Three years ago, C.R. Bard’s earnings were depressed by higher research spending, but the new products created have helped boost the company’s earnings, share price and dividend.
C.R. BARD INC. (New York symbol BCR; www.crbard.com) makes over 15,000 medical devices in four main areas: vascular products such as stents and catheters (28% of sales); oncology products that detect and treat various types of cancer (27%); urology goods such as drainage and incontinence devices (25%); and surgical tools (17%). Other products supply the remaining 3%.
Generally, the company’s products are single-use items, so customers must continually buy new ones. As well, Bard’s wide array of products cuts its risk.
The company’s sales rose 17.9%, from $2.9 billion in 2011 to $3.4 billion in 2015. Those gains were mainly due to its long-term growth strategy; it involves selling slower-growing businesses and buying other medical device makers.
Among Bard’s acquisitions is its $298.0 million purchase of Lutonix in 2011. That firm has developed a drug-coated balloon for treating clogged leg arteries.
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However, the company’s earnings fell 0.6%, from $568.9 million in 2011 to $565.3 million in 2012. Due to fewer shares outstanding, earnings per share gained 2.7%, from $6.40 to $6.57. Earnings fell again to $5.78 a share (or a total of $474.9 million) in 2013.
The main reason for the earnings drop was that the company boosted its research spending by 59.5%, from $185.4 million (or 6.4% of sales) in 2011 to $295.7 million (or 9.7%) in 2013.
Thanks partly to new products from the research spending, the company’s earnings rebounded to $8.40 a share (or $652.2 million) in 2014, and rose again to $9.08 a share (or $677.0 million) in 2015.
In early 2016, Bard acquired Liberator Medical Holdings for $181.1 million. That company distributes a variety of medical products, such as urological catheters and diabetic supplies, directly to consumers’ homes.
The new operations helped lift Bard’s revenue in the third quarter of 2016 by 8.8%, to $941.9 million from $865.7 million a year earlier. If you exclude the costs to integrate acquisitions, earnings gained 14.2%, to $199.5 million from $164.7 million. Per-share earnings rose 15.8%, to $2.64 from $2.28, on more share outstanding.
Bard’s balance sheet remains sound. Its goodwill was $1.3 billion as of September 30, 2016, or a low 8%\ of its market cap. Long-term debt was just $1.6 billion, and it held cash of $996.4 million, or $13.55 a share.
The company recently increased its quarterly dividend by 8.3%, to $0.26 a share from $0.24. The stock itself is up 17% in the past 12 months. Due to that higher share price, the new annual dividend rate of $1.04 a share yields 0.5%.
Bard will probably earn $10.26 a share for all of 2016, but its earnings could rise 9.2% to $11.20 in 2017. The stock trades at 19.6 times the 2017 forecast. That’s a reasonable p/e in light of Bard’s growth prospects and research costs.
Recommendation in Wall Street Stock Forecaster: BUY
Extendicare’s senior care facilities are bringing in rising revenue, giving the company strong cash flow and a high dividend yield into the bargain.
EXTENDICARE INC. (Toronto symbol EXE; www.extendicare.com) owns 64 senior-care facilities, which can house 8,622 residents on both a long and short-term basis. The company manages another 54 residences that are home to 6,426 seniors.
Extendicare also operates 45 ParaMed Home Health Care branches in six provinces. ParaMed’s 10,900 staff members provide nursing care and other assistance to clients who remain in their own homes.
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In the three months ended September 30, 2016, the company’s revenue rose 5.7%, to $268.1 million from $253.6 million a year earlier. Cash flow jumped 38.6%, to $20.8 million, or $0.24 a share, from $15.0 million, or $0.17. That gain came from higher government funding for Extendicare’s long-term-care operations. Revenue from profitable acquisitions also contributed.
Provinces regulate nursing home fees in Canada, and they provide substantial funding. Both of these are subject to extensive and frequently changing standards.
However, Extendicare’s cash flow is strong, and it’s in a growing business. The stock trades at 16.6 times its forecast 2017 cash flow of $0.60 a share. It yields a high 4.8%.
These two ETFs offer the same kind of access to U.S. and international companies as U.S. registered mutual funds—but without the high fees.
