With earnings season for the first quarter of 2022 drawing to a close, we are providing members with a brief rundown of how we rank the releases from the stocks in our portfolio. Similar to last time , the releases will fall into one of four categories: Great Good Not-So-Bad Ugly Please note that two current holdings — Pioneer Natural Resources (PXD) and Johnson & Johnson (JNJ) — released earnings before we added to the portfolio, so are not ranked here. But the fact we initiated them after earnings reports indicates both would fall somewhere in the good-to-great range. While we don’t have an analysis of Pioneer’s quarter, members can checkout Jim’s interview with CEO Scott Sheffield following the company’s report. Similarly, CNBC’s Meg Tirrell spoke with Johnson & Johnson CFO Joseph Wolk to discuss its earnings release. In addition, Constellation Brands (STZ) is not expected to report until later this month. But rather than wait, we wanted to get this report card out so you can be better equipped when looking to put money to work. We will of course have an analysis out on that company once the results are released. As a reminder, while this these earnings report cards are not the end all be all, we like to keep them updated because when volatility strikes, we like to focus our buys on those companies that released earnings that demonstrated fundamentally sound results. That information provides us insight into management teams’ ability to execute in this difficult environment. It also gives us a real-time update on the operating environment itself, something that macroeconomic releases simply can not do due to the lag between when the data was collected and when it’s released. In the end, we believe that stock prices ultimately follow the underlying business fundamentals and that our diligence, patience and emotionless approach to the market will be rewarded, as it has time and again. Great Advanced Micro Devices (AMD) reported another “beat and raise” quarter. Headline numbers and forward guidance both beat estimates. Importantly, that strength applies to both core AMD and when factoring in the contribution from Xilinx. In addition to the headline numbers, gross margin performance and forward guidance were also better than expected. The company continues to take share in the data center. While there are concerns regarding PC demand, AMDs focus on the higher end of the market is providing for continued growth. With $8.3 billion remaining in the buyback authorization as of the end of the quarter, at current levels, we think investors will be rewarded for buying right alongside management. Apple (AAPL) did what Apple does, reported a very strong quarter that once again demonstrated management’s incredible ability to navigate just about anything the world throws at it. In addition to the strong headline results, product sales hit another record high and cash flow came in better than expected. That gave management the ability to announce a new $90 billion buyback authorization with the earnings release. Own it, don’t trade it. Coterra Energy (CTRA) reported mixed results as sales missed the mark while earnings came in better than expected. That said, while a sales miss can never be dismissed, the focus here, as is the case with Devon Energy, is on Coterra’s ability to return cash to shareholders. From that perspective, we believe this was a strong release as cash flows came in above expectations, a factor allowing management to announce a quarterly base-plus-variable dividend of $0.60 per share. While the company did repurchase $184 million worth of shares during the quarter, it has nearly $1.1 billion remaining under its current authorization, representing about 5% of the company’s current market cap. Like Coterra, Devon Energy (DEV) reported a miss on revenues but a beat on earnings. If not for these investments being almost entirely about capital return to shareholders for us, we would almost never put revenue misses into the “Great” category. However, this can be forgiven, as Devon management made their unwavering commitment to shareholder returns crystal clear (again) with a 27% increase to the quarterly fixed-plus-variable dividend payment and a 25% increase to the share repurchase authorization. The company also reaffirmed it has no interest in growing production more than 5% annually, as management would rather return that capital shareholders. Given that the core pillar of our investment thesis (shareholder return initiatives) appears as solid as ever, we feel justified in calling this a great quarter despite a top line miss and in line guidance. Eli Lilly (LLY) reported better than expected results with sales and earnings both coming in ahead of expectations. That said, as good as the reported results were, the pipeline update was the real attention grabber as management released positive results from a phase 3 trial of Eli Lilly’s obesity drug tirzepatide, a potential multibillion sales opportunity. Given