Fundamental Strength To Outweigh Short-Term Volatility
May 12, 2016
Image Source: texasfeel Union Pacific Battling Declining Volumes We continue to be fans of Union Pacific (UNP) on a fundamental level, and we fully expect the company to be gearing up for material improvement further down the line as the end-markets it serves stabilize. Union Pacific reported weak quarterly results April 21, as operating revenue fell 14% from the year-ago period. The sharp drop was driven by an 8% decline in volume, as measured by total revenue carloads. Coal volume dropped 34%, industrial products volume decreased 10%, and agricultural and intermodal volumes fell in the low to mid-single digit range. Flat chemicals volume and automotive volume growth of 7% were no match for offsetting the other declines, and average revenue
Valuentum Applauds SEC’s Move To Evaluate Non-GAAP Reporting
May 11, 2016
Image Source: SEC By Brian Nelson, CFA Too many investors have been hurt. Management teams want to present their results the best way they can within the boundaries of the law, to bolster their holdings. Some analysts want to “pitch” their stocks in the most optimistic light possible, to preserve their jobs. The consumers of such research want the future to always be bright, so they want to believe the “good news.” The result: there are now very few places to find objective, unbiased research and analysis. It therefore has become more important for companies to provide the most accurate and helpful information possible, and non-GAAP earnings presentation isn’t it — in fact, it has gotten way out of whack.
Big Pharma 1Q Earnings Roundup, Part I
May 10, 2016
Image Source: Rodrigo Companies mentioned: AZN, ABT, BIIB, LLY, GSK, VRTX, ZTS AstraZeneca (AZN) Treading Water in 2016 AstraZeneca reported total revenue growth of 1% in the first quarter of 2016 on a year-over-year basis, but this growth rate climbs to 5% when not including the impact of foreign exchange headwinds. Core operating results, which excludes the impact of amortization, impairments, restructuring and other non-operating costs, did not hold up well compared to the first quarter of 2015. Core operating profit and core earnings per share fell 8% and 7%, respectively, on a constant currency basis from the year-ago period. Core R&D spending grew 15% in the quarter as a result of acquisitions and continued focus on the firm’s pipeline, which
Restaurant Roundup; Valuations Overcooked
May 7, 2016
Image source: McDonald’s Investor Relations page By Kris Rosemann McDonald’s Comps Still Expanding McDonald’s (MCD) continues to believe in the turnaround strategy it implemented about a year ago, and the market appears to be on board as well. The company’s biggest appeal remains its brand recognition, and the above screen grab of its ‘Investor Relations’ page on the corporate site hints that it is well aware of this. Nevertheless, the burger giant has had a solid string of quarters as of late. Global comparable sales in the first quarter of 2016 increased more than 6% from the year-ago period, and US comparable sales grew 5.4% thanks to the broad acceptance of its All Day Breakfast strategy. We were skeptical of
The Monthly Dividend Company Keeps Chugging Along
May 6, 2016
Dividend Growth Newsletter portfolio holding Realty Income (O) declared its 550th consecutive monthly dividend April 11. The 549th consecutive dividend was declared in March, and that dividend brought with it the 74th consecutive increase in the payout on a quarterly basis. Cumulative first quarter dividends in 2016 have advanced 4.8% over first quarter dividends in 2015. Perhaps the most impressive aspect of Realty Income’s dividend track record is the performance the company has put up to support it, and the first quarter of 2016, released April 26, was certainly no exception for the Monthly Dividend Company. The firm reported revenue growth of more than 8% in the quarter on a year-over-year basis, driven by same-site rent growth well above 1%
Priceline Shares Under Pressure… Again
May 4, 2016
By Kris Rosemann Priceline (PCLN) reported solid first quarter 2016 results May 4, but the company has since been punished. The past few years have been a roller-coaster ride for shares, but the company has always seemed to bounce back after issuing “disappointing” guidance. Investors will likely never be fans of the conservative guidance issuing style of the company, and that’s okay. Both Priceline’s gross travel bookings, net of cancellations, and gross profit grew 21% from the year-ago period in the quarter, and the firm’s gross profit rate expanded nearly 2 percentage points from the first quarter of 2015. Adjusted EBITDA advanced at an even more impressive rate, jumping 27% on a year-over-year basis, and non-GAAP income per diluted share
There’s No Such Thing as a Perfect Process
May 4, 2016
Image Source: Kryzysztof “If mangement teams want to give bogus forward earnings guidance as in the case of Jakks Pacific or balk in light of ominous industry conditions as in the case of Marriott or National Oilwell Varco, or simply abandon the dividend altogether with no warning despite a flawless balance sheet and strong free cash flow generation as in the case of Quality Systems, the objective and financially-based Dividend Cushion ratio may come up short in predicting such irrational human behavior. The board can do what it wants with the dividend, and every board is different.” — Brian Nelson, CFA By Kris Rosemann The Dividend Cushion ratio does not have a perfect record in catching dividend cuts, though it
A Letter from the President
May 3, 2016
“We’re Valuentum, not value – and that’s all the difference in the world.” – Brian Nelson, CFA Dear member: We received a few questions on this topic and I wanted to help clarify the Valuentum process. We are the only investment research publishing company that systematically embeds a technical and momentum assessment into a robust valuation methodology, comprised of a discounted cash-flow process and relative valuation overlay. As you can imagine, the output of the combination can be quite confusing for anyone, for the pure technician as well as the pure value investor and everyone in between. First, we should note that our fair value estimates and fair value ranges are not price targets that you may see in brokerage
Altria and “Socially Confused” Investing
May 2, 2016
You may have heard of socially-responsible investing. This investment framework tends to avoid businesses that are involved in tobacco, alcohol, sugary sodas, gambling, fossil fuel production, or even defense. There’s nothing wrong with having views about these topics – in fact, that’s what being an individual is all about. However, things get kind of silly when such views dictate how one makes money in the secondary market, or how asset managers invest in portfolios. You see – when you buy or sell stock, the company that you are investing in doesn’t get that money. You are merely trading with someone else. The company only receives your money when you invest in the primary market (IPO) or through new shares, a