Pennsylvania-based Vanguard Group is one of the world’s largest investment management companies. In all, it administers almost $3 trillion U.S. across 175 mutual funds and ETFs.
Generally speaking, Canadians are unable to buy mutual funds that are registered in the U.S. because these investments aren’t registered with provincial securities commissions. Moreover, some Canadian funds are only available in a limited number of provinces.
Canadians can, however, buy Vanguard exchange-traded funds listed on stock exchanges. Here are two ETFs we see as low-fee buys.
VANGUARD GROWTH ETF $107.07 (New York symbol VUG; buy or sell through brokers) aims to track the Center for Research in Security Prices (CRSP) U.S. Large Cap Growth Index. It’s a broadly diversified index that mainly consists of big U.S. companies.
The $53.1 billion fund holds Apple, Alphabet, Amazon.com, Facebook, Coca-Cola, Comcast, Home Depot, and Visa. Other top holdings include Philip Morris International, Walt Disney, Amgen Inc and Oracle Corp. Vanguard launched the ETF on January 26, 2004. Its MER is just 0.08%.
The fund’s breakdown by industry is as follows: Technology, 24.6%; Consumer Services, 20.9%; Health Care, 14.6%; Financials, 12.2%; Industrials, 11.4%; Consumer Goods, 11.2%; Oil and Gas, 3.5%; Materials, 1.1%; and Telecom Services, 0.5%.
Recommendation in Canadian Wealth Advisor: Vanguard Growth ETF is a buy.
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ETFs: ETF taps into emerging markets with 0.15% MER
VANGUARD FTSE EMERGING MARKETS ETF $37.04 (New York symbol VWO; buy or sell through brokers) aims to track the Financial Times Stock Exchange (FTSE) Emerging Markets Index. It’s made up of the common stock of companies in developing countries. The ETF was launched on March 4, 2005. Its MER is 0.15%.
The top holdings of Vanguard FTSE Emerging Markets include Tencent Holdings (China: Internet), Taiwan Semiconductor (computer chips), Naspers Ltd. (South Africa: media), China Construction Bank, China Mobile, Industrial & Commercial Bank of China, Hon Hai Precision Industry (Taiwan: electronics), Bank of China and Petroleo Brasileiro (Oil & Gas).
The breakdown by country for this $61.0 billion fund is as follows: China, 28.7%; Taiwan, 15.6%; India, 11.9%; Brazil, 8.3%; South Africa, 7.9%; Mexico, 4.2%; Russia, 3.9%; Thailand, 3.9%; Malaysia, 3.7%; Indonesia, 2.8%; Philippines, 1.7%; Turkey, 1.3%; Chile, 1.3%; and others, 4.8%.
Recommendation in Canadian Wealth Advisor: Vanguard FTSE Emerging Markets ETF is a buy for aggressive investors.
The leading food maker has steadily increased its annual earnings over the last five years through a multiyear restructuring plan, including a shift to healthier products.
CAMPBELL SOUP CO. (New York symbol CPB; www.campbellsoupcompany.com) is the world’s largest maker of canned soups. It also makes Prego canned pasta and sauces, Pepperidge Farm cookies and V8 vegetable juices.
Demand for the company’s processed foods continues to decline as consumers switch to healthier foods.
In response, in 2013, Campbell completed two acquisitions: it paid $1.55 billion for Bolthouse Farms, a producer of carrots, dressings and fruit juices, and $249 million for organic food maker Plum. In 2015, it also acquired Garden Fresh Gourmet for $232 million. That firm makes refrigerated salsas, as well as hummus, dips and tortilla chips.
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As a result of these acquisitions, fresh products now supply 13% of Campbell’s overall sales.
Thanks to these new businesses, Campbell’s revenue improved from $7.7 billion in 2012 to $8.3 billion in 2014 (fiscal years end July 31). However, the higher value of the U.S. dollar hurt the contribution of the company’s overseas operations (19% of its total sales). That caused its revenue to decline to $8.1 billion in 2015, and to $8.0 billion in 2016.
Earnings rose 16.7%, from $783 million in 2012 to $914 million in 2016. Due to fewer shares outstanding, earnings per share gained 20.5%, from $2.44 to $2.94.
