With the U.S. and global economy slowly shutting down in an effort to slow the spreading coronavirus you’d think we’d be seeing a lot of analysts downgrades. And you’d be right. Industries from travel, to hospitality, retail, energy, and consumer discretionary are all in peril. The flip side of the story is that other industries, while threatened, are still doing just fine.
Businesses like Amazon (AMZN), Oracle (ORCL), And Cardinal Health (CAH) are supported by their industry positions and secular trends. All are industry leaders in businesses that are insulated from the virus, benefiting from the shut-down/social distancing, or both. Positioning and the secular trend can be a strong driver of growth and that is being recognized by analysts today.
When it comes to market catalysts analysts upgrades are among my favorite. If the fundamental picture supports growth and analysts begin to turn bullish the market will start to turn bullish and drive share prices higher. If I can get a little dividend along the way all the better.
The Secular Shift To eCommerce
There is a secular shift to eCommerce underway that is getting accelerated by the coronavirus. The stay-at-home/social distancing mentality has demand at Amazon so high the company has to hire 100,000 more workers. The longer we have to social distance the longer this effect will last.
Analyst Doug Anmouth at JPMorgan (JPM) says demand will impact 1Q revenue positively by $1 billion more than Amazon’s current guidance. Anmuth also thinks Amazon will gain market share in both the eCommerce and total retail space as happened during the last financial crisis.
Wedbush calls Amazon a “best idea” amid the coronavirus epidemic. The firm’s position is consistent with Anmouth in that secular shifts were driving this stock higher and the virus is fueling an acceleration. Looking forward, Amazon is expected to sustain the gains as consumers become more dependant on the eCommerce model.
Anmouth “E-commerce will benefit as closings of physical stores & fear of public places should accelerate the secular shift of retail online, which we believe will prove sustainable even after the crisis ends."
Resilience And Valuation Are Attractive
Oracle is one of the world’s leading software companies and one with a growing influence in cloud-services. The company’s products and services are fundamental to business operations at all levels and for all sizes. With society shifting more toward digitization, more toward the cloud, and with those trends accelerating due to the virus Oracle is well-positioned to weather the storm.
Oracle just reported earnings a few weeks ago and beat on the top and bottom lines. The company also provided an upbeat outlook that promises some growth this year and next. While growth will not be exciting, low-single-digits, it is more than enough to support the dividend. The company is paying about 2.15% at today’s prices and only about 25% of earnings so there is little reason to fear a distribution cut.
Analysts at JPMorgan just upgraded Oracle to overweight from neutral. They cite the company’s resilience across business cycles and low valuation. Trading at only 11.5X forward earnings it is very cheap relative to its own past valuation and the broad market.
The Middle Man Always Makes Money
Cardinal Health received a double-upgrade from Bank of America (BAC) that could send its shares up 25% over the next few months. BoA says the drug-distributors are among the best positioned health-care industry segments during the coronavirus. As a middle-man for medical products and services, Cardinal is akin to Amazon but for the healthcare field. As hospitals and healthcare systems gear up to fight and begin fighting the coronavirus, Cardinal is sure to see a surge in demand.
The consensus outlook for revenue and EPS growth is still tepid but I suspect we’ll see more upgrades cross the wire in the coming weeks. Regardless, the small growth that is expected is more than enough to sustain the dividend and outlook for dividend growth. Not only is Cardinal Health a Dividend Aristocrat with a 25-year history of distribution increase, but it is also a high-yielding stock with a 4.4% yield and super-low payout ratio.
The risk for Cardinal Health is its involvement in the opioid crisis. It has been implicated as a supplier of bad medicine and faces liability because of it. The mitigating factors are that 1) the first awards to plaintiffs have been much lower than expected and 2) Cardinal is preparing for the worst cases.