Why Shares of Michael Kors Are Down 12% Wednesday

What happened

Shares of Michael Kors Holdings (NYSE:KORS), a global fashion luxury group, are down 12% as of 11:15 a.m. EDT, after posting strong fourth-quarter results. What’s going on?

So what

Michael Kors reported a 10.8% jump in revenue to $1.18 billion, topping analysts’ estimates calling for $1.14 billion — a result aided by a 2.3% increase in comparable store sales. Adjusted earnings per share checked in at $0.63, also ahead of analysts’ estimates of $0.60 per share.

“Fiscal 2018 was an exciting year for our Company as we established a foundation to support long term growth,”saidChairman and Chief Executive Officer John D. Idol, in a press release. “We created a global fashion luxury group with the acquisition of Jimmy Choo and completed the first year of our Runway 2020 strategic plan for the Michael Kors brand, ending the year significantly ahead of our expectations.”

Shelves of high-end handbags in a retail store.

Image source: Getty Images.

Now what

One of the driving forces behind the stock price decline Wednesday morning is due to fiscal year 2019 guidance. Management is guiding for full-year earnings per share to check in between $4.65 and $4.75, which only meets analysts’ estimates of $4.74 at the top end of the range, and flat comparable sales growth. Today’s 12% decline after a strong fourth quarter emphasizes how short of a leash Wall Street has with high end brick-and-mortar retailers still trying to figure out their e-commerce businesses.

Why Oracle Remains The Best Buy In The Technology World

Oracle (NYSE:ORCL) hasn’t looked back since it decided to plunge with both feet into the world of cloud computing. Not that you can call it a stunning growth story just yet, but the database major has quickly maneuvered itself into a position of strength on the stickiness of its customer base.

What are the factors that will help Oracle succeed in this crowded landscape populated by the giants of tech? Indeed, what does Oracle offer that helps retain a large portion of its existing client base in the face of a global shift towards cloud? More to the point, why does Oracle’s current strategy bode well for its investors? I’ll try to answer those questions as I analyze Oracle’s strengths and opportunities in cloud.

Oracle’s Customers Are Not Leaving

As the cloud computing market grew, there was a perpetual fear of what would happen to companies operating on-premise infrastructure. Ten, twenty years from now there’s a good chance that none but a small percentage of users will be running their own infrastructure. Every additional billion dollars spent in cloud infrastructure is a billion taken away from the traditional on-premise segment.

Per Gartner, the global IaaS – Infrastructure-as-a-Service – market for public cloud went from $16.8 billion in 2015, up 31% to $22.1 billion the following year, with Amazon (AMZN), Microsoft (MSFT) and Alibaba (BABA) in the lead.

Oracle, however, has managed to withstand the aggressive onslaught and hold on to a large chunk of its customer base. In the first half of fiscal 2018, Oracle’s software license and product support segment grew 3%; in fiscal 2017, it grew 2%.

Does that mean that Oracle’s existing business is totally safe from being disrupted? Absolutely not.

Revenue from new software licenses and hardware has been declining. In fiscal 2017, new software licenses declined by 12%, and it further declined by 2% during the first half of current fiscal. Hardware revenues declined by 11% in 2017 and declined a further 6% during the first half of the current year.

That’s a clear sign that Oracle’s customers are happy to renew existing licenses and product support, but aren’t necessarily using Oracle for further infrastructure growth.

I believe this trend is likely to continue over the next several years. Deployment and operating costs are constantly dropping, and the longer this continues, the more companies will shift from on-premise to cloud. In its 2017 State of the Cloud report, RightScale notes that 35% of the study’s respondents reported cost savings. Though that was down from 37% during the previous year’s study, it still shows a significant upside to investing in cloud infrastructure.

Not only does this allow Oracle some time to transition its customer base to its own cloud platform, but it also gives the company time to develop differentiated solutions. With a primary focus on increasing value and reducing TCO, or total cost of ownership, as well as complexity, Oracle is strongly positioning itself for growth. Which brings us to the matter of the transition it still needs to undergo.

The Transition

The first step here would be for Oracle to get its IaaS (Infrastructure-as-a-Service) revenues to offset what it makes from selling new software licenses and hardware.

During the first half of the current fiscal, IaaS revenue was $797 million, while new software licenses and hardware brought in $4.203 billion. Though the latter is nearly six times the size of the former, IaaS revenue grew by 25%, while new software licenses declined by 2% and hardware revenues declined by 6%.

There’s also another segment where Oracle is making gains – SaaS, or Software as a Service.

“This coming January, Oracle will deliver the world’s first autonomous database. We expect this innovative new technology to dramatically accelerate the growth of our PaaS and SaaS businesses and keep our database license business strong as well.” – Larry Ellison during the second-quarter 2018 earnings call

So far, the strong growth in its SaaS segment has masked the weakness in Oracle’s on-premise business, but the key to Oracle’s future lies in the growth of its infrastructure services. Larry Ellison clearly knows this, which is why he keeps talking about Amazon all the time, once in a while drifting towards Salesforce (NYSE:CRM) and Workday (NYSE:WDAY), both of which are major players in the SaaS market.

And Oracle has been making several aggressive moves to get its infrastructure services segment growing.

“If you take a workload from Amazon running on Redshift and move it over to Oracle, your Amazon bill will drop by 80%. It will cost you five times more to run Redshift than to run the Oracle Autonomous. And this is not total cost of ownership, this is not labor, this is not – this is your Amazon bill, what you pay Amazon to do a piece of work, you can run on the Oracle cloud and pay $.20 on the dollar by moving from Amazon to Oracle.

