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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 turn of events. Costco News: Costco reported sales for the retail month of October after the bell closed Wednesday night. For the four-week period, net sales rose 7.7% year-over-year to $17.73 billion. Total comparable sales rose 6% in October, with gasoline price inflation positively impacting total reported corporate sales by about 2.8%. The stock rose 0.5% on Thursday, recovering some of the previous session’s 3.3% drop. Remember: top results are always important, but when it comes to retail, we especially like to analyze same-store sales (also known as comparable sales or comp.) because this metric provides better insight into business trends. Analyzing comparable sales helps us understand whether a company can attract more customers and sell them more goods. Also, since gasoline prices can be volatile, the 6% figure does not represent a clear indication of demand for the commodity. To get an even better sense of how the retail business is doing, Costco breaks down its comparable sales without the effects of changes in gasoline prices and foreign exchange rates. This measure, called “core comps,” is the best metric to analyze because it removes the influence of elements beyond the company’s control. Costco’s total core revenue rose 6.7% during the period, beating estimates of 6.1%. Specifically, in the United States, basic income taxes rose 6.1%, slightly missing the 6.3% estimate. The Club’s View: We continue to have a favorable view of Costco, after another solid month of core company sales growth and two potential catalysts — a special dividend payout and a membership fee increase — on the horizon next year. Costco’s next full earnings report — which, unlike monthly sales numbers, includes profit data — is due on December 8. With a recession on the horizon and inflation-wary consumers, we are selective about our exposure to retail. . Costco is one of two retailers we own, along with TJX Companies ( TJX ), whose shares are up more than 13% in the past month. Amazon news: Amazon expanded its hiring freeze to the company’s entire workforce in a notice to employees Thursday. “We anticipate that we will maintain this hiatus for the next several months” because of the worsening economic woes, Amazon HR chief Beth Galetti wrote to staff. The company halted retail hiring last month. 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 has grown sharply on the retail side with massive hiring to meet extraordinary demand at the start of the pandemic. Covid-19. . Now that Covid is less of a problem, Amazon is trying to adjust its operations. Club View: We are encouraged to see that Amazon recognizes the need for further belt-tightening in these uncertain economic times. Jim Cramer has been saying for some time that tech companies need to address their high headcount. While we don’t want people there to lose their jobs, a hiring freeze may not be enough for the Federal Reserve, which is looking to slow the labor market and cool wage inflation. Amazon has fallen every trading day since its third-quarter results were released on Oct. 27. Humana News: Health insurer Humana is buying back $1 billion worth of stock. In Thursday’s regulatory filing, Humana announced that it has entered into accelerated share buyback agreements with Goldman Sachs and Mizuho. The $1 billion buyback is part of a larger $3 billion buyback authorization from February 2021. The stock fell in just one session over the past 11 trading days, including Thursday. Humana is known to use accelerated share repurchase agreements (ASRs) instead of buying back its shares through more traditional open market purchases. Humana last did so in January and December 2020. The ASR allows the company to buy back shares much more quickly than it would have to if it bought the same amount on the open market. That’s because U.S. securities laws limit how much of its common stock a company can buy on the open market in a day. The current limit is 25% of the average daily trading volume. Club Opinion: We are encouraged by the announcement of the acquisition of Humana, which came one day after solid third-quarter results and favorable comments about next year. Humana is a big winner for us this year, with the stock up 22% year to date and hitting a new high on Thursday. In contrast, the S & P 500 index fell by almost 20%. Against this backdrop, management’s decision to mediate and repurchase some shares seems to indicate a sense that the stock can go higher. Humana last did so on Jan. 6, less than a week after the stock plunged 19% on a sharply cut estimate for Medicare Advantage (MA) membership growth. HUM shares are up more than 50% since the close on January 6. While it’s impossible to know for sure where the stock will go from here, we think Thursday’s buyback news is generally positive. More broadly, we think defensive parts of the market, such as health care, should remain bullish in the short term, especially after Federal Reserve Chairman Jerome Powell’s dovish tone on Wednesday. Bausch Health News: Bausch Health reported third quarter results before the opening bell on Thursday. Sales of $2.05 billion, up 2% organically from a year earlier, were roughly in line with estimates. