Economy:
The BLS reported last Friday that the economy added 315,000 jobs in August. The unemployment rate rose .2% to 3.7%. The labor participation rate increased by .3% to 62.4%. Average hourly earnings rose 10 cents and was up 5.2% over the past year. "The change in total nonfarm payroll employment for June was revised down by 105,000, from +398,000 to +293,000, and the change for July was revised down by 2,000, from +528,000 to +526,000. With these revisions, employment in June and July combined is 107,000 lower than previously reported." Employment Situation Summary - 2022 M08 Results The U-6 rate rose from 6.7% to 7%. Table A-15. Alternative measures of labor underutilization - 2022 M08 Results
While there are signs that hiring has slowed a tad and layoffs in several industry sectors have started to increase some, the jobs data is still inconsistent with an ongoing recession in the third quarter.
The August ISM manufacturing index was reported at 52.8 which is still in expansion territory. Manufacturing PMI® at 52.8%; August 2022 Manufacturing ISM® Report On Business®
The average annual CPI rate over the next five years, predicted in the 5 year TIP breakeven inflation rate, has been trending down since peaking at 3.6% in March 2022.
5-Year Breakeven Inflation Rate-St. Louis Fed
Entering the Superbubble’s Final Act by Jeremy Grantham (8/31/22)
++++
Notwithstanding the increased threats against FBI officials resulting from Trump and other republicans purposely stoking anger against a lawful search and seizure, Trump increased the odds for more violence and threats against the FBI and DOJ in a speech last Saturday in Wilkes-Barre, Pennsylvania.
Trump: "The FBI and the Justice Department have become vicious monsters, controlled by radical left scoundrels, lawyers and the media, who tell them what to do. . . There could be no more vivid example of the very real threats of American freedom than just a few weeks ago you saw when we witnessed one of the most shocking abuses of power by any administration in American history. The shameful raid and breaking of my home Mar a Lago was a travesty of justice". Trump also called President Biden the "Enemy of the State". Donald Trump: What we learned from his rally in Pennsylvania - BBC News; Trump calls Biden 'enemy of the state' during 1st rally since Mar-a-Lago search - ABC News
Trump's filing opposing Mar-a-Lago raid forced DOJ's hand, experts say - ABC News Trump's filing requesting the appointment of a Master provided an opportunity for the DOJ to shoot down Trump's false claims about cooperation with facts. Some of the top secret documents were found in Trump's unlocked office drawers. DOJ Response to Trump Motion for Special Master.pdf The filing and exhibits are worth reviewing for those who have been permanently immunized from accepting accurate information.
The actual contents of the top secret documents were not disclosed in the photo taken by the DOJ and released to the public. The general reason for the top secret classification is shown on the cover sheets. Donald Trump's 'Top Secret' Files Photos—What We Do Know, What We Don't
Trump Lawyers May Become Witnesses or Targets in Documents Case - The New York Times Trump is toxic and a lawyers worst nightmare of a client.
Christina Bobb reportedly signed the statement, attached as Attachment E to the the recent DOJ filing:
So who is the person who provided her with information that all documents requested in the GJ subpoena had been produced after making a "diligent" search?
I anticipate that the next move on that front will be for the Grand Jury to subpoena Christina Bobb. I view that as a near certainty. Trump lawyer told investigators she conducted 'diligent' search of Mar-a-Lago just days before DOJ issued subpoena - Raw Story; Trump Lawyers' Mar-a-Lago Search Missed More Than 100 Classified Documents; Who is Trump attorney Christina Bobb, who met FBI at Mar-a-Lago? | The Hill
Anyone who she identifies as providing her information about the search will then be subpoenaed by the GJ.
The GJ would want to know about her "diligent" search, who told her that all responsive documents had been turned over, the names of everyone involved in the search, and whether Trump or someone else told her to withhold documents in response to the GJ subpoena.
The fraud/crime exception to the attorney client privilege may come into play. The Crime-Fraud Exception to the Attorney-Client Privilege | Justia; Trump lawyers could lose the benefit of attorney-client protection - The Washington Post Based on what is known now, there is reason to further investigate whether there was a criminal obstruction of a GJ investigation.
