Four of our Club holdings — Costco Wholesale (COST), Amazon (AMZN), Humana (HUM) and Bausch Health (BHC) — were in the news Thursday. Here’s how we feel about the developments. Costco The news: Costco reported sales for the retail month of October after the closing bell Wednesday evening. In the four-week period, net sales increased 7.7% year-over-year to $17.73 billion. Total comparable sales increased 6% in October , with gasoline price inflation positively impacting total reported comp sales by approximately 2.8%. The stock rose 0.5% on Thursday, recovering some of the prior session’s 3.3% decline. Keep in mind: Topline results are always important, but when it comes to retail, we especially like to analyze the same-store sales (also known as comparable sales, or comps) because this metric provides more insight into business trends. Analyzing comparable sales helps us understand if the company can attract more customers and sell them more goods. Also, since gasoline prices can be volatile, the 6% figure does not represent a pure sign of demand for goods. To get an even better sense of how the retail business is performing, Costco breaks out its comparable sales excluding the impacts from changes in gasoline prices and foreign exchange. Called “core comps,” this is the best metric to analyze because it removes the impact of items that are out of the company’s control. In the period, Costco’s total core comps increased 6.7%, beating estimates 6.1%. In the United States, specifically, core comps increased 6.1%, slightly missing estimates of 6.3%. The Club take: We continue to hold a favorable view of Costco, following another solid month of core comps sales growth and ahead of two potential catalysts — a special dividend payment and membership fee hike — on the horizon next year. We’re set to get Costco’s next full earnings report — which unlike the monthly sales numbers includes information on profits — on Dec. 8. With concerns of a recession on the horizon and inflation-wary consumers, we’re selective about our retail exposure. Costco is one of two retailers we own, along with TJX Companies (TJX), which has seen its stock rise more than 13% over the past month. Amazon The news : Amazon expanded its hiring freeze to its entire corporate workforce in a memo to employees Thursday. “We anticipate keeping this pause in place for the next few months” due to worsening economic headwinds, Amazon’s HR chief Beth Galetti wrote to the staff. Last month, the company paused hiring in its retail business. As we learned from Amazon, when it reported weaker earnings and guidance last week, the company still has some work to do to address its cost structure, which ballooned on the retail side with massive hiring to meet crushing demand early in the Covid-19 pandemic. Now that Covid is less of a problem, Amazon has been trying to right-size its operations. The Club take : We’re encouraged to see that Amazon is recognizing the need to further belt-tighten in these precarious economic times. For a while now, Jim Cramer has been saying that tech companies need to address their high staffing levels. While we don’t want people to lose there jobs, a hiring freeze might not be enough for a Federal Reserve that wants to slow the job market and cool wage inflation. Amazon has been down every trading day since reporting third quarter results on Oct. 27. Humana The news: Health insurer Humana is buying back $1 billion worth of stock. In a regulatory filing Thursday, Humana announced it entered into accelerated stock repurchase agreements with Goldman Sachs and Mizuho. The $1 billion repurchase is part of a larger $3 billion buyback authorization from February 2021. The stock has only dropped in one session in the past 11 trading days, including Thursday. Humana is known to use accelerated stock repurchase (ASR) agreements, instead of buying back its shares through more traditional open-market purchases. Humana most recently did so back in January and in December 2020 . An ASR allows a company to repurchase shares much quicker than it would take if they bought the same amount on the open market. The reason is U.S. securities laws restrict how much of its common stock a company can buy on the open market in a single day. The current limit is 25% of average daily trading volume. Club take: We’re encouraged by Humana’s buyback announcement, which comes one day after solid third-quarter results and favorable commentary about next year Humana has been a big winner for us this year, as the stock is up 22% year to date and notched another fresh high Thursday. The S & P 500, by contrast, is down nearly 20%. Given that backdrop, management’s decision to step in and repurchase a chunk of stock seems to suggest it feels there could be even more upside ahead for shares. The last time Humana did this was January on 6, less than a week after the stock fell 19% due to a sharply lowered estimate for Medicare Advantage (MA) membership growth. HUM shares are up more than 50% since their close on Jan. 6. While it’s impossible to know for sure where the stock will go from here, we view Thursday’s buyback news as generally positive. More broadly, we think defensive parts of the market like health care should remain in favor in the near term, especially after Federal Reserve Chairman Jerome Powell’s hawkish tone Wednesday. Bausch Health The news: Bausch Health reported third-quarter results before the opening bell Thursday. Sales of $2.05 billion, up 2% organically year-over-year, were roughly in-line with estimates. