AMP scraps earnings forecasts, citing coronavirus uncertainty

AMP has withdrawn its profit forecasts handed down in February that flagged flat growth for the wealth giant as the uncertainty of the coronavirus pandemic continues to grip.

The $203 billion company said its capital position and liquidity remains strong, but the uncertain environment and "resultant challenges" made it difficult to provide accurate forecasts for the year.

In February, AMP posted a $2.5 billion loss and scrapped its final dividend after a rough year that saw clients abandon its wealth management arm in the wake of the damaging findings of the royal banking commission, forcing it to launch a capital raising to offset massive writedowns.

AMP chief executive Francesco De Ferrari has withdrawn AMP’s forecasts for its business.Credit:Dominic Lorrimer

Forecasts predicted AMP would continue to face reputational issues that would impact outflows and operating earnings would be 20 per cent lower.

On Thursday, AMP confirmed 80 per cent of remediation payouts to clients were on track to meet the end of financial year deadline and the sale of AMP Life's remains would be completed by 30 June. The process for divesting the New Zealand wealth arm was also on track, it said.

“In response to uncertainty in Australia and globally, we have taken decisive action to support our clients and people, while working to maintain the strength and resilience of our business," AMP chief executive Francesco De Ferrari said.

“Whilst the situation is rapidly evolving, our immediate priorities are to support the public health efforts, help our clients make the right choices, and ensure our people are safe and working in healthy environments. Protocols and contingency plans are also in place to ensure our operations and client services can continue throughout the pandemic."

More to come…

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Valuation Charts All Over Map and That’s a Problem for Stocks

There has never been a bull market in stocks that lasted as long as this one that’s a week short of its 11th anniversary. A big reason it’s gotten this far has been that at every critical juncture, all those moments when a wave of panic seemed set to engulf the market, the buy-the-dip crowd came to the rescue, snapping up shares and turning the rout into a rebound.

Those buyers were driven by an unwavering belief in the earnings power of U.S. companies and a conviction that when valuations — expected earnings divided by share price — got cheap, they had to buy.

That mindset is getting tested now. The coronavirus-induced selloff — which shaved 11% off stocks last week alone — is introducing new elements that call into question earnings — the ‘E’ part of price-earnings ratios.

And the news only got worse over the weekend. The U.S. reported its first related fatality and Washington’s governor declared a state of emergency. Cases spread rapily in the U.K. and Iran as other countries imposed travel restrictions. China’s economy looked set to contract, and Goldman warned American companies may not see any profit growth this year.

“The problem is, you don’t know if the E is sustainable. Sixteen times earnings may turn out to be 25 times earnings, if the earnings are falling,” John Carey, managing director and portfolio manager at Amundi Pioneer Asset Management, said by phone. “We don’t know the extent or the duration of the coronavirus.”

And that sows further doubt into the minds of the bargain hunters. Still, many of them will try to make a case for jumping in now. Here are three possible scenarios — seen from both an optimist’s and a pessimist’s point of view — for valuatoins that take into account the altitude of interest rates, the persistence of growth and the reliability of earnings estimates.

Fed Model

Equity bulls can take the most comfort in a methodology sometimes called the Fed model that compares corporate profits to bond yields. All things being equal, it shows shares are better priced than any time in five years. By that measure, the S&P 500’s earnings yield — how much profits you get relative to share prices — is about 4 percentage points above the yield on 10-year Treasuries. That’s the biggest advantage since February 2016.

A similar framework considers the payout corporate America is handing out to shareholders. As of Friday, almost 60% of S&P 500 members offer dividend yields that exceed that on 10-year Treasury notes. That’s the highest proportion in at least two decades, data compiled by SunTrust Private Wealth Management and Bloomberg showed.

The widening yield advantage is one reason that Wells Fargo & Co.’s strategists led by Chris Harvey see a bottom forming for the market. “We suggest adding risk to the portfolio as well as putting new money to work,” they wrote in a note.

Skeptics remain. Some see nothing but recession signals in record-low bond yields. That would of course bode poorly for earnings and the stock market.

“Stocks are clearly the more attractive yield play,” Ed Clissold, chief U.S. strategist at Ned Davis Research, said in a phone interview. “The question is if those yields are valid. How big of an impact in earnings will there be and will companies need to cut dividends? That’s where that becomes tricky.”

Earnings Scenarios

While the speed of the correction caught investors off guard, to many analysts it was a long overdue reckoning. At its record on Feb. 19, the S&P 500 traded at 19 times forecast earnings, the highest level since the dot-com era. Now it’s 16.6, roughly in line with the five-year average.

Alas, it’s a little simplistic to think that the valuation problem has been fixed. The rapid spread of the coronavirus has prompted companies from Apple Inc. to Microsoft Corp. to slash sales forecasts. That calls into question any assumption earnings will rebound this year.

“I’m suspect of 2020 earnings,” Doug Ramsey, chief investment officer at Leuthold Group, said in an interview at Bloomberg’s New York headquarters. “Earnings really could crater because of this, because of the virus.”

