While Wall Street tried to carry on to its recent gains on Tuesday, we got positive news on two club holdings that are seeing oversized upward moves: Danaher (DHR) and Constellation Brands (STZ). DHR 1Y Mountain Danaher Shares for 1 12 months Danaher will present at the JPMorgan Healthcare conference on Tuesday afternoon. Nonetheless, ahead of the event, on Monday evening, the life sciences and medical diagnostics company released its slideshow. Along with a general have a look at what the company will appear like after separating its environmental and applied solutions businesses, it included an upward revision to its fourth-quarter forecasts. Shares rose 4% after positive revision. Some investors feared that management would announce poor results. Management currently sees core sales growth in the high single-digit range. The expansion can largely be attributed to better-than-expected performance at Cepheid’s Molecular Diagnostics division, which generated greater than $1 billion in respiratory research revenue for the quarter in comparison with earlier forecasts of roughly $375 million in sales on that front. Last month, as part of its better-than-expected third-quarter results, Danaher forecast fourth-quarter core sales to stay flat or low in the single digits. Core business revenue growth guidance, which excludes sales related to Covid testing and includes sales of products supporting Covid-related vaccines and drugs, remained unchanged, with expectations for prime single-digit growth. Along with revising core revenue growth, management is now making an allowance for the lack of growth from Covid-related testing. Expectations were for prime single-digit or low double-digit growth. Cepheid’s better-than-expected results, together with a downward revision of the expected impact of Covid testing, may signal a faster-than-expected move away from Covid-only testing towards the best-in-class Cepheid 4-in-1 breath test for Covid, influenza A, influenza B and RSV (respiratory syncytial virus). The true concern of investors, and what we will probably be listening to closely when the company unveils itself on Tuesday, is on the bioprocessing front. As a reminder, Credit Suisse analysts downgraded DHR shares last week, believing that “exposure to bioprocessing inventory reduction and diagnostics could put pressure on [Danaher’s] growth relative to peers. We also noted this concern amongst investors in our evaluation of the company’s third-quarter financial results, although we noted that any elevated stock levels were ultimately a short-term concern as they might eventually be resolved. Management said working more closely with customers now than in the past to raised understand production plans and reduce the risk of overstock and avoid duplicate orders. Constellation Brands shares rose 2% on Tuesday after Goldman Sachs analysts reiterated their buy rating, saying they “proceed to consider that concerns about the health of the Modelo brand are exaggerated. Nielsen EQ volumes for Modelo Especial remained under pressure in the latest Nielsen data (although they improved from the 2-week and 4-week figures), but this was widely anticipated given the height of recently launched prices across the value chain (from STZ including retailers). As a reminder, management also highlighted this price/demand dynamic during the earnings conference call, noting that “the impact of our fall price hikes has been amplified by additional pricing motion across the value chain. That said, we expect the impact of marginal prices to stabilize in the coming months, as we have now seen in previous similar circumstances.” In other words, demand seems to take a success when prices go up because everyone seems to be buying cases and constructing inventory in anticipation of a price hike; then it takes some time to digest that move. Eventually, things calm down and historically, Constellation’s development is back heading in the right direction after a couple of months. This is predicted to be the case this time as well, even though it may take a bit longer as the price increase was seen throughout the value chain, meaning the end customer price was barely higher than normal. California, a key state for Modelo, and Constellation’s Mexican beer portfolio, which also includes Corona and Pacifico, are one example where this influence has been particularly noticeable; Texas too. Nonetheless, as management noted in a phone call last week, California is already beginning to bounce back. Price impact aside, Goldman Analysts said Modelo continued to realize market share, in line with data from the scanner. It’s difficult to argue that there’s a substitute for cheaper brands. Analysts are also encouraged by the continued “positive feedback from our Beverage Bytes beer industry contacts, who indicate that Modelo Especial continues to do well and sales remain strong and growing.” Ultimately, we agree with analysts that concerns about Modelo are exaggerated – and as noted at Tuesday’s Morning Meeting, we consider investors have to heed the company’s strong money flow performance and keep in mind that the company has yet to introduce Victoria Beer, one of the hottest brands in Mexico to the US market, acting as a positive catalyst for the future. (Jim Cramer’s Charitable Trust is a debt of DHR, STZ. The total list of shares will be found here.) 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A trader works on the floor of the Recent York Stock Exchange (NYSE), January 5, 2023.
Andrew Kelly | Reuters
As Wall Street tried to carry on to its recent gains on Tuesday, we got some positive news on two club shares that are seeing oversized upward moves: Danaher (DHR) i (*2*)constellation brands (STZ).