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As a generalist macro investor I focus on mega caps or stocks in the S&P 100. I look for high quality, reasonably valued stocks that express my macro views. This morning I feel like digging into a few stocks that recently reported earnings to see if any might be prospects for my portfolio as well as for the light they might shed on the market as a whole.
Let’s start with cybersecurity company Palo Alto Networks (PANW, Market Cap $37 Billion) which reported earnings last Thursday afternoon. PANW reported 24% revenue growth to $1,074 million and Non-GAAP diluted EPS growth of 18% to $1.38 for the quarter ended April 30, 2021. PANW also guided Non-GAAP diluted EPS for their fiscal year ending at the end of July to $5.97-$5.99. PANW shares closed Monday at $364.52 for a 61x P/E multiple on the midrange of that guidance. At 61x current year earnings with ~20% growth I see little edge in owning PANW here.
Next let’s take a look at agricultural machinery company John Deere (DE, Market Cap $113 Billion) which reported earnings last Friday morning. DE reported revenue growth of 30% to $12,058 million and diluted EPS growth of 169% to $5.68 for the quarter ended May 2, 2021. DE also guided net income to between $5.3 billion and $5.7 billion for their fiscal year ending at the end of October. Using the end of quarter average diluted share count of 315.2 million that works out to $17.45 per share. DE closed Monday at $359.36 for a 21x multiple on current year earnings. Given my belief that we are in the early stages of a commodity super cycle driven by inflation, DE is interesting.
Last let’s take a look at auto parts retailer Autozone (AZO, Market Cap $34 Billion) which reported earnings earlier this morning. Comps were +28.9% and diluted EPS +84% to $26.48 for the quarter ended May 8, 2021. AZO doesn’t provide forward guidance so we’ll have to look at a trailing twelve month (TTM) earnings of $90.95 to get a P/E ratio. AZO closed Monday at $1448.40 for a trailing P/E ratio of 16x. AZO would be compelling if I didn’t believe consumer spending will be undermined by inflation going forward.
To summarize, in PANW I see an expensive tech stock, in DE a compelling way to play the commodity super cycle and in AZO a great company firing on all cylinders whose business I believe will be hurt by rising inflation.