Going by consensus analyst estimates, S&P 500 companies will boost profits by about 7% this year, with energy and technology firms expected to lead a pickup in growth. Yet with the virus outbreak disrupting global supply chains and hurting demand for travel, those targets are starting to seem fanciful.

Goldman Sachs Group Inc.’s strategists led by David Kostin last week trimmed their profit estimates, citing the virus. Growth for the S&P 500 will be flat this year, they predicted. In that case, stocks look much less attractive. At Friday’s close of 2,954.22, the S&P 500 would be valued at 18.4 times earnings, rather than the current reading of 16.6.

A more ominous scenario, Kostin warns, is that the virus gets out of control and the economy falls into a recession. Should that happen, profits would slide 13% this year, he predicts, causing a bear market and then some.

“The trajectory of the U.S. and global economy is highly uncertain at this time,” he wrote in a note. “For modeling purposes, we assume economic growth slows sharply during 1H 2020, but rebounds in 2H 2020 and 2021. A more severe pandemic could lead to a more prolonged disruption and a U.S. recession.”

PEG Ratio

Even if you’re willing to ride out the volatility and put faith in prospects for long-term growth, stocks can still be framed as pricey.

At Friday’s close, the forward price-earnings multiple for the S&P 500 came out to 1.5 times the rate at which analysts expect profits to rise over the next five years, according to a model kept by Yardeni Research Inc. While that reading in an indicator known as the PEG ratio is down from a record high of 1.8 reached in January, it’s still way above 1, a level that marked the bottoms during sell-offs in 2008, 2011 and 2018.

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Why SmileDirectClub’s Q4 Was Nothing to Smile About

When SmileDirectClub Inc. (NASDAQ: SDC) released its fourth-quarter financial results after the markets closed on Tuesday, the firm posted a net loss of $0.25 per share and $196.7 million in revenue. The consensus estimates had called for a net loss of $0.11 per share and $199.9 million in revenue. In the same period of last year, the teledentistry company said it had $128.5 million in revenue.

During the latest quarter, unique aligner shipments increased to 115,042, up from 76,372 in the fourth quarter of 2018.

The average aligner gross sales price decreased to $1,771 for both the fourth quarter and full-year 2019, compared to $1,797 and $1,764 in the same periods last year, respectively.

Looking ahead to the fiscal 2020 full year, the company expects to see revenues in the range of $1.00 billion to $1.10 billion and an adjusted EBITDA loss of $50 million to $75 million. Consensus estimates call for a net loss of $0.23 per share and $1.13 billion in revenue for the year.

Kyle Wailes, SmileDirectClub’s chief financial officer, commented:

As we have stated, 2020 is a year of significant, albeit controlled growth for SmileDirectClub. Our number one priority is to improve our club member experience. We will also increase our focus on the international infrastructure we have already built to best position our business for long-term global growth. Profitability will also be a big focus for us in 2020, and we understand the levers we have to pull to achieve profitability.

SmileDirectClub stock traded down over 26% at $8.32 a share on Wednesday, in a post-IPO range of $7.56 to $21.10. The consensus price target is $18.18.

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Virgin Galactic Options Show Earnings May Push Shares to Record

Virgin Galactic Holdings Inc. options investors are anticipating a 23% move in the stock after the company’s fourth-quarter earnings report, with a tilt toward contracts betting on gains that would propel shares past last week’s record high.

The stock has already more than tripled in 2020, trading around $35 on Tuesday afternoon, as institutional and retail investors alike pile in on the prospects of Richard Branson’s space transport company becoming profitable as an early entrant to a nascent industry. That enthusiasm is also evident in the options market, where daily volume has increased about 150% in the past four weeks.

Options expiring Friday are leaning bullish. Among all of them, calls outnumber puts by a ratio of 1.12-to-1. A closer look at just those contracts with strike prices between $27 and $43, which make up the bulk of open interest, shows calls outnumber puts by 1.27-to-1.

The earnings release due out after the close of trading Tuesday will be the second since Virgin Galactic Holdings Inc. acquired Virgin Galactic LLC for $1.3 billion in October. However, it will be the first accompanied by a conference call. Wall Street coverage is sparse, with only three analysts officially covering the stock. All of them have buy ratings, and their average price target is $19.

Options expiring on Friday make up about 21% of the total open interest. Among all contracts on Virgin Galactic, the ratio of calls to puts is 1.75-to-1. Current implied volatility is elevated at 307%, which is more than 3 times the 90-day average of 89.

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Six Flags earnings take giant drop

Six Flags CEO: Have to innovate regularly

Six Flags CEO Jim Reid-Anderson discusses the company’s membership program and the need for continuous innovation.

Six Flags Entertainment Corp. posted a fourth-quarter loss as attendance at its amusement parks dwindled.

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The Grand Prairie, Texas-based amusement park operator lost $11.2 million, or 13 cents a share, a sharp reversal from its $79.4 million profit a year ago. Revenue fell 3% year-over-year to $261 million as park admissions, spending on food and merchandise and sponsorships slipped.


