Merger Mania
March 3, 2024
Image Source: Glenn Beltz By Brian Nelson, CFA Mergers and acquisition [M&A] activity continues as the market sets new highs. Elevated borrowing costs as a result of the Fed’s aggressive rate hiking cycle in 2022 are pushing many entities to pursue all-stock transactions. We’ve previously discussed our thoughts on the Cisco (CSCO)/Splunk (SPLK) tie-up in this article here, which was an all-cash deal, but several other rather large acquisitions have been announced that are worth bringing to members attention. On February 19, Capital One (COF) announced that it would acquire Discover Financial (DFS) in an all-stock $35.3 billion deal that would represent a 26.6% premium over Discover’s price as of February 16. The deal is expected to generate $2.7 billion
3 Catalysts for Apple’s Stock
February 29, 2024
Image: Apple’s shares have done quite well since the beginning of 2023. By Brian Nelson, CFA When Apple (AAPL) reported calendar fourth quarter results (its first quarter fiscal 2024 results), concerns over sales in China and the momentum behind its Services business cast a cloud over results. Sales from Greater China came in at $20.8 billion in the quarter, but this was much lower than the $23.5 billion that analysts had been expecting. The company’s Services business performed well, but it also came in a bit lower than expectations, despite segment revenue and its installed base of active devices hitting all-time highs. Revenue for its iPhone came in better than expectations in the quarter, so while there was some profit
Republic Services Issues Solid Guidance for 2024
February 28, 2024
Image Source: Republic Services By Brian Nelson, CFA On February 27, trash taker Republic Services (RSG) reported excellent fourth-quarter results that showed beats on both the top and bottom lines. Total revenue advanced 8.6% in the quarter, consisting of 5.7 percentage points of organic growth and 2.9 percentage points coming from acquisitions. The firm’s pricing initiatives continue to bear fruit, with core price on total revenue increasing 7.2% in the quarter. Volume increased revenue by 0.3% in the period. Thanks in part to its pricing strength, the firm’s adjusted EBITDA margin increased 260 basis points from last year’s quarter. Adjusted earnings per share advanced 24.8% in the quarter, a very strong showing. Republic Services is one of our favorite industrial
Berkshire Hathaway Caps Off Strong Year of Operating Earnings Growth
February 27, 2024
Image: Berkshire’s operating earnings experienced a strong advance during 2023 from last year’s levels. By Brian Nelson, CFA On February 24, Berkshire Hathaway (BRK) reported strong fourth-quarter results that capped off a year where operating earnings advanced 21% on a year-over-year basis. Warren Buffett tipped his hat to his long-time partner Charlie Munger, who passed away in November of last year, crediting him as the architect of Berkshire and himself merely in charge of the “construction crew.” There weren’t many surprises in the annual report, and Buffett made several references to areas that he has long talked about in the past, including pointing investors to operating earnings, as opposed to net income, which includes unrealized capital gains that can make
Domino’s Puts Up Strong Comp in Fourth Quarter, Approves Another $1 Billion in Buybacks, Raises Dividend
February 26, 2024
By Brian Nelson, CFA On February 26, Domino’s Pizza (DPZ) reported mixed fourth-quarter results, but comparable store sales came in better than expectations and the firm announced an additional $1 billion in buybacks, while it raised its dividend ~25%. We’re huge fans of Domino’s due in part to its heavily franchised business model, impressive digital initiatives, as well as its long-term unit growth prospects. The high end of our fair value estimate range of Domino’s stands at $569 per share, and we see meaningful upside from today’s price levels (~$465 per share) given the fundamental momentum at the firm. During the quarter, Domino’s global retail sales growth, excluding currency fluctuations, came in at 4.9%, while U.S. same store sales growth
Booking Holdings’ Fourth Quarter Results Impacted By War in Middle East But Free Cash Flow Margins Remain Robust
February 23, 2024
By Brian Nelson, CFA On February 22, Booking Holdings (BKNG) reported better-than-expected fourth quarter results that beat expectations on both the top and bottom lines, but the company noted that its business had been impacted by the conflict in the Middle East. Regardless, Booking Holdings remains one of our favorite ideas on the market today due to its fantastic free cash flow generation and secular growth prospects. Following in the footsteps of Meta Platforms this quarter, Booking Holdings also initiated its first-ever dividend, a quarterly cash dividend of $8.75 per share, and we like what this implies with respect to capital discipline. Our fair value estimate stands north of $4,100 per share, well above where shares are currently trading at
Market Darling Nvidia Delivers in Fiscal Fourth Quarter
February 21, 2024
Image: Nvidia has been a market darling, and the company did not disappoint in its fourth-quarter fiscal 2024 report. By Brian Nelson, CFA Nvidia (NVDA) reported fantastic fourth-quarter fiscal 2024 results on February 21 that handily beat the consensus forecast for both the top and bottom lines. Shares of Nvidia have surged since the beginning of 2023, and the quarterly report and outlook for the first quarter fiscal 2025 pleased even the most cautious investors. We believe that the market is still in the very early innings of investment into artificial intelligence [AI], and Nvidia has the lead when it comes to advanced chipmaking. The high end of our fair value estimate range of Nvidia stands north of $800 per
Lithium Prices Remain Volatile; Albemarle Adjusts Long-term Demand Forecast
February 21, 2024
Image: Albemarle’s shares have faced significant pressure as a result of depressed lithium prices. By Brian Nelson, CFA The Financial Times reported February 16 that Albemarle (ALB) had reduced its 2030 demand forecast for lithium due to a reduced pace of electric-vehicle adoption in the U.S. and Europe. According to reports from Seeking Alpha, Albemarle now believes that 3.3 million tons of lithium carbon equivalent [LCE] will be in demand across the globe by the end of this decade, a pace that is meaningfully lower than the 3.7 million tons it had projected previously. Albemarle is also dealing with plunging lithium prices, which have punished its cash flow more recently. We think most of the bad news is priced into