the company’s volume-driven growth, limited loss of exclusivity risk, valuable pipeline and history of operating margin expansion, we think shares can continue to grind higher over time. Halliburton ‘s (HAL) better-than-expected revenue and earnings in the first quarter served to support our view that tightness across the energy complex along with elevated commodity prices are leading to an increased need for producers to spend heavily to the benefit of the oilfield services giant. In management’s view, the industry is in the midst of a “multi-year upcycle.” Commentary regarding a shift in mindset by producers from long-cycle to short-cycle investments left us with the view that oil price fluctuations will be less boom bust going forward. Humana reported solid results as sales and earnings both came in ahead of expectations thanks in large part to lower-than-anticipated administrative costs (some of this is timing) and outperformance in the pharmacy business. In addition to the strong reported results, management raised forward guidance for the full year 2022 to $24.50, coming in above expectations and continues to include a $1 Covid headwind, as well as the estimated dilutive impact from the pending divesture of its 60% ownership of Kindred at Home’s hospice and personal care divisions. Microsoft (MSFT) reported strong results with revenue, gross margin and earnings all beatings expectations. Moreover, total forward guidance came in ahead, despite a $110 million revenue headwind from the war in Ukraine. Under the hood, Azure revenue — perhaps the single most important metric of the entire release — also grew more than expected, advancing 49% versus the year ago period with the number of $100 million-or-better Azure deals more than doubling year over year. Despite ongoing supply chain challenges, Marvell Technology (MRVL) reported a solid quarter that demonstrated the resiliency provided by management’s decision to pivot away from the consumer. Instead it upped its focus on end markets such as 5G, the cloud, automotive, enterprise and networking. Building on the strong results, forward guidance came in ahead of expectations and management said they believe supply chain dynamics will improve thanks to ongoing efforts to secure additional capacity. Morgan Stanley (MS) released solid first-quarter results that put the benefits of its diversification across investment banking, trading and wealth management operations on full display. In addition to a top- and bottom-line beats, return on tangible common equity, a key metric, came in above expectations while the firm’s expense efficiency ratio came in lower than expected. The benefit of continued growth in the deposit base stands to be compounded with every Federal Reserve interest rate hike. Procter & Gamble ‘s (PG) pricing power was on full display this quarter . Management said their superior brands, while perhaps more expensive upfront, cost less per use than competitors, resulting in greater savings in the long-run. That said, P & G wasn’t completely immune to inflation: gross margin in its fiscal third-quarter did contract. However, the company was able to raise prices and offset higher commodity prices, freight costs and reinvestments. Qualcomm (QCOM) posted fiscal second-quarter beats on earnings and revenue as well as better than expected guidance. Bottom line, Qualcomm is firing on all cylinders, transforming itself into so much more than just a communications technology company serving the mobile industry. The company saw a Q2 increase of 41% in its automotive business and a 61% jump in Internet of Things solutions. Good Google-parent Alphabet (GOOGL) missed expectations with its first-quarter earnings release . Top-line weakness was largely a result of lower-than-expected YouTube results. The bottom line took a hit on “other expenses,” the majority of which can be attributed to losses on equity securities — both realized and unrealized. Notably, operating income beat. The miss cannot be ignored, but we believe the underlying trends paint a better picture and that management has a plan in place to address the headwinds impacting YouTube. Lastly, we cannot ignore the stock’s attractive valuation and monstrous cash flow generation, the latter of which allowed management to announce a $70 billion repurchase authorization with the release. Chevron (CVX) reported mixed results this quarter, but we found plenty of reasons for optimism. In addition to raising Permian production guidance, management raised the share repurchase target to the higher end of prior guidance. While management is intent on returning capital to shareholders, they are not going to do it in a manner that is in lockstep with commodity prices. Specifically, they said during the conference call with investors that the $10 billion per year rate of buybacks is sustainable throughout the commodity cycle — music to the ears of those that have dealt with the boom and bust nature of commodity