Here is a roundup covering the latest news on the stocks in our portfolio. As well as plans to add two more stocks:

ABBVIE TENDER OFFER (ABBV)

AbbVie announced a modified "Dutch auction" tender offer to purchase for cash up to $7.5 billion of its common stock at a price not less than $99.00 per share and not more than $114.00 per share, given the company’s strong year-to-date performance, robust cash flow and its undervalued stock price due to the market’s overreaction to AbbVie’s decision not to seek accelerated approval for Rova-T to treat small cell lung cancer. We agree with management that the stock appears attractively valued which is why we declined to tender our shares. The significant share repurchase program should create value for long-term shareholders.

EXPRESS SCRIPTS BUYOUT OFFER (ESRX)

Cigna (CI) announced that they will acquire Express Scripts in a cash and stock transaction valued at approximately $67 billion, including Cigna’s assumption of approximately $15 billion in Express Scripts debt. Express Scripts shareholders will receive $48.75 in cash and .2434 shares of the combined company for each Express Scripts share held. Upon closing of the deal, which is anticipated before the end of 2018, Cigna shareholders will own about 64% of the combined company and Express Scripts shareholders will own 36%. The combined company will retain the Cigna name. The deal is expected to be accretive to Cigna’s earnings at a double-digit rate in the first full year after the deal closes with $600 million in synergies identified. In the future, Cigna anticipates its revenues to grow at a 6%-8% annual rate with earnings growing at a high single-digit rate with the company’s outlook for EPS in 2021 rising from a projected $18 per share to $20-$21 per share. The combined company is expected to generate substantial free cash flows and a strong return on invested capital.  

SLICING CHEESCAKE FACTORY (CAKE)

The Cheesecake Factory reported first quarter revenues rose 4.8% to $590.7 million with net income sliced 25.7% lower to $26 million.The bottom line was negatively impacted by higher labor costs. In addition, the company incurred higher than expected insurance costs and one-time litigation costs. Management’s outlook for the full year 2018 is for same store sales growth of 1%-2% in line with its long-term growth goals and EPS in the range of $2.62-$2.74, which would be 18% lower than last year at the midpoint reflecting staffing inflation of 6% and food inflation of 2.5%.
 
With The Cheesecake Factory not serving up any earnings growth amid a challenging retail environment, we have decided to slice the stock from our portfolio by selling our position for a less than tasty 2% total return after two years.

SNEAKING AWAY WITH NIKE PROFITS (NKE)

Nike reported fiscal third quarter revenues were up 7% to $9 billion with a net loss of $921 million or $.57 per share. The earnings included $2 billion, or $1.25 per share, of additional income tax expense related to U.S. tax reform. Return on invested capital, excluding the one-time tax charge, was a strong 32%. During the first nine months of the year, Nike repurchased 46.6 million shares for approximately $2.7 billion as part of the four-year $12 billion buyback program approved by the Board in 2015 with $4.8 billion still available for future repurchases. Nike expects to complete the buyback program in fiscal 2019. In fiscal 2019, management expects mid to high single-digit revenue growth with gross margin expansion. With Nike’s stock running up a 27% total return over the past year, we have decided to trim our position and sneak away with some profits.
 
UNLOADING PROFITS AT CANADIAN NATIONAL (CNI)

Canadian National Railway reported revenues of C$3.2 billion, down slightly from last year, with EPS falling 14% to C$1.00. The decrease in revenues was mainly due to reduced revenue ton miles resulting from challenging operating conditions, including harsh winter weather and low network resiliency, as well as the negative translation impact of a stronger Canadian dollar. Due to weaker than expected first quarter results and a longer than anticipated construction period needed for significant infrastructure capacity projects in 2018, CNI lowered its 2018 EPS outlook with adjusted EPS now expected in the range of C$5.10 to C$5.25. With the stock appearing fairly valued, we decided to unload part of our CNI profits by trimming our position for a 51% total return over the last three years.

THOR INDUSTRIES (THO) AND FACEBOOK (FB)

With the profits from Cheesecake Factory, Nike and Canadian National Railway, we plan to buy Thor Industries and Facebook (see p. 10-11). Personal and employee purchases will be made during the week following distribution of this newsletter. (See Personal Trading restrictions in the box on p. 3.)

DIVIDENDS
 
Since the last issue, the following dividends per share were received: AbbVie ($.96),Accenture ($1.33), Apple ($.73), ADP ($.63), Brown-Forman ($1.16), Canadian National ($.35), Cheesecake Factory ($.29), Cisco ($.33),Cognizant ($.20), FactSet Research ($.56), Fastenal ($.37), Gentex ($.11),Genuine Parts ($.72), Hormel Foods ($.19), Johnson & Johnson ($.84), MasterCard ($.25), Maximus ($.05), Microsoft ($.42), 3M ($1.36), MSC Industrial ($.58), Nike ($.20), Oracle ($.19), Paychex ($.50), Pepsi ($.93), Polaris ($.60), Ross Stores ($.22), Starbucks ($.30), Stryker ($.47), T. Rowe Price ($.70), TJX ($.31), Tractor Supply ($.27), United Parcel Services ($.91), United Technologies ($.70), Walgreen ($.40) and Westwood Holdings ($.68).  
 
STOCK DIVIDEND
 
Brown-Forman distributed a 5 for 4 stock dividend on Feb. 28, 2018. All data adjusted accordingly.