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $766 million missed the consensus estimate of $781 million. The struggling stock traded up and down in Thursday’s session. Here’s a look at quarterly sales by segment, reallocated to Salix, International, Diversified Products, Solta Medical and Bausch + Lomb (BLCO) as of Q1 2022. After the initial public offering in May, Bausch + Lomb is a separate entity from BHC. However, BHC owns the majority of Bausch + Lomb, so these financials still appear in BHC’s reports. Salix: $544 million vs. $535 million expected International: $250 million vs. $244 million expected Solta Medical: $72 million vs. $72 million expected Diversified Products: $238 million vs. $244 million expected Bausch + Lomb: $942 million vs. to an expected $949 million Going forward, management is forecasting full-year revenue in fiscal 2022 between $8 billion and $8.17 billion, down from their previous forecast of $8.05 billion to $8.22 billion. However, updated guidance is in the bracket of the consensus estimate of $8.11 billion. Full-year adjusted EBITDA is expected to be between $2.99 billion and $3.09 billion. While this is lower than the previous guidance range of $3.02 billion and $3.12 billion, it is in line with expectations of $3.03 billion. The downward revisions reflect Bausch + Lomb’s updated guidance, with management noting that their expectations for full-year combined sales of Bausch Pharma and Solta Medical remain unchanged. Club Opinion: This position remains a huge disappointment. As wrong as it may have been to short this stock at some point, we think it would also be wrong to sell at this point given that Bausch Health still owns roughly 88% of Bausch + Lomb. In addition, management reiterated its view that monetizing or distributing this position to BHC shareholders continues to make strategic sense. Based on the latter’s roughly $4.73 billion market cap, Bausch Health’s stake is worth about $4.2 billion. That’s a little less than double Bausch Health’s nearly $2.4 billion market cap. Importantly, however Bausch Health decides to dispose of its BLCO stock—whether by selling more on the open market or by distributing to existing shareholders—it will not affect the value (except for normal market fluctuations) because there are no new shares . created. The reason Bausch Health trades consistently below the valuation of its BLCO stake is debt. While the debt burden remains high, management is taking steps to make it more manageable, swapping $5.6 billion of outstanding senior unsecured debt securities for $3.1 billion of newly issued senior secured notes, which resulted in a principal reduction of USD 2.5 billion. For those unfamiliar with these terms, they refer to the hierarchy within the capital structure. As you may know, debt (like bonds) is considered safer because the principal is legally required to be repaid. Common equity is much riskier because there is no guarantee that you will ever see your principal again. (Preference shares are ranked above common equity but below debt.) The difference is the transition from unsecured to secured. This is about insurance. Secured debt means that Bausch Health has put up assets as collateral, meaning that in the event of default, the lenders take ownership of the secured assets. In exchange for the insurance, the debt on the balance sheet has been reduced and less interest will be paid in the future, so the company’s financial position has improved with this move. Finally, regarding the Xifaxan patent dispute, management did not offer much information other than that an appeal has been filed with the US Court of Appeals for the Federal Circuit and that it expects the process to take approximately 12 to 18 months. In July, BHC shares fell after a district court judge’s oral order essentially cleared the way for generic 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 charity fund is long COST, AMZN, HUM and BHC. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim closes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charity’s portfolio. If Jim talked about a stock on CNBC, he waits 72 hours after the trade alert is issued before he executes the trade. THE ABOVE INFORMATION IN THE INVESTING CLUB IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY SHALL EXIST OR BE CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
Shopping carts line up outside a Costco store on February 25, 2021 in Inglewood, California.
Mario Tama | Getty Images
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MY NUMBER 1 RECOMMENDATION TO LOSE WEIGHT: CLICK HERE
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