“Sandbagger & the Mouse” Stock Market (and Sentiment Results)…

Key Market Outlook(s) and Pick(s)

On Monday, I joined Stuart Varney on Fox Business “Varney & Co” to discuss tariffs, implications, and stock picks. Thanks to Preston Mizell and Christian Dagger for having me on:

On Wednesday, I joined Stuart Varney on Fox Business “Varney & Co” to discuss the Mag 7, tariffs, trade, and rotation. Thanks to Preston Mizell and Christian Dagger for having me on:

Here were my notes ahead of the segment:

On Monday, I had the privilege of speaking to nearly 500 students at La Quinta High School in Orange County, CA, sharing insights on the markets, stock picks, and valuable lessons on careers and life.

A huge thank you to Cork Snider, a statistics teacher at La Quinta, for organizing and inviting me to speak. The future of this country is very bright with students and teachers like this!

Click HERE to follow along with Slide Deck

Estee Lauder Update

Yesterday, Estée Lauder’s new CEO, Stéphane de La Faverie, did what pretty much every new CEO does when stepping into a turnaround situation: book a “kitchen sink” quarter. Take all the losses and impairments upfront, resetting expectations, and extending the turnaround timeline so that from here on out, all news is GOOD NEWS.

EL actually delivered a strong quarter, beating earnings estimates with $0.62 per share versus the expected $0.32 (a 93.85% earnings surprise) and beating consensus revenue expectations with $4B compared to $3.98B. But management took its medicine all at once by lowering guidance and recognizing over $1B of impairment charges.

It’s a move straight out of the same playbook Bracken Darrell used when he took over at VFC: reset guidance and expectations, launch a portfolio review, announce a sweeping cost-cutting and restructuring plan to improve margins, and introduce a multi-pillar strategy to reignite growth.

This back-and-forth exchange from yesterday’s earnings call highlights all you need to know in just a few paragraphs. Everything else is noise.

Here are the key points to focus on:

1) On track to achieve double-digit adjusted operating margins over the next few years.

2) Expanding into high-growth, consumer-preferred channels and markets, with nine brands now launched in U.S. Amazon Premium Beauty stores and continued expansion into TikTok Shop.

3) Nearly doubled the PRGP restructuring program, adding an additional $800 million to $1 billion in annual gross savings—on top of the previously guided $1.1 billion to $1.4 billion in net benefits.

4) The demographics and fundamentals of the global beauty market remain strong and continue to grow.

Paypal Update

Each week we try to cover 1-2 companies we have discussed in previous podcast|videocast(s) and/or own for clients (including personally).

Morningstar Analyst Note

Earnings Results

Despite PayPal delivering yet another strong Q4, beating earnings expectations with $1.19 per share (vs. $1.12 consensus) and beating revenue forecasts at $8.37 billion (vs. $8.28 billion), investors still sold off the stock. Here’s what they were afraid of and, more importantly, why it’s an overreaction.

Operating Margin Contraction: Q4 GAAP operating margins contracted 431 basis points to 17.2%, while non-GAAP margins fell 34 basis points to 18%, fueling concerns over margin pressure and competition. Looking under the surface, we see two drivers behind this decline. Q4 2023 benefited from a one-time $311 million restructuring gain, whereas this quarter included a $50 million restructuring expense. Adjusting for this, EBIT margins would have actually expanded. Additionally, increased sales and marketing expenses, up $160 million year-over-year, were driven by the “PayPal Everywhere” campaign. Apparently, Will Ferrell is not cheap. The ad campaign ran during both the holiday season and an election year, making it an expensive but TEMPORARY headwind.

“Slowing” Top Line Growth: PYPL continues to “fire unprofitable customers,” prioritizing margin expansion over rapid top-line growth. The shift in strategy is expected to create a 500 basis point headwind to revenue growth in 2025. However, more importantly, it will be 100 basis points ACCRETIVE to transaction dollar growth this year. This deceleration isn’t a red flag – it’s an intentional move that management has been signaling for well over a year. For investors with a holding period beyond quarter-to-quarter, this is exactly the kind of strategy you want to see.

Sandbagged Guidance: Ever since Alex Chriss’s “Shock the World” CNBC interview, he seems to have figured out that the secret to happiness, both on Wall Street and in life, is low expectations.

Here’s what he originally guided for in FY2024: non-GAAP EPS of $3.83, free cash flow of ~$5 billion, and share repurchases of at least $5 billion.

Here’s what Chriss and the team actually delivered: non-GAAP EPS of $4.65 (~21% upside), free cash flow of $6.6 billion (~32% upside), and share repurchases of $6 billion (~20% upside). Under-promise, over-deliver—taken to the extreme!

Once again, Alex Chriss appears to be using the same strategy for FY2025, after seeing just how well it worked in 2024. The company is guiding for non-GAAP EPS of $4.95–$5.10, free cash flow of $6–$7 billion, and share repurchases of ~$6 billion.