A big part of Campbell’s improved profit comes from a multi-year restructuring plan. It is focused on eliminating management positions and merging overlapping functions at various divisions.
Campbell is making better-than-expected progress with this plan. The company now expects those actions to save it $300 million a year, up from its previous target of $250 million. Campbell aims to complete the restructuring by the end of fiscal 2018.
The savings will also help the company with the plan to make its foods healthier by removing artificial colouring and flavours from its soups, cookies and other North American products by 2018. Campbell also plans to use more organic ingredients in its foods.
Due to these initiatives, the company’s spending on new products rose 6.0%, to $124 million (or 1.6% of sales) in fiscal 2016 from $117 million (or 1.4% of sales) in 2015.
Campbell’s strong balance sheet will let it keep investing in its businesses and making acquisitions. As of October 30, 2016, it held cash of $290 million, and its long-term debt of $2.3 billion was a low 13% of its market cap.
The company’s earnings should improve to $3.04 a share in fiscal 2017, and the stock trades at a reasonable 18.8 times that forecast.
Campbell also recently raised its dividend by 12.2%. The new annual rate of $1.40 yields 2.5%.
Recommendation in Wall Street Stock Forecaster: BUY.
Here’s a guide to building a strong portfolio through smart financial investing
Financial investing involves buying assets—like stocks, bonds, and ETFs—with the expectation of income and/or capital gains.
Here are some tips aimed at helping investors manage their financial investments while cutting the risk of their portfolio and increasing profits.
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To show the best long-term results, we think you should stick with our three-part TSI Network investing program (but keep in mind that this approach is a starting point to success in investing, not a step-by-step blueprint):
Invest mainly in well-established companies, with a history of rising sales if not earnings and dividends.
Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities.
Downplay or avoid stocks in the broker/media limelight. When stocks spend time in the limelight, they tend to become over-priced, and this leaves them vulnerable to a sharp downturn on any hint of bad news. Instead, look for stocks with hidden value that are less widely recognized—at least so far—as attractive investments.
Financial investing tips to cut risk and increase profits in your stock portfolio
Look beyond financial indicators: When they first set out to formulate an investment strategy, many investors decide to focus their stock market research on a handful of measures. For instance, they may want to see a p/e ratio (the ratio of a stock’s price to its per-share earnings) below 15.0, say, along with an earnings growth rate of 20% or more a year, and perhaps a 2% dividend yield.
This approach worked a lot better in the pre-computer age, when investing was more labour-intensive. Few people wanted to dig through old newspapers, annual reports and other material to get at the data. So more gems were left to be found by those willing to do the work.
If you find a stock with this (or any comparable) combination of favourable ratios, it probably comes with some more-or-less hidden drawback not covered by your system. Instead of steering you away from investments that you don’t understand, or that harbour hidden risk, this system will steer you toward them.
Hold a reasonable portion of your portfolio in U.S. stocks: We continue to recommend that Canadian investors diversify part of their portfolio (up to 25%, say) in well-established U.S. stocks. That’s because the U.S. market features major multinational opportunities that simply aren’t available anywhere else. As well, many U.S. firms are unique world leaders.
Think like a portfolio manager: As part of their stock market research, portfolio managers gather information from companies, industry studies and other sources. A good portfolio manager then tries to build their client a portfolio that makes money if things go well, but won’t lose too much if the opinions turn out to be faulty, as often happens.
We do our own stock market research for our newsletters and investment services, and we apply it from a portfolio manager’s perspective. That’s why we advise sticking to well-established companies; they tend to hold on to more value when things go wrong, or at least recover eventually.
Bad times usually hit some market segments much more severely than others. That’s why we advise spreading your money out across the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.
Give your investments time to pay off: Resist the ever-present urge to buy and sell. A sound portfolio, built through careful research, needs surprisingly few changes over the years. Trading less frequently is a good thing, because it gives you fewer occasions to make costly mistakes.
Bonus Tip: Four risks of relying too heavily on p/e ratios
The p/e ratio (the ratio of a stock’s price to its per-share earnings) is one of many handy investing tools.
