Why These Companies’ Earnings Reports Have Investors Excited This Morning

Shares of Texas Instruments Incorporated (NASDAQ:TXN), eBay Inc (NASDAQ:EBAY), Las Vegas Sands Corp. (NYSE:LVS), and Southwest Airlines Co (NYSE:LUV) are all on the move in a good way this morning after each company released their latest quarterly financial results. Let’s dig into the details of the reports and see what has investors excited about the direction of these companies.

Wall Street Bull

First a bit about us: we at Insider Monkey track hedge fund activity. From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37 month period beginning from September 2012, returning 102% (see the details here).

Texas Instruments Incorporated (NASDAQ:TXN) is up by 8.05% in pre-market trading after the company reported third quarter earnings of $0.76 per share on revenues of $3.43 billion, beating analyst estimates by $0.08 per share and $150 million, respectively. Gross margin declined by a modest 0.2 percentage points year-over-year to 58.2%, while operating expenses fell by 6% year-over-year. Guidance is strong, with management expecting EPS of $0.64-to-$0.74 and revenue of $3.07 billion-to-$3.33 billion for the fourth quarter, versus expectations of $0.62 in EPS and $3.12 billion in revenue respectively. Hedge funds are mixed on Texas Instruments Incorporated (NASDAQ:TXN). 33 of the 730 elite funds that we track reported stakes in the company as fo June 30 worth $532.51 million, which accounted for just 1.00% of the float, down from 38 funds with $634.92 million is shares a quarter earlier. Cliff Asness‘ AQR Capital Management owns 2.07 million shares.

eBay Inc (NASDAQ:EBAY)‘s have shares rallied by 7.19% in pre-market trading after the company’s third quarter results beat both top and bottom-line estimates. For the quarter, eBay earned $0.43 per share on revenues of $2.1 billion, beating expectations by $0.03 per share and $10 million, respectively. Although GMV fell by 2% year-over-year due to a strong dollar, eBay’s costs fell even further. GAAP operating expenses declined by 5% to $1.09 billion while its sales and marketing spend retreated by 9% year-over-year to $565 million. Guidance is a bit light, with management expecting EPS of $0.47-to-$0.49 and revenue of $2.275 billion-to-$2.325 billion, versus expectations of $0.49 in EPS and $2.33 billion in revenue. Given eBay’s big stock buybacks and its cheap forward P/E of 13, investors are willing to overlook the light guidance for now it seems.

On the next page, we analyze why the shares of Las Vegas Sands and Southwest Airlines are moving northward this morning.

Las Vegas Sands Corp. (NYSE:LVS) is up by 4.27% in pre-market trading after reporting third quarter earnings of $0.66 per share on revenues of $2.89 billion. The casino operator’s earnings beat expectations by $0.02 per share while its revenues missed estimates by $80 million. Adjusted property EBITDA for Sands China declined by 33% year-over-year to $545 million, while adjusted EBITDA at Marino Bay Sands in Singapore rose by 10.8% year-over-year to $389.7 million.

Las Vegas Sands’ quarter wasn’t bad. Las Vegas Sands’ adjusted property EBITDA for Sands China declined less than Macau gaming revenues did, so the company is doing a good job at controlling costs and keeping market share. Tight cost controls will be important in maintaining profitability as more supply hits the market in 2016. Investors hope demand will rise more than supply will in 2016, however, as a Chinese representative in Macau recently said the central government will support Macau in ‘all aspects’. Shares of Las Vegas Sands look reasonable at a forward P/E of 18 and with a dividend yield of over 5%. Murray Stahl‘s Horizon Asset Management owns 748,969 shares.

Shares of discount airline Southwest Airlines Co (NYSE:LUV) surged by 3.24% after the company reported record third quarter earnings of $0.94 on revenues of $5.32 billion, beating estimates by $0.02 per share in earnings and $210 million in revenue. Return on invested capital before taxes and excluding special items was 31.1%, up from 19% year-over-year. The company also returned $549 million to shareholders in the form of dividends and share repurchases. Helping the results was a record quarterly load factor of 85.4%.

Although other airlines trade at lower forward valuations than Southwest, the stock is a good long-term holding because Southwest’s costs are lower and its growth potential is higher. The company’s profits are also a bit more sustainable than other airlines because Southwest hedges more for fuel. Economic fuel costs in the quarter were $2.20 per gallon, down from $2.94 per gallon in the third quarter of 2014.

Disclosure: None