If it turns out that Trump told his lawyers to withhold documents covered by the GJ subpoena, and I am not venturing an opinion on that subject until more facts are publicly known, other than to note that something is amiss, then I do not see how the DOJ could refrain from indicting Trump, regardless of the considerations about the likely violence and threats of harm that will be committed and communicated by Trumpsters in response.
I am not surprised that a Trump appointed district court judge, approved by the right wing Federalist society, granted the motion to appoint a master. The purpose IMO is to slow down and impede the DOJ's criminal investigation. Barr referred to this motion as a "red herring" and a "waste of time" Barr, Trump's loyal AG, suggests Trump 'deceived' the government over classified records
Trump pick for Michigan Secretary of State Kristina Karamo threatened to kill family-Court Documents Ms. Karomo denies the charges. I view her as the typical republican candidate for Secretary of State, the state official who supervises both federal and state elections. She claims that the Dominion voting machines flipped votes from Trump to Biden, offering no proof of course. And, like other GOP candidates for this critical election position, she claims that Demagogue Don won the election. Michigan Republican Kristina Karamo's false election claims; The MAGA Poll Worker Who Might Run Michigan’s Elections - The Atlantic There are also news reports that she has an affinity for QAnon. QAnon guest speaker: Michigan secretary of state candidate shows who she really is; Trump Is Pushing QAnon Candidates Into the GOP Mainstream Don the Authoritarian is doing whatever he can to install election officials who are loyal to him.
Pressure on Trump loyalist Jeffrey Clark as ex-DoJ colleague works with prosecutors
Witnesses to Russia's Massacre in Mariupol - The New York Times
Lukoil Chairman Ravil Maganov dies after fall from hospital window, sources say Maganov had previously expressed opposition to Russia's invasion of Ukraine. Russia has been connected with several "accidental" falls out of windows. The Czech anti-communist Jan Masaryk tried flying out of top story window in 1948. Czech diplomat Jan Masaryk dies under strange circumstances - HISTORY
A significant number of Russian business executives have died in mysterious ways over the past year. There is no check on Putin's power or his willingness to eliminate opposition voices through murder including with radioactive materials. Death of Russian oil exec highlights suspicious ends met by those who crossed the Kremlin; Before Navalny, a long history of Russian poisonings - ABC News
Russian Defector Describes Putin’s Military in Disarray in Ukraine, republished by MSN.com from Russian Defector Describes Putin’s Military in Disarray in Ukraine - The New York Times
Putin Stuck 'in a box' as Ukraine Foils Russians at Dnieper River: General
+++++
1. Corporate Bonds and Treasuries:
On 9/1/22, my remaining 10 Virginia Electric 3.45% SU bonds matured:
 |
| $172.5- Semiannual Interest Payment |
I realized a profit of $117.4. Item # 5.A. Bought 10 Virginia Electric 3.45% SU Bonds Maturing on 9/1/22 at a TC of 98.826 I will use the proceeds to buy another Virginia Electric bond.
I have completed about 70% of my reallocation out of cash into treasuries and investment grade corporate bonds.
The weighted average maturity would be close to 2.5 years from today, though I have not performed that calculation to arrive at an exact number.
Bonds that have already been purchased will be mentioned in posts published through October 2022.
The following bonds were bought on 6/21/22:
A. Bought 2 CSX 3.4% SU Maturing on 8/1/24 at a Total Cost of 99.243:
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Issuer: CSX Corp.
CSX Analyst Estimates | MarketWatch
SEC Filed Earnings Press Release for the Q/E 6/30/22
FINRA Page: Bond Detail
Credit Ratings: Baa1/BBB+
YTM at Total Cost = 3.776%
Current Yield at TC = 3.4259%
B. Bought 2 EBAY 3.45% SU Maturing on 8/1/24 at a Total Cost of 99.093:
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Issuer: eBay Inc.
EBAY Analyst Estimates | MarketWatch
SEC Filed Earnings Press Release for the Q/E 6/30/22
FINRA Page: Bond Detail
Credit Ratings: Baa1/BBB+
YTM at Total Cost: 3.901%
Current Yield at TC = 3.48%
Note that the EBAY and CSX bonds were bought on the same day, have the same credit ratings and both mature on 8/1/24. The Bond Ghouls assign slightly more credit risk to the EBAY bonds based on the YTMs.