Typically, you calculate p/e’s using a stock’s current price and its earnings for the previous 12 months. The general rule is that the lower a stock’s p/e, the better. And a p/e of less than, say, 10, represents excellent value. A low p/e implies more profit for every dollar you invest.
There’s no doubt that p/e ratios are an important part of many investors’ decision making. These financial ratios are published regularly on the Internet and in newspapers, and are widely followed.
P/e financial ratios are a good starting point for researching a stock you’re considering buying (or selling). But relying too heavily on these financial ratios can expose you to serious risk. Here are 4 risks of relying too heavily on p/e ratios.
P/e’s can give you a misleading picture of a company’s earnings
Beware of suspiciously low p/e’s
Don’t discount stocks with high p/e’s
Low p/e ratios can mask hidden value
Assessments and judgments for choosing attractive investments
Diversify geographically: One of the worst things you can do is invest so that your portfolio would suffer a great deal due to a localized downturn in any one city, state or province. Ideally, your portfolio should give you exposure to much of the North American economy, plus substantial international exposure, if only through North American multinationals.
Develop a clear idea of how much risk you are willing to accept, through good times and bad: For example, some investors become more aggressive as the market rises, and more conservative as the market falls. The problem here is that all market trends, up or down, eventually reach a turning point. If you take on more risk as the market rises, you’ll wind up owning your riskiest portfolio just when the market is near a peak. That’s when risky stocks can do their greatest harm to your net worth.
How do you feel about these financial investing tips? Share your thoughts with us in the comments.
The retailer’s investment in its websites has paid off in improved online sales and earnings for the second quarter.
Wal-Mart’s shares were trading at $66 in January. The stock moved up to $74 in August, but fell as investors reacted to the company’s new strategic plan. That includes opening fewer new stores, and making new investments in its online operations.
The plan will slow Wal-Mart’s earnings for the next two years. However, it should position the company for many more years of growth.
WAL-MART STORES INC. (New York symbol WMT; www.walmart.com) opened its first store in 1962. It has since grown to become the world’s biggest retailer, with 11,573 outlets in 28 countries. These stores serve a total of 260 million customers each week.
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The company’s 5,300 stores in the U.S. include 3,504 supercentres. Through the sale of general merchandise and, increasingly, groceries, U.S. stores supply 64% of Wal-Mart’s overall sales. (Groceries themselves now account for more than half of U.S. sales.)
In 1991, the company opened its first store outside of the U.S. through a joint venture with a Mexican retailer. Its international division (24% of total sales) now operates 6,273 stores in 27 countries.
The remaining 12% of Wal-Mart’s sales comes from its Sam’s Club warehouse stores, which sell a variety of goods at wholesale prices. There are currently 655 Sam’s Club locations in the U.S. and other countries.
The company’s sales rose 8.8%, from $446.5 billion in 2012 to $485.7 billion in 2015 (fiscal years end January 31). However, sales fell 0.7% to $482.1 billion in 2016. That’s mainly because the higher U.S. dollar hurt the contribution of its international business. Excluding currency rates, sales gained 2.8%.
Earnings rose 9.5%, from $15.5 billion in 2012 to $17.0 billion in 2013. Per-share earnings gained 12.8%, from $4.45 to $5.02, on fewer shares outstanding. Wal-Mart’s 2014 earnings slipped to $16.7 billion in 2014, as it spent more on store upgrades. But earnings per share rose to $5.11 due to fewer shares outstanding.
Partly due to rising employee health care costs, Wal-Mart’s earnings fell to $5.07 a share (or a total of $16.4 billion) in 2015, and to $4.57 a share (or $14.7 billion) in 2016.
In its fiscal 2017 second quarter, which ended July 31, 2016, Wal-Mart’s sales rose 0.5%, to $120.9 billion from $120.2 billion a year earlier. Excluding currency rates, sales rose 2.8%. Online sales jumped 11.8%.
Earnings in the quarter increased 8.6%, to $3.8 billion from $3.5 billion. Due to fewer shares outstanding, earnings per share improved 12.0%, to $1.21 from $1.08. If you factor out unusual items, Wal-Mart earned $1.07 a share in the latest quarter.
