Image Source: Simon Cunningham
By Brian Nelson, CFA
Walgreens Boots Alliance (WBA) is yielding ~6.6% on a forward estimated basis. Though this sounds like a hefty dividend yield worth scooping up, the Walgreen’s story is much more complicated these days than it ever was due to the firm’s wheeling and dealing the past number of years. The company’s third-quarter fiscal 2023 results, released June 27, showed decent revenue expansion, but earnings per share fell $0.20 in the quarter versus the same period a year-ago. The company continues to offload shares of AmerisourceBergen Corp. (ABC) that it owns, and it lowered its fiscal year 2023 adjusted earnings per share guidance to the range of $4.00-$4.05 from $4.45-$4.65 previously. Though Walgreens has a storied consecutive annual dividend growth streak of nearly a half-century and should remain on one’s radar, we’re not going to be adding the stock to any newsletter portfolio anytime soon. Our fair value estimate stands at $33 per share, which is modestly above where shares are trading.
Korn/Ferry (KFY) is a fantastically-run consulting firm that we think is mighty cheap from a valuation standpoint. On June 27, the company reported solid fourth-quarter fiscal 2023 results that showed decent fee revenue expansion on a year-over-year basis, but operating income did face pressure as the company experienced a mix shift to lower-margin business. We didn’t necessarily like the weak operating income performance in the period, but it seems the company agrees with our valuation assessment of its own shares, with the company buying back 225,000 shares in the quarter. Korn/Ferry also raised its quarterly cash dividend 20% to $0.18, which translates to a forward estimated dividend yield of ~1.49%, which isn’t too shabby, but not high enough to really get excited about potentially adding the firm to the Dividend Growth Newsletter portfolio. Korn/Ferry has worked hard to diversify its revenue streams in recent years, and the company has been investing in generative artificial intelligence to better meet client needs. Our fair value estimate per share of $75 stands far about where shares are trading at these days.
International Business Machines (IBM) remains in the category of ‘old tech,’ in our view, and the company has been working hard to right the ship these past many years. The company had been an early player in artificial intelligence, but now it takes a back seat to entities such as Microsoft (MSFT) and Alphabet (GOOG) (GOOGL), both of which stand head and shoulders above IBM in this area. The company’s forward estimated dividend yield of ~5% is interesting, but there are so many other better tech-related entities to consider than the firm, in our view. IBM has a massive net debt position as long-term debt has swollen to $53.8 billion, and the firm is still looking to transform its operations shelling out $4.6 billion in cash to buy Apptio, which compliments IBM’s IT automation business and its Watson AI platform. We’re not enamored by IBM’s business these days, and we’d much prefer allocating incremental capital to Microsoft or Apple (AAPL) than to “Big Blue,” which continues to struggle, from our perspective. Our fair value estimate of IBM stands at $136 per share, which is about in-line with where shares are currently trading.
UnitedHealth Group (UNH) recently announced that it will buy Amedisys (AMED), which specializes in in-home care services including home healthcare, hospice care, and palliative care. The COVID-19 pandemic changed the preference of many consumers to receive care with convenience and in the safety of their own homes, and the deal with Amedisys will continue to expand UnitedHealth Group’s presence in in-home care following its deal with LHC Group, which it closed in February 2023. UnitedHealth Group recently raised its quarterly dividend ~14%, to $1.88 per share, and we continue to like shares as a large cap growth idea in the newsletter portfolios. Shares of UnitedHealth Group had recently come under pressure as healthcare costs are expected to be higher than previously-expected as discretionary surgeries pick up following a slowdown during the COVID-19 pandemic. We think UnitedHealth Group will eventually be able to re-price effectively to recover the increased costs, and the name is now trading at the lower end of our fair value estimate range. Our point fair value estimate for UNH stands north of $500, and the company boasts a ~1.6% forward estimated dividend yield.
Occidental Petroleum (OXY) has been one of the most followed energy-related stocks the past several months as Warren Buffett’s Berkshire Hathaway continues to increase its stake in the firm, with the insurance and industrial conglomerate now owning 25% of the independent oil and gas player. We’ve always liked Occidental Petroleum, but we’ve preferred Exxon Mobil (XOM) and Chevron Corp. (CVX) in the newsletter portfolios in the past. We continue to include the Energy Select Sector SPDR (XLE) in the Dividend Growth Newsletter portfolio, as the XLE has a forward estimated dividend yield of ~4%, which is more than double that of Occidental’s. 2022 was a great year for energy stocks, and our exposure to XOM and CVX was a key reason why the Dividend Growth Newsletter portfolio did so relatively well last year. We’ve moved beyond a considerable “overweight” in energy equities, however, having removed XOM and CVX from the newsletter portfolios in March of this year. OXY is worth watching, but we continue to like ideas in the newsletter portfolios.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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