Earnings Roundup: PEP, DIS, ARM, PM
February 9, 2024
By Brian Nelson, CFA Dividend Aristocrat Pepsi (PEP) Raises Dividend for 52nd Consecutive Year On February 9, Best Ideas Newsletter portfolio holding Pepsi reported mixed fourth quarter results that showed revenue pressures but a modest beat with respect to non-GAAP earnings per share. Organic revenue growth was 4.5% in the period, lower than the consensus forecast calling for 5.9% expansion, while core constant currency earnings per share increased 9%. The company experienced organic volume declines across the board in its operating divisions, with the greatest weakness coming from its Quaker Foods North America segment, where volumes fell 8%. Management seemed cautious in the quarterly press release noting that it “navigated another year of elevated levels of inflation, macroeconomic volatility, geopolitical
Chipotle Rallies, Long-term Outlook Remains Promising
February 7, 2024
Image Source: Valuentum By Brian Nelson, CFA Burrito maker Chipotle (CMG) reported excellent fourth-quarter results February 6 that beat on both the top and bottom lines. Total revenue advanced 15.4% in the quarter, while comparable store restaurant sales increased 8.4% thanks primarily to higher transactions and to a lesser extent an increase in average check. The company’s restaurant operating margin expanded 140 basis points, to 25.4%. Adjusted diluted earnings per share came in at $10.36 per share in the quarter, up 25% on a year-over-year basis. Chipotle opened 121 new restaurants in the fourth quarter, with 110 of them coming with a Chipotlane drive thru. Though the firm has considerable operating lease liabilities, free cash flow came in at $1.22 billion
McDonald’s Facing Macro Challenges, Impacts from the War in the Middle East
February 5, 2024
Image Source: Mike Mozart By Brian Nelson, CFA On February 5, McDonald’s Corp (MCD) reported decent fourth-quarter results with strong revenue growth coming roughly in-line with consensus estimates and non-GAAP earnings per share exceeding the Street’s forecast. Though the firm noted that it is experiencing some macro challenges and that its operations continue to be impacted by the war in the Middle East, we like having McDonald’s as a core restaurant holding in the Best Ideas Newsletter portfolio in part because of its mostly franchised business model that handles inflationary pressures well and its strong and world-renowned brand name. The high end of our fair value estimate range of McDonald’s stands at $345 per share, and the company yields ~2.25%
Earnings Roundup: MO, EPD, SBUX, CLX, HON
February 4, 2024
By Brian Nelson, CFA Altria’s (MO) Dividend Growth Outlook Through 2028 Looks Solid On February 1, Altria Group, which is yielding ~9.5% at the time of this writing, reported mixed fourth-quarter results that showed revenue missing on the top line, but the company’s non-GAAP earnings per share coming in-line with the consensus forecast. For the fourth quarter, net revenue dropped 2.2% as a result of lower sales in its smokeable products portfolio, which was only partially offset by strength in its oral tobacco segment. Adjusted diluted earnings per share was roughly flat thanks in part to both a lower share count and lower tax rate, both of which helped offset modest weakness in its operating companies income (OCI). Altria’s fourth-quarter
Earnings Roundup: ABBV, CVX, NYCB, XOM
February 2, 2024
By Brian Nelson, CFA AbbVie (ABBV) Facing Pressure on Humira Sales But Companywide Revenue Outlook Remains Robust On February 2, pharma giant AbbVie reported mixed fourth-quarter results with revenue coming in ahead of expectations, but non-GAAP earnings per share coming in slightly lower than the consensus forecast. In the quarter, worldwide net revenue fell 5.4% as the firm continues to work through biosimilar competition against its blockbuster Humira, where net revenues fell more than 40% in the quarter on an operational basis. Global sales of Skyrizi and Rinvoq, however, still powered ahead, advancing nearly 52% and 63% in the quarter on an operational basis, respectively. Its oncology portfolio faced pressure from declining sales of Imbruvica, while it experienced particular strength
Alphabet, Microsoft Remain Cash-Rich, Secular Growth Powerhouses
January 31, 2024
Image Source: Shawn Carpenter By Brian Nelson, CFA All eyes were on Alphabet (GOOG) (GOOGL) and Microsoft (MSFT) after the bell January 30. We include both Alphabet and Microsoft in the newsletter portfolios due to their tremendous cash-based sources of intrinsic value: net cash on the balance sheet and free cash flow generation. It would take a monumental shift in the trajectory of these fantastic businesses for us to ever consider removing them from the newsletter portfolios, and we’re reiterating our favorable long-term view on both following their respective calendar fourth-quarter reports. Let’s first start with Alphabet. Revenue advanced ~13% on a year-over-year basis in the fourth quarter, while the company’s operating margin expanded ~3 percentage points, to 27%. Net
Energy Transfer Making a Comeback, Shares Yield ~8.7%
January 28, 2024
Image: Energy Transfer is working its way back after a long stretch of underperformance. By Brian Nelson, CFA Energy Transfer (ET) is one of the largest midstream, transportation and storage companies for natural gas, crude oil, NGLs (natural gas liquids), and other refined products, and the firm has investments in Sunoco LP (SUN) and USA Compression Partners (USAC). The company is nowhere near the bubble levels of 2015, but the pipeline operator has been staging a comeback backed by traditional free cash flow, and we are warming up to this dividend payer. Shares yield ~8.7% at the time of this writing. In the pipeline space, investors tend to pay attention to a metric called distributable cash flow [DCF], not to
14%+ Yielding AGNC Investment May Be Worth a Trade
January 28, 2024
Image: Mortgage REITs have performed horribly since we warned about them back in May 2013. By Brian Nelson, CFA Mortgage REITs (REM) are popular vehicles because of their deceptively enticing dividend yields, but we’ve never been bullish on the group. We’re reiterating our take today that these instruments are not for the individual investor or even prudent financial advisor and are more complicated vehicles than many investors believe. In May 2013, we first starting warning about the group, and the performance, as shown in the image above, hasn’t been pretty. On a price-only basis, the iShares Mortgage Real Estate ETF is trailing the simpleton S&P 500 index by 250+ percentage points since we first laid out our thesis on the