The company recently outlined a new strategic plan. This involves opening fewer new stores in the next two years. Instead, it plans to spend more on renovating existing locations and expanding its e-commerce operations.
Wal-Mart opened 471 stores in fiscal 2016. It now expects to open between 331 and 351 new locations in fiscal 2017, and between 249 to 279 in 2018.
The company expects to spend $11.0 billion in each of 2017 and 2018 on these initiatives.
That includes doubling the number of warehouses that service online customers to 10. Combined with new technologies to better track goods in these facilities, Wal-Mart’s new warehouses should allow for one-day delivery to 70% of the U.S. population.
Another part of Wal-Mart’s e-commerce strategy involves China. The company recently formed a new alliance with Chinese online retailer JD.com (Nasdaq symbol JD). Under the terms of the deal, JD.com acquired Yihaodian—Wal-Mart’s shopping website in China. In exchange, Wal-Mart will receive a 5% stake in JD.com. It has since increased that stake to 10.8%.
The company is also investing $50 million in New Dada, a Chinese online grocery retailer partnered with JD.com.
In August 2016, Wal-Mart agreed to acquire online e-commerce website Jet.com. This business sells a variety of products from over 2,400 retailers. The company will pay $3.0 billion in cash when it completes the purchase by the end of 2016. It will also pay Jet.com’s owners $300.0 million in Wal-Mart stock over the next few years.
Wal-Mart will continue to operate Jet.com as a separate business. However, that site’s expertise will help improve the performance of the company’s own web portals. Jet.com’s software to minimize shipment costs should also help Wal-Mart increase sales by keeping online prices low.
The company expects these moves will expand its e-commerce sales 20% to 30% a year by 2019.
Wal-Mart can easily afford these investments. On July 31, 2016, its long-term debt of $42.7 billion was a low 20% of its market cap. It held cash of $7.7 billion, or $2.48 a share.
As well, the company expects its cash flow will total $80 billion in the next three years. About $20 billion of that should go to share repurchases. The strong cash flow will also help Wal-Mart continue to raise its dividend, as it has for the last 43 years. Today’s rate of $2.00 a share yields 2.9%.
For fiscal 2017, the company still expects to earn between $4.15 and $4.35 a share. The stock trades at an attractive 16.5 times the midpoint of that range. Earnings in 2018 will likely be flat, but should rise about 5% in 2019.
Recommendation in Wall Street Stock Forecaster: BUY.
This top telecom will use its purchase of Yahoo! to expand revenue and earnings as demand for wireless and TV services slows.
VERIZON COMMUNICATIONS INC. (New York symbol VZ, www.verizon.com) has 113.7 million wireless users, 14.2 million landline phone clients and 15.6 million high-speed Internet and TV subscribers.
The company is buying the Internet search business and related websites of Yahoo! Inc. (Nasdaq symbol YHOO). These operations attract over 1 billion active users every month.
The purchase looks like a good fit with AOL, which Verizon acquired in 2015 for $4.4 billion. That business operates several popular websites, including The Huffington Post, TechCrunch and Engadget.
Adding Yahoo should help Verizon with its plan to offer more video content to its TV and mobile phone subscribers. It will also let the company capture a larger share of the fast-growing online advertising market.
Verizon originally agreed to pay $4.8 billion for Yahoo. But it will probably demand a lower price after Yahoo disclosed that online intruders stole the private data of 500 million users. That could have a significant impact on Yahoo’s brand and ad revenues. The company still expects to complete the purchase in the first quarter of 2017.
Meanwhile, Verizon earned $3.6 billion, or $0.89 a share, in the three months ended September 30, 2016. That’s down 10.1% from $4.0 billion, or $0.99 a share, a year earlier. However, if you disregard unusual items, such as charges related to employee pensions, Verizon earned $1.01 a share in the latest quarter.
Overall revenue in the quarter fell 6.7%, to $30.9 billion from $33.2 billion.
Revenue from the wireless business (75% of the total) declined 3.9%. That’s because more of its customers are choosing plans with lower monthly fees. These agreements separate out the cost of the phone and often leave the telephone service as the only recurring bill. Customers usually pay upfront for their devices.