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $766 million missed the $781 million consensus estimate. The struggling stock has been up and down in Thursday’s session. Here’s a look at quarterly sales by segments, which, as of the first quarter of 2022, were realigned as Salix, International, Diversified Products, Solta Medical and Bausch + Lomb (BLCO). After its May initial public offering, Bausch + Lomb is a separate entity than BHC. However, BHC owns most of Bausch + Lomb, so those financials still appear on BHC’s reporting. Salix: $544 million versus $535 million expected International: $250 million versus $244 million expected Solta Medical: $72 million versus $72 million expected Diversified Products: $238 million versus $244 million expected Bausch + Lomb: $942 million versus $949 million expected Looking ahead, management is forecasting full-year fiscal 2022 revenue between $8 billion to $8.17 billion, down from their prior forecast of $8.05 billion to $8.22 billion. However, the updated guidance brackets the $8.11 billion consensus estimate. Full-year adjusted EBITDA is expected to be between $2.99 billion and $3.09 billion. While that’s down from the prior guidance range of $3.02 billion and $3.12 billion, it’s on par with expectations of $3.03 billion. The downward revisions reflect updated guidance from Bausch + Lomb, with management noting their expectations for full-year Bausch Pharma and Solta Medical combined sales remain unchanged. The Club take: This position remains a huge disappointment. However, as wrong as it was to ever get involved with this stock, at this point we believe it would be also be wrong to sell given that Bausch Health still owns about 88% of Bausch + Lomb. Additionally, management reiterated their view that monetizing or distributing that position to BHC shareholders continues to make strategic sense. Given the latter’s roughly $4.73 billion market capitalization, Bausch Health’s stake is worth approximately $4.2 billion. That is just under two times Bausch Health’s nearly $2.4 billion market cap. Importantly, no matter how Bausch Health chooses to allocate its BLCO shares – either by selling more into the open market or distributing them to existing shareholders — the value won’t be affected (other than by normal market fluctuation) because no new shares are being created. The reason behind Bausch Health trading consistently below the valuation of its BLCO stake is debt. While the debt load remains high, management is taking steps to make it more manageable, exchanging $5.6 billion of outstanding senior unsecured notes for $3.1 billion of newly issued senior secured notes, resulting in a reduction of $2.5 billion of principal. For those unfamiliar with these terms, they refer to hierarchy within the capital structure. As you might know, debt (like bonds) is considered safer because the principal is legally required to be repaid. Common equity is the much more risky because there’s no guarantee that you ever see your principal again. (Preferred stock ranks above common equity but below debt.) The difference is in the change from unsecured to secured. What this refers to is collateral. Secured debt means that Bausch Health has put up assets as collateral, meaning in the event of default the lenders take ownership of the collateralized assets. In exchange for the collateralization, debt on the balance sheet has come down and less interest will be paid going forward so the company’s financial position has improved with this move. Finally, regarding the Xifaxan patent litigation , management didn’t offer up too much information except that an appeal has been filed with the U.S. Court of Appeals for the Federal Circuit and that it expects the process to take approximately 12 to 18 months. Back in July, BHC shares tanked after an oral order from a district court judge basically cleared a path for a generic for Xifaxan, a Salix Pharmaceuticals product used to treat irritable bowel syndrome with diarrhea (IBS-D ). — CNBC Investing Club’s Zev Fima and Matthew J. Belvedere contributed to this report. (Jim Cramer’s Charitable Trust is long COST, AMZN, HUM and BHC. See here for a full list of the stocks.) 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. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Shopping carts are lined up in front of a Costco store on February 25, 2021 in Inglewood, California.
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