AT&T’s Love Affair with Debt
January 26, 2017
Image Source: Mike Mozart AT&T’s free cash flow performance during 2016 was solid, and the company’s outlook for 2017 wasn’t bad. What concerns us the most, however, is the company’s unwieldly debt load, which will only be exacerbated by the Time Warner deal. Income investors should take note. By Brian Nelson, CFA On January 25, AT&T (T) wrapped up 2016 with a rather solid fourth-quarter report, and full-year results weren’t bad. We have no qualms with AT&T, but as with Verizon (VZ), we worry the company has stretched its balance sheet too far this late into the economic cycle. Contributions from AT&T’s acquisition of DIRECTV and gains in IP services and video helped drive consolidated revenues 11.6% higher during 2016,
Boeing’s Lift Off, Lockheed’s Caution, and United Tech’s Outlook
January 26, 2017
Image Source: Rob Buhlman Just how healthy is the commercial aerospace market? Very — if the size of Boeing’s backlog is any indication. Let’s have a look. By Brian Nelson, CFA In August 2016, we wrote an extensive update on the commercial aerospace market, “Boeing Declares Victory But Farnborough Disappoints,” and we encourage those that are digging into this follow-up note to read that piece first before proceeding. In this note, dated Wednesday, January 25, we’d like to build on that piece and update investors on a few insights we’ve gathered within the aerospace market. First, what was once a key company to assess commercial aerospace demand is no longer. As of November 1, Alcoa (AA) has been severed into
Placing Meridian Bioscience Under Review
January 25, 2017
We are placing Meridian Bioscience’s (VIVO) fair value estimate and Dividend Cushion ratio under review as we assess its fiscal 2017 outlook. Please expect an updated 16-page report and dividend report shortly.
Crisis In Wall Street Stock Research; The Solution? Independent Investment Research
January 25, 2017
Image Source: Sam Valadi “New Wall Street Conflict: Analysts Say ‘Buy’ to Win Special Access for Their Clients… Securing face time for investors with top executives has become a vital revenue source for securities firms…” – Wall Street Journal, January 19, 2017 By Brian Nelson, CFA It is no surprise that buyside firms tend to prefer sell-side institutions that can get them access to the head honchos of companies. Buyside analysts and portfolio managers are talented, and some may have even come from the sell-side (in a previous life, if you can get them to admit it). In many cases, they know exactly what they’re doing (how to analyze a company or industry), and perhaps they have been doing so
Qualcomm in Defense Mode
January 25, 2017
Image Source: KÄÂrlis DambrÄÂns Chip-making giant Qualcomm has found itself firmly in the FTC’s spotlight, and Apple has now piled on with a lawsuit of its own. Let’s take a quick look at the developments. By Kris Rosemann Qualcomm (QCOM), the world’s largest maker of semiconductors for mobile phones, has a fantastic business model based on the licensing of technology that has been declared essentail to industry standards, but is it too good to be true? The Federal Trade Commission thinks it might be, and the company was charged Janaury 17 with using anticompetitive tactics to maintain its monopoly in the supply of baseband processors, the devices that manage communications between mobile products. The FTC alleges that Qualcomm threatened to
Verizon’s Debt Load Is Too Much and Its Deal with Yahoo Is a Silly Distraction
January 24, 2017
Image Source: Mike Mozart Verizon’s financial metrics didn’t stack up during 2016, and management suggested 2017 will be more of the same. We’re cautious on this overleveraged, capital-intensive telecom giant. By Brian Nelson, CFA As a dividend growth investor, there’s really only one thing you need to worry about when it comes to Verizon (VZ), and you won’t find it in its fourth-quarter 2016 earnings release, issued January 24, or really in most news correspondence. You have to go to the financial statements to see it. I’m talking about Verizon’s massive debt obligations, which are sure to keep any prudent investor up at night. At the end of 2016, the telecom giant’s long-term debt load stood at ~$105 billion, while
J&J Boasts Below-Market Earnings Multiple; Deal with Actelion Not Concerning
January 24, 2017
Image Shown: J&J’s robust pharma pipeline; source: J&J There’s a lot to like about J&J’s investment opportunity, not the least of which is its strong pharmaceutical pipeline. Deal-making could challenge its pristine balance sheet, but we don’t expect much to derail our thesis. By Brian Nelson, CFA J&J (JNJ) reported solid fourth-quarter 2016 results Tuesday, January 24. Uncertainty regarding the healthcare landscape in the midst of a Trump Presidency is the main dynamic weighing on shares, but operational sales growth of 2.3% and adjusted fourth-quarter earnings per share expansion of 9.7% weren’t bad by any stretch. They were actually quite good. We wonder if many portfolio managers are rotating out of some of the strong healthcare entities on the basis
McDonald’s: Buyback-Driven Earnings Growth and Faltering US Comps
January 24, 2017
McDonald’s shares continue to plow ahead as if nothing is wrong. Consolidated sales fell, net earnings dropped, US comps faltered, and all of the company’s EPS performance during the fourth quarter, results released January 23, was buyback driven. The company is trading at 22 times trailing earnings and holds a sizable net debt position. By Brian Nelson, CFA The Golden Arches introduced its all-day breakfast initiative in the US in October 2015, and we had been skeptical of its sustainable incremental contribution. We believed the efforts would only amount to a one-time shot in the arm to performance, if they were successful at all. For years, McDonald’s (MCD) had argued that serving breakfast all day would be a catastrophe when
Novartis’ Continuous Dividend Growth and Promising Pipeline
January 23, 2017
Image Shown: Novartis’ dividend history, source: Novartis. By Alexander J. Poulos and Brian Nelson, CFA Sometimes the most attractive opportunities manifest themselves in companies that are in the midst of a transition. In the case of entities in the pharmaceutical industry, the transition often occurs during the period of patent-protection loss of a top-selling treatment. Typically, the market will sour on the company’s prospects as revenue is expected to decline in the near term. However, the longer investment time horizon we have at Valuentum allows us to examine whether such opportunities still fit for inclusion in the newsletter portfolios. Said differently, we’re less interested in what the company will do in the next quarter or two than we are in
Calendar Fourth Quarter Earnings Roundup: IBM, GE, PG, UNP
January 21, 2017
Image Source: texasfeel Let’s get our thoughts on calendar fourth-quarter performance from a few giants in their respective industries. By Kris Rosemann and Brian Nelson, CFA International Business Machines IBM’s (IBM) stock is now back above the $170 per-share mark after falling below $120 per share just a little over a year ago. Five-year performance of the equity, however, still remains terrible, with shares of IBM languishing around the price they were changing hands at the beginning of 2012. Warren Buffett’s association with the stock has a lot of investors excited, but we think the Oracle of Omaha may be a bit too optimistic on this one. Year-over-year revenue at IBM has been under considerable pressure for some time, and
