Macy’s Will Find It Difficult to Unlock the (Fair) Value of Its Real Estate
April 21, 2020
Image Source: Valuentum The embattled department store Macy’s suspended its dividend and drew down its revolving credit line on March 20 in order to shore up its financial position in the face of the ongoing coronavirus (‘COVID-19’) pandemic. All of Macy’s physical stores were temporarily closed on March 18, though some might shut down for good given the company’s financial woes. The fair value estimate of Macy’s is heavily dependent on factors well outside the control of management, and considering the US economy and global economy at-large are sliding toward a pandemic/leverage induced recession/depression, we aren’t optimistic on Macy’s ability to unlock the (fair) value of its real estate. Any real estate sales done in the foreseeable future will likely
Proctor & Gamble Pushes Forward
April 20, 2020
Image Source: Procter & Gamble Company – Third Quarter Fiscal 2020 Earnings IR Presentation By Callum Turcan On April 17, Procter & Gamble (PG) reported third-quarter fiscal 2020 earnings (period ended March 31, 2020) that beat consensus estimates on the bottom-line but missed consensus top-line estimates. Most importantly, Procter & Gamble showcased strong organic growth (organic volumes were up 6% company-wide year-over-year) as its ‘Health Care’, ‘Fabric & Home Care’, and ‘Baby, Feminine & Family Care’ segments posted 7%, 8%, and 6% net sales growth, respectively, on a year-over-year basis. Strong high-single-digit volume growth was key to offsetting unfavorable foreign currency headwinds at those three segments. Procter & Gamble’s ‘Beauty’ and ‘Grooming’ segments posted mild net sales declines on a
Morgan Stanley Stands Out Among Peers in First Quarter
April 20, 2020
Morgan Stanley posted difficult first-quarter 2020 results, released April 16, missing consensus estimates on both the top line and the bottom line. Return on average tangible common equity was 9.7% in the quarter, well above levels of just a few years back (and again better than large bank peers in the quarter), showing the progress that Morgan Stanley has made in improving its return profile. By Matthew Warren Morgan Stanley (MS) posted difficult first-quarter 2020 results, released April 16, missing consensus estimates on both the top line (revenue of $9.49 missed by $330 million) and the bottom line (EPS of $1.01 missed by $0.14). With that said, the results held up fairly well as one can see in the graphic
Goldman Sachs Exposed to Too Much Risk
April 20, 2020
Goldman Sachs posted a rough first quarter of 2020, results released April 15, just like its large bank peers. Regarding its on-balance sheet debt and equity investments, we remain very skeptical both about the marks on private equity and amortized cost debt, as well as the appropriateness of holding this size of assets on a leveraged bank balance sheet. In our view, it simply exposes the shareholders to too much risk, and we think these investments should be sold down to reduce risk. By Matthew Warren Goldman Sachs (GS) posted a rough first quarter of 2020, results released April 15, just like its large bank peers. While the firm exceeded the consensus estimate on the top line with revenue of
Citigroup Holding Up Fairly Well
April 20, 2020
As with its large banking peers, Citigroup posted ugly performance in the first quarter of 2020, results released April 15. While there are probably more losses to come in terms of reserve build and future charge offs, especially in the company’s card business, Citigroup has held up reasonably well thus far in the early innings of this downcycle (and as compared to how poorly the bank fared during the Global Financial Crisis last time around). By Matthew Warren As with its large banking peers, Citigroup (C) posted ugly performance in the first quarter of 2020, results released April 15. While the bank beat consensus estimates on the top line with revenue of $20.73 billion ($1.75 billion better than expected), it
Our Reports on Stocks in the Oil & Gas Pipeline Industry
April 20, 2020
Image Shown: Valuentum’s thesis on MLPs prior to their collapse in mid-2015. Valuentum’s breakthrough work when it comes to MLPs has revolutionized how many value these entities. Cash, the source of value, is cash regardless of the business model/structure in which it is generated, and therefore valuation approaches should not change between various business models/structures. We continue to work toward helping investment professionals understand this vitally-important connection. See Pitfalls of Distribution Yield Analysis: https://valuentum.com/downloads/20170312_1/download See: Linking P/DCF to Enterprise Free Cash Flow Valuation: https://valuentum.com/downloads/20170312/download Structure of the Oil & Gas Pipeline Industry Firms in the oil and gas pipeline industry own or operate thousands of miles of pipelines and terminals—assets that are nearly impossible/uneconomical to replicate. Most companies act as
Bank of America Retains Earnings Power and Healthy Balance Sheet
April 17, 2020
Growing pressure from Fed officials on banks to cut dividends, and any extremely-adverse scenario, as outlined by JPMorgan in its latest annual note, coming to fruition may suggest that no banking dividend may be completely safe in this environment. That said, assuming the US economy is able to avoid a prolonged depression-type scenario, Bank of America has the earnings power and balance sheet to withstand most probable scenarios and come out the other side continuing to nip at JPMorgan’s heels for best in class US mega-bank. We are maintaining our recently reduced $28 fair value estimate of Bank of America. By Matthew Warren Bank of America (BAC) posted ugly first-quarter results April 15. Though revenue of $22.77 billion exceeded the
JB Hunt Scales Back
April 17, 2020
Image Source: JB Hunt Transportation Services Inc – First Quarter 2020 Earnings IR Presentation By Callum Turcan JB Hunt Transportation Services Inc (JBHT) offers trucking freight and other logistics services to customers in North America, including intermodal services (which is the firm’s largest business segment by revenue). On April 14, the company reported first-quarter 2020 results, which showed its top-line beat consensus expectations while its bottom-line missed consensus expectations. Part of the reason why JB Hunt missed bottom-line expectations was due to incentive pay increases related to the ongoing coronavirus (‘COVID-19’) pandemic and the need to compensate frontline workers for the risks they are taking (and we appreciate all the work frontline workers are doing during these challenging times). Shares
Our Reports on Stocks in the Household Products Industry
April 17, 2020
Structure of the Household Products Industry Firms in the household products industry sell some of the most recognized branded consumer packaged goods in the world and often hold a significant market share position in a variety of product categories. Though the industry is characterized by stiff competition from retailers’ private-label brands, constituents tend to boast meaningful competitive advantages due to their brand strength/reputation and generate high returns on invested capital. Household products companies remain tied to the vicissitudes of consumer spending, but we tend to like the structure of the group. We’ve optimized our consumer staples coverage. To view their reports, please click here.
Johnson & Johnson Beats Estimates, Adjusts Guidance in Light of COVID-19
April 16, 2020
Image Source: Johnson & Johnson – First Quarter 2020 Earnings IR Presentation By Callum Turcan On April 14, Best Ideas Newsletter and Dividend Growth Newsletter portfolio holding Johnson & Johnson (JNJ) increased its quarterly dividend by over 6% sequentially to $1.01 per share which represents the firm’s 58th consecutive annual increase. We view this payout boost in the face of the ongoing coronavirus (‘COVID-19’) pandemic as a sign of management’s confidence in Johnson & Johnson’s future free cash flows, which we appreciate. Shares of JNJ now yield ~2.8% as of this writing at the new annualized payout rate. Additionally, Johnson & Johnson also posted its first-quarter 2020 earnings report on April 14 which beat both consensus top- and bottom-line expectations