We’re so confident of our cost advantages over Amazon that Oracle will provide our customers with written service level agreements that guarantee, that guarantee moving to the Oracle cloud will cut Amazon customer’s database bills in half or substantially more than half.” – Larry Ellison during the second-quarter 2018 earnings call

Oracle’s key differentiator has long been its database business, and the launch of the new product will further underline that distinction. Oracle Autonomous database promises to reduce manual input and maximize system availability, but the good thing here is that it’s playing the pricing angle.

A first-of-its-kind product from a market leader would typically mean a premium price tag, but considering the size disadvantage that Oracle’s IaaS business faces against Amazon and Microsoft, the focus on cost reduction seems to be a smart move that will attract more volume from a much larger user base. This move alone could help Oracle accelerate IaaS growth.

There’s already evidence of SaaS being a secure and growing business for Oracle on the strengths of its Enterprise Resource Planning and Human Capital Management products. The segment has posted growth rates above 50% for the past several quarters.

But its on-premise business, which includes new software licenses, updates and product support and hardware, still accounts for nearly 75% of overall revenue. PaaS (Platform-as-a-Service) and IaaS accounted for just 4% during the first half of 2018, up from 1% during the first half of 2015.

The strong growth in the SaaS segment has certainly given the company a lot of breathing space, giving it some extra time to get its IaaS segment into shape. The combination of existing customer base staying loyal, SaaS taking care of medium-term revenue growth, and IaaS growing due to new product launches and aggressive pricing is a good recipe for long-term success.

Chart
MSFT PE Ratio (Forward) data by YCharts

But the slow growth so far has made Oracle trade at a PE of just 21 times earnings and a forward PE of just 17, far lower than where other large tech giants are trading at, essentially making it the best buy at the current price point.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:ExpandAuthor payment: Seeking Alpha pays for exclusive articles. Payment calculations are based on a combination of coverage area, popularity and quality.Tagged: Investing Ideas, Long Ideas, Technology, Application SoftwareWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click here

First Eagle Investment Buys Imperial Oil, Alphabet Inc, Caterpillar Inc, Sells Grupo Televisa SAB, N

New York, NY, based Investment company First Eagle Investment buys Imperial Oil, Alphabet Inc, Caterpillar Inc, Huntsman Corp, Pentair PLC, Twenty-First Century Fox Inc, Time Warner Inc, Western Digital Corp, MGM Resorts International, Molina Healthcare Inc, sells Grupo Televisa SAB, Nutrien, Chevron Corp, Coca-Cola European Partners PLC, Praxair Inc during the 3-months ended 2017-12-31, according to the most recent filings of the investment company, First Eagle Investment Management, LLC. As of 2017-12-31, First Eagle Investment Management, LLC owns 331 stocks with a total value of $42.5 billion. These are the details of the buys and sells.

New Purchases: CAT, HUN, MOH, MGM, AVGO, PCG, TGT, HYACU, TXMD, AXTA, Added Positions: IMO, XOM, SLB, GOOGL, COP, PNR, FOXA, OMC, TWX, WDC, Reduced Positions: NTR, CVX, CCE, APD, PX, PPL, V, NOC, MSFT, PKG, Sold Out: TV, DHR, HSY, PSX, FTV, AMAT, APH, PXD, BUD, T,

For the details of First Eagle Investment’s stock buys and sells, go to www.gurufocus.com/StockBuy.php?GuruName=First+Eagle+Investment

These are the top 5 holdings of First Eagle InvestmentMicrosoft Corp (MSFT) – 24,313,586 shares, 4.89% of the total portfolio. Shares reduced by 6.75%Oracle Corp (ORCL) – 40,738,675 shares, 4.53% of the total portfolio. Shares added by 0.15%Weyerhaeuser Co (WY) – 37,618,469 shares, 3.12% of the total portfolio. Shares reduced by 0.25%Schlumberger Ltd (SLB) – 19,128,265 shares, 3.03% of the total portfolio. Shares added by 9.89%American Express Co (AXP) – 12,851,346 shares, 3% of the total portfolio. Shares reduced by 0.68%New Purchase: Caterpillar Inc (CAT)

First Eagle Investment initiated holdings in Caterpillar Inc. The purchase prices were between $124.72 and $158.42, with an estimated average price of $138.66. The stock is now traded at around $151.08. The impact to the portfolio due to this purchase was 0.11%. The holdings were 305,393 shares as of 2017-12-31.

New Purchase: Huntsman Corp (HUN)

First Eagle Investment initiated holdings in Huntsman Corp. The purchase prices were between $27.17 and $33.42, with an estimated average price of $30.6. The stock is now traded at around $31.48. The impact to the portfolio due to this purchase was 0.09%. The holdings were 1,172,810 shares as of 2017-12-31.

New Purchase: Molina Healthcare Inc (MOH)

First Eagle Investment initiated holdings in Molina Healthcare Inc. The purchase prices were between $59.86 and $79.18, with an estimated average price of $72.08. The stock is now traded at around $87.59. The impact to the portfolio due to this purchase was 0.06%. The holdings were 339,551 shares as of 2017-12-31.

New Purchase: MGM Resorts International (MGM)

First Eagle Investment initiated holdings in MGM Resorts International. The purchase prices were between $29.69 and $34.22, with an estimated average price of $32.19. The stock is now traded at around $34.47. The impact to the portfolio due to this purchase was 0.06%. The holdings were 713,004 shares as of 2017-12-31.