C. Bought 2 Mid-America Apartments 3.75% SU Maturing on 6/15/24 at a Total Cost of 99.532:
Issuer: Operating entity for Mid-America Apartment Communities Inc. (MAA)
SEC Filed Earnings Report for the Q/E 6/30/22
FINRA Page: Bond Detail
Credit Ratings: Baa1/BBB+
YTM at Total Cost = 3.998%
Current Yield at TC = 3.7676%
While this bond has the same credit ratings as the EBAY and CSX bonds, and matures earlier, the YTM is higher than both of those bonds, indicating that the Bond Ghouls view the MAA bond as slightly more risky. I had 1 MAA bond mature on 9/1/22.
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D. Bought 1 Northern States Power-WI 3.3% First Mortgage Bond at a Total Cost of 99.24:
Note the exemption from a make whole payment starts on 12/15/23
Issuer: Wholly owned subsidiary of Xcel Energy Inc. (XEL)
Finra Page: Bond Detail
Credit Ratings: Aa3/A
YTM at Total Cost: 3.695%
Current Yield at TC = 3.3253%
E. Bought 1 Treasury 2% Coupon Maturing on 4/30/24 at 97.718:
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YTM at Total Cost: 3.163%
Current Yield at TC = 2.0467%
2. Treasury Auctions:
I will be participating in the 3 month and 1 year treasury auctions today.
A. Bought at 9/1/22 Auction: $10,000 28 Day Treasury Bill at 99.8078:
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For now, I have opted to automatically rollover the proceeds into future one month treasury auctions. I am likely to continue this rollover as long as the FED keeps raising the FF rate.
On 1/2/22, the 1 month treasury bill was at a .05% yield. 2022 Yield Curve-U.S. Department of the Treasury The FED did not abandon ZIRP until March 2022, raising then the FF range to .25% to .5%. Federal Reserve Board - Federal Reserve issues FOMC statement The CPI annual inflation rate was at 8.5% through March 2022. Consumer prices up 8.5 percent for year ended March 2022 : The Economics Daily: U.S. Bureau of Labor Statistics Just bizarre beyond belief that any central bank would be at a zero benchmark rate with 8.5% annual inflation.
Investment Rate (coupon equivalent): 2.509%
B. Bought at 9/1/22 Auction: $20,000 56 Day Treasury Bill at 99.575333:
I am not automatically rolling over this purchase. I will elect after receiving the proceeds whether to reinvest in the same term or a different one.
Investment Rate (coupon equivalent): 2.78%
3. Small Ball:
My "Bond Substitute" category simply denotes that the primary investment objective is harvesting the dividend which is the same income objective as bond purchases.
For stocks, other than BDCs, that are classified as a Bond Substitute, harvesting the dividend and realizing a 2%+ annualized realized gain based on my original cost is viewed as a victory. Victory for a BDC is defined as any realized gain + the dividend.
The category is not meant to convey that the dividend is safe. Several stocks so classified have cut their dividends including VNO discussed in Item # 3.F. below.
A. Added 5 HPP at $13.3; 5 at $12.75-Fidelity Taxable Account:
Quote: Hudson Pacific Properties Inc. (HPP)
Website: Hudson Pacific Properties: A West Coast Real Estate Group
Investment Categories: Equity REIT Common and Preferred Stock Basket Strategy/Bond Substitute
Last Discussed: Item # 2.F. Added to HPP - Bought 5 at $13.99 (7/20/22 Post); Item # 5.C. Started HPP with a 5 Share Purchase at $15.26 (7/6/22 Post)(discussed 2022 first quarter report in this post)
Average cost per share = $13.94 (25 shares)
Dividend: Quarterly at $.25 per share
Yield at AC = 7.17%, rounded down.
Last Ex Dividend: 6/16/22
Last Earnings Report (Q/E 6/30/22): SEC Filed Press Release and Supplemental (provides more details)
FFO per share = $.51, up from $.49
AFFO per share = $.40, up from $.39 per share
The AFFO number (equivalent to CAD) deducts routine maintenance expenses and pretend revenues created by the straight line accounting convention. Non-cash compensation expenses are added:
The company is not being valued IMO based on the FFO per share numbers.
