Social Media Update
November 5, 2015
Note: Valuentum covers over a thousand companies and offers insights and updates behind core holdings in the newsletter portfolios. We did a more in-depth analysis of the “investability” of social media players at the end of the second quarter, and not much has changed. Twitter (TWTR) found its long-term answer at CEO, but its valuation distribution, or range of probable fair value outcomes, is equivalent to a lotto ticket, one that’s not likely to pay off. Facebook (FB) continues to put up astounding numbers of active users, and LinkedIn (LNKD), while offering potential as a business-networking social media site remains unproven through the course of a more challenging job market, in our view. On fundamental basis, Facebook is our favorite
Flash: Dividend Cushion Ratio Predicts Another Dividend Cut
November 3, 2015
Textainer Group (TGH), the world’s largest lessor of intermodal containers based on fleet size, announced a cut to its dividend November 3, from the previous quarterly level of $0.47 per share to the present level of $0.24. The news was not expected, with shares of the Bermuda-based company tumbling more than 25% on the day of announcement. When will investors learn the raw, predictive power behind the Dividend Cushion ratio? Textainer had a Dividend Cushion ratio of -3.3 at the time of the cut. Anything below 1 and certainly negative speaks to concern regarding the sustainability of the dividend at the present level. We’ll be adjusting our forward expectations of the dividend, but we’ll also be adding Textainer to this
Update: A 10%+ Cost of Capital for Midstream Equities Is Reality
November 3, 2015
< This article was published on valuentum.com/ on October 27 and was subsequently modified yesterday. > Kinder Morgan (KMI) disclosed how it would raise much-needed financing October 26, and our worst fears were realized: The marginal cost of raising capital in the midstream space has soared. As recently as earlier this year, Kinder Morgan’s executive team had been guiding analysts to a 3.3% cost of capital (“hurdle rate”), (see page 28 here), a level we had outlined was absolutely ludicrous. The 3.3% mark broke down into a 4.1% yield on equity and a 2.4% cost of debt, evenly split. Here’s what we wrote in our June 30 piece, “Kinder Morgan’s Fair Value: $29 Per Share,” when Kinder Morgan’s shares were in
Commodity Prices Affect Waste Industry Performance
November 3, 2015
Waste industry economics are relatively easy to understand. Municipal solid waste has to end up somewhere, and therefore whoever has the most diverse disposal operations can set the bar with respect to pricing, which impacts tipping fees and the economics of transfer facilities and collection operations. After all, garbage pick-up operators won’t be in business for long if they pay more to dispose of waste than they charge to pick it up. We view disposal operations as having oligopolistic tendencies, even if collection operations face some of the most intense pricing competition of any industry. As for the players, Waste Management (WM) and Republic Services (RSG) have the largest disposal operations in the US. At the end of 2014, Waste
Strong Performance from Big Tobacco in Third Quarter
October 30, 2015
What was once one of our favorite hidden gem holdings has turned into a ‘letting this winner run’ scenario. Newsletter portfolios holding Altria (MO) reported quality third-quarter results October 29, as it grew revenue at a solid 3.2% rate. The firm’s fundamentals remain rock-solid, as it leveraged the revenue expansion into adjusted diluted earnings per share growth of 8.7% to $0.75. Management reaffirmed its 2015 full-year guidance for adjusted diluted earnings per share of $2.76-$2.81, which represents growth of 7.5%-9.5% over 2014 levels. The company was also pleased to report its continued cooperation and support of the AB-Inbev (BUD) and SABMiller (SBMRY) merger as SABMiller’s largest shareholder. The deal offers a compelling opportunity for Altria to strengthen its position in
Correction: Understanding the MLP Valuation Conversation
October 30, 2015
A correction was performed to the table in this article October 29, 2015, at 7:20pm. How to interpret the changes: In this illustrative example that includes both growth capital spending and a marginal cost of capital of 10%, holders of MLPs will have to wait years before the intrinsic value of the security catches up to the present market price (comparison shown in orange). Said differently, units in this example are significantly overpriced in today’s market.
Your Payment Skipped: PayPal Has Become Mainstream
October 29, 2015
The Valuentum Best Ideas Newsletter portfolio inherited a position in PayPal (PYPL) following the online payment processor’s split from eBay (EBAY) earlier this year. PayPal’s third-quarter results, the first quarter after the separation, were good. In fact, they were great. Revenue grew 19% on a non-GAAP currency-neutral basis, and 200 basis points of non-GAAP operating margin improvement helped to drive a 31% increase in non-GAAP earnings per diluted share growth. Expectations for the top-line were a bit rough for the entity to meet, but the bottom-line exceeded consensus. The company noted that during the quarter, it “gained market share, expanded its customer base, and deepened engagement with merchants.” As a merchant, we were hit with higher fees this year, so
We’ll Be Looking to Add to B-Dubs Sometime after the Drop
October 28, 2015
We are disappointed in the market’s reaction to Buffalo Wild Wings’ (BWLD) third-quarter results, released after the close October 28, if only because we have a very, very small “starter” position in the Best Ideas Newsletter portfolio. We typically ease into newsletter positions over time, unless we’re making a high-conviction call, and while we know we may have disappointed some that took full positions on the news of the addition of B-Dubs, we were “hoping” for an opportunity like this, to accumulate more shares of the company at a lower price. It looks like that lower price will happen, but consistent with the Valuentum Buying Index methodology, we’ll now be waiting for the stock to turn upward and for momentum
Around the Horn in Biotech/Pharma: 3Q Earnings Review
October 28, 2015
The biotech (IBB) and pharma (XLV) industries have been two of the strongest-performing segments of the market since the March 2009 panic bottom during the Financial Crisis, but the broader healthcare arena has been under siege as of late. New discoveries underscored by the development of a cure for hepatitis C with Gilead’s (GILD) Solvadi/Harvoni and a huge step forward in cystic fibrosis treatment with Vertex’s (VRTX) Orkambi have helped fuel the exuberance, but established pharma entities have also caught a bid as they successfully worked through the “patent cliff,” capturing the wave of dividend growth investors and acquiring budding new pipelines from smaller rivals along the way. The past few months haven’t been kind to biotech investors, however. What
Apple Owns the “Sixth Source” of an Economic Moat
October 27, 2015
Apple (AAPL) hit the ball out of the park again in its fiscal fourth-quarter results ended September 26. Apple skeptics are in some ways like Chicago Cubs fans, often saying “wait until next year,” but in both cases, we think Apple and the Cubbies are the real deal (Valuentum is based in the Chicagoland area). As the iPhone giant strings strong report after strong report together, at what point does the market finally give it full credit in the valuation context? Shares continue to trade at less than 9 times earnings, excluding net cash on the balance sheet, as we outlined in the following: “Quantifying Apple’s Tremendous Investment Case.” That is a phenomenal value in today’s still-overheated equity market. The
