Quarterly Movers & Shakers

During the past three months, the S&P 500 index rose 3% despite very high volatility and a deep global recession brought on by the coronavirus. The following stocks generated 17% or better gains during the same period.

TRACTOR SUPPLY PLOWING UP GROWTH
Tractor Supply (TSCO) reported solid first quarter results with sales up 8% to $2.0 billion and EPS sprouting 13% higher to $.71. Free cash flow increased substantially during the quarter to $54.3 million. During the quarter, Tractor Supply spent $263.2 million on stock repurchases and $40.8 million on dividends. Management expects record breaking second quarter sales with 24% to 29% growth and gross margin expansion. Tractor Supply’s stock plowed up a 38% gain during the past quarter. Hold.

FACEBOOK $60 BILLION IN CASH
Facebook (FB) reported first quarter revenue rose 18% to $17.7 billion with both net income and EPS more than doubling. With people sheltered in place around the world, Facebook experienced increased engagement, especially in messaging and video calls, as people relied on its products more than ever to connect with the people and organizations they care about. Free cash flow increased 36% during the quarter to $7.4 billion with the company repurchasing $1.3 billion of its common stock. Facebook ended the quarter with a fortress balance sheet with more than $60 billion in cash. Given the firm’s financial strength, it still expects to hire 10,000 people this year. Subsequent to quarter end, Facebook announced a $5.7 billion investment in Jio Platforms in India. Facebook’s stock advanced a friendly 17% during the past quarter. Hold.

APPLE $50 BILLION SHARE BUYBACK
Apple (AAPL) reported fiscal second quarter sales rose 1% to $58.3 billion with net income down 3% to $11.2 billion. Free cash flow increased 24% during the first half of the year to $40 billion. During the first half, the company paid $6.9 billion in dividends and repurchased $39.3 billion of its stock. Apple ended the quarter with $104 billion in cash and investments net of long-term debt. Apple announced a 6% increase in its dividend and announced a new $50 billion share repurchase program. Apple’s stock picked up a 16% gain during the last three months, contributing to its crisp 810% total return over the last decade. Hold.

UNITEDHEALTH 23.6% RETURN ON EQUITY
UnitedHealth (UNH) reported first quarter revenues increased 7% to $64.4 billion with net income down 2% to $3.4 billion. The firm paid $1 billion in dividends and repurchased $1.7 billion of stock during the quarter. A 23.6% return on equity reflects strong profitability. The company expects full year 2020 EPS of $15.45-$15.75. UnitedHealth’s stock rose a healthy 20% during the past three months. Buy. F5 Networks reported fiscal second quarter sales increased 7% to $583.5 million. F5’s business was boosted by its ability to help customers transition to remote work. The company ended the quarter with over $820 million in cash. Management’s current focus is to build the company’s cash position. F5’s stock whirled 21% higher during the last three months. Hold.

FASTENAL FREE CASH FLOW +28%
Fastenal (FAST) reported first quarter sales increased 4% to $1.4 billion with net income also increasing 4% to $203 million. During the quarter, Fastenal generated $192 million in free cash flow, up 28% from last year. During the quarter, Fastenal returned $196 million in cash to shareholders through $144 million in cash dividends and $52 million in share repurchases. With its strong balance sheet, Fastenal is well prepared to resupply a re-starting economy. Over the last 20 years, Fastenal’s stock has bolted 1,584% higher. Hold

CISCO SYSTEMS $28 BILLION IN CASH
Cisco (CSCO) reported fiscal third quarter revenues declined 8% to $12 billion with net income dropping 9% to $2.8 billion. The pandemic has driven organizations around the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before. Cisco ended the quarter with $28 billion in cash, $11.6 billion in longterm debt and $35.7 billion in shareholders’ equity. Cisco’s stock routed up a 20% gain during the past three months, contributing to an 865% total return over the last 23 years. Hold.

HORMEL FOODS FREE CASH FLOW DOUBLED
Hormel (HRL) reported record fiscal second quarter sales of $2.4 billion. The shelter-in-place restrictions drove higher and sustained retail sales for each of Hormel’s segments. The firm gained market share in the majority of its retail categories as consumers purchased branded foods like Spam and Skippy’s at an accelerated rate. Free cash flow more than doubled during the second quarter. Hormel has provided a meaty 840% total return over the last 19 years. Hold.

