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Booking Holdings’ Quarter; Still More MLP Transparency Needed, More Reports
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In alphabetical order by ticker symbol: ALB, BKNG, DDD, ET, GPRO, JD, KDP, OSTK, SONO, YELP
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Albemarle (ALB): Albemarle remains on our list of unique ideas in the chemicals space. The company is heavily tied to lithium production, and it has one of the lowest-cost positions for lithium carbonate and lithium hydroxide (a source of sustainable competitive advantage). We view this as a fantastic opportunity, especially as it relates to expectations for a surge in electric vehicle demand in coming years. Though lithium represents just one portion of its specialty chemicals operations (it also produces bromine specialties and catalysts), the company’s diversification has rewarded shareholders with more than two decades of consecutive annual dividend increases. Albemarle reported first-quarter results May 8 that were largely as expected, but its full-year guidance was better than what many were anticipating. Fiscal year 2019 earnings guidance was reaffirmed at $6.10-$6.50 per share, but the midpoint of the range came in above consensus forecasts, implying growth of 8%-14%. Lithium pricing remains strong, according to the firm, but adjusted EBITDA expansion in the year (6-13%), isn’t expected to quite match that of revenue growth. Shares yield about 2% at the time of this writing. View Albemarle’s stock page >
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Booking Holdings (BKNG): The company formerly known on the corporate level as Priceline put up a somewhat mixed first-quarter report May 9, but shares rallied, nonetheless. Gross travel bookings advanced 8% on a constant-currency basis, helping to drive a GAAP net income increase of roughly 26% during the quarter versus the prior-year results. Earnings per share on a GAAP basis came in at $16.85, up 37% on a year-over-year basis. The quarter was somewhat messy, however, as non-GAAP performance faced some headwinds. Management indicated that “Q1 was a solid start to the year,” and our view is that whisper numbers (not consensus), must have been much lower than what was released for its outlook to support the bounce in shares. Booking Holdings is a Joel Greenblatt favorite, and it remains a core idea in the Best Ideas Newsletter portfolio. Our fair value estimate stands at $2,100+, revealing substantial upside based on our valuation estimate. View Booking Holding’s stock page >>
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3D Systems (DDD): 3D printing was supposed to be the next big thing, remember? Well, shares of 3D Systems, which almost touched $100 each near the end of 2013, have come all the way back down to under $10 per share. We like the technology, but it is a tough business to be in, and the company’s Valuentum Buying Index rating has been mostly a 3 during the past few years (1=worst; 10=best). We’ve never been interested in shares, and we don’t think that’s going to change anytime soon. The company’s first-quarter report, released May 7, only further supports the notion of investor caution. Revenue dropped more than 8% in the period, missing the consensus forecast, while GAAP and non-GAAP earnings numbers showed losses. Gross margin numbers in the quarter also missed. This industry, which includes ExOne (XONE), Stratasys (SSYS), and Voxeljet (VJET) has taken a severe beating the past few years. We continue to stay far away. View 3D Systems’ stock page >>
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Energy Transfer (ET): Energy Transfer is getting things back on track, it seems, after shares experienced significant pressure during the doldrums of late 2015. Our fair value estimate for Energy Transfer is higher than where shares are currently trading, but still far below its peak in the mid-$30s in mid-2015. The pipeline giant reported first-quarter numbers May 8 that showed an ending balance of long-term debt, less current maturities of $46.4 billion, and we’re still waiting for the 10-Q release regarding its cash balance (all of current assets were $7.1 billion at the end of the quarter). We estimate cash flow from operations in the quarter was approximately $2 billion (based on net income plus depreciation, depletion and amortization). We estimate capital expenditures of about $1.25 billion in the quarter (based on the view that it is targeting $5 billion in capex for the year), implying a company that is free cash flow positive and may have covered total distributions of ~$800 million with traditional free cash flow in the period. That said, we don’t have the numbers in the press release that we think are important, and there doesn’t appear to be a 10-Q (or any 10-Q) on its website either. We continue to encourage midstream equities to report GAAP cash flow from operations and non-GAAP free cash flow in their press releases. We applaud peer Enterprise Products Partners (EPD) for disclosing both free cash flow and distributable cash flow next to each other in its recent press release, and we hope to see other midstream equities adopt such reporting, too. View Energy Transfer’s stock page >>
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Read more about the ‘metamorphosis’ in MLP reporting >>
