Monday, October 27, 2014

Johnson Controls: a Stock to Buy?

t's easy to dismiss Johnson Controls (NYSE: JCI  ) as just another play on global growth, but there is a lot more to investing in the company than you might first think. Its mix of automotive and construction end markets looks favorably set for growth, and the company is taking action to restructure two of its three segments. With that said, is Johnson Controls a buy?




Source: Johnson Controls.

Restructuring the automotive experience and building efficiency segments


Before reading more about Johnson Controls, you might want to check out a review of the key takeaways from the company's last earnings report, as well as a rundown of the bullish and bearish cases for the stock.


READ THE FULL EQUITY RESEARCH ARTICLE LINKED

Why UPS has Underperformed FedEx This Year

The theory goes a bit like this: United Parcel Service (NYSE: UPS  ) and FedEx (NYSE: FDX  ) are both stocks whose revenue growth correlates with economic growth, the stock market, and, ultimately, each other. Unfortunately, the theory is wrong -- at least it has been in 2014. UPS has managed to decline 4.4% in 2014, while the S&P 500 is up 7.4% and FedEx has risen more than 16% in the same period. Why is this so, and what do investors need to know about UPS going forward?








4 reasons UPS has underperformedThe first three reasons are matters that also relate to FedEx, while the last reason talks about UPS' position relative to FedEx:


READ THE FULL EQUITY RESEARCH ARTICLE LINKED HERE

Sunday, October 26, 2014

The top 10 Airlines That Make Money From Non-Ticket Fees

Did you ever wonder about how those non-ticket airline fees always seem to creep up year after year? Well if you did, then the following data will confirm your worst fears. Airlines are making more and more money from non-ticket,or ancillary fees, and it's now become an integral part of their business model—for budget airlines and traditional airlines alike. It's time to look more closely at which airline is making what from ancillary fees.


Source: Motley Fool Flickr Account



What is ancillary revenue?
Ancillary revenue is defined in the CarTrawler Yearbook of Ancillary Revenue by IdeaWorksCompany as coming from four main revenue streams:

  • A la carte features such as onboard food and beverage sales, baggage and checking in fees, seat assignment fees, onboard entertainment, and priority services
  • Frequent Flier Programs comprising of sales of miles/points to program partners and/or members
  • Commission-based products, for example, commissions earned for travel insurance, hotel accommodation or car rentals
  • Advertising sales, typically involving things like in-flight magazine advertising, and signage and airports
READ THE FULL EQUITY RESEARCH ARTICLE LINKED HERE




Why Has Danaher Stock Underperformed the Market in 2014?

Long-term investors in Danaher Corp. (NYSE: DHR  ) have grown used to watching their stock outperform the index in rising markets, with the stock price gaining around 200% over the past 10 years versus an 81% gain for the S&P 500. However, this year's underperformance of nearly 6% versus the S&P 500 must have them wondering whether the company has lost its touch. Why has Danaher started to underperform, and is it likely to continue?


Why Danaher Corp. has underperformed
In a nutshell, there are three reasons the stock has underperformed this year:


  • There are questions about the company's ability or opportunity to make suitable acquisitions -- a key part of its business strategy
  • CEO Larry Culp, whose 11-year tenure is partly responsible for the recent outperformance, announced in April that he would be leaving the company. 
  • Two of the company's higher-margin businesses -- communications (test and measurement) and dental consumables -- have underperformed expectations.


Danaher Corp.'s existential angst
Companies' reputations define how investors look at them. In Danaher's case, the company has long been seen as an excellently run conglomerate that uses its substantive cash flow generation to make earnings-enhancing acquisitions.


READ THE FULL EQUITY RESEARCH ARTICLE LINKED HERE

Friday, October 24, 2014

Time to Buy UPS Stock?