New Purchase: Broadcom Ltd (AVGO)

First Eagle Investment initiated holdings in Broadcom Ltd. The purchase prices were between $239.5 and $284.62, with an estimated average price of $259.67. The stock is now traded at around $228.10. The impact to the portfolio due to this purchase was 0.04%. The holdings were 59,764 shares as of 2017-12-31.

New Purchase: PG&E Corp (PCG)

First Eagle Investment initiated holdings in PG&E Corp. The purchase prices were between $44.45 and $69.2, with an estimated average price of $56.04. The stock is now traded at around $40.30. The impact to the portfolio due to this purchase was 0.04%. The holdings were 369,296 shares as of 2017-12-31.

Added: Imperial Oil Ltd (IMO)

First Eagle Investment added to the holdings in Imperial Oil Ltd by 44.59%. The purchase prices were between $29.51 and $32.38, with an estimated average price of $31.12. The stock is now traded at around $28.40. The impact to the portfolio due to this purchase was 0.39%. The holdings were 17,514,595 shares as of 2017-12-31.

Added: Alphabet Inc (GOOGL)

First Eagle Investment added to the holdings in Alphabet Inc by 31.97%. The purchase prices were between $966.78 and $1085.09, with an estimated average price of $1032.42. The stock is now traded at around $1062.39. The impact to the portfolio due to this purchase was 0.15%. The holdings were 248,124 shares as of 2017-12-31.

Added: Pentair PLC (PNR)

First Eagle Investment added to the holdings in Pentair PLC by 202.63%. The purchase prices were between $67.47 and $71.17, with an estimated average price of $69.58. The stock is now traded at around $68.28. The impact to the portfolio due to this purchase was 0.09%. The holdings were 767,203 shares as of 2017-12-31.

Added: Twenty-First Century Fox Inc (FOXA)

First Eagle Investment added to the holdings in Twenty-First Century Fox Inc by 67177.33%. The purchase prices were between $24.97 and $35.24, with an estimated average price of $29.81. The stock is now traded at around $36.14. The impact to the portfolio due to this purchase was 0.08%. The holdings were 982,249 shares as of 2017-12-31.

Added: Western Digital Corp (WDC)

First Eagle Investment added to the holdings in Western Digital Corp by 92.75%. The purchase prices were between $77.11 and $92.91, with an estimated average price of $85.29. The stock is now traded at around $81.45. The impact to the portfolio due to this purchase was 0.07%. The holdings were 809,528 shares as of 2017-12-31.

Added: Time Warner Inc (TWX)

First Eagle Investment added to the holdings in Time Warner Inc by 2084.99%. The purchase prices were between $87.05 and $103.64, with an estimated average price of $94.52. The stock is now traded at around $95.39. The impact to the portfolio due to this purchase was 0.07%. The holdings were 324,383 shares as of 2017-12-31.

Sold Out: Grupo Televisa SAB (TV)

First Eagle Investment sold out the holdings in Grupo Televisa SAB. The sale prices were between $17.52 and $24.64, with an estimated average price of $20.73.

Sold Out: Danaher Corp (DHR)

First Eagle Investment sold out the holdings in Danaher Corp. The sale prices were between $85.26 and $94.62, with an estimated average price of $91.68.

Sold Out: Phillips 66 (PSX)

First Eagle Investment sold out the holdings in Phillips 66. The sale prices were between $90.24 and $102.06, with an estimated average price of $95.03.

Sold Out: The Hershey Co (HSY)

First Eagle Investment sold out the holdings in The Hershey Co. The sale prices were between $102.87 and $115.45, with an estimated average price of $110.01.

Sold Out: Fortive Corp (FTV)

First Eagle Investment sold out the holdings in Fortive Corp. The sale prices were between $71.1 and $74.58, with an estimated average price of $72.58.

Sold Out: Applied Materials Inc (AMAT)

First Eagle Investment sold out the holdings in Applied Materials Inc. The sale prices were between $49.77 and $58.8, with an estimated average price of $54.2.

Reduced: Nutrien Ltd (NTR)

First Eagle Investment reduced to the holdings in Nutrien Ltd by 65.07%. The sale prices were between $46.6 and $51.63, with an estimated average price of $48.5. The stock is now traded at around $48.29. The impact to the portfolio due to this sale was -1.61%. First Eagle Investment still held 20,071,900 shares as of 2017-12-31.

Reduced: Chevron Corp (CVX)

First Eagle Investment reduced to the holdings in Chevron Corp by 86.25%. The sale prices were between $113.54 and $125.98, with an estimated average price of $118.57. The stock is now traded at around $112.62. The impact to the portfolio due to this sale was -0.6%. First Eagle Investment still held 359,182 shares as of 2017-12-31.

Reduced: Coca-Cola European Partners PLC (CCE)

First Eagle Investment reduced to the holdings in Coca-Cola European Partners PLC by 94.7%. The sale prices were between $37.89 and $42, with an estimated average price of $40. The stock is now traded at around $37.54. The impact to the portfolio due to this sale was -0.56%. First Eagle Investment still held 338,076 shares as of 2017-12-31.

Reduced: Air Products & Chemicals Inc (APD)

First Eagle Investment reduced to the holdings in Air Products & Chemicals Inc by 70.62%. The sale prices were between $152.2 and $164.62, with an estimated average price of $159.19. The stock is now traded at around $156.33. The impact to the portfolio due to this sale was -0.55%. First Eagle Investment still held 679,877 shares as of 2017-12-31.