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GoPro (GPRO): GoPro makes an exciting product, but an exciting product a great stock doesn’t always make. To put it bluntly, investors that have held on to shares following its initial public offering have been living a nightmare. The company’s equity traded to over $90 per share during the back half of 2014, but shares are now way down to the mid-single-digits. The company reported a better-than-expected first-quarter report May 9, but it still posted losses during the period. A few on the sell-side are optimistic about a turnaround, but as with 3D printing, the business has lost its luster. First-quarter GAAP net loss was -$0.17 per share, and while this is a considerable improvement, we’re still talking about losses in a company whose revenue growth is running at 20%, not doubling on a year-over-year basis. We just don’t think GoPro fits the profile of the type of company we’d add to any of our newsletter portfolios. Good product, terrible stock. View GoPro’s stock page >>
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JD.com (JD): The share price of JD.com, one of the largest e-commerce companies in China, hasn’t been faring that well of late. Its equity price has fallen under $30 from nearly $50 in early 2018, and the US-China trade spats aren’t helping, from what we can gather. Still, revenue in the company’s first-quarter report, released May 10, came in better-than-expected, advancing more than 20% on a year-over-year basis, and non-GAAP numbers also beat the consensus mark. Management noted the “first quarter saw…record breaking profitability.” The company’s annual customer accounts increased to 310.5 million in the 12 months ended March 2019 versus 305.3 million in the prior 12-month period. Though free cash flow was significantly negative in the quarter, it’s hard not to say things aren’t going great fundamentally at JD.com, despite US-China trade tremors. Our fair value estimate stands at $37 per share. View JD.com’s stock page >>
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Keurig Dr. Pepper (KDP): During its first-quarter report, released May 9, Keurig Dr. Pepper reaffirmed its adjusted (non-GAAP) earnings per share growth rate of 15-17% for 2019 ($1.20 -$1.22), signaling the integration process is proceeding relatively smoothly, all things considered. Adjusted pro forma net sales dropped by 1% during the first quarter of 2019, to $2.5 billion, but its underlying net sales grew by 2.5% (obtained primarily through better price realizations and an improving product mix). Foreign currency headwinds (courtesy of a strong US dollar) and problems at the firm’s Allied Brands portfolio held revenue down. Its GAAP EPS came in at $0.16 while its adjusted (non-GAAP) EPS came in at $0.25 last quarter. We may look to increase our fair value estimate after reviewing our valuation model. View Keurig Dr. Pepper’s stock page >>
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Overstock.com (OSTK): Things aren’t looking all that great at Overstock.com. The company reported weak first-quarter numbers May 9 that showed revenue falling more than 17% and a rather large GAAP earnings-per-share loss. Overstock.com captured some of the interest of the “crypto crowd” recently, but we’re not liking at all what we’re seeing with fundamental performance. We also think the company’s investment in crypto may be more of a “Hail Mary” type of strategy to breathe life back into a business that is struggling. A pre-tax loss of $42 million during its first quarter isn’t going to get us to come in from the sidelines. We may consider dropping coverage of Overstock.com soon; covering the company is not adding a lot of value to our membership, and we can deploy resources where it will. View Overstock.com’s stock page >>
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Sonos (SONO): We took a look at Sonos some time ago, and we see no reason to alter our fair value estimate of $12 for shares. A reasonable fair value estimate range around that point estimate means shares are trading about fairly valued, in our view; they closed at $10.82 Friday May 10. The problem with Sonos’ business model is that it is not as recurring as we’d like it to be; revenue is still very much product-sales driven (and technology changes fast), even though many of its customers are of the repeat variety. Don’t get us wrong: we love Sonos’ product, but there’s not a lot more we can say about its business. The firm’s second-quarter report showed nice top-line growth of nearly 13% and a narrower-than-expected loss May 9, but that’s about it. We think the market has this one valued about right. View Sonos’ stock page >>
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YELP (YELP): Yelp’s shares are in need of some help, but all kidding aside, the firm’s equity was pummeled Friday May 10, falling more than 14%. Net revenue advanced roughly 6% in the period, but net income was rather miniscule at just $0.02 per share, a very minor improvement over the $0.03 loss in last year’s quarter. Cash provided by operating activities was solid, and the company ended the quarter with a nice amount of cash on the balance sheet (and no debt), but the company is going to have to put up a solid back half of 2019 to hit its top-line guidance calling for 8%-10% growth, even if its goal to advance adjusted EBITDA margins 2-3 percentage points over last year’s levels may be more achievable. We’re not seeing much upside in YELP’s future (absent a buyout for a premium), and we just don’t see this speculative name fitting in any of our newsletter portfolios. View YELP’s stock page >>
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.