The Dreaded Patent Cliff: 3 Pharmaceutical Companies at Risk
January 19, 2017
Image Source: Global Panaroma Let’s have a look at 3 pharmaceutical giants that may encounter some troubles in coming years. By Alexander J. Poulos and Brian Nelson, CFA Established companies in the pharmaceuticals industry (XLV) generally offer an appealing blend of high profit margins, a relatively recession-resistant nature of commercialized products, and a flourishing drug pipeline. In many ways, companies in the industry can be viewed as largely defensive, with a resilient revenue profile and profit stream helping to power a steadily-growing dividend, which remains highly prized in the current income-starved environment. In addition to a focus on balance sheet health and the timing of future free cash flow generation, when it comes to pharmaceutical entities, we also analyze the
Fair Value Estimate Changes: Facebook, Twitter, Caterpillar and More…
January 19, 2017
By Kris Rosemann and Brian Nelson, CFA Let’s begin this edition of Recent Material Fair Value Estimate Changes’ with a discussion of some of the highest-profile names that made the list. If you require background reading on why we make changes to our valuation models, please see: What causes fair value estimates to change? Best Ideas Newsletter portfolio holding Facebook (FB) continues to separate itself from other social media companies, and we continue to be impressed by its free cash flow generating prowess and net cash-rich balance sheet. Our most recent fair value estimate increase comes largely as a result of greater optimism regarding the sustainability of the company’s pace of revenue growth, reflected by a hike in our mid-cycle
Netflix: Is NOW Finally the Time?
January 19, 2017
Netflix’s shares are soaring, and we are licking our proverbial chops on the opportunity to add puts to the Best Ideas Newsletter portfolio. The bubble in Netflix’s shares continues to inflate—and that spells opportunity for bears, but at the right price at the right time. For now, we’re going to continue to watch shares run higher until we’re finally ready to take a stab at them. It’s been about a year since we highlighted our concerns about Netflix’s valuation, but our patience has paid off as we watched shares move ever-higher — timing is pretty much everything when it comes to betting on the decline of a stock price via put options, and we’re being careful. Options aren’t for everybody.
Kinder Morgan Continues to Chop Down Its Debt Load
January 18, 2017
Image Source: Loren Kerns By Brian Nelson, CFA After a rough go at it, pipeline operator Kinder Morgan (KMI) continues to get its financial house in order, and we applaud management for its continued strong efforts in this regard. The corporate released fourth-quarter results January 18, and while they came in a little light, we see no reason to change our fair value estimate for shares at this time. In many ways, management’s ongoing reiteration of its goal to work toward reaching its targeted level of ~5 times net-to-adjusted EBITDA is admirable, and we’re hoping ongoing deleveraging initiatives coupled with prudent investment in growth projects (Trans Mountain expansion project and Elba Island Liquefaction project) will pave the way for future
Dividend Increases/Decreases for the Week ending January 13
January 16, 2017
Below we provide a list of firms that raised their dividends during the week ending January 13. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week Alliant Energy (LNT): now $0.315 per share quarterly dividend, was $0.29375. Antero Midstream (AM): now $0.28 per share quarterly dividend, was $0.265. Apogee Enterprises (APOG): now $0.14 per share quarterly dividend, was $0.125. Atco (ACLLF): now C$0.3275 per share quarterly dividend, was C$0.285. BlackRock (BLK): now $2.50 per share quarterly dividend, was $2.29. Canadian Utilities (CDUAF): now C$0.3575 per share quarterly dividend, was C$0.3250. Codorus Valley
The Coming “Goldman Sachs Era”
January 15, 2017
Valuentum covers recent developments in the financials sector, including hopes for a relaxation of certain prohibitive Dodd-Frank rules that, if repealed, could pave the way for improved economic returns across the banking sector during the Trump administration. A look back at the month of September 2008, and how Goldman Sachs may very well shape the financial markets during the next few years are two other areas in the piece. Financials stocks have come roaring back since Trump was elected the 45th President of the United States. We’ve participated. By Brian Nelson, CFA It’s been more than 8 years now. The month of September 2008 shaped my view of the financials and banking sector more than any other month possibly could–The
Cardinal Health: An Undervalued Free Cash Flow Generating Powerhouse
January 13, 2017
Image Source: Lisa Brewster Cardinal Health reset investor expectations lower when it cut its fiscal 2017 guidance late October. The company operates in an attractive oligopolistic industry and is trading at less than 14 times current fiscal-year earnings with a free cash flow yield north of 10%. Is it worth a look? By Alexander J. Poulos and Brian Nelson, CFA Overview The bulk of Cardinal Health’s (CAH) massive $120 billion revenue stream is generated from the distribution of healthcare needs. The company operates a network of warehouses whose primary purpose is to distribute healthcare products to a broad swath of customers ranging from your local drug store to hospitals. Due to the expense and unpredictability of inventory needs, customers prefer
Pedal to the Metal for GM Heading Into 2017
January 11, 2017
Image Source: Abdullah AlBargan By Kris Rosemann Newsletter portfolio holding General Motors (GM) expects to report company records for revenue, EBIT-adjusted, and EBIT-adjusted margin for the full-year 2016 later this quarter, but its 2017 expectations are cause for even more optimism after management presented updated guidance for the year at the Deutsche Bank 2017 Global Auto Industry Conference in Detroit January 10. We continue to like GM’s valuation and dividend growth opportunity, and the company remains a position in both newsletter portfolios. The automaker expects 2017 earnings per share on an adjusted and diluted basis to come in a range of $6.00-$6.50, compared to expectations of $5.50-$6.00 for 2016. It also expects to at least maintain 2016 levels of EBIT-adjusted and
MLPs: Williams’ Double Equity Raise
January 11, 2017
Image Source: Roy Luck By Kris Rosemann and Brian Nelson, CFA Valuentum’s opinion of the significant capital-market dependence of the master limited partner (MLP) business model has not changed, and it appears the Williams’ family, Williams Companies (WMB) Williams Partners (WPZ), has become the latest illustration of this ongoing need. We maintain our view that there will be continued challenges to the MLP structure in the coming years, particularly in the event energy resource prices start to give back some of their recent gains and/or if high-yield spreads begin to expand (making borrowing more costly, irrespective of what the 10-year Treasury does). However, with energy resource pricing improving since the doldrums of January/February and the high-yield market warming up to
Teva’s Near-17% Free Cash Flow Yield; Is The Bottom Finally In?
January 10, 2017
What a roller coaster ride in Teva’s shares. After converging to intrinsic value, Teva’s shares have fallen from grace. Unfortunately, our excitement over this big winner has turned to agony. But is the bottom finally in? What has happened in the past is now behind us, and we have to continue to look forward with respect to our analysis of shares. By Alexander J. Poulos and Brian Nelson, CFA Best Ideas Newsletter portfolio holding Teva Pharmaceuticals (TEVA) continues to suffer along with the entire healthcare complex as we usher in the New Year. Once a big winner in the Best Ideas Newsletter portfolio even just a few months ago, shares have now fallen from grace. We’re not happy about this