Reduced: Praxair Inc (PX)

First Eagle Investment reduced to the holdings in Praxair Inc by 44.71%. The sale prices were between $139.9 and $156.36, with an estimated average price of $148.27. The stock is now traded at around $150.32. The impact to the portfolio due to this sale was -0.55%. First Eagle Investment still held 2,175,523 shares as of 2017-12-31.

Reduced: PPL Corp (PPL)

First Eagle Investment reduced to the holdings in PPL Corp by 84.26%. The sale prices were between $30.76 and $38.37, with an estimated average price of $35.91. The stock is now traded at around $30.30. The impact to the portfolio due to this sale was -0.45%. First Eagle Investment still held 991,862 shares as of 2017-12-31.

Here is the complete portfolio of First Eagle Investment. Also check out:

1. First Eagle Investment’s Undervalued Stocks
2. First Eagle Investment’s Top Growth Companies, and
3. First Eagle Investment’s High Yield stocks
4. Stocks that First Eagle Investment keeps buying

The Five Most Taboo Topics In Retirement: #2 Sex

Recently, I wrote an article titled Sex In Retirement that provides some good context for this taboo.  Long story short, the article suggests that sex, or sexual activity is rarely discussed when it comes to retirement planning and as a result, people can have a lot of misconceptions about it.  I go on to share that:

"its common for people to assume that as people get older, their desires and capacity for sexual activity either diminishes or is ‘dirty’. Rationalizations for these thoughts and beliefs can range from a belief that as people age they become less attractive (thus less desirable), that their bodies cant handle it, or that men and women of a certain age and with sexual desires are just dirty old men or sex-crazed cougars and shouldnt be thinking about stuff like that. 

 The problem with these outdated beliefs is that our sexuality is a big part of who we are.  Its not just our biological prerogative, its part of our personality, self-image, and form of communication. None of which just goes away because people leave work behind.

 In fact, studies suggest that sexual activity can last for some people into their 80s and even 90s.  This trend is likely to continue as people near, or already in, retirement are healthier and more active than previous generations.  Furthermore, research finds that keeping the romance alive in a relationship is an important part of a satisfying retirement.

and many of the same factors that can contribute to supposed sexless years of retirement are the same factors that affect sexuality in persons of any age.  Things like boredom with your partner, alcohol abuse, lack of energy, and overall health all play a role in ones sex life.

I feel its important to re-share this information as a means to begin to normalize the topic of sex in retirement in order to address issues and encourage people not to let natural aging or performance derail their desire for intimacy.  Thankfully, this is taking place in nearly every family room with commercials for some of the more common issues that people face.  However, like the money taboo, sex conversations can go much deeper and cause challenging situations and questions throughout retirement.

What’s going on behind closed doors in retirement? (Photo Credit: Shutterstock)

Im reminded of an article I read several years ago, where a son got a phone call in the middle of the night from the nursing home where his mom with dementia was living.  They asked him to come in to discuss a recent incident with his mother and another patient.  When he got there, he was informed that his mother was caught having sex with another male patient, who wasnt her husband / his father.

It was the first time that I was made aware of the fact that the last faculty for patients with Alzheimer or dementia to lose is their desire for touch.  Which also brought up more questions.  Does that make it okay? Should the guy tell his father (her husband)? Should they move her to another facility?  Should they take legal action?  What if it happens again?

This led me to another article on the topic by Dr. Gillian Leithman where she asks the question, Is it adultery if youre spouse doesnt know you anymore?.  In the article she references the work of Rabbi Richard Address, the director of Jewish Sacred Aging, who recommends that couples have this discussion when determining living wills or making end of life decisions.

She writes, He advises people to consider writing an open letter to my spouse granting him/her permission to enter into a new relationship should one be stricken by an illness that leaves one incapable of being fully present.

Its definitely not your typical retirement or legacy planning conversation which is why its important to just start thinking and talking about these things.  It doesnt mean the topic will be easy or resolved in one sitting, but rather that its a real part of life and should be open for discussion.

Have you have thought about this or been impacted by factors like these?  Please share your story or input in the comments sections below.

Overall, sex can become a taboo topic if you arent familiar with the common problems that arise with aging and some of the challenges that longevity and disease can cause. Join me for taboo #3 Religion next (coming soon) or check out taboo #1 Money

If You Do Only 1 Thing This Social Security Month, Do This

Social Security plays a role in the lives of nearly every American, between the benefits that tens of millions of retirees and disabled people receive and the payroll taxes that are taken out of the paychecks of hundreds of millions of workers. These workers, their spouses, and other family members rely on Social Security benefits to protect them financially, and for many people, Social Security represents the majority of their income after they retire.

The Social Security Administration (SSA) wants everyone to know more about the benefits they’ve earned and has declared April to be National Social Security Month. So as the month draws to a close, there’s one thing you can do to make sure you get the most out of Social Security for yourself and your family.

Three Social Security cards with a brass key on top.

Image source: Getty Images.

Open an account on the “my Social Security” website

The SSA has embraced online innovation and sought to shift many of the things it used to do by paper onto its internet site. The my Social Security program is designed to help you manage your benefits effectively and efficiently while minimizing the chances of identity theft. In the past, the SSA sent out Social Security statements in the mail each and every year, but now, the agency is urging everyone to create a my Social Security account to access that information more securely on their computers or mobile devices.

Signing up for access is relatively easy. You’ll need some basic personal information in order to verify your identity, and you need an email address to set up your account. However, the process doesn’t take long.