Revenue from the wireline operations (25% of revenue) fell 2.3%. Lower demand from business clients offset stronger sales of high-speed Internet and TV services to consumers.
Verizon will likely earn $3.99 a share for all of 2016, and the stock trades at a moderate 12.0 times that forecast.
The company also recently raised its quarterly dividend by 2.2%, to $0.5775 a share from $0.565. The new annual rate of $2.31 yields 4.8%. Verizon has now increased its dividend each year for the past 10 years.
In the past year, dividends accounted for 78.8% of Verizon’s free cash flow (cash flow less capital expenditures).
Recommendation in Wall Street Stock Forecaster: BUY
Tupperware’s international expansion and its shift to higher-margin products are both paying off, while the stock maintains a high dividend yield and still trades at a very attractive multiple to earnings.
TUPPERWARE BRANDS CORP. (New York symbol TUP; www.tupperwarebrands.com) makes plastic food and beverage containers, as well as cosmetics and fragrances. It sells these products through 3.1 million independent dealers. That keeps its distribution costs down.
Tupperware’s sales were flat at $2.6 billion in 2011 and 2012, but rose to $2.7 billion in 2013. Markets outside of the U.S. supply 90% of its sales, and the higher U.S. dollar cut revenue to $2.6 billion in 2014, and to $2.3 billion in 2015. Without exchange rates, sales rose 3.5% in 2015.
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Earnings fell 11.6%, from $218.3 million in 2011 to $193.0 million in 2012. Due to fewer shares outstanding, per-share earnings fell 3.7%, from $3.55 to $3.42. The company’s earnings then improved to $5.17 a share (or a total of $274.2 million) in 2013, but dropped to $4.20 a share (or $214.4 million) in 2014, and to $3.69 a share (or $185.8 million) in 2015. If you exclude unusual items, including a writedown of Tupperware’s Venezuelan operations, earnings per share fell 18.8% in 2015, to $4.37 from $5.38.
Value Stocks: Company profits from shift to higher-margin products
In the third quarter of 2016, Tupperware’s sales improved 0.2%, to $521.8 million from $521.0 million a year earlier. Excluding exchange rates, overall sales rose 2% as gains in emerging markets (up 5%) offset weaker results in established markets (down 5%).
Earnings in the quarter rose 13.6%, to $44.2 million, or $0.87 a share. A year earlier, it earned $38.9 million, or $0.77. The gain is largely due to lower raw material and other costs.
Tupperware also profits from a shift to higher-margin products. They include the MicroPro Grill, a container that grills steaks inside a microwave oven. The company has also started selling a $1,000 water filter in China.
In addition to expanding Tupperware’s profit margins, higher-priced items enhance the earning potential for its dealers. That helps retain them and attract new ones.
Tupperware’s balance sheet remains strong. As of September 24, 2016, its long-term debt was $606.9 million, or 20% of its market cap. It also held cash of $98.5 million.
The company continues to pay quarterly dividends of $0.68 a share, for an annualized yield of 4.5%. The current payout seems safe. For all of 2016, Tupperware expects to generate free cash flow (cash flow less capital expenditures) of $200 million. That’s more than enough to cover its annual dividend payout of $139 million.
We made Tupperware our Stock of the Year in 2011 when it was trading at $47. The stock got as high as $97 in 2013, but has moved down as the high U.S. dollar weighed on its profits. Even so, we feel the company will continue to gain as more people in developing markets enter the middle class. Moreover, the stock trades at an attractive 13.9 times the $4.33 a share the company should earn in 2016.
Recommendation in Wall Street Stock Forecaster: BUY
For our recent report on another top value stock with an international profile, read Toyota sales get a boost.
Earnings for Canadian Utilities jumped in the second quarter on cost-cutting but, more importantly, key investments by the company.
Canadian Utilities is a long-term favourite of ours, mainly due to its stable cash flows and annual dividend increases.
We also like its parent company ATCO (Toronto symbol ACO), which gives you a way to buy Canadian Utilities at a discount. However, ATCO pays a lower dividend.
CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] and CU.X [class B voting]; www.canadianutilities.com) distributes electricity and natural gas in Alberta and Australia. It also operates 15 power plants, in Canada (13) and Australia (2). ATCO Ltd. (see box) owns 53.1% of the company.
