Growing Competitive Pressures, Leverage Drive Our Reduced Fair Value Estimate of CVS Health (Walgreens, Too)
November 17, 2020
By Callum Turcan On November 9, we reduced our fair value estimate of CVS Health Corporation (CVS) (which operates pharmacies, walk-in medical clinics, retail centers, and a large health insurance business). Our new fair value estimate is $55 per share, down from $73 per share previously. CVS Health’s 52-week share price range has been $52-$77, and the company yields 2.7% at the time of this writing. We recently wrote an article here explaining some of the major broad-based drivers behind why fair value estimates can, do, and should change over time as future expectations change. From our perspective, CVS Health’s near- and medium-term outlook has become increasingly stressed. Though investors have bid up shares of CVS in the wake of
Chevron’s Forward-Looking Dividend Coverage is Becoming Stressed
November 17, 2020
Image Shown: Chevron Corporation reduced its capital expenditure expectations a couple of times this year, though that still has not enabled the firm to generate meaningful free cash flows given the various headwinds facing its businesses. Image Source: Chevron Corporation – November 2020 IR Presentation By Callum Turcan On October 30, Chevron Corporation (CVX) reported third quarter earnings for 2020. As expected, it was a brutal report from Chevron. The ongoing coronavirus (‘COVID-19’) pandemic decimated global energy demand and severely weakened raw energy resources pricing at a time when refining margins are quite weak. This double whammy saw Chevron post a $0.2 billion GAAP net loss in the third quarter of 2020 as its revenues tanked. Dividend Coverage Facing Serious
Value Is Not Static and the Qualitative Overlay Is Vital to Our Process
November 16, 2020
With prudence and care, the Valuentum Buying Index process and its components are carried out. Our analyst team spends most of its time thinking about the intrinsic value of companies within the context of a discounted cash-flow model and evaluating the risk profile of a company’s revenue model. We have checks and balances, too. First, we use a fair value range in our valuation approach as we embrace the very important concept that value is a range and not a point estimate. A relative value overlay as the second pillar helps to add conviction in the discounted cash-flow process, while a technical and momentum overlay seeks to provide confirmation in all of the valuation work. There’s a lot happening behind the scenes even before a VBI rating is published, but it will always be just one factor to consider. Within any process, of course, we value the human, qualitative overlay, which captures a wealth of experience and common sense. We strive to surface our best ideas for members.
Exxon Mobil’s Weak Forward-Looking Dividend Coverage is Very Concerning
November 15, 2020
Image Source: Exxon Mobil Corporation – Third Quarter of 2020 IR Earnings Presentation By Callum Turcan Exxon Mobil Corporation (XOM) has contended with enormous headwinds so far in 2020 due to the ongoing coronavirus (‘COVID-19’) pandemic, and that has put its dividend at risk. Over the past couple of years, the company has come nowhere close to generating enough free cash flow to cover its dividend obligations. Exxon Mobil’s forward-looking dividend coverage appears quite weak and the company is currently leaning heavily on debt markets to keep making good on those obligations. As of this writing, shares of XOM yield ~9.7% as investors are increasingly pricing in the chance for a meaningful payout cut. Deteriorating Upstream Outlook The long-term slide
Zillow Continues to Disrupt Real Estate Market
November 15, 2020
Image Source: Zillow Group Inc – May 2020 IR Presentation By Callum Turcan Record low interest rates for mortgages in the US, largely a product of the Fed’s monetary stimulus measures (quantitative easing and near-zero interest rates), has gone a long way in stimulating demand for homes. According to the US Census Bureau, the national homeownership rate stood at 67.4% in the second quarter of 2020, up ~260 basis points from the same period the prior year. For reference, the domestic homeownership rate has been steadily climbing higher since 2015-2016 (when homeownership rates were in the low-60s% range) according to data provided by the US Census Bureau. Homeownership rates peaked in 2005-2006 at the high-60s% level before sliding significantly lower
Seeking High Success Rates on Individual Ideas? Consider the Exclusive Publication, a Valuentum Securities Offering.