What you can do with my Social Security

There are several things that the SSA’s online system lets you do. The most important is seeing your Social Security statement. On the statement, you’ll get information on what your estimated benefits are based on your past earnings record and assumptions about your future earnings. You’ll see how much you’ll be projected to get in monthly benefits at your full retirement age, as well as the higher monthly payments you’ll get if you wait until age 70 and the lower monthly payments from claiming earlier at age 62. You’ll also find out how much you’ll be entitled to receive if you become disabled, and learn what benefits your surviving family members will get if you pass away.

You also can access your earnings history using my Social Security, which provides the basis for estimating your retirement and disability benefits. There, you’ll see all of your earnings dating back to the beginning of your career. If you see problems, then the website gives you instructions on how to contact the SSA to correct the issue. It’s vital that this information be absolutely accurate, because your Social Security payments in retirement will be based on the 35 highest-earning years of your career after indexing for inflation.

Finally, my Social Security can help you replace missing documents. For instance, if you’ve lost your Social Security card or had it stolen, then the SSA can walk you through the process you’ll need to follow in order to get a replacement.

Make the most of my Social Security

Perhaps the most useful aspect of my Social Security is that it serves as a good central clearinghouse for information about Social Security. In conjunction with the broader ssa.gov website, my Social Security is a valuable tool you can use to find out more about your particular benefits and how the program will help you.

Even if you don’t sign up for online access, you still will get a Social Security statement in the mail every five years. But with so much to gain and no reason to wait, it’s smarter to get yourself set up with online access. That way, you’ll be able to keep tabs on your benefits and make sure you and your loved ones get every penny from Social Security that they deserve.

Somewhat Favorable News Coverage Somewhat Unlikely to Impact Ennis (EBF) Share Price

Headlines about Ennis (NYSE:EBF) have trended somewhat positive this week, according to Accern Sentiment. The research firm identifies positive and negative press coverage by reviewing more than 20 million news and blog sources. Accern ranks coverage of public companies on a scale of negative one to one, with scores nearest to one being the most favorable. Ennis earned a media sentiment score of 0.16 on Accern’s scale. Accern also assigned news articles about the industrial products company an impact score of 45.6204667251832 out of 100, indicating that recent press coverage is somewhat unlikely to have an effect on the stock’s share price in the near term.

These are some of the media stories that may have impacted Accern’s scoring:

Get Ennis alerts:

Ennis (EBF) Issues Earnings Results (americanbankingnews.com) Ennis beats by $0.07, beats on revenue (seekingalpha.com) Ennis up 4% post Q1 results (seekingalpha.com) Ennis, Inc. Reports Results for the First Quarter Ended May 31, 2018 (finance.yahoo.com) Ennis: Fiscal 1Q Earnings Snapshot (finance.yahoo.com)

Shares of Ennis traded down $0.05, hitting $20.20, during trading on Tuesday, according to Marketbeat.com. The company had a trading volume of 117,000 shares, compared to its average volume of 79,358. The firm has a market cap of $489.94 million, a price-to-earnings ratio of 15.66 and a beta of 0.69. Ennis has a fifty-two week low of $17.65 and a fifty-two week high of $21.50. The company has a quick ratio of 4.63, a current ratio of 5.52 and a debt-to-equity ratio of 0.11.

Ennis (NYSE:EBF) last posted its quarterly earnings results on Monday, June 25th. The industrial products company reported $0.36 earnings per share for the quarter, topping analysts’ consensus estimates of $0.29 by $0.07. The firm had revenue of $93.41 million for the quarter. Ennis had a net margin of 8.89% and a return on equity of 12.73%. equities research analysts anticipate that Ennis will post 1.25 EPS for the current fiscal year.

The firm also recently declared a quarterly dividend, which will be paid on Friday, August 3rd. Investors of record on Friday, July 6th will be given a dividend of $0.225 per share. The ex-dividend date is Thursday, July 5th. This is a positive change from Ennis’s previous quarterly dividend of $0.20. This represents a $0.90 dividend on an annualized basis and a yield of 4.46%. Ennis’s payout ratio is presently 62.02%.

Separately, Buckingham Research began coverage on shares of Ennis in a research report on Monday, June 18th. They issued a “neutral” rating and a $20.00 target price on the stock.

About Ennis

Ennis, Inc designs, manufactures, and sells business forms and other business products in the United States. The company offers snap sets, continuous forms, laser cut sheets, tags, labels, envelopes, integrated products, jumbo rolls, and pressure sensitive products under the Ennis, Royal Business Forms, Block Graphics, Specialized Printed Forms, 360 Custom Labels, ColorWorx, Enfusion, Uncompromised Check Solutions, VersaSeal, Ad Concepts, FormSource Limited, Star Award Ribbon Company, Witt Printing, B&D Litho, Genforms, PrintGraphics, Calibrated Forms, PrintXcel, Printegra, Curtis Business Forms, Falcon Business Forms, Forms Manufacturers, Mutual Graphics, TRI-C Business Forms, Major Business Systems, Independent Printing, Hoosier Data Forms, and Hayes Graphics brand names.