Investors in United Parcel Service (NYSE: UPS  ) could be forgiven for wondering what has happened to their stock. The company, alongside key rival FedEx (NYSE: FDX  ) , has long been known for being a play on global growth, but many of the underlying assumptions behind this view have changed in recent years. In short, UPS faces challenges and opportunities that make it a different investment proposition than you might think. It's time to look at the pros and cons of buying stock in UPS.


Source: United Parcel Service.

United Parcel Service faces changes

Recently, I've taken a look at the key fundamentals from UPS' earnings report and conference call, as well as the bullish and bearish cases for the stock. My key argument in this series is that, since 2008, the investment proposition behind buying UPS, and FedEx, has changed relative to previous recoveries. The three reasons are as follows


READ THE FULL EARNINGS ARTICLE LINKED HERE

Why Johnson Controls Could Fall-Equity Analysis and Research

It always make sense to take a balanced viewpoint in investing, and while there are plenty of positive things happening at Johnson Controls Inc. (NYSE: JCI  ) , there are also some negatives. The three things that investors need to worry about are its reliance on certain customer programs, the effects of weather, and the possibility of an unfavorable long-term trend with car usage. It's time to look a little closer at the bearish case for the stock.


Auto experience customers may disappointBefore getting into the nitty-gritty, readers should note that this article is part of a series. The things that management wants you to know are outlined here, and the bullish case for Johnson Controls is here.


Focusing on the bearish case, investors should start by appreciating that the automotive experience segment, consisting of automotive seating and interiors, has outperformed most expectations this year. Going into the year, management had talked about 1%-2% revenue growth for the full year, but with 9% growth for the first nine months, it's likely to come in far in excess of expectations. Essentially, its customers' car sales have outperformed the marketplace, particularly in Europe. Indeed, CFO Bruce McDonald noted on the latest conference call that "we are able to exceed the market production levels in all three of the main regions."


READ THE FULL EARNINGS ARTICLE LINKED HERE

Wednesday, October 22, 2014

Time to Buy Emerson Electric Stock?

Emerson Electric's (NYSE: EMR  )  stock is down 7.6% year to date, as I write. With that said, there are signs the company could finish 2014 on a strong note. The global economy is set for a better second half, and management is actively restructuring the business in order to generate earnings growth. Does the dip in the share price create a buying opportunity for investors?



The story of 2014
Readers looking for some background material on this manufacturing and technology company can read a recap of its last conference call here, along with the bull and bear cases for the stock.

In a nutshell, management has been doing a pretty good job in raising its operating margin to a record level, and the company's cash flow conversion remains strong. However, a combination of geopolitical uncertainty and weaker than expected global growth has slowed customer spending. As such, Emerson's sales growth is trending toward the low end of its full-year target for 3%-5% growth.


READ THE FULL ARTICLE LINKED HERE

Why Johnson Controls Could Rise

Despite having declined nearly 9% year to date as of this writing, Johnson Controls' (NYSE: JCI  ) stock price has the potential to do much better for the rest of 2014. The three reasons I'll highlight include a specific end-market improvement, company restructuring, and exposure to an overall pickup in the economy. Altogether, it makes a powerful case for why Johnson Controls can rise from here.

Building-efficiency improvement


As I discussed in my previous article, which outlines management's latest quarterly conference call, Johnson Controls is investing in acquisitions in order to expand its exposure to the heating, ventilation, and air conditioning, or HVAC, market via its building-efficiency segment. The company's other two segments are focused on the automotive industry. As such, building efficiency generated 29% of segmental income in the first nine months. However, investors can expect it to contribute more in the future following the $1.6 billion acquisition of HVAC-focused Air Distribution Technology, or ADT, and the announcement of a joint venture with Hitachi.


READ THE FULL ARTICLE LINKED HERE

Monday, October 20, 2014

Why UPS Stock Could Fall

United Parcel Service (NYSE: UPS  ) investors have watched their stock decline nearly 6% this year. Essentially, a poor performance during the winter (primarily due to the harsh weather and stronger-than-expected peak demand in the holiday season) has been followed by the need for increased investment. As such, the latest results saw the company lowering full-year earnings expectations. All of which raises some questions as to the future growth rate of UPS. Let's take a look at the bearish case for the company and discuss some issues management needs to deal with.