But if we see a similar upside “surprise” to last year—when PayPal was still in a transition phase, whereas 2025 is about partnerships and scaling product adoption— EPS could land north of ~$6, free cash flow around ~$8 billion, and buybacks reaching ~$7.2 billion. History doesn’t repeat, but it often rhymes…

Q&A Highlights

Disney Update

CFO Hugh Johnston joined CNBC following the earnings call today. Here’s what he had to say:

Morningstar Analyst Note

Earnings Results

10 Key Points from Disney’s Feb. 5 Earnings Results and Call

1) Earnings Beat: Revenue of $24.7B (+5.1% YoY) beat estimates by $150M, while non-GAAP EPS of $1.76 topped expectations by $0.33.

2) Dominance in Film: Became the first post-pandemic studio to surpass $5B worldwide, with the top three films of 2024—Inside Out 2 ($1.7B), Deadpool & Wolverine ($1.34B), and Moana 2 ($1.03B).

3) Improved Streaming Profitability: Delivered a second consecutive profitable quarter in DTC, with $300M in operating income (~4.9% EBIT margin), a $430M YoY improvement. Full-year operating income remains on track for ~$1B, despite Q1 already contributing 30% of projected EBIT. MAJOR upside potential.

4) Subscription Growth: Ended Q1 with 178M Disney+ and Hulu subscribers, up 0.9M from Q4. The market didn’t like seeing a 0.7M Disney+ subscriber decline, but most were low-margin wholesale international deals. Keep in mind, Disney rolled out significant price hikes, with internal expectations for churn being “significantly greater” than what materialized.

5) Resilient Parks & Experiences: Experiences revenue grew 3% YoY, with operating income flat despite a ~600 basis point headwind from Hurricanes Milton and Helene, as well as pre-opening costs for the Disney Treasure launch.

6) Strength in Sports: ABC averaged 5.8M viewers across 46 regular-season college football games, up 56% YoY—the network’s best college football season in 15 years. Sports segment operating income is expected to grow 13% YoY in FY2025.

7) Cruise Expansion: Disney has seven cruise ships in development, with two set to debut in FY2025. Disney Treasure is off to a strong start, selling out rooms quickly, and is expected to be profitable in its first quarter (as with all other future ships).

8) Promising Theatrical Slate: Upcoming releases include Captain America: Brave New World, Snow White, Elio, a live-action Lilo & Stitch, The Fantastic Four: First Steps, Zootopia 2, and Avatar 3.

9) Shareholder-Friendly Capital Allocation: Returned $1.00 per share in dividends and repurchased $800M in stock during Q1, remaining on track to repurchase $3B in FY2025.

10) Solid FY2025 Outlook: Guidance remains unchanged, with high-single-digit adjusted EPS growth and ~$15B in expected operating cash flow.

Q&A Highlights

SWK Update + Key Takeaways

Earnings & Revenue Beat: Q4 revenue came in at $3.72 billion, exceeding estimates of $3.58 billion, while EPS of $1.49 topped expectations of $1.27.

DEWALT Momentum Continues: Marked the seventh consecutive quarter of organic growth, with mid-single-digit gains and continued market share expansion.

Cost Savings on Track: Achieved $1.5 billion in pre-tax run-rate cost savings to date, with the company still expecting to reach $2 billion in savings by the end of 2025.

Margin Expansion: Adjusted gross margins improved to 30.9% in the second half of 2024 and are projected to reach ~34.5% by Q4 2025, with a medium-term goal of historical 35%+ levels.

Strong Medium-Term Targets: Expects mid-single-digit organic growth despite operating in a low-single-digit growth market, remaining on track to achieve adjusted EBITDA of $2.5 billion.

Balance Sheet Strength: Generated ~$750 million in free cash flow in FY2024 and reduced debt by ~$1.1 billion. Balance sheet deleveraging remains a top priority for 2025.

Tariff Mitigation Plan: Plans to offset potential tariff impacts through supply chain and pricing adjustments. A 10% incremental tariff on China imports would have a $90M–$100M gross impact, but only a $10M–$20M expected net impact in 2025.

Strong FY2025 Guidance: Forecasts +2% organic growth YoY, adjusted EPS between $4.75 and $5.75, and free cash flow between $650M and $850M.

General Market

The CNN “Fear and Greed Index” ticked down from 43 last week to 39 this week. You can learn how this indicator is calculated and how it works here: (Video Explanation)

The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) ticked down to 68.28% this week from 86.08% equity exposure last week.

Our podcast|videocast will be out sometime on Thursday or Friday. We have a lot of great data to cover this week. Each week, we have a segment called “Ask Me Anything (AMA)” where we answer questions sent in by our audience. If you have a question for this week’s episode, please send it in at the contact form here

*Opinion, Not Advice. See Terms

Not a solicitation