Insider Buying and Selling by Quarter for Ennis (NYSE:EBF)

Pluralsight: Absurdly Expensive After IPO

Pluralsight (PS) raced out of the IPO gates with a bang. The maker of cloud-based learning software for tech and information workers exceeded all expectations in its IPO, pricing shares at $15 and exceeding a price range that was already extended from the original plan – an indicator of a full order book from institutional investors. When the stock opened for public trading, the broader market pounced on Pluralsight as well, bidding up shares to a closing price of $20 and giving it a 33% Day 1 “pop”:

Chart
PS Price data by YCharts

The performance on the first day of trading is in line with where other software IPOs have performed this year, such as file collaboration company Dropbox (DBX) (+36% on the first day), e-signature company DocuSign (DOCU) (38%), and ERP software vendor Zuora (ZUO) (43%). Investors’ appetite for software and cloud IPOs certainly hasn’t waned, despite the huge influx of offerings this year.

I was mistaken about Pluralsight’s performance on Day 1 – I had initially believed the shares to be richly valued even at the $12-14 range, and that it would trade at a lower “pop” on its first day to compensate for the higher price. Despite the market’s enthusiasm for Pluralsight on its IPO date, however, I still hold the conviction that the company is absurdly expensive, especially after its huge IPO performance.

To me, it’s unclear what makes Pluralsight substantially more attractive than other recent software IPOs – yet its valuation at 11.8x forward revenues (which we’ll discuss shortly), far above its peer average, seems to suggest that the company possesses a unique edge. If anything, Pluralsight comes with added burdens. Here’s a short list of flaws: low gross margins (70% in FY17 versus high 70s/low 80s for the typical software IPO) that technically make Pluralsight’s revenue stream less valuable, a $135.5 million debt load (whereas most tech IPOs carry clean, cash-rich balance sheets), and only so-so growth (33% y/y in the last quarter and 27% y/y in FY17, middling at best among peers).

Pluralsight’s enthusiastic trading may be largely due to the “newness” factor. It’s essentially priced for perfection, and the slightest earnings stumble can send the stock tanking – look to another recent tech IPO that was overvalued at the outset, datacenter operator Switch (SWCH), as an example of this. Avoid this IPO at all costs – Pluralsight is worth no more than 7x EV/FY18 revenues, implying a price target of $12.50 and 38% downside from current levels.

Final offering details

Here’s a look at how the chips fell in the Pluralsight IPO:

Shares priced at $15, valuing the company at an initial market cap of $1.98 billion and pricing above the expected range of $12-14 as well as the initial stated range of $10-12. The company sold 20.7 million shares in the offering, or about 16% of the company, and raised $310.5 million. The company expects net proceeds of $282.7 million from the IPO, indicating a fairly normal expense ratio of 9% (for underwriting and legal expenses). The primary use of proceeds from the IPO are to pay down Pluralsight’s entire $135.5 million of debt, with the remainder going to general corporate purposes and working capital. Shares opened for trading slightly before noon in New York in the mid-$19 range and gradually traded up through the course of the day to close at $20, representing a Day 1 pop of 33% and valuing the company at $2.64 billion. A standard 15% greenshoe option is open, leaving the possibility of selling an additional 3.1 million shares at the original IPO price of $15, which would raise another $46.6 million. Shares held by insiders are subject to the traditional 180-day lock period before becoming eligible for sale. The deal was led by Morgan Stanley (MS) and J.P. Morgan (JPM).

The following table shows Pluralsight’s cap table post-IPO:

Figure 1. Pluralsight primary shareholders

Source: Pluralsight finalized prospectus

Pluralsight’s primary backer, tech-focused private equity firm Insight Venture Partners, will own about one-third of the company post-IPO. Aaron Skonnard, the CEO, owns about 10% of the company but holds more than 50% of the voting rights, due to his holding of the entirety of the Class C shares, which have 10x the voting power of the Class A shares offered in the IPO. There is also a third set of Class B shares, making Pluralsight one of the few tech IPOs to hold a triple-class share structure.

Investors raised some eyebrows when Snap (SNAP) went public due to founder Evan Spiegel’s supervoting control. With a smaller and much lower-profile company like Pluralsight, investors may raise the same concern.

Valuation update and key takeaways

With 131.975 million shares outstanding post-IPO, as per Pluralsight’s finalized prospectus, the company is currently trading at a market cap of $2.63 billion. After netting out the $32.5 million of cash on Pluralsight’s balance sheet as well as the $282.7 million of expected IPO proceeds, and adding back the company’s $135.5 million of debt, Pluralsight currently holds an enterprise value of $2.46 billion.

Revenues in FY17 were $166.8 million. Pluralsight hasn’t given any clear guidance for FY18, but its exiting FY17 growth rate was 27% y/y, and results from its Q1 (March quarter) point to accelerating growth at 33% y/y. If we assume Pluralsight’s revenue growth decelerates a few points this year to 25% y/y (the most likely scenario, as most high-growth technology companies tend to see full-year y/y growth rates decline even if some quarters see acceleration), we arrive at a revenue estimate of $208.5 million for FY18. This indicates that Pluralsight is currently trading at an EV/FY18 revenue multiple of 11.8x.

Of course, bulls are going to assume some level of accelerated growth for the year. If we instead assume 30% growth for FY18, we arrive at a valuation of 11.3x EV/FY18 revenues; if we go even further and assume 35% growth for the year, that valuation slides to 10.9x EV/FY18 revenues.

The main point here: no matter how you slice it, and no matter how optimistic you are about Pluralsight’s growth prospects, the stock is overwhelmingly expensive. The chart below shows where the most expensive stocks in the SaaS software sector are currently trading:

Chart
WDAY EV to Revenues (Forward) data by YCharts

All of these companies have achieved significantly greater scale and stability than Pluralsight, have much better operating margins and free cash flow results, and are all growing at faster y/y growth rates than Pluralsight. The question for investors is: does Pluralsight belong to this group of software favorites? In my opinion, with Pluralsight’s market opportunity limited to a fairly small niche, it’s not worth anywhere near its current valuation.

