Tuesday Ticker: BlackBerry’s QNX division driving big gains

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By Jeff Sanford
 
Toronto, Ontario — October 2, 2017 — This week’s Tuesday Ticker: Axalta pulls out of Venezuela, Sherwin-Williams cuts earnings forecasts in wake of hurricanes, BlackBerry’s stock is on the way up thanks to automotive software division QNX and much, much more!
 
The big US stock indexes continue to trade at record highs. The S&P 500 index is hanging in around 2,500. The Dow Jones recently closed at an all-time high of 22,487. 
 
A word of warning is due here though. Historically, October is the month that has realized more market crashes than any other. Some worry about a dreaded “October Surprise,” but as the fourth quarter gets underway, markets are buoyant. 
 
Stock markets have benefitted from strong growth in the technology sector. Analysts in the sector marvel at the remarkable growth of a group of companies, the so-called FANG stocks, Facebook, Amazon, Netflix and Google. As the technology sector has grown, the FANG stocks have grown even faster. 
 
Now, however, it seems one tech stock has even outpaced the FANG stocks. Canadian tech company BlackBerry has seen its shares appreciate by more than 50 percent over the last year. The company recently announced earnings that were above Wall Street’s estimates. Shares in BlackBerry spiked 15 percent in a single day on the news. 
 
The company also continues to announce deals at auto subsidiary, QNX, which makes digital tech for cars. The latest announcement from QNX is a deal to develop self-driving technology with auto parts giant Delphi. 
 
Auto stocks have been doing well in general. Many seemed to think that a peak in sales would temper interest in the sector. But even as sales retreat from recent records, sales are still strong. The industry expects to sell over 16 million units this year. GM stock is doing quite well of late and the company continues to post solid sales numbers. 
 
Another auto stock enjoying some strong growth is Geely, the Chinese auto maker that bought Volvo. Sales growth has driven a 200 percent rise in the share price over the past year. There is a plan at the company to electrify the London, UK, black cab fleet. Geely also owns the company that produces the iconic London cabs. 
 
Speaking of China, Warren Buffett has just bought a $230 million stake in Chinese electric car maker BYD. The company is now the largest maker of e-vehicles in the country. It is thought China may be on the verge of announcing a general phase out of gasoline-powered cars. Such a major shift would be harder to carry out in democratic western countries where political power is more widely diffused among many governments and industries. Whatever the case, BYD stock has been on a tear this year, rising 60 percent so far.
 
Boyd Group
A report by the Ledger Gazette notes that the Boyd Group Income Fund has received an average recommendation of “Buy” from the seven ratings firms that are covering the stock, and that the average 12-month price target is now CDN $106.71. Shares in Boyd are currently trading around CDN $92 per share. 
 
Sherwin-Williams 
As the effects of hurricanes and earthquakes pile up, Sherwin-Williams announced this week that it will have to cut guidance for sales and earnings estimates for the third quarter ending September 30, 2017. 
 
The company said it has to update its numbers in light of the impact of Hurricanes Harvey, Irma and Maria on Sherwin-Williams’ operations in Texas, Florida, the Caribbean and neighboring areas, as well as two earthquakes in Mexico. According to a statement from the company, “… more than 600 stores were impacted by the storms and 40 Caribbean locations are still closed.” 
 
As a result the company now expects third-quarter revenue to be reduced by $50 million to $70 million, as lost sales days and the costs of cleaning up negatively affect earnings. The company also expects a $1.10 per share charge from costs stemming from its acquisition of Valspar. According to CEO John Morikis, “While we are still assessing the longer term impact of these tragic events on our business … the sales momentum we are seeing across most geographies–particularly in our company-operated stores in the unaffected regions of the US and Canada–should enable us to recover some of the third quarter earnings shortfall over the balance of the year.”
 
The company also announced this week that Paul Keel is appointed to the position of Senior Vice President, Business Development and Marketing-Sales, and Jon Lindekugel is appointed to the position of Senior Vice President, Supply Chain. 
 
Axalta 
Axalta announced this week it had halted production in Venezuela. The South American country has descended into anarchy as the economy has crumbled. The country is a petro-state, reliant on revenues from crude oil sales. As the price of crude oil plummeted over the past year, the country has suffered. It is no wonder Axalta is shutting down production in the country. The company wrote off the value of the division on its books last quarter. 
 
Axalta also announced last week that Robert Ferris has joined the company as Vice President of Corporate Affairs and Chief Communications Officer. The former VP of Corporate Affairs, Matthew Winokur, has been named as Vice President of Sustainability. In this new position at the company, Winokur will work to, “… integrate, optimize and communicate the company’s sustainability initiatives associated with its supply chain, manufacturing, coatings, product application technologies, and CSR programs.”
 
GPC (NAPA)
Regulatory filings show that the Ontario Teachers Pension Plan Board increased its stake in Genuine Parts Company by 13.1 percent during the 2nd quarter. The fund owned 89,320 shares of the specialty retailer’s stock and bought an additional 10,367 shares during the period.
 
RBC Capital Markets recently increased its target price on GPC shares from $85.00 to $98.00. GPC shares have done well of late, rising 6 percent in a recent trading session. It seems investors like the recently announced acquisition of European parts distributor, Alliance Automotive Group (AAG). The deal was noted in last week’s Tuesday Ticker. This past week, executives with GPC held a conference call to discuss the deal. President and CEO, Paul Donahue, hosted the call. According to him, the plan to acquire AAG is an, “… important strategic acquisition for Genuine Parts Company.” 
 
AAG includes 1,800 company-owned and affiliated outlets across France, the UK and Germany, and annual billings are running at over $2 billion. 
 
“AAG achieved their market leading position with a consistent track record of organic revenue and earnings growth supported by strategic M&A investments to gain scale, efficiencies and geographic coverage in the large and fragmented European markets,” said Donahue. “So we are pleased to expand our footprint into the European marketplace with critical scale, and the leading market position in the automotive aftermarket. We are confident that AAG will deliver significant sales growth and earnings accretion to GPC.”
 
Donahue also noted that the big European markets the company competes in include only a few major independent players in any one region, “… and the industry is experiencing a trend of consolidation. For these reasons, we are excited for the future growth potential we see in the European aftermarket, both within AAG’s existing markets and across Europe.”
 
The CFO, Carol Yancey, related the financial details of the deal on the call: “In the fourth quarter of 2017, we expect to pay approximately $2 billion for 100 percent of the stock … and also the repayment of their existing debt. We expect to finance the acquisition with the combination of new term loan agreements, new senior notes, as well as the upsizing of our existing revolving credit agreement.”
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