The Long-term Remains Ominous for Potash Producers
March 3, 2016
By Brian Nelson, CFA We think investors are finally getting a feel for the vulnerability of commodity-oriented equities, almost across the board. Potash (POT), the largest member of Canpotex, rang the alarm bell a number of weeks ago, slashing its dividend, “The Bounce in Energy and Potash’s ‘Surprising’ Dividend Cut (Jan 2016).” Times have been tough across the industry, but the big shocker was its “little brother,” pure-play Intrepid Potash (IPI), which put up terrible fourth-quarter results February 29 and warned that “pricing pressure…has the potential to cause a breach in (its) loan covenants.” Incredible. Intrepid Potash has now fallen to under $1 per share from ~$40 in early 2011. As we wrote in July 2013, “Uralkali Backs Out of
Medtronic Expects to Generate $40 Billion in Free Cash Flow in Next 5 Years
March 2, 2016
Image Source: Medtronic, JP Morgan Healthcare Conference Presentation, January 11 On March 1, top holding in the Dividend Growth Newsletter portfolio Medtronic (MDT) reported solid fiscal third-quarter results, now a full year after it completed the deal with Covidien. In the period, Medtronic’s comparable, constant-currency revenue advanced 6% while it recorded non-GAAP diluted earnings per share of $1.06. Management complained of currency headwinds, not unlike that of other multinationals, but reiterated its 2016 diluted non-GAAP earnings per share in the range of $4.36-$4.40, which includes a forex headwind of $0.45-$0.50 in the year. Non-GAAP earnings in Medtronic’s case “relate to charges or gains that management believes may or may not recur with similar materiality or impact on results in future
Politics and the Markets
March 2, 2016
Image Source: DonkeyHotey By Brian Nelson, CFA I personally cannot believe how long this election cycle has been. Have we really had 10 Republican debates? It seems like the town halls are adding up, too? If it wasn’t for Apple’s (AAPL) run-in with the FBI, “Most of us woke up to the news… (Feb 18),” one might have not known that former producer of McAfee anti-virus software John McAfee may run as the Libertarian Party candidate, and what about Michael Bloomberg? Could the latter play spoiler to Donald Trump’s hopes for the oval office if he divides the Republican vote? Or will traditional Republicans that prefer anyone else but “the Donald” donate to Hillary Clinton’s candidacy in the general election,
Avoid Dividend Double Whammies By Using the Dividend Cushion!
February 29, 2016
By Brian Nelson, CFA I think a lot of investors sell themselves short. Of course you want a strong and growing dividend, but analysis shouldn’t stop there. One of the most important things you could ever do is evaluate just how strong that dividend truly is via the Dividend Cushion ratio, a metric that measures a company’s dividend coverage via future free cash flow generation with consideration of its balance sheet health. For example, how valuable would it have been to know that Kinder Morgan (KMI), ConocoPhillips (COP), and BHP Billiton (BHP) were going to cut their dividends…in advance of them doing so? Our membership knew these cuts were probable long before anyone else because they paid attention to each
When Do the Dark Days Return in Home Improvement?
February 28, 2016
By Kris Rosemann Though there are many way to slice and dice the numbers, total employment continues to grow, helping consumers’ personal income levels, and gas prices have significantly reduced everyday expenses for the average American. Home improvement retail is benefiting materially, from our perspective, and we point to a number of trends that are driving Americans to spend more on their homes, “Is the Time Right to Invest in Home Improvement (Aug 2015).” Though many subdivisions across the country remain unfinished, “What’s the Deal with US Housing? (May 2015),” we’re even started to see life out of the builders in some previously abandoned areas. Things are looking up… Home Depot (HD) and Lowe’s (LOW) embraced the late-arriving winter last
Defense Dividends Remain Solid; Little Valuation Opportunity Present
February 26, 2016
Image Source: Sikorsky S-70 (H-60) Black Hawk, Martijn By Kris Rosemann The defense industry continues to face pressure in the face of weak funding and competing budget priorities, and malaise in the global economy could add pressure to those seeking growth from foreign sovereigns. Having an already strong backlog will certainly help to a degree, and ongoing cyber threats, “The Global Pandemic of Cybercrime, Cyber Espionage and Cyber Warfare,” and preparation for modern-day warfare and all its complexities will post both challenges and opportunities for many, “Annual US Defense Spending Still 85% Higher Than Year of September 11 Attacks.” Defense contractors generally are strong free cash flow generators, and as a result often have reliable and competitive dividends, not to mention
The Delicious Business Model of Domino’s Pizza
February 25, 2016
Domino’s Pizza (DPZ) offers investors one of the best business models, and the company garners one of the ‘Highest Rated’ economic castles in our coverage universe. That means that for each dollar of capital it invests the company generates gobs and gobs more, so much that it is more than almost any other company that we follow. The franchiser really sets the standard with respect to what we define as a pure “Economic Castle.” Not only did the pizza giant raise its dividend nearly 23% February 25, but the company beat expectations on both the top and bottom-line in its reported fourth-quarter results. It’s hard to believe, but domestic same-store sales grew more than 10% in the quarter versus the
Kohl’s Dividend Mostly a Distraction
February 25, 2016
Image Source: Mike Mozart Kohl’s (KSS) may be doing better than JC Penney (JCP) and Bon-Ton (BONT), the owner of Carson Pirie Scott, but the department store arena is flailing and has been for some time, even before the days of irrational exuberance when hedge fund giant Eddie Lampert merged Kmart and Sears (SHLD) in 2005. Things have only headed south since that time, and even the strongest in Macy’s (M), which has experienced falling comparable store sales and a plummeting gross margin as of late, has been forced to pursue innovative ways to generate value for shareholders in the midst of “consumer abandonment,” namely the consideration of an independently-traded real estate investment trust. Fourth-quarter results at Kohl’s, released February
Target’s E-Commerce Growth the Real Story
February 25, 2016
Image: Target’s mascot Bullseye sporting new shades at a local job fair. We have a difficult time dismissing Target’s (TGT) short-sightedness in abandoning its efforts in Canada, as in time, its ability to continue to drive traffic and store count in the US higher will plateau. In no way will this occur anytime soon, or within the next few years or so, but it will, and Target will have wished it wouldn’t have given up in Canada. But that’s not the story today Skeptics are looking wrong in a big way, as Target showcased a pace of e-commerce expansion better than that of Wal-Mart (WMT) and even Amazon (AMZN) and eBay (EBAY) in its most recently-reported fourth quarter. Digital sales
ETE/ETP: You Are Smart Not to Focus on Distributable Cash Flow
February 25, 2016
There’s nothing like taking a punch. Jim Cramer wrote up a piece December 19, “Energy Transfer Partners: Why You Shouldn’t Worry, (Real Money)” (1) calling into question our analyst team and independence. Valuentum is offering new perspectives in the industry, and the old guard may not like it that much. Not only has the ETE (ETE)/ETP (ETP) Group CFO stepped down since that article, shattering confidence, but units of both Energy Transfer Equity and Energy Transfer Partners have fared no better, still but a fraction of their former selves. The headline numbers from the fourth-quarter report of Energy Transfer Equity and Energy Transfer Partners were horrible. Both entities missed consensus expectations, and investors have to get over the idea that earnings
