Ecolab Inc. (ECL) | Daily Alert January 20
Founded in 1923 and headquartered in St. Paul, Minnesota, Ecolab Inc. (ECL) is a diversified company that provides water, hygiene, energy technologies and services, for the hospitality, healthcare, and industrial markets worldwide. The company operates through Global Industrial, Global Institutional, Global Energy, and other segments, and sells its products through field sales and corporate account personnel, distributors, and dealers. Its current total market capitalization of $55.2 billion makes ECL a large capitalization stock (a large-cap stock has a market capitalization value of more than $10 billion) with a long history of consistent earnings growth and dividend payments. It is considered a solid and well-diversified business with a wide economic moat and sustainable competitive advantage over its rivals the company and enjoys outstanding management and corporate culture.
Consensus estimates call for the company to earn about $5.86 per share this year, up from $5.25 per share last year, and to go to about $6.51 per share next year. ECL has paid dividends to investors since 1936, and has increased its payments for thirty three consecutive years, which makes it a “Dividend Aristocrat.” During the past five years it has increased the dividends at an average rate of 9.94%, with a quarterly payment of 47 cents currently.
Technically (from the chart’s perspective) ECL looks attractive, trading 8.7% below its 52 weeks high, while it is forming a price consolidation pattern between $210 and $181 approximately, in which $181 is acting as a technical support level. The actively managed no-load mutual funds Vanguard Dividend Growth Inv. (VDIGX) and Edgewood Growth Institutional (EGFIX) are major shareholders of ECL, holding 1.4% and 1.0% of its shares respectively. The stock is also one of the 63 holdings of the mutual fund managed by Moneypaper Advisors, the MP 63 Fund (DRIPX). Ecolab’s main competitors are Sealed Air Corp. (SEE) and Sonoco Products Co. (SON)
ECL’s five-year Beta (a measure of the volatility, or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is 0.80, so the stock is 20% less volatile than the Market.
ECL’s Dividend Reinvestment Plan charges no fees for cash investing, dividend reinvestment, safekeeping, automatic investment or termination of the plan.
With the stock being fundamental and technically attractive, this company is an appropriate holding for investors who wish to build a holding over the long term.
Vita Nelson, www.directinvesting.com, 914-925-0022, January 2, 2020
ICFI International, Inc. (ICFI) | Daily Alert January 27
Monday night, ICFI International, Inc. (ICFI) disclosed two noteworthy events: a material acquisition that bolsters its position in the large and fast growing TAM in federal IT services, and the potential of insourcing on some of its disaster relief work in Puerto Rico. Net net, we think the top line outlook for 2020 is higher than our previous estimates, but potentially more tilted toward inorganic growth.
We see the two events being somewhat EBITDA neutral, but a higher tax rate injects some headwind to adjusted EPS. We think some upside to our new estimates is quite possible given our projections reflect mostly business in hand today; and our view that in-sourcing in Puerto Rico may be less than we have modeled.
We remain convinced that the ICFI investment case overall is better now than it has been in several years.
ICF’s services portfolio is very broad but has always lacked critical mass in some markets for federal IT services. We think the ITG acquisition fills much of this white space, providing full lifecycle, cloud-based IT solutions, while leveraging strong partnerships with players such as ServiceNow and Appian. Agile development is also resonating with ITG customers, which we believe can be leveraged across the broader ICF portfolio.
ITG’s recent growth has been impressive at ~15%, outpacing the market. From here we believe cross selling helps as well, leveraging core ICF subject matter expertise into IT opportunities. ITG’s mid-teens EBITDA margin should also be accretive to the consolidated margin. Net net, we think the acquisition makes quite a bit of sense from a strategic perspective. Financially at a mid-teens EBITDA valuation, we don’t see this deal as cheap, but we also believe there is more strategic value in ITG for ICF than for much larger IT-focused federal services players.
In addition to inorganic growth, ITG will help the core ICF bid pipeline as well. While ICF has been growing its IT qualifications organically, we believe ITG significantly boosts this trajectory. Management noted that approximately 10% of core ICF’s bids outstanding would benefit from the addition of ITG qualifications into the bids.
Offsetting some of this good news, ICF also noted that it is lowering its revenue outlook from the FEMA-related disaster recovery work it is doing in Puerto Rico. Following recent elections there, the new governor is trying to increase the local government’s role in public infrastructure. While the eventual outcome here remains unclear, we have conservatively gone ahead and removed several points of revenue for this event for 2020. In our view, we believe that the high standards demanded by work for FEMA will eventually accrue to ICF even against a new local political backdrop in Puerto Rico. While this is a fluid situation and could change, this is a negative development from both a revenue and margin perspective. So far there is no impact on HUD-related ICF is working on in the Commonwealth.