The numbers of visitors to its parks — home to Kingda Ka, the world's tallest coaster, in New Jersey, and the iconic wooden Great American Scream Machine in Atlanta — dropped 3% while revenue from sponsorships and lodging dropped 1%.

CFO Marshall Barber announced plans to retire, effective Aug. 31, 2020. He will remain in his current role until Feb. 24, and help with his successor's transition into the role afterward.

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“We are working diligently to formulate a new strategic plan with the goal of restoring sustainable growth in attendance, revenue and profitability, and also to add directors with critical skills and experiences to our board,” CEO Mike Spanos said in a statement.

Six Flags' fourth-quarter loss pared the company's full-year profit to $179 million, or $2.11 a share, a 35 percent decrease from the prior year. Annual revenue rose 2 percent to $1.5 billion as attendance rose 2 percent, helping to make up for a drop in guest spending per capita.

Guest spending per capita slipped 21 cents to $42.37, mostly due to lower spending in the six parks that Six Flags began operating in 2018.

Looking ahead, Six Flags expects adjusted earnings before interest, taxes, depreciation and amortization this year of $435 million to $465 million, adding that soft organic revenue trends and higher operating costs due to wage increases and park upgrades will be "difficult to overcome."

As a result, Six Flags slashed its dividend by 70 percent to 25 cents per share.

The company will hold an investor day on May 28 to share its new strategic plan.


Six Flags shares fell 15.7% this year through Wednesday, compared with the S&P 500's 4.8 percent gain.

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Berkshire Hathaway Earnings: What to Look For

Despite investor concern about Berkshire Hathaway's (BRK.A) lagging stock price, the company has posted positive results in recent quarters, including a major surprise in its Q3 2019 earnings announcement. Now, investors will watch whether the conglomerate, led by CEO Warren Buffett, can keep up that progress. The company is expected to report Q4 2019 earnings by the end of February . When it does, investors will be watching to see if the company can deliver a robust return on equity (ROE), a key metric for a business with a portfolio as widely varied as Berkshire's.

After a tumultuous early part of 2019, Berkshire shares climbed following the most recent quarterly earnings release in November. Nonetheless, as of Feb. 15, Berkshire Hathaway stock has still lagged behind the S&P 500 over the past year, posting a total turn of 12.0% as compared with 23.1% for the S&P during that time. A big concern is the uncertain future of the company when longtime CEO Warren Buffett ultimately retires. 

For Q4 2019, analysts expect Berkshire Hathaway to report GAAP net earnings per share (EPS) of $14,025.83 on total revenue of $87.7 billion. These figures would constitute year-over-year (YOY) gains of 190.9% for EPS and 217.6% for revenue, both highly impressive. Part of the reason for these estimated gains is Berkshire's particularly weak showing in Q4 2018: for this quarter, the company posted losses of $15,423.78 per share as revenue plunged 53% to $27.6 billion due to a major writedown. 

Consensus EPS for Q4 2019 is expected to improve but is actually lower than reported EPS of $19,796.52 for Q4 2017, while consensus revenue for Q4 2019 represents a significant upward trend since reports of $59.0 billion in total revenue from Q4 2017.

In the past several quarters, Berkshire has changed how its GAAP earnings are computed, requiring the company to factor in the change in value of stock holdings owned by Berkshire into its earnings regardless of whether they have been sold. For this reason, it's useful to also consider the most recent quarterly earnings figures. In Q3 2019, Berkshire reported EPS of $10,119.00 on total revenue of $65.0 billion. Q4 2019 projections indicate an improvement relative to Q3.

Berkshire Hathaway Key Metrics
  Estimate for Q4 2019 Q4 2018 Q4 2017
Earnings per share $14,025.83 -$15,423.78 $19,796.52
Revenue (in billions) $87.7 $27.6 $59.0
Return on Equity 31.19% -28.49% 40.47%

Source: Visible Alpha

As a massive holding company, Berkshire Hathaway builds up large reserves of cash and is faced with the challenge of finding where to invest it to create earnings growth. Because of this, ROE, a measure of financial performance determined by dividing net income by shareholders' equity, is a particularly useful metric. Because of how varied the Berkshire business portfolio is and because of how much of that is in investments, it may help investors to think of the company itself as an investment portfolio. In this sense, investors can look toward the return of these investments for a sense of how Berkshire is performing. Berkshire holds a huge amount of stock investments in other companies and must now factor in an unrealized gain or loss, and as a result earnings figures can fluctuate significantly from one quarter to the next. This is the same for ROE.

From Q4 2016 to Q4 2017, ROE rose a about four-fold to 40.47%. However, in Q4 2018, ROE tumbled significantly to negative 28.49%. Analysts expect Berkshire to improve in Q4 2019, posting ROE of 31.19%.

Article Sources

  1. Business Insider. "Berkshire Hathaway Estimated Q4 Earnings Date," Accessed Feb. 18, 2020

  2. TradingView. "Berkshire vs. S&P 500 Stock Performance," Accessed Feb. 18.

  3. Visible Alpha. Accessed Feb. 15, 2020.

  4. Berkshire Hathaway. Q4 2018 Earnings Release. Accessed Feb. 18, 2020.

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