Demand shifting toward lower-yield packages?

As I've discussed in previous articles, UPS is seeing two significant shifts in end demand. As with rival package deliverer FedEx, its customers are shifting toward slower and less expensive ground-based services, while the continued strong growth of e-commerce means UPS is delivering proportionately more lighter-weight packages. Both shifts are not good news for the company's yield per package.


READ THE FULL ARTICLE LINKED HERE

Sunday, October 19, 2014

How to Make Money in the Housing Market

There is no doubt that the housing recovery has slowed this year, but the evidence suggests that it's more of a temporary adjustment than the start of a decline. With that said, investors should be paying attention to which homebuilders are building the most in the marketplace today. Read on to find out why.




Which company is building the most homes these days?


The U.S. homebuilding market remains fragmented, with the top 10 companies contributing around a quarter of all new-home sales in 2013. However, there have been some pretty significant shifts within the top 10 in terms of homes sold. The following table shows market share and the percentage increase in homes sold from 2010-2013. The total increase in homes sold in the period is 33%, so any homebuilder that grew sales below that figure has obviously lost market share, and vice versa.


READ THE FULL ARTICLE LINKED HERE

Tuesday, October 14, 2014

Why Emerson Electric Could Fall Further

Industrial equipment manufacturer Emerson Electric's (NYSE: EMR  ) stock price is down more than 8% year to date, and investors must be wondering when the company will join the broader market rally. By management's own admission, sales growth has been lower than hoped for this year. Moreover, there are a number of reasons the company could continue to disappoint investors in the near term. Let's look at three of them.




Emerson Electric needs more spending on energy infrastructure Source: Motley Fool Flickr.


An uncertain geopolitical situationIf there is one thing that has affected the company this year, it's geopolitical concerns. Essentially, sales have grown slower than orders as customers continue to display cautiousness on current spending due to global tensions. Unfortunately, there are no shortages of issues to worry about, including conflicts in the Middle East and Ukraine, the debt default situation in Argentina, and emerging market growth coming in lower than expected. Caution is not an uncommon situation in the industrial equipment sector right now.


READ THE FULL ARTICLE LINKED HERE

Monday, October 13, 2014

Johnson Controls Conference Call Review

It's been a confusing year for investors in Johnson Controls  (NYSE: JCI  ) . The company is best known for its automotive products (mainly batteries and car interiors), and the automotive industry has been an outperformer recently within the industrial sector. In turn, the company has outperformed its peers, and its own expectations, with its automotive experience (car interiors and seating) segment. However, the stock is down nearly 7.5% year to date. Clearly, management needed to explain a few things during its third-quarter conference call, and here is what they said.

Cautiously optimistic on building efficiency


Before diving into the conference call, let's take a look at this chart, which depicts Johnson Controls' three segments by income for the first three quarters of its fiscal year.


Source: Johnson Controls company presentations.



Automotive experience (seats and interiors) and power solutions (automotive batteries, of which roughly three-quarters go to the aftermarket) make up the bulk of profit, but the company is investing in its building efficiency (heating, ventilation, and air conditioning, or HVAC) segment in order to diversify its income stream. More on that later.


READ THE FULL ARTICLE LINKED HERE

Saturday, October 11, 2014

Why Emerson Electric Could Rise

Having endured a difficult 2014 so far, industrial equipment manufacturer Emerson Electric Co. (NYSE: EMR  ) is hoping to close out its year on a stronger note. By management's own admission, growth hasn't been as strong as it had expected it to be, and the company is trending toward the bottom end of its forecast for 3%-5% underlying sales growth for the full year. With that said, there are three key catalysts that could drive the stock higher from here. It's time to look at them in more detail.

