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Doug Gerlach, editor of the award-winning newsletter, Investor Advisory Service, reports on companies that are reporting their quarterly earnings. The following companies are also tracked by IAS: Alphabet, Apple, CarGurtus, D.R. Horton, Facebook, and O’Reilly Automotive:

Alphabet Bullish on Long-Term Opportunities

The combination of economies reopening, returning advertising demand, and an easy comparison to last year led to great results for Alphabet. Sales for the first quarter increased 34%, 32% in constant currency.

Google Services was up 34%, led by 48% growth from greater brand advertising on YouTube. Google Cloud was up 38% as companies outsource more of their computing.

Operating income grew 106% as Alphabet benefited from an unusually high allowance for credit losses taken during the first quarter of 2020 and lower depreciation expense from lengthening the estimated useful lives of its network and computing equipment.

EPS was $26.29, up 166%, benefiting from booking an additional $4.8 million gain on its investment portfolio. Alphabet does not provide detailed financial guidance but expects a very strong second quarter as it laps easy comparisons from last year’s depressed advertising market.

Free cash flow is robust, supporting the announcement of a $50 billion share repurchase program.

Comparisons will get more difficult in the second half of 2021, but the company continues to be bullish on its long-term opportunities, particularly for YouTube and Google Cloud.

GOOG (2,374.50) and GOOGL (2,337.35) are buys up to 2,130. GOOGL is Class A voting stock.

Source: Investor Advisory Service

Apple Produced Blowout Results for Fiscal Q2
But Performance Only Met Expectations

Apple (APPL) produced blowout results for its fiscal second quarter, but shares didn’t react as the performance only met expectations. Sales were $89.6 billion, up a staggering 54%, led by a 66% advance for the firm’s iPhone 12 family of 5G SmartPhones.

Some overachievement on growth was expected as the typical yearly iPhone upgrade cycle started later in the fiscal first quarter than usual, but this is still an impressive advance.

Other products also were strong with Mac up 70% and iPad up 79%, as Apple benefited from new product upgrades and strong pandemic-induced demand for work-at-home products.

Services also did well, up 27%. Margin expansion from a richer mix of higher-priced iPhones coupled with expense leverage and a lower share count from stock repurchases led to EPS of $1.40, up 119%.

Typically, Apple provides sales guidance for the next quarter but declined to do so for two reasons. First, it is encountering supply chain disruption on components for its Mac and iPad products that it expects will reduce sales by $3-$4 billion. Second, iPhone supply and demand are in balance, likely leading to a stronger sequential drop in demand than typical for a fiscal third quarter.

Even so, consensus analyst estimates are for Apple to earn $1.00 for the quarter, up 54%.

APPL (129.74) is a buy up to 89.

Source: Investor Advisory Service

CarGurus Posts Solid Q1 of Profitability

A solid first quarter of profitability coupled with rapid growth from the recent acquisition of CarOffer for dealer-to-dealer vehicle auctions propelled CarGurus (Nasdaq: CARG; 27.35) shares up 14%.

Sales increased 9%, with Other revenue up 101% and Marketplace subscription revenue down 2%. The recently-acquired CarOffer business contributed to the large jump in Other revenue as the service recorded almost $16 million in revenue and generated only a small non-GAAP operating income loss of $214 thousand. A substantial reduction in sales and market expense supported EPS of $0.19, up 73%.

Second quarter guidance calls for sales of $186-$192 million, up 96%-103%, a substantial jump compared to very depressed results in last year’s quarter reflecting dealer closures at the height of the COVID-19 pandemic.

Non-GAAP EPS is expected to be $0.23-$0.25, up 21%-32%. Management is enthusiastic for continued rapid growth of its CarOffer business as it is focused on introducing the service to its substantial retail dealer customer base. CARG (24.08) is a buy up to $26.

Source: Investor Advisory Service

D.R. Horton Expects to Continue to Grow its
Business at a Double-Digit Pace into Fiscal 2022

D.R. Horton (DHI) reported another string quarter as revenue in fiscal Q2 increased 43% while EPS advanced 95%.

Management described the current housing market conditions as “very robust,” as homes closed grew 41% while sales orders increased 47%. The backlog of homes under contract at quarter end was up 97% by dollar amount. Though the company noted certain cost pressures, it continues to use its scale and pricing power to offset these increases, given the strong demand environment.

Average closing price on homes in the quarter was up 4% from the prior year, while the average size of homes closed declined 2%.

Given its inventory and available lots, Horton remains in good position to capitalize on the wave of demand it is experiencing along with other homebuilders.

Management signaled it was pleased with its sales pace so far in April. Q3 guidance is for 30%-34% revenue growth with homebuilding gross margin similar to, or slightly better than, Q2. Horton also increased its full year guidance and now expects full year revenue growth of 32%-35% with homes closed increasing 26%-29%.

Comparisons for sales orders will get more difficult in the next two quarters as the company is lapping 38% order growth in Q3 and 81% growth in Q4. For the remainder of the fiscal year, management noted it anticipates orders will be approximately flat versus a year ago. However, it expects to continue to grow its business at a double-digit pace into Fiscal 2022.

DHI (101.62) is a buy up to 84.

Source: Investor Advisory Service

Rebound in Online Advertising a Boon to Facebook

The rebound in online advertising has been a boon to social media, Facebook (FB) included. Sales for the first quarter grew 48%, 44% in constant currency.

Much of this growth came from more expensive ads as price per ad was up 30%. Additional users continue to join Facebook’s various platforms as the company reported 2.85 billion people worldwide used one of the firm’s applications (Facebook, Instagram/ Messenger, and WhatsApp) monthly, up 15% over last year.

The firm’s investment in eCommerce capabilities has yielded strong uptake from small and medium businesses that found themselves needing a way to reach and sell to customers without a physical presence. Moderate expense growth for SG&A, in particular research and development and marketing costs, supported EPS growth of 93% to $3.30.

Facebook did not provide specific guidance but expects moderate to flat sales growth compared to the first quarter, implying a year-over-year increase of at least 40%. This guidance incorporates Apple’s rollout of privacy controls in its iOS 14.5 operating system during the second quarter that will make it more difficult to target ads on Apple devices.

Expenses are set to increase due to hiring to support additional eCommerce capabilities, payments, and virtual reality.

Analysts are projecting roughly $13.00 of EPS for full year 2021, a mid-20’s P/E ratio.

FB (320.02) is a buy up to 349.

Source: Investor Advisory Service

O’Reilly Reports Outstanding Record-Breaking Quarter

O’Reilly Automotive, Inc. (ORLY) reported Q1 results well ahead of expectations, aided by a combination of favorable weather and the latest rounds of government stimulus. Strength was broad-based across both the do-it-yourself and professional categories as comparable store sales advanced nearly 25%.

Gross margin benefitted from the relative outperformance of the higher margin DIY business while the company again reported significant SG&A leverage as surprisingly strong sales continue to outpace investments to maintain customer service levels.

Management noted the current level of SG&A leverage is likely excessive and that it will continue to invest to match service levels to the sales environment. EPS increased 78% to $7.06.

The business momentum has carried into Q2 as O’Reilly continues to experience robust sales trends across categories.

In response to the excellent Q1 results and strong performance so far in Q2, the company raised its full year guidance. It now anticipates comparable store sales growth of 1%-3% versus prior guidance of down 2% to flat.

Updated EPS guidance reflects a range of $24.75- $24.95, growth of 5%-6%. This is up from initial guidance for a 3% decline. The company faces particularly challenging comparisons over the next couple of quarters. ORLY (561.22) is a buy up to 483.

Source: Investor Advisory Service

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