2022 Guidance: FFO $2 to $2.06 per share.
Occupancy: Studio portfolio 84% leased; In-Service Office leased at 92.3% (90.8% occupied)
Other Recent News: Hudson Pacific Expands and Enhances Studio Platform with Acquisition of Quixote Studios (9/1/22)("$360 million before closing costs. Quixote rents sound stages, cast trailers, trucks, grip and lighting and other equipment essential for content production. . . Quixote is one of the industry’s most recognized brands. Its largest clients include ABC/Disney, HBO, Sony, Paramount, NBC Universal and Warner Bros. as well as numerous blockbuster movies and hit television shows such as Apple’s The Morning Show, Paramount’s Yellowstone, HBO’s Curb Your Enthusiasm and Insecure, Disney’s Jungle Cruise and Marvel’s Avengers: Infinity War.")
B. Added to NWL in Schwab Taxable Account- Bought 2 at $18.56; 3 at $18.26; 5 at $17.5:
NWL Analyst Estimates | MarketWatch
Website: Newell Brands
Recent Material News: Newell Brands Completes Divestiture of the Connected Home & Security Business (received $593M from Resideo Technologies (REZI)
Last Buy Discussion: Item # 2.A. Added to NWL- Bought 5 at 19.57; 5 at $18.8 (6/9/22 Post)
Average Cost per share = $19.02 (20 shares)
Dividend: Quarterly at $.23 per share ($.92 annually), last raised from $.19 effective for the 2017 second quarter payment.
I recently changed my dividend option to reinvestment.
Yield at AC = 4.84%, rounded up.
Last Ex Dividend: 8/30/22 (owned 10 as of)
Last Earnings Report (Q/E 6/30/22): SEC Filed Press Release
GAAP E.P.S. = $.49
Non-GAAP E.P.S. = $.57 ($236M), compared to $.56 in the 2021 second quarter.
GAAP to Non-GAAP reconciliation:
I would do not all of the $.05 per share adjustment for "Transaction costs and other" expenses. I view $5M in litigation expenses as too integral and routine and would not exclude those expenses when calculating non-GAAP E.P.S. I accept the 4 cent per share add for "Acquisition Amortization" and the $2M add back for costs related to completed divestitures.
Core Revenues: +1.7% Y-O-Y
Updated 2022 Guidance:
Normalized E.P.S.: $1.79 to $1.86, down from prior guidance of $1.85 to $1.93.
Revenues: $9.76 to $9.98B
Both revenues and E.P.S. guidance were reduced in response to the strong USD.
I am not concerned by headwinds caused by currency conversions that do not actually happen but are simply part of accounting conventions.
On the flip side, I would not be too enthused by profit and revenue increases created by converting foreign revenues and profits into a weaker USD.
Constant currency comparisons are more important IMO.
Analyst Report:
S&P (8/17/22): 3 stars with a 12 month PT of 22.
C. Added to PDM in Schwab Account - Bought 5 at $11.60:
Quote: Piedmont Office Realty Trust Inc. Cl A (PDM)
Investment Categories: Equity REIT Common and Preferred Stock Basket Strategy/Bond Substitute
Average cost per share this account = $13.25 (35 shares)
Dividend: Quarterly at $.21
I have changed my dividend option to reinvestment.
Yield at AC = 6.34%, rounded up.
Last Ex Dividend: 8/25/22 (owned 30 as of)
I discussed this REIT in my last post and have nothing further to add here. Item # 3.B. Added to PDM in Schwab Taxable - Bought 5 at $12.46 (8/30/22 Post)
D. Added to CTO in Schwab Account - Bought 5 at $20.65:
Quote: CTO Realty Growth Inc. (CTO)
Website: Home - CTO Realty Growth, Inc.
Investment Categories: Equity REIT Common and Preferred Stock Basket Strategy/Bond Substitute
Average cost per share: $21.09 (10 shares)
Dividend: Quarterly at $.38 per share ($1.52 annually)
Yield at $21.09 = 7.21%, rounded up.
Next Ex Dividend = 9/9/22
I discussed this REIT's last earnings report in my last post and have nothing further to add here. Item # 3.E. Bought 5 CTO at $21.54-Schwab Taxable Account (8/30/22 Post)
E. Added to DEA in Fidelity Account - Bought 5 at $17.70:
Quote: Easterly Government Properties Inc.
"As of June 30, 2022, the Company or the JV owned 93 operating properties in the United States encompassing approximately 9.0 million leased square feet, including 92 operating properties that were leased primarily to U.S. Government tenant agencies and one operating property that is entirely leased to a private tenant."