cycles. Costco (COST) reported solid results , which followed disappointing results from Walmart (WMT) and Target (TGT) and demonstrated once again that Costco is the best run retailer on the planet and a market-share gainer no matter the macroeconomic environment. While margins did come under pressure due largely to sales mix, the company’s membership model offers some relief. And while the stock may not be cheap on any measure, we believe the market is willing to give it a premium because of its dependable earnings growth. While Covid-related revenue did provide a nice boost to Danaher (DHR)’s quarterly results , base revenue (a better indication of underlying business fundamentals) was up a very respectable 8% annually on an organic basis. With three-quarters of company sales coming via consumables that must be replenished, and demand showing signs of broadening as wellness checks, routine screenings, and other elective procedures bounce back post-pandemic, we continue to see upside and believe that the market is isn’t appreciating the sustainability of Danaher’s earnings power. Disney (DIS ) reported misses on the top and bottom lines. Under the surface, however, the results were better than the headline numbers would indicate. For starters, revenue took a $1 billion dollar hit due to the early termination of some licensing agreements to make content available on the company’s direct-to-consumer (DTC) services — a factor that should aid Disney+ subscriber numbers going forward. Moreover, what the results mask is that the arguably two most important line items, theme park operating income and Disney+ subscriber additions came in better than expected. As a result, our longer-term view on the company remains unchanged as we think the future of Disney is as bright as ever. Facebook parent Meta Platforms (FB) reported a better-than-feared first quarter , which sent shares surging on the release. Active users bounced back following the first decline in the company’s history in the prior quarter. During the conference call, management’s tone was far more constructive about competing with TikTok with Reels and dealing with ad headwinds from Apple ‘s app-tracking updates. While there’s still work to be done, the quarter made it clear to us that betting against Meta CEO Mark Zuckerberg is a fool’s errand. Honeywell International (HON) reported an all-around strong first quarter , which not only demonstrates the company’s ability to navigate this difficult operating environment but also speaks to its pricing power. In addition to top- and bottom-line beats, Honeywell saw segment margin expansion and backlog growth despite a $300 million drag due to the Russia-Ukraine conflict. While full-year guidance was largely in-line to positive, the current quarter guide came up a bit short versus expectations. Linde (LIN) reported solid results with its first quarter earnings release. While guidance did come in a bit light, this is a team known to under promise and over deliver. The guide also assumes no economic growth. Cash flow came in better than expected allowing the team to announce a new $10 billion share repurchase program. With inflation remaining a key concern, we continue to value Linde for its contractual ability to pass costs through to clients and therefore protect its bottom line. Nvidia (NVDA ) reported strong results that could perhaps be viewed as a barometer for the market. While shares initially traded down on lower-than-expected forward guidance, they pulled off a roughly 11% about-face — opening down about 5.5% and closing up about 5% — as investors acknowledged that despite pressure coming from Europe and China, Nvidia is firing on all cylinders. Data-center demand remains resilient, gaming is here to stay and there is plenty of room left to grow as the company expands its software offerings, which of course bring recurring revenues with them recurring. Salesforce (CRM) reported strong results with beats pretty much across the board. Demand remains strong thanks to the mission critical nature of Salesforce’s offerings for its business customers. As an indispensable partner in the digital transformation of companies around the world, Salesforce’s revenues should remain resilient despite any slowing of growth in the overall economy. While management was forced to reduce full-year sales guidance, the important factor to be mindful of is that the reduction came as a result of foreign exchange rates (a $300 million headwind) and not a result of waning demand. Moreover, full-year earnings guidance came in ahead of expectations. Not so bad Ford (F) reported a better-than-feared quarter as sales matched expectations and adjusted earnings per share came in a penny above consensus. A number of factors were lining up against the automaker: an ongoing semiconductor shortage, commodity price inflation and other supply chain constraints, not to mention macro uncertainties in Europe. Adjusted operating income was also better