Emerson Electric Co. is primed for growth


Firstly, this article is part of a series of articles on the company, and readers can learn about what management wants you to know in this article. One of the factors highlighted in the linked article leads into the first upside catalyst for Emerson Electric. Simply put, the company finds itself in the unusual position whereby orders are growing faster than sales, creating a significant backlog. For example, the three-month average for orders came in with a 7% increase at the end of July, whereas underlying sales growth was only 3% in the third quarter ended in June.


READ THE FULL ARTICLE LINKED HERE 

Thursday, October 9, 2014

Why UPS Could Rise

In a sense, the three reasons that United Parcel Service (NYSE: UPS  ) could rise in 2014 can be best understood by thinking about what has, and hasn't, changed in the global economy since 2008. What hasn't changed is the inexorable rise of e-commerce sales and therefore growing ground-based Business to Consumer, or B2C, growth for UPS. However, global trade hasn't grown in line with global GDP growth since 2008 -- a big change from previous economic recoveries. These two facts come together to create challenges and opportunities for UPS; let's examine how UPS is dealing with them, and why it looks set to soar.

E-commerce growth will likely lead to volume growth for UPS

A look at some simple statistics demonstrates the increasing importance of e-commerce sales to the economy. As the chart below shows, U.S. e-commerce sales have more than doubled since 2008. In addition, e-commerce now makes up a significant share of U.S. retail sales.


US E-Commerce Sales as Percent of Retail Sales Chart


All of which leads to the first two reasons that UPS can soar.


READ THE FULL ARTICLE LINKED HERE

Friday, October 3, 2014

Emerson Electric Conference Call Review

Investors in industrial equipment company Emerson Electric Co. (NYSE: EMR  ) have watched their stock underperform the S&P 500 by around 15% year to date. The stock sold off after a disappointing set of third-quarter results, and readers may be wondering whether this is the trough in Emerson Electric Co.'s stock price for this year. In this context, management had plenty of things to say about the company's prospects. Let's look at five key takeaways from their commentary.

Orders better than sales


The first takeaway is that underlying sales--those that exclude acquisitions and divestitures-- came in at 3% and are trending at the low end of full-year guidance of underlying growth of 3%-5%. Underlying sales are important because they are a better gauge of the company's performance and future prospects. However, underlying order growth is a lot stronger; coming in at 5% in the third quarter. Moreover, Director of Investor Relations Patrick Fitzgerald said on the conference call:


READ THE FULL ARTICLE LINKED HERE

Monday, September 29, 2014

Why Danaher Corporation Could Fall

There is no doubt that Danaher Corporation (NYSE: DHR  ) is one of the highest-quality names in the industrial sector, but with the stock underperforming the S&P 500 by around 7.7% year to date, there is a sense that the market is losing a little patience with Danaher. In addition, the company is facing a significant amount of unpredictability about its future prospects -- an unusual situation for Danaher. It's time to look at three reasons Danaher could fall in 2014.



Temporary or structural weakness?
Danaher's second-quarter results disappointed the market, and Fools already know that it was mainly due to softness in two product lines. Communications (the test and measurement segment) and dental consumables both disappointed in the quarter, and Danaher CEO Larry Culp said he expected "negative growth" for the communications platform for the rest of the year. Fools can read about the other main conclusions from the conference call here.



While there's a case to be made for a bounce-back in both of these product lines in future quarters, the following chart of segmental sales reveals that these problems may be something structural.




Source: Danaher Corporation presentations.


Clearly, the dental and test and measurement segments haven't grown over the past three years, and it's not clear whether the current weakness is merely part of a deteriorating end market.


READ THE FULL ARTICLE LINKED HERE

Saturday, September 27, 2014

UPS Conference Call Review

t's been a difficult year for United Parcel Service (NYSE: UPS  ) investors, as the stock has notably underperformed the S&P 500 and its main rival, FedEx (NYSE: FDX  ) . After a winter beset with difficulties for the logistics companies because of a combination of poor weather, unexpectedly strong e-commerce delivery demand, and a Christmas shopping season with fewer than average days, many investors thought UPS might be over the worst by now. Unfortunately, that wasn't the case, and the second-quarter results proved to be a disappointment. Here's what management wants you to know about its performance.