Easterly Government Properties Inc Profile-Reuters
Properties | Easterly Government Properties, Inc.
10-Q for the Q/E 6/30/22 (debt discussed starting at page 10)
Management: Internal
Last Discussed: StocItem # 2.K. Added to DEA - Bought 10 at $18.45 (5/12/22 Post)(discussed 2022 first quarter report in this post)
Investment Categories: Equity REIT Common and Preferred Stock Basket Strategy/Bond Substitute
Average cost per share this account: $19.92 (75 shares)
Dividend: Quarterly at $.265 per share ($1.06 annually)
Yield at AC = 5.32%
Last Ex Dividend: 8/10/22
Last Earnings Report (Q/E 6/30/22): SEC Filed Press Release
FFO per share = $.33 ($33.4M)
CAD per share = $.288 ($29.5M)
Net Income to FFO to CAD Calculations:
2022 Guidance:
DEA Realized Gains to Date: $561.84
The largest gain to date was $272.6: Item # 1.A. Sold 21+ DEA at $28.81 (6/6/20 Post)
Purchase Restriction: Each subsequent purchase must reduce my average cost per share.
Consider to Sell: $22+ (at a minimum, the highest cost lots would be sold at $22+)
F. Added to VNO in Schwab Account: Bought 3 at $25.6:
Quote: Vornado Realty Trust (VNO)
Investment Categories: Equity REIT Common and Preferred Stock Basket Strategy/Bond Substitute
Average cost per share = $27.39 (10 shares)
Dividend: Quarterly at $.53 per share ($2.12 annually), cut from $.66 effective for the 2020 third quarter payment.
Yield at $27.39 = 7.74%
Last Ex Dividend: 8/5/22
Last Discussed: Item # 3.K. Bought 5 VNO at $28.43; 2 at $27-51- Schwab Taxable Account (8/10/22 Post); SEC Filed Press Release I discussed the last earnings report in that post. As discussed therein, VNO is currently in a long term bear market of unknowable duration. At some point, a continued rise in short term interest rates could result in another dividend cut.
The primary problem IMO is Vornado's excessive reliance on debt whose coupons vary at spreads to short term rates. Another important headwind is the WFH trend, particularly in NYC.
Morningstar (8/3/22): 4 stars with a FV of $38 and no moat.
S&P (8/2/22): 3 stars with a 12 month PT of $34
Argus (8/11/22): Buy with a $40 PT, reduced from $50.
Purchase Restriction: Each subsequent purchase must be at the lowest price in the chain.
Maximum Position: 100 shares-all accounts.
G. Added to TPVG in Schwab Account - Bought 5 at $12.95:
Quote: TriplePoint Venture Growth BDC
10-Q for the Q/E 6/30/22 (summary of investments starts at page 5)
2021 Annual Report (summary of risk factors starts at page 24 and ends at page 52)
IPO in March 2014 at a $15 public offering price.
Recent Share Offering (August 2022): Priced at $13.75 per share
I have been trading this BDC almost since it original IPO. In my Fidelity Account, I have worked my position down to 29 shares with an average cost per share of $5.11. The position in my Vanguard Account has an AC per share of $4.68. Item # 2.J. Pared Again TPVG in Fidelity Account - Sold 5 at $16; 5 at $18.83 and #3.K. Pared TPVG in Vanguard Account - Sold 3 at $17.62 ( Post)(profit snapshots = $114.38)
Management: External
Average cost per share this account = $13.38 (10 shares)
Dividend: Quarterly at $.36 per share (regular only)
TPVG Dividend History | Nasdaq
Yield at $13.38 = 10.76%
Next Ex Dividend: 9/14/22
Last Earnings Report (Q/E 6/30/22): SEC Filed Press Release
NII per share = $.41
Consensus at $.37
"14.5% weighted average annualized portfolio yield on total debt investments for the quarter"
Net Asset Value per share = $13.01, down from $14.01 as of 12/31/21.
The decline in NAV per share is troubling.
It reflects, in part, more mistakes as TPVG has grown its assets through share offerings and more debt. Perhaps the most difficult to understand mistake is the large investment in Luminary Roli Limited, currently on non-accrual status. ROLI files for bankruptcy and will reboot as beginner-focused company Luminary | MusicTech
The hedge fund type fees for the external manager will contribute either to restrained growth in NAV per share or a decline.