Quarterly Rating Change From Buy To Hold

COGNIZANT TECHNOLOGIES 50% GROWTH IN DIGITAL WORK
Cognizant Technology Solutions (CTSH) reported revenue increased 2.8% to $4.2 billion. During the quarter, Cognizant Technology Solutions generated $385 million in free cash flow with the company returning $632 million to shareholders through dividend payments of $121 million and share repurchases of $511 million. The company ended the quarter with $4.3 billion in cash, $2.4 billion in long-term debt and $10.6 billion in shareholders’ equity on its strong balance sheet. Cognizant reported a 33% increase in contract awards during the quarter, the strongest quarterly signings since 2017. This included 50% growth in digital awards as companies rapidly shift to digital business models. Hold.

NIKE STRONG BRANDS
Nike (NKE) reported fiscal third quarter revenues rose 5%, or 7% on a constant currency basis, to $10.1 billion. Nike expects to emerge from the coronavirus crisis with its brands stronger than ever as it gains market share and “strong brands get even stronger.” While Nike’s strong brands are a competitive advantage, so is its financial strength. Liquidity is not an issue for Nike as it maintains a sturdy balance sheet with more than $3 billion in cash and ample capital fueled by its abundant cash flows. During the third quarter, Nike repurchased 9.6 million shares of common stock for about $957 million with about $11 billion remaining authorized for future share repurchases. Hold.

PAYCHEX DIVIDEND YIELDS 3.4%
Paychex (PAYX) provided a COVID-19 business update noting that while the impact on the economy of COVID-19 is severe, it is seeing early signs of moderation and stabilization in key business metrics. Paychex’s financial position remains strong, and it expects its cash and projected operating cash flows will support normal business operations, capital expenditures, share repurchases and dividends for the foreseeable future. The dividend yields a solid 3.4%. For the full 2020 fiscal year, Paychex expects revenue growth of 7% with net income and EPS growth of 6%. Hold.
 

T. ROWE PRICE 15 MILLION SHARE BUYBACK
T. Rowe Price (TROW) reported first quarter revenues rose 10% to $1.5 billion. T. Rowe Price is in very strong financial shape with no debt and $3.4 billion of cash and investments, which enabled the company to respond to the drop in its share price by repurchasing 8.3 million shares during the quarter. The share repurchase program was expanded by 15 million shares. Hold.

ULTA BEAUTY REOPENING STORES
Ulta Beauty (ULTA) has begun to reopen stores with more than 330 stores open to guests. While still early, Ulta has seen stronger-than expected sales in reopened stores and great engagement with its salon services. Ulta Beauty has a strong brand and is confident it will emerge from this crisis well positioned to accelerate market share gains. Hold.

Quarterly Rating Change From Hold To Buy

3M DIVIDEND YIELDS 3.8% 
3M (MMM) reported first quarter sales increased 2.7% to $8 billion. Since Jan., 3M has doubled production of N95 respirators to 100 million per month at its global manufacturing facilities. 3M will double its capacity again within the next 12 months. During the quarter, 3M generated $1.2 billion in operating cash flow, up 16% from last year. 3M returned $1.2 billion to investors during the quarter through dividends of $847 million and share repurchases of $365 million. While 3M remains committed to its dividend, the company has suspended its share repurchase program. The dividend currently yields an attractive 3.8%. Management currently expects the second quarter to be the weakest quarter for the global economy with trends then improving. Buy.

WALGREENS DIVIDEND YIELDS 4.4% 
Walgreens Boots Alliance (WBA) reported second quarter sales increased 3.7% to $35.8 billion. During the first half of the fiscal year, Walgreens generated $1.8 billion in free cash flow. Thanks to the strong cash flows, the company paid dividends of $857 million and repurchased $913 million of its common stock. Management plans to repurchase $1.7 billion of stock in fiscal 2020 and to continue to increase its dividend thanks to the tremendous cash flows of the business. The company remains on target to deliver in excess of $1.8 billion in annual cost savings by fiscal 2022.

Management knows the current situation is temporary. With the company’s sound fundamentals, it expects to emerge from the crisis in a strong position. Buy.