Well, thanks to Elon Musk, confession season is off to a roaring start. Tesla's (TSLA) first quarter deliveries - released last night - missed Street consensus by a wide margin and TSLA shares are plummeting on Thursday. Anyone who has read my RM columns knows of my disdain both for Tesla's stock and with the frequent mistakes I see made by clueless commentators who lack my quarter century of experience analyzing auto stocks. Believe me, it is not always wine and roses following the auto sector, but it has honed my "BS" detector and Tesla and Musk are often full of it. Make no mistake, Tesla is in deep trouble now from a cash flow perspective, and I will have more on that name - and a possible resolution of Elon Musk's legal troubles following his court appearance today - in my RM column Friday.
Tesla's issues have not dented the overall market today and this massive 2019 rally has put stocks within 2% of October's all-time highs. If you participate in individual stock picking, though, it is time to harvest some profits by trading against the market's irrational exuberance. Tesla was an easy one to call, but here are other candidates for March quarter earnings misses and, presumably, stock price drops, as well.
CVS: Walgreens (WBA) absolutely punted its March quarter and delivered a chilling outlook, as management cut its forecast for F2019 EPS from growth of 7 to 12 percent to flat. Ouch. What does that have to do with CVS Health (CVS) ? Well, everything. Both companies compete in the same market, and the reimbursement issues flagged by Walgreens management are the canary in the coal mine for the entire U.S. retail pharmacy sector. CVS reports May 1st, and while the Street already expects a decline in earnings from the drugstore giant - consensus calls for full-year 2019 EPS of $6.80 versus 2018's reported adjusted EPS figure of $7.08 - the first quarter is a great time to fine-tune annual estimates, especially for a company that reports on calendar year fiscal period, as CVS does and Walgreens does not.
Boeing: BA shares are rallying today on market hopes that the company's software patch for the MCAS anti-stall system used in its 737 Max 8 aircraft is working. But let's not forget about the crash that led to this whole debacle, Ethiopian Airlines Flight 302. In my experience the Street underestimates product liability costs more often than not, and also often underestimates the costs (labor, etc.) involved in such an under-the-gun, time-sensitive product fix. Street consensus calls for EPS for BA of $4.25 for the March 2019 quarter, solid growth from the year-ago period's EPS of $3.64. I think the smart trade is to short Boeing (BA) ahead of the release of these numbers, which will happen on April 24th before the market opens.
Ford: F reported sales figures this morning that showed a drop of 1.6% in overall unit sales in the U.S. While Ford's (F) mix remains strong (truck sales rose 4.1% and SUV sales rose 5.0%, offsetting a 23.0% decline in passenger car sales) this should not justify the recent rally in Ford shares, now trading at $9.25. Today's release of domestic figures omits results from Ford's overseas operations, where Europe has been sluggish, South America in decline and China an unmitigated disaster. So, take Ford's recent rally - to be fair the shares are still down 30% from last June - and fade it into F's earnings release on April 24th.
I'll be back on the Tesla beat Friday. Until then, you should look at the entirety of your portfolio and make sure there are no earnings blow-ups coming from the companies that you own.
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