than expected though cash flow did miss. All in, it could have been much worse for Ford, and we were pleased to see management maintain its original full-year outlook despite the difficult operating environment. Analysts had expected a cut. AbbVie (ABBV) reported a first-quarter sales miss while earnings edged out expectations. The mixed results were particularly disappointing because several of the key products that are expected to drive the company’s growth post-2023 missed the mark. Furthermore, guidance came up short of expectations. In the end, the saving grace is valuation: ABBV trades at less than 11x forward earnings with a nearly 4% dividend yield. Going forward, we want to see either a larger yield — meaning lower share price — or an update that gives us more confidence in the post-Humira growth outlook before becoming more constructive on shares. Cisco Systems (CSCO ) reported mixed results as sales missed the mark while earnings edged out expectations by a penny. Guidance came in below expectations. That said, we don’t think the print was all bad. The important thing to be mindful of is that the top-line pressure is not a demand issue, with management stressing that 100% of the shortfall can be attributed to supply side dynamics. Moreover, the divergence between the top and bottom lines (a miss and a beat) speaks to Cisco’s ability to protect profitability via a combination of cost management and pricing power. As a result, we think the quarter points to improvement as supply chain bottlenecks are resolved through this year. Wells Fargo (WFC) reported mixed quarterly results that left us largely disappointed. Despite a bottom line beat, first-quarter revenue missed the mark. That said, two major focuses of our core investment, rising rates and lower expenses, did trend in the right directions. However, on expenses, we admittedly didn’t see as much progress as we had hoped. Management continued to buy back shares but said they aim to do so at “significantly lower levels” in the second quarter. Wynn Resorts (WYNN) results were weaker than expected, though given that Macao remained under pressure due to Covid restrictions, it wasn’t all that surprising. While the results outside of Macao were solid, and we view the eventual reopening of Macao as an inevitability, we acknowledge that it’s getting tougher to stick with this stock as the expected 2021 recovery was pushed to 2022, and now it may be 2023. Ugly Amazon (AMZN) disappointed in its first quarter as sales met expectations and operating income declined significantly versus the year ago period and came in below expectations. Inflation was the culprit, primarily wage, logistics and energy costs. A loss on its Rivian Automotive stake clouded the bottom-line numbers and result in a net loss. But the result came in below expectations even after backing Rivian out. Management also guided for both sales and operating in the second quarter to be below expectations. The two bright spots on the print were Amazon Web Services, where sales and profitability both exceeded the consensus, and commentary from management noting that they have seen no indication of weakness in consumer demand, despite the uncertain macro environment. Bausch Health (BHC ) results were so disappointing we actually had to downgrade the position to an unofficial 4 rating — a placeholder to indicate a suspension of our rating on BHC, pending new information. While we maintain the position for now because we do think the sentiment has become overly negative and that there is still more value to the business than it is currently being given credit for; in the absence of more information from management, we’ll look to sell this one into strength. While sales came in ahead of expectations , even Walmart (WMT), one of the strongest operators in the world, was unable to effectively pass through and mitigate the negative impacts of wage and fuel cost inflation. That pain was only compounded by an increase in container and storage costs. As a result, earnings came in well below expectations. Note, while we did have to double back on our initial earnings reaction as we were perhaps a bit too harsh on management given the results Target released the following day, we maintain our 3 rating. While Walmart would normally be the place to be when the market is concerned with recession, the combination of slowing growth and inflation puts management in a bind. The company’s primary objective is to provide customers with low prices as they simply cannot achieve that objective while protecting margins. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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Andy Jassy (L), CEO of Amazon, Tim Cook (C), CEO of Apple and Satya Nadell, CEO of Microsoft.
Getty Images (L) | Reuters (C-R)
With earnings season for the first quarter of 2022 drawing to a close, we are providing members with a brief rundown of how we rank the releases from the stocks in our portfolio.