November 13, 2020
Seeking High Success Rates on Individual Ideas? Consider the Exclusive Publication, a Valuentum Securities Offering. — Brian Nelson, CFA — It’s a difficult time for everybody these days. — My heart goes out to all of our members that are suffering in one way or another because of this terrible pandemic that has been thrust upon humanity. It’s fair to say that it’s taken a toll on everybody–emotionally, physically, and financially. — With the recent passing of my brother, Chicago’s new lockdown orders will make it especially difficult for me not to see family during the upcoming Thanksgiving holiday. I–and I’m sure you, too–can only hope that the PFE/BNTX vaccine will be available sooner than later. — I wanted to say something
Our Fair Value Estimate for Cisco Remains Unchanged at $51 Per Share
November 13, 2020
Image Shown: Cisco Systems Inc continues to focus on rewarding shareholders by deploying its sizable free cash flows towards dividend payments and share repurchases. We are big fans of the tech giant. Image Source: Cisco Systems Inc – First Quarter of Fiscal 2021 IR Earnings Presentation By Callum Turcan On November 12, Cisco Systems Inc (CSCO) reported first quarter earnings for fiscal 2021 (period ended October 24, 2020) after the market close that beat both consensus top- and bottom-line estimates. Though its GAAP revenues and GAAP net income fell by 9% and 26% year-over-year, respectively, the market was assuming the worst given the headwinds Cisco is facing due to the coronavirus (‘COVID-19’) pandemic. More importantly, Cisco’s fiscal second quarter guidance
Shares of Disney are Now Surging Towards the Top End of Our Fair Value Estimate Range
November 13, 2020
Image Shown: Shares of The Walt Disney Company are steadily climbing towards the top end of our fair value estimate range, which sits at $153 per share of DIS. By Callum Turcan After the market closed on November 12, The Walt Disney Company (DIS) reported its fourth quarter and full-year earnings for fiscal 2020 (period ended October 3, 2020). Its latest results beat both consensus top- and bottom-line estimates. Though Disney’s financials took a big hit from the coronavirus (‘COVID-19’) pandemic, as expected (with an eye towards the enormous headwinds facing its ‘Parks, Experiences and Products’ business segment), the company’s outlook has improved considerably as its various video streaming services continue to outperform. We include shares of Disney in our
ICE’s Purchase of Ellie Mae Gives Us Pause
November 12, 2020
Image Source: IntercontinentalExchage Intercontinental Exchange’s acquisitive behavior and weakening balance sheet have given us pause. The company may have bitten off more than it can chew with its $11 billion cash and stock acquisition of Ellie Mae, a cloud-based provider in mortgage finance, and we question its new debt-funded strategic direction, which takes it further from its core bread-and-butter operations we liked so much. By Brian Nelson, CFA The exchanges industry consists of firms that deliver trading, clearing, exchange technology, and regulatory securities listing. Industry constituents include the NASDAQ (NDAQ), Chicago Board Options Exchange (CBOE), and the Chicago Mercantile Exchange (CME), among others. These firms carve out competitive advantages via scale (operating the largest market for a given financial instrument)
Altria May Never Make A Comeback
November 12, 2020
Image Source: Altria By Brian Nelson, CFA About 15 years ago, I picked up a text from Professor Jeremy Siegel out of the University of Pennsylvania’s Wharton School of Business, The Future for Investors (1). I must have been at one of his talks. I ended up getting a signed copy from him; it was a neat experience. In any case, perhaps one of the more striking takeaways from his 2005 book was the following excerpt: Some readers may be surprised that (Altria) is a top performer for investors in the face of the onslaught of government restrictions and legal actions that have cost the firm tens of billions of dollars and threaten the cigarette manufacturer with bankruptcy. But in
