Arriving With an Earnings Update

The following is a brief review of the recent earnings results that have been reported by companies whose shares are recommended in Value Authority.

Today, 3M (MMM) reported earnings per share (EPS) of $2.43 vs. $2.58, which was $0.17 better than expectations. Organic revenues rose 0.9%, with strength in the Health Care, Consumer and Industrial and Safety segments. While Electronics and Transportation remain a drag on sales and profitability, their 7.1% decline in sales was not as bad as it had been in recent quarters. Indeed, the electronics portion of the business slightly rose.

The company is still not giving guidance, but will continue with monthly updates. So far in October, sale have ranged from flat to up slightly. While the company will still struggle with COVID-19 and the economy in the upcoming quarters, CEO Mike Roman’s efforts to rejuvenate the company’s growth appear to be gaining some traction, and 3M remains a solid holding. Buy 3M under $160. My target is $175.

Old Republic (ORI) reported third-quarter EPS, excluding the change in the value of its investment portfolio, of $0.62 vs. $0.51 a year ago, which was much better than the expected figure of $0.43. The strength was driven by strong results from title insurance, where premiums rose by 17% and underwriting income jumped by 41%, largely as a result of the strong housing market. While General Insurance premiums fell 1% due to COVID-19 and the overall economic weakness, the company experienced strong underwriting results and segment income nearly doubled.

ORI is performing very well. The stock also remains very inexpensive, with book value at $20.39 a share and the stock yielding 5%. I think the chances are very good for a rally in the stock by the end of the year. I continue to recommend buying ORI under $18. My target is $22.

Genuine Parts (GPS) reported third-quarter EPS of $1.61 vs. $1.44, which was much better than the expected $1.38. Reported sales were down 3.4%, but were up 0.8%, excluding divestitures. The divestitures, along with an improved sales mix, allowed margins and profitability to expand. Despite the good results, renewed COVID-19 fears have driven down the price of the shares after earnings were reported. However, GPC is moving in the right direction, and the stock will do well as we hopefully get closer to a COVID-19 vaccine sometime in 2021. Buy GPS under $92. My target is $105.

MSM Industrial Direct (MSM) today reported fiscal fourth-quarter EPS of $1.09 vs. $1.30, which was $0.13 better than expectations. The earnings beat was primarily driven by cost-cutting measures, with sales of $747 million, down 11%, missing estimates of $750 million.

The company earned $4.74 for the entire August 2020 fiscal year, and I look for EPS to be flat in the current year. The company faces difficult earnings comparisons over the next two quarters, as earnings from the prior year were not impacted by COVID-19. However, things should improve in the second half of the year, as comparisons will become easier and the economy strengthens. In addition to the cost cuts, MSM’s results will also be helped by continued strength in janitorial sales. The company appears to be in good shape to earn over $5 a share once the pandemic ends. I continue to recommend buying MSM below $60. My target is $72.