United Parcel Service delivers.

Investing in long-term growth


After the winter debacle, during which many customers saw delayed delivery and UPS suffered a ramp-up in costs associated with unexpectedly high peak demand, UPS management committed itself to investing in ways to deal with any future problems. Unfortunately, the costs associated with these investments, in areas such as technological and operational expansion, are going to be more than initially expected. According to CFO Kurt Kuehn:


READ THE FULL ARTICLE LINKED HERE

Wednesday, September 24, 2014

Is Deere a Stock to Buy?

Agricultural and construction machinery manufacturer Deere  represents one of the most compelling investment ideas in the industrial sector right now. However, it's not going to be an easy decision for you. The long-term demand for food (more than 80% of Deere's sales are in its agriculture and turf segment) remains in place, but the company also faces significant near-term risks from declining food prices. What's an investor to do?




Source: Motley Fool Flickr.


Deere's upside and downside drivers
Before focusing on answering this question, readers may be interested in referencing other articles in this series. For example, a review of the recent results here highlights the deterioration in the company's agricultural sales; a review of the five key takeaways from the earnings conference call can be found here; and articles making the making the bullish and bearish cases for the stock can be found here and here.



Turning back to question in my lead, the answer is "no" and "yes." No one said buying and selling stocks was easy!


READ THE FULL ARTICLE LINKED HERE

Sunday, September 14, 2014

Danaher Corporation Bullish Article

After an underwhelming set of second-quarter results and some cautious management guidance, investors in Danaher Corporation must have felt the stock was likely to be range-bound for a while. However, a good quality company is rarely without upside potential, and there are three key reasons for optimism over the stock, ranging from the near term to the long term -- suggesting that investors have a significant time frame in which to expect some upside.



Communications and dental consumables to bounce back?
Starting with the near term, Fools already know that Danaher's second-quarter results were adversely affected by the underperformance of two businesses with high variable margin. Communications-based revenue in the test and measurement segment was weak because of spending delays by wireless carriers, and dental consumables in the dental segment were weak, too. You can see the effect on profits and margins in this article.



Danaher's management candidly said that it doesn't expect conditions to get better anytime soon with communications, but the reality is that wireless carrier spending is notoriously lumpy.


READ THE FULL ARTICLE LINKED HERE

Thursday, September 11, 2014

Danaher Corporation Conference Call Review

Investors in Danaher Corporation (NYSE: DHR  ) saw the company deliver a disappointing set of second-quarter results that caused the stock to drop notably. In fact, as of today, it's pretty much flat on a six-month basis. In truth, the results weren't that bad: The midpoint of full-year generally accepted accounting principles earnings per share guidance was actually raised by a couple cents as management narrowed its guidance to $3.67-$3.72 from $3.60-$3.75.



However, the market obviously expected more, and certain elements of the company's performance surprised on the downside. Danaher reports out of five segments: industrial technologies, environmental (mainly water quality), dental, life sciences and diagnostics, and test and measurement. This kind of diversification normally means that the company is broadly exposed to the industrial economy, and management's commentary certainly reflected a moderately growing environment. With that said, here are five things management wants you to know about the quarter.

Weakness limited to two areas, profits and margins hit


First, Danaher's management was keen to point out that the weakness was limited to two specific areas. Communications revenue within its test and measurement segment was down at a "low double-digit" rate, which the company linked to delays in spending by wireless carriers. Indeed, rival Agilent (NYSE: A  ) also reported a 6% fall in its communications revenue. The other difficult area came in the dental segment, which recorded "weak consumable sales," possibly due to bad weather earlier in the year. Unfortunately, according to Danaher CEO Larry Culp, both products tend to be "high-margin variables", and their underperformance hit operating profits within the test and measurement and dental segments.


Source: Danaher Presentations



Second, the impact...


READ THE FULL ARTICLE LINKED HERE