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
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