With most all of ICF’s businesses doing better than they have in several years, we are encouraged by the outlook here and fine-tuning up our revenue estimates.
Joseph Vafi and Pallav Saini, Canaccord Genuity Research, www.canaccordgenuity.com, January 14, 2020
Cresco Labs Inc. (CRLBF) | Daily Alert February 10
A number of cannabis mergers have fallen through over the past year, not the least of which was the deal between Medmen Enterprises (MMNFF) and PharmaCann. That merger fell apart for reasons that are obvious (mostly falling valuations). After marijuana stocks fell, the merger didn’t make sense since the deal was paid for mostly in stock.
M&A activity in the industry has dropped off since then, mostly because no company wants to find themselves on the short end of the stick. That’s not a bad idea from an editorial perspective; you don’t win many readers by giving them NO news.
I think this all-stock deal will likely open the floodgates, mostly because it had almost completely closed. Two relatively small cannabis companies managed to close a merger, even as the market remains challenging. That means even bigger companies, with plenty of cash to burn, could close a merger as well.
Right now, all of our cannabis holdings are “buys,” mostly because they could become acquirers or targets themselves. We’re at the phase of industry development where M&A is actually going to start creating value: Taking out weaker hands that potentially have greater value, if played correctly.
Recommended Action: Buy Cresco Labs under $10.
Ian Wyatt and Ben Shepherd, Ian Wyatt’s Million Dollar Portfolio, www.wyattresearch.com, January 24, 2020
JetBlue Airways Corporation (JBLU) | Daily Alert February 11
JetBlue Airways Corporation (JBLU) shares are out-of-favor despite the airline posting an enviably long string of positive earnings surprises.
For one, the airline’s unit revenue growth has been lackluster. JetBlue’s CEO Hayes is however confident of delivering industry-leading EPS growth in 2020 from cost control efforts already underway.
If Hayes’ forecast comes true, JetBlue should earn $2.50-3.00 a share in 2020, well above analysts’ $2.38 estimate. Trading at a discount to peers, JetBlue shares appeal to contrarian investors. They trade at 8.5X-forward EPS versus prospects of 18% EPS growth in the next 12 months.
Sam Subramanian, PhD, AlphaProfit Sector Investors’ Newsletter, www.alphaprofit.com, 281-565-6963, January 2020
WW International, Inc. (WW) | Daily Alert February 12
WW International, Inc. (WW, TSINetwork Rating: Extra Risk) is on the move again after a bad start to 2019. The company rebranded itself as WW in the fall of 2018, when it expanded its weight-loss services to include “Wellness that works” programs. The move reflects the company’s goal of promoting healthy living, in general, rather than just weight loss.
However, it has failed to effectively communicate the rebranding. The stock dropped to as low as $16.71 in May 2019, but has rebounded 121% for investors since then. That’s on the strength of an effective new TV campaign, plus a continued focus on various social media channels. As well, major shareholder and media celebrity spokesperson Oprah Winfrey has been taking an active and effective promotional role.
Weight Watchers had 4.2 million active subscribers as of September 30, 2019. That’s up an impressive 7.7% from 3.9 million at the start of last year.
That subscriber growth should lead to improved sales and profits. The company now expects to make $2.04 a share in 2020—and the stock trades at a reasonable 20.6 times that forecast. We think today’s stock price marks an ideal entry point for investors looking to profit from the company’s turnaround. WW International is a Power Buy.
Patrick McKeough, Power Growth Investor, www.tsinetwork.ca, 888-292-0296, February 2020
*Monster Beverage Corporation (MNST) | Strategy: P/E/Growth Investor
Based on: Peter Lynch Monster Beverage Corporation (MNST) develops, markets, sells and distributes energy drink beverages, sodas and/or concentrates for energy drink beverages, primarily under various brand names, including Monster Energy, Monster Rehab, Monster Energy Extra Strength Nitrous Technology, Java Monster, Muscle Monster, Mega Monster Energy, Punch Monster, 5
Juice Monster, Ubermonster, BU, Mutant Super Soda, Nalu, NOS, Burn, Mother, Ultra, Play and Power Play, Gladiator, Relentless, Samurai, BPM and Full Throttle.
This methodology would consider MNST a “fast-grower”.
SALES AND P/E RATIO: PASS INVENTORY TO SALES: PASS EPS GROWTH RATE: PASS TOTAL DEBT/EQUITY RATIO: PASS
John Reese, Validea Hot List Newsletter, www.validea.com, 877-439-0506, January 2020