DirecTV Posts Better-Than-Expected Fourth-Quarter Results
February 20, 2014
Best Ideas portfolio holding DirecTV (DTV) released better-than-expected fourth-quarter results Thursday. Revenue in the quarter advanced 7%, while operating profit before depreciation and amortization (OPBDA) jumped 6%. Though we would prefer to see profits advance at a faster pace than revenue, both the top-line and bottom-line numbers beat the consensus forecast. The firm’s $1.53 per share in earnings during the period was an impressive $0.24 better than the consensus forecast, largely contributing to the strong stock price performance after the release. For all of 2013, DirecTV hauled in $2.61 billion of free cash flow, about 8.2% of revenue and a 14% increase from the same period a year ago. We liked the better-than-expected performance and strong cash-flow generation and have
BHP Billiton, Rio Tinto Expanding Cash Flow, Paying Down Debt
February 19, 2014
On Tuesday, mining giant BHP Billiton (BHP) reported solid financial results for the December 2013 half year, with underlying EBIT advancing by 15%, to $12.4 billion, and underlying attributable profit jumping by 31%, to $7.8 billion. The company noted that substantial improvements in productivity and volume from lower-risk projects drove a material improvement in its underlying EBIT margin and underlying return on capital for the period. BHP Billiton’s net operating cash flow increased 65% and investing cash outflows dropped 25%, resulting in a $7.8 billion increase in free cash flow from the comparable six-month period last year. We like that both measures are moving in the correct direction to drive free cash flow expansion. The firm is wisely using its
Medtronic: A Dividend Growth Gem
February 19, 2014
There are many things to like about cardiac rhythm (pacemaker, ICD) and restorative therapy (spinal stabilization devices) giant Medtronic (MDT), which reported fiscal third-quarter results Tuesday. Medtronic has #1 share positions in almost every product category it operates in and has a leading pipeline with some of the most compelling medical technology programs and innovative therapies. The firm’s solutions span the care continuum, and the company is a leader in some of the largest chronic disease areas, including cardiology, neuro/ortho, and diabetes. Medtronic is poised to capture a nice piece of the massive opportunity for existing therapies in emerging markets, an incremental $5 billion by our estimate. Emerging-market exposure is only about 12%-13% of the company’s revenue mix, and performance
Coca-Cola Remains Strong; Green Mountain Deal Shakes Up Beverage Industry
February 19, 2014
Though many investors are focused on the relatively weak global volume performance in Coca-Cola’s (KO) fourth-quarter results, released February 18, we’re not worried about the beverage giant’s fundamental strength. Excluding the impact of structural changes, comparable currency-neutral net revenues advanced 4% in the period, while comparable currency-neutral operating income jumped 6%, in line with its long-term growth target. Comparable currency-neutral earnings per share jumped 7% in the fourth quarter, roughly in-line with the full-year pace. This isn’t terrible performance by any stretch of the imagination, and the company continues to achieve global value share gains in nonalcoholic ready-to-drink beverages. Coca-Cola’s cash flow from operations declined modestly during the year, but greater scrutiny with respect to capital spending facilitated free cash flow
Realty Income Still One of Our Favorite Dividend-Focused REITs
February 18, 2014
On February 13, the real estate investment trust (REIT) that has a 45-year track record of providing dependable monthly income from real estate reported solid operating results for the fourth quarter of 2013. The ‘Monthly Dividend Company’ has paid an impressive 522 dividends and registered an enviable 74 total dividend increases since 1994. Though we note that the past is only as important as it informs the future, we think the future remains bright for Realty Income. Image Source: Realty Income The Dividend Growth portfolio holding’s revenue and adjusted funds from operations (AFFO) were both impacted by acquisitive activity (its purchase of American Realty Capital Trust in January 2013), advancing significantly from the same period a year ago. We were
Under Armour’s Speed-Skating Suit Debacle Not Material
February 18, 2014
In case you haven’t been watching the winter Olympics in Sochi this year, the Games have found a way to impact the fundamentals of athletic-equipment firm Under Armour (UA). The company’s CEO Kevin Plank recently defended allegations that its high-tech suits were responsible for the US speed-skating team’s poor performance on ice. Many have pointed to the air vent in the back of the suit that allegedly acted more like a drag-racing parachute (slowing the athletes down) than second-saving aerodynamic technology. Still, even after suit modifications that patched the vent, the US speed skating team failed to win a single medal at the Games. We don’t think the poor publicity will impact Under Armour’s long-term international growth potential, but we
Deciphering Valuentum’s Dividend Lingo
February 17, 2014
On January 25, Barron’s published an article called “Get Lucky: IQT’s Lucky 13 Portfolio.” In it, the publisher talked about the reasoning behind why 13 dividend-paying stocks were highlighted in the article. Let’s walk through the reasoning behind these 13 stocks and how the assessment of some of these dividend picks applies the Valuentum Dividend Cushion framework (click here), in part or in whole. Valuentum’s Brian Nelson also gives his quick thoughts on the comments of each company as if he were training a new analyst on how to interpret the article from an analytical standpoint. Abbott Labs (ABT): “a solid anchor position for any portfolio…Free operating cash flow is three times its dividend.” Nelson’s thoughts: Abbott is clearly a
Valuentum’s February Edition of Its Best Ideas Newsletter!
February 16, 2014
The February edition of the Best Ideas Newsletter is now available.
Boardwalk Pipeline Highlights Unique Risks of MLPs
February 12, 2014
You can’t get far researching master limited partnerships (MLPs) on Valuentum’s website without encountering the following warning (source): Firms in the oil and gas pipeline industry own or operate thousands of miles of pipelines and terminals—assets that are nearly impossible/uneconomical to replicate. Most companies act as a toll road and receive a fee for transporting natural gas, crude oil and other refined products (and generally avoid commodity price risk). Though there is much to like, most constituents operate as master limited partnerships and pay out hefty distributions that can stretch their balance sheets. Additional unit issuance (dilution) has become common, and capital-market dependence is a key risk. We’re neutral on the group. We have a unique view of the business
Patience Almost Always Pays Off
February 11, 2014
A couple weeks ago, we outlined how patience and perspective are two very valuable qualities when it comes to investing. We used Google (GOOG) in that example, which spanned a longer time period, but we think Hasbro (HAS) is also a firm that fits the mold but over a shorter one. Many times investors use peer or industry performance to ascertain whether a closely-related firm will perform in similar fashion. Though there is undoubtedly an association between end market demand for each firm in a given industry, outside of the commodity-producing spaces, individual firm-specific dynamics can often counteract or mitigate what otherwise could have resulted in poor performance for all, indiscriminately. Mattel (MAT) sent shutters through the toy industry when