Since TPVG loans are mostly at spreads to short term rates, a sustained rise in short term rates may cause some borrowers to default, particularly when that is accompanied by an economic downturn or recession. The loan coupons highlight that loans to these borrowers are inherently risky.
There will be understandable write-downs in TPVG's equity investments given the current stock market conditions.
Company assessment of risks:
TPVG Realized Gains to Date: $1,076.87
Goal: Any realized gain in the shares, using the original cost basis prior to any ROC adjustments, in excess of the dividends paid.
A number of round-trip trades netted less than a $50 profit. The following trades netted more: Item # 1.L. Sold 5 TPVG at $15.67 in Schwab Taxable and Item #1.M. Sold 11 TPVG at $15.67-highest cost shares in Fidelity Taxable (5/16/21 Post)(profit snapshots = $74.43); Item # 1.J. Eliminated TPVG in Schwab Taxable Account-Sold 30 at $10.58 (8/8/20 Post)(profit snapshot = $94.3); Item # 2.A. Sold 74+ TPVG at $14.87 (7/20/19 Post)(profit snapshot= $246.43); Item # 3.B. Pared TPVG - Sold 50 at $13.84 (4/14/19 Post)(profit = $71.76) Item # 4.C. Eliminated TPVG in Roth IRA Account (4/17/19 Post)(profit snapshot = $88.87); Item 2.B. Sold 50 TPVG at $13.39 (3/4/2017 Post)(profit snapshot = $153.08); Item # 3 Sold 50 TPVG at $12.33 (1/16/17 Post)(profit snapshot = $83.48)
H. Added to HBI - Bought 5 in Schwab Taxable Account at $8.66:
Quote: Hanesbrands Inc.
52 week price range: $8.51-$19.59
HBI Analyst Estimates-MarketWatch
Annual Report for the F/Y Ending 1/1/22
Investment Categories: Bond Substitute/Contrarian Value
Website: Comfortable Clothing Since 1901 | Hanes The main U.S. brands are Champion and Hanes.
Last Buy Discussion: Item # 2.B. Added to HBI at $9.79 (6/22/22 Post)
Last Substantive Buy Discussion: Item # 2.B. Added to HBI in Schwab Taxable Account- Bought 5 at $14.4; 5 at $13.75; 5 at $13.55; 5 at $13.15; 5 at $12.32 (5/12/22 Post)
Average cost per share = $13.05
Prior purchases proved to be at less than optimal prices.
Fortunately, given that AC number, I am still working my way up to a 100 share position.
The most recent share price decline was caused by a worse than expected 2022 second quarter earnings report. While it is just an opinion, I viewed the reaction as overdone.
Dividend: Quarterly at $.15 per share, last raised from $.11 effective for the 2016 4th quarter payment.
Yield at $13.05 = 4.6%
Yield at $8.66 = 6.93%
Last Ex Dividend: 8/23/22
Last Earnings Report (Q/E 7/2/22): SEC Filing
GAAP E.P.S. = $.26
Non-GAAP E.P.S. $.28
Consensus Non-GAAP E.P.S. = $.32
"Net sales from continuing operations of $1.51 billion decrease 14% versus prior year (down 11% in constant currency); increase 75% on a two-year stack basis, excluding personal protective equipment (PPE)" The company received a major revenue and earnings lift during the pandemic by selling personal protective gear.
In addition to PPE revenue decline, second quarter earnings and revenues were negatively impacted by the strong U.S.D.; cost pressures; retailer de-stocking; supply chain related issues; and a cyber attack in May 2022 that negatively impacted E.P.S. by an estimated $.08 per share and reduced revenues by about $100M. HanesBrands loses $100 million in net sales following ransomware attack | Cybernews Those negative headwinds are not permanent ones.
2022 Guidance: Adjusted E.P.S. $1.11-$1.13; GAAP E.P.S. $.97 to $1.09
Analyst Reports (available to Schwab customers)
Morningstar (8/15/22): 5 stars with a $24 FV, lowered from $26, and narrow moat.
S&P (8/15/22): 3 stars with a 12 month PT of $12
Credit Suisse (8/11/22): The report is titled "A Confluence of Negativity in 2Q", which describes the results. The rating is Outperform with a 12 month PT of 13, reduced from $1.5.
