.
Earnings
Berkshire Hathaway (BRK.B)
Berkshire Hathaway got off to a strong start in Fiscal 2024. Earnings of $5.19 per share topped expectations of $4.90, and revenue of $89.87B came in well ahead of estimates for $80.4B.The company’s insurance segment continues to post rock-solid results, with underwriting income nearly tripling year over year and investment income increasing by 37%.The strength in the insurance end of the business resulted in a 39% increase to operating income, coming in at $11.22B.
Buffett stated that investment income from the insurance end of the business is likely to stay elevated and increase in 2024, primarily due to higher policy rates resulting in higher yields on low-risk investments typically made in the segment.All eyes were on the Berkshire Hathaway annual meeting. It is arguably the most listened-to meeting out of any publicly traded company, as many investors appreciate the wisdom and commentary from Buffett, and formerly Charlie Munger.Buffett commented on Berkshire’s large cash stockpile of $182B, stating that Berkshire only swings at pitches they like, and there isn’t much to like at this time. Although investors would normally be concerned about an ever-growing cash stockpile, the prudence of Buffett and Berkshire management to hold cash instead of making sub-optimal investments at what they view as high market valuations is a good thing. There is also an added element of shareholder confidence that they will make a move when the time is right.In addition, as an insurance company, it needs to have a reasonable amount of cash on hand regardless. Buffett stated that he expects the cash stockpile to move north of $200B in coming quarters.The key highlight on the quarter was Berkshire trimming a double-digit portion of its Apple position. Prior to this sale, Apple consisted of more than 50% of Berkshire’s portfolio. Buffett stated that the sale of Apple was primarily for income tax purposes. However, I wouldn’t be surprised at all if there was some incentive to do this from a market valuation perspective to book some solid gains while Apple trades at all-time highs in terms of valuation.Another interesting note on the quarter was that Berkshire Hathaway is looking at a Canadian company for an investment. They gave zero information as to the particular sector or company they’re looking at, so there isn’t much to comment on at this point in time.
Buffett previously rescued a troubled Canadian financial company Home Capital Group in 2017, injecting $400M into the company. This proved to be a profitable investment for Berkshire, buying shares in the $9.55 range. If you’ll remember, Home Capital Group was purchased in late 2023 for upwards of $44 a share.Overall, Berkshire continues to execute on all fronts, and we’re fairly confident, even in the event of a Buffett succession, that the company will continue to provide long-term value for shareholders.
Brookfield Renewable (TSE:BEP.UN)
Brookfield Renewable reported a strong first quarter Fiscal 2024. Funds from operations (FFO) of $0.45 grew by 8% year over year. What really drove the increase in stock price post-earnings was its landmark agreement with Microsoft, which will see it deliver over 10.5 gigawatts of renewable energy capacity.
The deal with Microsoft is an effort to continue to support the growth of the company’s AI segment. With lofty goals from major corporations to reduce carbon emissions and even get to net zero, we doubt this is the last major deal Brookfield lands.
As one of the largest renewable companies in the world, we’ve stated time and time again that it is in a strong position to continue to grow assets and benefit from the popularity of renewable energy generation. This is a prime example of that.
This 10.5-gigawatt deal alone is more than the generation capacity of most all Canadian renewable players. One would argue that Brookfield is the only renewable player in Canada capable of taking this on, which should bode well for future deals.
The company’s plan is to continue to build out the production capacity for Microsoft over the course of a decade. So, it’s not something that will result in immediate, large boosts in revenue and FFO, but is more of a gradual incline.
Back to financial results, the company’s 8% FFO growth year over year is a tad below their 10% targets, but when we consider the current high policy rate environment, this is a strong result.
Brookfield noted that now that interest rates have stabilized, they’re seeing increased interest in renewable projects. We feel this interest will continue to grow at an even faster pace when rates start to decline, which should prove to be a tailwind for Brookfield.
In addition to the FFO growth, the company bought back over 4 million of its units. This works out to be around 1.4% of units outstanding.
Visa (V)
Visa reported a strong second quarter that topped expectations on all fronts. Revenue of $8.78B was ahead of expectations for $8.6B, and earnings per share of $2.51 topped estimates for $2.43.
The company is still putting up strong double-digit growth on a year-over-year basis as revenues grew by 10% and earnings per share by 12%.
Processed transactions continue to grow at an 11% clip, and total payment volume grew by 8%. One of the main points of our thesis with Visa is that international expansion ends up being one of the key drivers in maintaining double-digit growth rates for the company. On the quarter, it ended up growing cross-border volumes by 16%.
The company continues to buy back a large number of shares as well, with total buybacks of 9.7M on the quarter at an average price of $280 per share. This works out to be more than $2.7B returned to shareholders via buybacks, and the fact the company is doing so at an all-time high share price suggests it has a lot of confidence in its operations moving forward.
The company generated $4.25B in free cash flows on the quarter. When we account for around $1.06B in dividends paid and $2.7B in buybacks, the company has returned nearly 90% of its cash flows back to investors. This is the main benefit of a business that is not capital-intensive.
The company can continue to grow and scale its payments network with relatively little capital expenditures, allowing it to return a lot of value to shareholders. On $4.5B in operating cash flows, the company only had $281M in capital expenditures.
The company reiterated its Fiscal 2024 guidance in which it expects low double-digit revenue and earnings growth. With the continued rise in popularity of credit card spending and Visa’s dominant position in the market as the top payment processor in the world, all signs are pointing to a strong 2024.
Goeasy Ltd (TSE:GSY)
Goeasy posted strong numbers to start Fiscal 2024. The company’s reported revenue of $357M came in $10M ahead of estimates and earnings per share of $3.83 topped expectations by $0.02.
Despite higher interest rates, lower borrowing activity from Canadians, and a more hesitant consumer, Goeasy continues to deliver. This marks the 56th consecutive quarter the company has grown same-store sales and the 91st quarter of positive net income.
Year over year, revenue is up 28%, new customer volumes are up 17%, and operating income is up 30%. As a subprime lender, the company is clearly benefitting from a weaker consumer.
The company’s weighted average interest rate on its loans sits at 30%, down from 30.2%.
This is an important key performance indicator for the company, as it needs to continue acquiring clients at interest rates that are unlikely to be impacted by regulators, as they’ve already scaled back the maximum allowable interest rate to 35%.
Return on equity came in at 24.6%, a 0.7% increase year over year, and gross loan originations grew by 11.5%. On the loan origination end, the company is still witnessing significant growth in its automotive segment, with loan originations up by 49%.
While the loan portion of its business is growing at a strong pace, its easyhome segment, which is primarily used for those who’d like to purchase things like furniture, appliances, and electronics on financing agreements, has witnessed growth slow significantly. The company reported 2% revenue growth on the quarter. On the bright side, this is a small portion of the business, making up only around 12% of the company’s overall revenue.
The company mentioned it now expects to hit the high end of its guidance:
“With the momentum we are experiencing in the business, we now expect to finish at the high end of our loan growth forecast for the year, further accelerating our journey to be the leading consumer lender for the over 9 million Canadians with non-prime credit.”
Overall, it was a strong quarter for the company, and it continues to put up strong operating results despite a relatively rough environment in terms of consumer borrowing.