Pluralsight’s IPO pop has taken it to dangerously high levels. As the hype factor from the IPO begins to wear off, shares should begin to normalize. Stay cautious on this IPO.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Should You Buy Lululemon Athletica Inc. Stock in 2018? 3 Pros, 3 Cons

Lululemon Athletica inc. (NASDAQ:LULU) is back in shape. It had a rough couple of years, including product recalls and its infamous see-through pants problem. However, management has righted the ship. LULU stock is back near all-time highs, quarterly earnings results are solid, and the company is targeting big expansion plans overseas.

Is this finally the moment for Lululemon stock to start working out for shareholders again? Or will the company’s lingering issues send it tumbling? Here are the pros and cons for LULU stock heading into 2018.

LULU Stock Cons

Not a Cheap Stock: Lululemon is back to a premium valuation, no matter how you slice it. The company is trading at 38x trailing and 27x forward earnings. That’s not anywhere near the industry median for apparel.

The company is at a steep 4x price/sales ratio. And you had better believe in the company’s brand, because there are few other hard assets here. The company trades at more than 7x book value.

That’s all fine and well if Lululemon is able to grow for many years to come. However, if it’s just the first mover on an increasingly crowded fashion trend, those valuation ratios will not hold up over time. Competitors such as Nike Inc (NYSE:NKE) remain dangerous as well.

Is Athleisure a Fad? A long-running point of debate for LULU stock is whether the company’s products are a fad or the marker of a new persistent trend. Both sides make fair points. And to be honest, it could probably still go either way.

That said, Lululemon’s proponents will note that the company has continued its growth well past where initial doubters thought it’d reach. There’s no sign that yoga, as a trend, is dying off either. LULU stock bears, on the other hand, will point to Lululemon’s struggling Canadian sales.

Remember that the company is originally from Vancouver. It developed its brand and market share there first. So it is somewhat troubling that Canadian sales volume is down three years in a row, and by meaningful amounts.

That said, the Canadian economy isn’t performing that well right now, and besides, Canada is only 20% of Lululemon’s business today. Still, declining Canadian sales do suggest that the company will reach saturation on athleisure at some point.

Key Technical Resistance Level: LULU stock has had a bad history with the $80/share level. The stock originally hit the $80 level back in 2012 during its first big growth phase. Shares consolidated and then made another push for $80 in 2013. LULU stock did nothing until 2016, when it again rallied sharply, hit $80, and then went south.

After dropping below $50 earlier this year, investors have given LULU one more chance. Shares are almost back up to the pivotal $80 mark as we await all-important holiday sales figures.

Needless to say, anything less than great numbers, and LULU is going to get turned back yet again at this key overhead level. On the plus side, should Lululemon hit it out of the park for Q4, you’d likely see a large technical move up to the $90 area as traders buy the breakout over five-year resistance.

LULU Stock Pros

Making New Markets: The bulls have a decent retort for the “athleisure is tapped out” argument above. It’s that Lululemon is successfully stretching into new markets beyond just western women.

For one, we’re seeing the rise of male athleisure clothing. Lululemon is up to 18% of its customers being men, and the company sees this moving toward a quarter of its customers within the next few years. It’s unlikely Lululemon will ever be a company whose stores are full of men, but even a modest presence in male athletic apparel can move the needle.

On top of that, Lululemon is largely going abroad for future growth, with initiatives such as “Unroll China.” This year’s Unroll China event had expected participation of 10,000 people across six Chinese cities. There is reason to expect that Lululemon’s brand and products will make a good fit with consumers’ tastes in that region.

Strong Quarterly Results: To break through the long-standing barrier at $80/share and finally make new highs, LULU stock needs a solid holiday season. If last quarter is any guide, things are trending well for the company.

The company grew revenues by almost 14% year-over-year this quarter. That marked the company’s best growth rate since June 2016. The company grew net income by 16%.

That even faster pickup reflected Lululemon’s rising profit margins as it regains pricing power as the memory of the product defects starts to fade. And given the company’s quickly rising cash position, it authorized a sporty new $200-million stock buyback.

Activist Investor: For investors in LULU stock, the last five years have been a disappointment. With the company’s great brand and seemingly strong growth potential, not surprisingly, now shareholders are getting more vocal.

Their wishes for a more active role in management’s strategy appear set to play out. Major LULU stock holder Advent International — which bought out half of the founder’s stake in 2014 — is getting more directly involved.

Lululemon appointed Tricia Patrick, a managing director at Advent, to their board of directors at the end of August. Ms. Patrick previously worked in private equity for both Goldman Sachs Group Inc (NYSE:GS) and Bain Capital.

She brings the sort of activist shareholder value-focused point of view that Lululemon appears to be lacking. While there is no guarantee that activist shareholder strategies can get the LULU stock price up, it’s a reason for optimism.

Verdict for LULU Stock

LULU stock isn’t cheap at the moment. And it’s up against a key resistance level where it has failed many times before. So there is plenty of reason to be cautious right now.

With that said, if you believe athleisure has more room to grow, LULU stock could have a lot more upside. Just wait for a break above the key $80 level. It’ll be a safer trade once the stock breaks out, and short sellers start feeling the need to cover their positions.

At the time of this writing, the author held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.

