Oracle Guides Lightly While Ellison Sails
September 20, 2013
Enterprise tech giant Oracle (click ticker for report: ) posted modest results for its fiscal year 2014 first quarter Wednesday that were mostly in-line with the company’s prior guidance. Revenue increased 2% year-over-year to $8.4 billion, a touch below consensus estimates. Earnings-per-share on a non-GAAP basis was 12% higher than the year-ago period at $0.59. Free cash flow for the quarter was phenomenal at $6.1 billion, equal to 73% of revenue. CEO Larry Ellison was notably absent from the conference call as he sails in the America’s Cup. Software Drives Revenue Expansion Hardware revenue was weak, with product sales falling 14% year-over-year to $669 million (hardware systems support revenue, however, advanced a modest 3% year-over-year to $592 million). President Mark
The Fed Won’t Taper
September 20, 2013
Wednesday afternoon, Federal Reserve Chairman Ben Bernanke stunned the consensus and announced the continuation of quantitative easing. Nearly every major investment bank expected the Fed to taper bond purchases in September, so Bernanke’s surprise announcement ignited a rally in both the stock market and Treasury bonds. Why not taper? According to the Fed, the economy has not performed up to expectations over the past year, and more importantly, the Fed reduced its growth outlook for 2014. However, in our view, the real reason is that the Fed is concerned about another bout of incompetence from Congress stalling economic progress. The following words came from Bernanke during his post-policy announcement press conference: “A government shutdown, and perhaps even more so a failure
Packaging Corporation of America Bets Big on Boise
September 19, 2013
Monday morning, Packaging Corporation of America (click ticker for report: ) announced that it will pay $12.55 per share in cash to acquire paper company Boise (BZ) for a total deal value of $1.995 billion. The deal increases PCA’s containerboard presence by 42% to 3.7 million tons, while also giving PCA a presence in the Pacific Northwest—an area previously underrepresented. Source: BZ 2012 10-K Though Boise has struggled with large amounts of excess capacity in its newsprint segment, we’ve seen the firm move capacity closer to production over the past two years, leading to stabilized profitability. Nevertheless, the small, Idaho-based player was unable to truly compete with national competitors. Further, Boise had a large net-debt position, leaving the company fairly
Biglari Wants to Create More Value at Cracker Barrel
September 19, 2013
Country-style restaurant and retailer Cracker Barrel (click ticker for report: ) posted decent fourth-quarter results Wednesday morning that were overshadowed by a wide guidance range and a letter from its largest shareholder, Sardar Biglari. With the firm lapping a 53-week fiscal year, total revenue declined 4% year-over-year to $674 million, modestly exceeding consensus expectations. Earnings per share, adjusted to reflect comparable time periods, increased 19% year-over-year to $1.43. For the full-year, the firm earned $4.90 per share, an increase of 11%. Cracker Barrel generated roughly $135 million in free cash flow, equal to 5% of total revenue. Comps are Modest Source: Company Filings, Valuentum Biglari Wants a Big Dividend Sardar Biglari, CEO of Biglari Holdings (BH), which is Cracker Barrel’s
They Like It. They Really Like It! Reviews Praise New iPhone
September 18, 2013
Following shares of portfolio holding Apple (click ticker for report: ) has been an interesting task during the past week. Shares dropped 8% following the announcement of the iPhone 5S and 5c and the lack of a statement about a final deal with China Mobile. We continue to believe the China Mobile announcement will eventually occur, but for now, let’s look at what some top reviewers are saying about the iPhone 5S. The New York Times: “The best part is that it actually works — every single time, in my tests. It’s nothing like the balky, infuriating fingerprint-reader efforts of earlier cellphones. It’s genuinely awesome; the haters can go jump off a pier… The iPhone’s ecosystem is a deal-sweetening perk — the best apps;
Creative Cloud Drives Adobe
September 18, 2013
Software maker Adobe (click ticker for report: ) announced fiscal third quarter results Tuesday afternoon. Results were a tad shy of expectations on both the top and bottom lines, as revenue declined 8% year-over-year to $995 million and earnings per share slipped 45% year-over-year to $0.32 as the firm moves to a subscription-based business model. Free cash flow remained strong during the third quarter at $169 million, equal to 17% of total revenue. Creative Cloud Success Image Source: ADBE Q3 FY13 Slides The story of Adobe’s third quarter was the continued success of the Creative Cloud product suite. Paid subscriptions surpassed the 1 million mark driving Digital Media ‘Annualized Recurring Revenue’ (ARR) to $655 million. ARR is a wonderful business
Microsoft Raises Its Dividend in a Big Way
September 17, 2013
On Tuesday, Microsoft (click ticker for report: ), the largest weighting of our Dividend Growth portfolio, raised its quarterly cash dividend 22% to $0.28 per share, a $0.05 per share increase. The firm also announced a new share buyback program to the tune of $40 billion (replacing the previous $40 billion program set to expire at the end of this month). We are very pleased with the capital allocation decisions at the software giant and view any share repurchases below our intrinsic value estimate of the company ($46 per share at the time of this writing) as value-creating. We’re sticking with the firm as a core holding in our Dividend Growth portfolio and continue to believe Microsoft represents one of the biggest bargains on
Summers Bows Out
September 17, 2013
Equity markets jumped higher Monday as Federal Reserve Chairman frontrunner Larry Summers ended his pursuit of the position. The news suggested Summers had been President Obama’s preferred successor to current Chairman Ben Bernanke, but several Democratic senators opposed the nomination, and Summers may be bowing out to avoid any chance of embarrassment. With Summers out of contention, Fed Vice-Chair Janet Yellen is the clear frontrunner. As we’ve mentioned before, Yellen is viewed as a consensus builder and receives credit for predicting the housing bubble. Powerful Democratic Massachusetts Senator Elizabeth Warren, who sits on the Senate Banking Committee, supports Yellen and indicated that she would be able to gather the necessary votes for her nomination. Regardless of the politics behind the decision,
Ulta’s Comparable Store Sales Growth Accelerates
September 17, 2013
Fragrance and beauty product retailer Ulta (click ticker for report: ) posted second quarter results driven by strong comparable store sales gains. Revenue surged 25% year-over-year to $601 million, easily exceeding consensus estimates. Earnings-per-share was also strong, jumping 30% year-over-year to $0.70. Year-to-date, the firm has burned through about $14 million in free cash flow (CFO less capex) after it invested heavily in opening new stores. Image Source: Company Filings After same-store sales advanced “just” 6.7% year-over-year during the first quarter, growth reaccelerated at Ulta despite an increased number of locations (and risk of cannibalization). Same-store sales soared 8.4% year-over-year during the second quarter on top of a 9.7% sales gain during the same period last year. Management noted that
Valuentum’s September Edition of Its Best Ideas Newsletter!
September 16, 2013
Reshaping the Investor Psyche, by Brian Nelson, CFA I remember Barack Obama’s “Yes, we can” mantra in his 2008 presidential election run. He made people feel good about themselves; he made people feel like they were more than just a statistic; he made people believe that change could happen. He made us believe we could make a difference. We find ourselves at a similar crossroads in investing history. During the past several decades as mutual funds proliferated and the thoughts of yester-year thinkers prevailed, the investment community adopted downright absurd notions that served the needs of financial institutions instead of investors. Buy-and-hold became an investing style. Timing the market became widely accepted as not viable. Technical and momentum analysis became
