Trash Taker Republic Services’ Outlook Keeps Getting Better
August 1, 2023
Image Source: Republic Services By Brian Nelson, CFA Republic Services (RSG) reported solid second-quarter 2023 results July 31, and it raised its full-year 2023 guidance across the board. During the period ending June 30, 2023, total revenue advanced 9.1% with more than half coming via organic means, while GAAP earnings per share of $1.41 exceeded the consensus forecast by $0.10. Republic Services continues to experience strong pricing power, helping to drive double-digit EBITDA expansion in the quarter. Adjusted free cash flow came in at ~$1.265 billion through the first six months of the year. Earlier in July, Republic Services increased its dividend ~8% to a quarterly payout of $0.535 per share (was $0.495). Shares yield ~1.4% at the time of this
Johnson & Johnson Belongs in the “Too Hard” Bucket
July 31, 2023
Image Source: Johnson & Johnson By Brian Nelson, CFA Johnson & Johnson (JNJ) recently entered the “too hard” bucket for us. We dropped J&J from the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio on March 13 of the year, as we lost interest in the company given the uncertainties surrounding talc liabilities and the Kenvue (KVUE) split-off. We prefer simplicity across our newsletter portfolios, and J&J’s results have often been messy, to say the least. Though J&J’s second-quarter 2023 performance, released July 20, was a bit better, we no longer have much interest in the name, given its net debt position and contingent talc liabilities. We’re also not interested in shares of its split-off Kenvue, having completely removed
4 REITs For Consideration
July 26, 2023
CubeSmart (CUBE) Digital Realty Trust (DLR) Realty Income Corp (O) Public Storage (PSA) ———- NOW READ: Why Are the Dividends of REITs So Risky? NOW READ: The Impact Rising Interest Rates Have on Equity REITs NOW READ: There Are No Free ‘Income’ Lunches ———- It’s Here! The Second Edition of Value Trap! Order today! —– Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies. Valuentum members have access to our 16-page
First Read: Microsoft, Alphabet Cash Components Wonderful in Calendar Q2 2023
July 25, 2023
By Brian Nelson, CFA There are two primary cash-based sources of intrinsic value, and Microsoft (MSFT) and Alphabet (GOOG) (GOOGL) have gobs of them: net cash on the balance sheet and free cash flow. Both Microsoft and Alphabet reported calendar second-quarter results after the market close July 25, and while much will be said about their respective earnings reports, the reality is that the fundamental backdrop for both remains incredibly strong. We think both deserve a hearty weighting in the portfolio of the Best Ideas Newsletter, and we don’t plan to make any changes to our long-term fair value estimates as a result of the quarterly prints. Let’s talk about the health of Microsoft’s and Alphabet’s respective balance sheets. At
Public Storage Picks Up Simply Self Storage; M&A Remains Hot in Self Storage
July 24, 2023
Image Source: Public Storage By Brian Nelson, CFA On July 24, Public Storage (PSA) announced that it had agreed to acquire Simply Self Storage from Blackstone (BX) Real Estate Income Trust (BREIT) for $2.2 billion. The news follows the Public Storage-Life Storage (LSI) takeout saga that ended with Life Storage running to Extra Space Storage (EXR) for a deal. A PSA-LSI deal had made a lot of sense, and we’re not sure why LSI wanted nothing to do with PSA, but it may have had to do with a poor cultural fit. LSI apparently said it wasn’t for sale right before it tied the knot with EXR–moves that just didn’t seem to add up, in our view. In any case,
Tesla Is A Net-Cash-Rich, Free-Cash-Flow Generating, Secular-Growth Powerhouse
July 24, 2023
Image: Tesla is generating billions and billions of dollars in free cash flow. By Brian Nelson, CFA The cash-based sources of intrinsic value (and the trajectory of growth in them) are the most important considerations when it comes to assessing the attractiveness of an equity. Two of the most important cash-based sources of intrinsic value are net cash on the balance sheet and future expected free cash flows, and in these two areas, Tesla (TSLA) excels. Though we won’t be adding Tesla to any of the newsletter portfolios anytime soon, we like it within a diversified basket of large-cap growth equities, of which the Best Ideas Newsletter in some ways approximates. When Tesla reported its second-quarter 2023 results July 19,
AT&T: A High Yield Dividend Disaster, Now An ESG Nightmare
July 24, 2023
Image: AT&T’s shares continue to disappoint. By Brian Nelson, CFA There are sometimes reasonable risks to take with respect to new ideas, and AT&T (T) may have been one of them a few years ago. But not today, in our view. We removed the company from the High Yield Dividend Newsletter portfolio way back in November 2021, and we’re not looking back. The company has been struggling for a long time now, and we don’t think the future is very bright. Another dividend cut cannot be ruled out. AT&T’s dividend story has been a very convoluted one. When the company filed its 2020 Annual Report in February 2021, CEO John Stankey noted that the executive team would support the dividend.
Philip Morris’ Cash-Flow Dividend Coverage Resilient, ZYN Performance Impressive
July 24, 2023
By Brian Nelson, CFA On July 20, Philip Morris (PM) reported strong second-quarter 2023 results that showed 14.5% reported revenue growth and a non-GAAP earnings per share beat of $0.12. Adjusted operating income faced headwinds from global inflationary pressures, but still advanced 6.9% in the quarter. Adjusted diluted (currency-neutral) earnings per share growth came in at 16.9% in the period. For the full year, Philip Morris is targeting organic sales expansion of 7.5%-8.5% and adjusted diluted earnings per share in the range of $6.13-$6.22 per share on the year, reflecting a high-single-digit pace of expansion and a modest increase from prior expectations. Cigarette makers continue to transition to a smoke-free world, and Philip Morris is walking the line between combustible
Stock Report Updates
July 20, 2023
In our 16-page equity research reports, we offer a fair value estimate for each company based on a rigorous and transparent discounted cash flow process, assess the attractiveness of a stock based on a firm-specific margin of safety, and provide a relative valuation comparison in the context of the company’s industry and peers. Each report includes detailed pro forma financial statements, explicit fundamental forecasts, and scenario analysis. A cross section of the ValueCreation and ValueRisk ratings provides a financial assessment of a company’s business quality (competitive position), while the ValueTrend and Economic Castle ratings offer insight into the trajectory of a firm’s economic profit creation (ROIC versus WACC). Included in each 16-page report is a company’s rating on the Valuentum Buying Index (VBI), a methodology that combines rigorous financial and valuation analysis with
Top Dividend-Related News: MSFT, AAPL, ASML
July 19, 2023
Image: Microsoft’s shares hit a record high in July! By Brian Nelson, CFA Microsoft’s (MSFT) shares hit an all-time high July 18 on news that it would raise prices on its Office products to account for the integration of AI into its tools. We’ve yet to test the new features that are collectively called 365 Copilot, but the new features will add $30/month to the overall price of the software, a meaningful percentage step-change that seems to be quite a needle-mover. Copilot, at the moment, will be a voluntary upgrade, but we think that over time, AI may become an entrenched feature across Microsoft’s entire product line-up, whereupon average selling prices across its customer base will meaningfully increase. AI may