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Hold Colgate-Palmolive India; target of Rs 1240: JM Financial

JM Financial’s research report on Colgate-Palmolive India

Colgates 4QFY18 volume growth was a tad below our forecast at 4% – on a soft comparator, though (volume had declined 3% in 4Q LY due to the continued impact of demonetisation). Overall revenue, though, was significantly lower (470bps) vs expectations due to a rather sharp deceleration in net realisation growth to merely 1% in 4Q vs 4-6% in past 6M – possibly a function of Colgates pre-GST price-hike having now anniversarised.

Outlook

Stock seems quite reasonably valued on relative basis at c.43x NTM EPS which is a c.15% discount to sector ex-ITC average of 50-51x, but lacks near-term trigger, in our view. Interestingly, Colgates trailing (FY18) EV-EBITDA of 29x is lower vs HULs 2-year forward (FY20) EV-EBITDA of 32-33x.

For all recommendations report,click here

Disclaimer:The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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How Warren Buffett Thinks We Should Fix Social Security

Social Security has nearly $3 trillion in reservesbut is expected to completely run out of money by 2034, thanks to the gradual retirement of the baby boomer generation and generally longer life expectancies. There are several potential ways we can fix the program, but all can be split into two main categories — raise taxes or cut benefits. Democrats generally are in favor of tax increases, while Republicans often propose some form of benefit reductions, such as raising the retirement age and cutting benefits for high-income retirees, among others.

Surprisingly, Berkshire HathawayCEO Warren Buffett’s ideas on how we should fix Social Security combine both types of changes. Here’s what Buffett (a Democrat) and his right-hand man Charlie Munger (a Republican) have said about Social Security and how we should fix it.

Warren Buffett speaking with reporters.

Image Source: The Motley Fool.

Here’s what Warren Buffett has said about Social Security

There are two main ways that we could fix Social Security’s projected financial shortfall — cut benefits or raise taxes. And past comments by Warren Buffett show that the Oracle of Omaha is generally in favor of the latter.

For starters, Buffett has advocated removing — or at least increasing — the Social Security maximum taxable earnings. For 2018, the maximum amount of income subject to Social Security payroll tax is $128,400. This leaves billions of potential Social Security tax from high earners on the table. And while Buffett hasn’t directly mentioned raising the Social Security payroll tax rate — currently 6.2% on both employers and employees — he has spoken in favor of the U.S. paying a greater percentage of GDP toward Social Security.

Buffett’s right-hand man Charlie Munger agrees: “If the country is going to grow at 2%-3% per annum for decades ahead, it’s child’s play to take a little larger share of the pie and divert it to those who are older. Social Security has a low overhead and does a world of good.”

However, it’s important to point out that not all of Buffett’s ideas about Social Security have to do with raising taxes. Buffett also pointed out that it may be necessary to raise the full retirement age, as well. “Perhaps the idea that 65 isn’t the right age for retirement anymore is correct and more change is needed,” Buffett said in a 2006 annual shareholder meeting.

The full retirement age has since been raised to 67 for Americans born after 1959, and it’s unclear what full retirement age Buffett would prefer. Along with this comment, Buffett elaborated that life expectancies have increased significantly since 1935 when Social Security was first implemented, so it doesn’t make sense that the full retirement age has remained the same.

One thing is for sure, though: Buffett is not in favor of cutting Social Security benefits in order to fix the program’s shortfall. “I don’t want to do anything to hurt the bottom 10%-20% of the population,” Buffett said in a 2005 annual shareholder meeting. “I’ve seen people who fear for the last years of their lives [that they won’t have enough money].”

Three Social Security changes that Buffett probably would approve of

A 2014 study by the National Academy for Social Insurance analyzed the long-term benefit of several potential Social Security fixes, as well as the costs of some potential improvements. Here are three fixes that would align with Buffett’s Social Security views and how much of an impact they would have:

Eliminating the taxable earnings cap over a 10-year period would fix 74% of the long-term financing gap all by itself. Raising the Social Security payroll tax rate from 6.2% to 7.2% over a 20-year period would generate 52% of the shortfall. Finally, gradually raising the full retirement age to 68 would take care of 16% of the funding gap.

Combined, these three changes would boost Social Security’s long-term revenue by 142% of the expected shortfall. In fact, if these three changes were implemented, we also could raise the minimum benefit to a level where nobody who worked for 30 years would retire poor, give every Social Security beneficiary a $65-per-month raise,and still have a long-term surplus.

Will it happen?

To be clear, I believe something will be done to fix Social Security before it runs out of money in 2034. History tells us that politicians will figure it out. And Buffett agrees. In his 2016 letter to Berkshire’s shareholders, Buffett predicted that in the future, “America’s Social Security promises will be honored and perhaps made more generous.”

Having said that, I wouldn’t hold my breath for Social Security tax increases to be passed while Republicans control the White House and both houses of Congress. While lifelong Republican and Buffett’s right-hand man Charlie Munger has spoken in favor of paying more, he acknowledges that most of his party doesn’t feel the same way.

“It’s a perfectly reasonable thing to do, to pay a little more in the future, to support what I regard as one of the most successful programs in the history of our country. I wish my own party would wise up,” said Munger at Berkshire’s 2006 shareholder meeting.

The bottom line is that Social Security is fixable. As Buffett has said, “our country can easily handle the Social Security issue.” It’s just a question of when and if the necessary changes will be implemented. The earlier a solution is put in place, the less painful the additional cost will likely be, but there still is plenty of time before anyone has to worry about their benefit checks being slashed.