Earnings in the second quarter of 2016 rose to $108 million, or $0.34 a share, from $43 million, or $0.12 a year earlier.
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If you exclude unusual items, earnings gained 29.7%, to $131 million from $101 million. That’s due to new investments in its power plants and pipeline operations, and cost cuts.
Revenue in the quarter declined 3.1%, to $756 million from $780 million, mainly due to lower power prices in Alberta. The wildfires in Fort McMurray also disrupted operations. However, the company estimates the damages at just $10 million after insurance.
Canadian Utilities generates about 32% of its power from two coal-fired electric generating plants in Alberta. Most of the rest of its power comes from natural gas-fired plants.
Alberta Premier Rachel Notley recently mandated that coal power be phased out in the province by 2030. However, coal-power producers, including Canadian Utilities, will get (as yet to be determined) compensation from the Alberta government.
The company should earn $2.09 a share in 2016, and the stock trades at 17.2 times that forecast. The $1.30 dividend yields 3.6%.
The class A non-voting shares are more liquid than the class B voting shares.
Recommendation in The Successful Investor: BUY the class A stock
TSO3 continues to increase its revenue as it looks to take market share from competitors offering established sterilization methods for surgical instruments. But its losses worsened in the most recent quarter.
TSO3 INC. (symbol TOS on Toronto; www.tso3.com) has developed a sterilization process that uses ozone, a gas made up of three atoms of oxygen. That gas is also an effective killer of most drug-resistant bacteria and pathogens.
What gives TS03’s process special appeal is that it can kill even the most stubborn organisms, including the prion proteins that cause mad-cow disease. Prions survive the normal washing and sterilization used in hospitals.
The company’s first product was its 125L ozone sterilizer; hospitals and medical clinics use it to clean surgical and diagnostic instruments that cannot be sterilized by heating. As part of TS03’s process, ozone gas is created in an enclosed ozone generator by passing oxygen through an electrical field. That converts the gas to ozone. At the end of the sterilization cycle, the 125L ozone sterilizer discharges only oxygen and water vapour.
The winning hand
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The company’s revenue fell from $3.4 million in 2011 to just $254,370 in 2013. That’s because in 2012 it terminated its distribution deal with 3M Company, symbol MMM on New York. As a result, it had to pay 3M a $2.0 million U.S. break-up fee.
Revenue improved to $432,987 in 2014, and jumped to $1.6 million in 2015. The more-recent gain was because Health Canada, the U.S. Food and Drug Administration and European regulators approved the company’s new Sterizone VP4 sterilizer. TSO3 also signed a new exclusive distribution deal with Sweden’s Getinge Group.
The company’s losses improved from $0.13 a share (or a total of $7.7 million) in 2011 to $0.09 a share (or $5.8 million) in 2012. Due to the break-up payment to 3M, losses expanded to $0.13 a share (or $9.3 million) in 2013. Losses then improved to $0.08 a share (or $5.9 million) in 2014, but worsened to $0.10 a share (or $8.1 million) in 2015.
TSO3 now gets 97% of its sales from the U.S., so it switched its reporting currency to U.S. dollars at the start of 2016.
In the three months ended June 30, 2016, the company’s revenue jumped to $3.0 million U.S. from $111,000 U.S. a year earlier. Losses worsened to $1.5 million from $1.4 million; per-share losses were unchanged at $0.02.
TS03 spent $804,000 (or 27.0% of its revenue) on research in the latest quarter. It has no long-term debt, and held cash and investments of $21.3 million as of June 30, 2016.
The company will continue to face difficulty, and considerable marketing expenses, as it tries to penetrate markets where ethylene-oxide sterilization systems dominate.
TS0’s major competitors include industry giants such as Johnson & Johnson and 3M. It also faces the risk of operating in an area where equipment failure could lead to safety problems and related lawsuits.
The company believes its sterilizers can save hospitals and clinics money. They also operate without some of the environmental and safety concerns associated with traditional chemical sterilization. The stock is up about 45% since the end of July 2016. However, the company needs a lot of growth to justify its current stock price of $3.27, let alone move higher.
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