Earnings season is on the verge of ramping up and while we aren’t in full swing yet, there were a couple of notable quarterly results that were released this past week.
And speaking on earnings, we’ve got some really exciting news about a new feature we’re going to be opening up for Premium Members! But first, let’s show some highlights.
Let’s start with a stock from our U.S. Foundational List – Lockheed Martin (LMT). This is actually a company that I (Dan) took a position in post-earnings last week. In terms of relative value on the US Foundational List, it is arguably the cheapest stock. And, I liked what I saw in terms of earnings and decided to buy. I now own 14 of the 21 total CAD/US Foundational Stocks.
Lockheed delivered exceptional results in which earnings of $7.47 per share beat by $0.27 and revenue of $17.73B beat by $70M. The beats came on the back of strong performance from its ships and helicopter units.
On the negative, Lockheed warned that its impending purchase of Aerojet Rocketdyne (AJRD) is now in jeopardy as the deal raised antitrust concerns, and the FTC has sued to block the transaction. There are effectively two options, for Lockheed to abandon the deal or fight the federal lawsuit in court. It is expected to be decided in the next 30 days on the $4.4B purchase.
Finally, the company also re-iterated full year 2022 guidance in which it expects to achieve $66B in revenue. It is also guiding towards earnings of $26.70 per share, which was slightly above analyst estimates for $26.36 per share.
On this side of the border, CN Rail (CNR) also announced strong quarterly results
Earnings of $1.71 per share beat by C$0.18 and revenue of $3.75B beat by $90M. The company saw a significant improvement in efficiency as its operating ratio improved by 3.5 points to 57.9%.
CN Rail also delivered record annual free cash flow of $3.296B which is likely why the company came through with a 19% raise to the dividend. At the same time, it announced intentions to buy back 42M shares for cancellation.
The news didn’t stop there as the company appointed Tracy Robinson as President and CEO in a move to appease TCI which has been critical of CN Rail’s performance under the leadership of Jean-Jacques Ruest. As a result, the company announced that it had resolved all issues with CIFF and TCI which have mutually agreed on the appointment of two independent Directors to the Board prior to the 2022 AGM.
All’s well that ends well and the company can now put this behind them. Looking forward to Fiscal 2022, CN Rail expects to deliver approximately 20 percent adjusted diluted EPS growth and low single-digit revenue growth. It is also looking to set another annual FCF record as it is targeting $4B in FCF and an operating ratio of 57%.
In terms of what is coming up, we have Lightspeed (LSPD), Open Text (OTEX) and Brookfield Renewables (BEPC, BEP.UN) scheduled to report earnings this coming week.
Our new feature here at Premium
As always, we’re looking to deliver added value to current members. And, one of the more requested features as of late is AMA’s (Ask Me Anything’s).
That’s right, we’re going to be launching live Q&As for Premium members to tune in to and ask us questions directly about the companies they care about.
For right now, the AMA’s will be scheduled once a quarter, strategically after earnings. This allows us to answer any questions on companies with a fresh quarter of results.
So with that being said, our first AMA will launch at the end of earnings season this quarter. There are more details to come, including how questions will be submitted, where the AMA will be broadcast, and which questions will be answered. But for now, just know that this is a feature that is coming soon.
Addition to our Watchlist
Former Bull List pick goeasy (GSY) is being added to our Watchlist. This leading alternative lender has been one of the worst-performing financials of the year. Down 20.79% year to date and more than 35% off September 2021 highs, the company is back to trading at very attractive valuations.
Goeasy is now trading at a 40% discount to historical valuations and only 9.7 times forward earnings. Considering the company is expected to grow earnings by 20%+ over the next couple of years, goeasy looks very attractive here.
The reason for the Watchlist addition and not directly to the Bull List?
As mentioned, the volatility in the markets is high, and we’re comfortable simply watching small-cap options right now. We’re not advocates of timing the market. But, it is certainly a situation right now of the trend not being your friend, and we’re willing to wait this volatility out.
This isn’t the first time GSY has underwent some pretty significant corrections. As an alternative lender, it tends to be more volatile than its peers. However, that doesn’t mean it is any less of a performer. In fact, it has been one of the best performers in recent years.
I (Mat) have been following this company for almost a decade and the company has either met or beat guidance every year. It has one of the most reliable management teams in the industry and when they set targets, there is no reason to expect they won’t be hit.
Earnings are coming up at which point the company should be releasing revised forecasts. For reference, here are the current expectations which point to strong and sustained growth through Fiscal 2023 (make sure you have images enabled to see it below).
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Also worth noting, the company is likely to announce its annual dividend raise this coming quarter. goeasy has a 7-year dividend growth streak over which time the dividend has grown at a CAGR (compound annual growth rate) of 34%. Expect this high pace of dividend growth to continue as the payout ratio currently sits in the mid-teens. One analyst recently called for the dividend to be raised by 44%, and that is certainly a possibility.
In this environment, financials are ripe for strong performance. In our opinion, the recent dip in goeasy’s share price is unjustified. We believe it is being lumped in with growth stocks and to date, there has been no news or indication that the company is poised to disappoint.
In goeasy, investors get a high growth and profitable company – one that is growing the dividend at a rapid pace and that is trading at cheap valuations.
Again, it is quite possible goeasy ends up back on our Bull List in the near future, but we wanted to get it on the Watchlist immediately as it is also firmly in oversold territory with a 14-day RSI of 25. This could be a sign that a short-term rebound is on the horizon. But, we’ll keep a close eye on this company over the coming weeks and into earnings to see if volatility settles.
Model portfolio reviews launching
Over the next 3 weeks, we’re going to be executing a review of our Model Portfolios. Typically, we cover each stage (Early, Mid, Late) in a week, starting with the Early Stage portfolios.
This is an interesting time at Premium. Our model portfolios are utilized by some members to construct their own portfolios, but many members simply use our strategic moves inside of the portfolio to do the same to their own.
For example, our early reviews in February 2021 saw us shift to more exposure to financials and REITs as rising inflation and the fear of rising interest rates had an impact on the market. This turned out to be a wise move, as financials and REITs were some of the best performing sectors in 2021.
So, even if you don’t follow the portfolios here at Premium, our updates of them provide tremendous value to Premium members. Each portfolio pack will be updated immediately as it is done, so keep a keen eye on the model portfolio page if you follow one of them.
Then, on Sunday they will be e-mailed out to members with in-depth commentary on our thoughts moving forward.
Again, with any of this, feel free to message us on the Discord or throw a question on the Q and A.