I. Added to OGN in Fidelity Taxable Account - Bought 5 at 28.72:
Quote: Organon & Co. (OGN)
52 week price range: $28.32- $39.47
Organon | Products list Over 60 drug that focus on "health of women throughout their lives."
Top Product Revenus 2022 Second Quarter and First 6 Months:
2021 Annual Report "Established brands represents a broad portfolio of mature brands across multiple therapeutic areas and geographies that are generally beyond market exclusivity. Organon's established brands portfolio contributed approximately $4.1 billion of product sales in 2021, of which approximately 92%, or $3.7 billion, generated outside the United States. These figures reflect the reduced administration of many products within established brands as a result of the COVID-19 pandemic. Generic competition varies significantly across geographies." Page 8.
For the products listed, revenues in the 2022 second quarter were $351M from U.S. sales and $1.234B from foreign sales.
OGN was spun out of Merck last year. Merck Announces Completion of Organon & Co. Spinoff As part of the spinoff, Merck received $9B funded by new MRK debt assumed by OGN. Page 9, and see page 25 SEC Filing
OGN Analyst Estimates | MarketWatch - Non-GAAP Numbers
2020 E.P.S. = $9.95 2021 4th Q. SEC Filed Earnings Press Release
2021 E.P.S. = $6.54 "
2022 and 2023 E.P.S. Average Estimates: $5.10 & $5.46 respectively.
P/E at $28.72-Using the 2022 Average of $5.10 = 5.63
OGN is cheap using a TTM E.P.S. or any of the current 2022-2024 average E.P.S. estimates.
However, factors causing the single digit P/E IMO include the trend deceleration in E.P.S. starting in 2020 through the estimated 2022; significant reliance on non-patent protected drugs (see pages 31-32 10-Q); the recent strength of the USD given the relative size of foreign revenues compared to the U.S.; the lack of a new drug pipeline; and the debt assumed by OGN in connection with the Merck spinoff.
Last Discussed: Item # 2.F. Started OGN - Bought 2 at $31.2; 1 at $29.9; 1 at $29.7; 1 at $29.2; 3 at $28.7; 2 at $28.4 (6/23/21 Post)
Average cost per share = $29.01 (15+ shares)
Dividend: Quarterly at $.28 per share ($1.12 annually)
I do not anticipate a dividend increase. Free cash flow needs to be used to pay down variable rate debt IMO.
Yield at $29.01 = 3.86%
Last Earnings Report (Q/E 6/30/22): SEC Filed Press Release
GAAP E.P.S. continuing operations = $.92, down from $1.62
Non-GAAP E.P.S. continuing operations = $1.25, down from $1.72
GAAP "and non-GAAP adjusted diluted earnings per share include a negative impact of $0.30 for acquired in-process research and development (IPR&D) and milestones."
GAAP to Non-GAAP Reconciliation:
Revenues: $1.585B
Experiencing negative revenue and earnings headwinds from foreign currency exchange.
Debt as of 6/30/22: Note the Term Loan coupon at a 300 point spread to Libor:
 |
| 10-Q at page 14 |
10-Q
The leading patented product by sales is Nexplanon ($195M in 2nd quarter revenues), a birth control insert that OGN claims is over 99% as effective as birth control pill and lasts for no more than 3 years. NEXPLANON® (etonogestrel implant) 68 mg Radiopaque ǀ Official Site
Other Recent News: Samsung Bioepis and Organon Announce FDA Approval of Citrate-Free High-Concentration HUMIRA® Biosimilar HADLIMA™ (adalimumab-bwwd)(8/17/22) OGN's biosimilar portfolio is growing.
The company acquired the Jada system as part of its 2021 acquisition of Alydia Healthy. Organon Completes Acquisition of Alydia Health – A Medical Device Company Focused on Postpartum Hemorrhage (6/6/21) Jada is "intended to provide control and treatment of abnormal postpartum uterine bleeding or hemorrhage when conservative management is warranted." The official U.S. launch was in January 2022. This system required FDA marketing approval. The Jada® System | United States | Postpartum Hemorrhage
Maximum Position: 30 shares (given the issues outlined above)
Purchase Restriction: Each subsequent purchase must reduce my average cost per share.
Disclaimer: I am not a financial advisor, but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sale of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals, and situational risks. I can only make that kind of assessment for myself and my family members.
