Online Sports Betting Surges But DraftKings’ Cash Burn Continues to Intensify; We Prefer More Conservative Gaming Plays Such as Churchill Downs
February 19, 2023
Image: Online sports betting platform DraftKings continues to burn through hundreds of millions of dollars each year. Data: SEC Filings, Seeking Alpha. By Brian Nelson, CFA Sports betting is now legal in 36 states and mobile sports betting is now legal in 26 states, and more states are expected to legalize sports betting in 2023. According to a report from Grand View Research, the global sports betting market is expected to increase at a compound annual growth rate north of 10% through 2030. In 2022 alone, it is estimated that Americans wagered roughly $80 billion betting on sports online. The NFL is among the biggest draws, and some estimate that more than 50 million American adults bet on the Super
Investing’s Odd Couple: Value and Momentum
February 16, 2023
This article previously appeared on our website July 13, 2013. “For value investors, the sweet spot in investing is being able to buy an undervalued stock right before its value is recognized by the market and just before its stock price begins to take off. But how can a value investor tell when a stock is in the sweet spot? The answer, according to Brian Nelson, president of investment research company Valuentum Securities, is to identify stocks with good value that are just starting to exhibit good technical/momentum characteristics.” Kevin Truitt was a Valuentum contributor at the time of this original writing. Past results are not a guarantee of future performance. The Best Ideas Newsletter portfolio and Dividend Growth Newsletter
PepsiCo’s Pricing Actions Fantastic; Needs Better Free Cash Flow in 2023 to Cover 10% Dividend Hike
February 13, 2023
Image Source: PepsiCo By Brian Nelson, CFA On February 9, PepsiCo, Inc. (PEP) reported impressive fourth-quarter 2022 results that showed organic revenue growth of 14.6% and core constant-currency earnings-per-share expansion of 10%. The company also added to its long streak of consecutive annual dividend increases, raising the payout by 10%, to $5.06 per share on an annualized basis, starting with the June 2023 payment. PepsiCo has rewarded dividend growth investors with 51 consecutive years of dividend growth, and we have no reason to believe that the streak will be broken anytime soon. The firm expects to buy back $1 billion worth of its shares during 2023. PepsiCo showcased tremendous product pricing power. During the fourth quarter, volumes across its portfolio
The Dividend Cushion Ratio Warned of Risk to V.F. Corp’s Dividend
February 13, 2023
Image: The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. By Brian Nelson, CFA V.F. Corp (VFC) cut its quarterly dividend by more than 40% on February 7, to a quarterly rate of $0.30 per share from $0.51 per share previously. The cut is yet further evidence of the importance of paying attention to the cash-based sources of intrinsic value–net cash on the balance sheet and
Albemarle Outlines Strong Lithium Demand Outlook
February 12, 2023
Image Source: Albemarle By Brian Nelson, CFA Albemarle Corporation (ALB) released preliminary fourth-quarter numbers for revenue and earnings on January 23 that came in better than the consensus estimate. Net sales in the quarter are expected in the range of $2.59-$2.65 billion, up 190% to 196%, while adjusted diluted earnings per share is targeted in the range of $8.35-$8.75, up 727% to 766%. We’ll get final results for the fourth quarter on February 15, but clearly Albemarle is doing a lot of things right to put up such fantastic growth rates. For those just getting familiar with key ideas in the simulated ESG Newsletter portfolio, here is some background on Albemarle’s operations from its most recent Form 10-K; note
Disney: Iger’s Back, Peltz Concedes, Thousands of Jobs Gone, Dividend Coming Back Soon
February 11, 2023
Image Source: Valuentum By Brian Nelson, CFA The Walt Disney Company (DIS) has had a rough go at it of late. The firm suffered tremendously during the worst of the COVID-19 pandemic, which forced consumers to stay at home and its parks to close. The firm eliminated its dividend to shore up cash, and recently-ousted CEO Bob Chapek may have sent the company on a crash course with Netflix (NFLX). Former CEO Bob Iger is back, however, and activist Nelson Peltz has conceded that Disney is working to get back on track. With 7,000 jobs on the chopping block and a still-yet-to-be-reinstated dividend, Disney’s wounds have yet to heal, and we remain skeptical the entertainment and media giant will
Chipotle’s Fourth Quarter 2022 Results Not Bad, Has Incredible Long-Term Unit Restaurant Potential
February 9, 2023
Image Source: Valuentum By Brian Nelson, CFA Best Ideas Newsletter portfolio holding Chipotle Mexican Grill (CMG) reported solid fourth-quarter earnings results February 7, but they came up short relative to more optimistic consensus expectations. Total revenue advanced 11.2% in the quarter thanks to solid comparable restaurant sales expansion of 5.6%. Consensus, however, was looking for 7% comparable restaurant sales expansion in the period. We’re not reading too much into the miss. During the fourth quarter, the burrito maker’s operating margin leapt ~550 basis points, to 13.6%, and its restaurant level operating margin came in at 24% in the quarter, which was up 380 basis points from the same period a year ago. Adjusted diluted earnings per share was $8.29 in the
Net-Cash-Rich Vertex Pharma’s Lucrative Cystic Fibrosis Franchise Continues to Power Performance
February 8, 2023
Image Source: Vertex Pharma By Brian Nelson, CFA There are two primary sources of cash-based intrinsic value that we focus on at Valuentum—net cash on the balance sheet and future expectations of free cash flow. Best Ideas Newsletter portfolio holding Vertex Pharma (VRTX) ended 2022 with $10.78 billion in cash and cash equivalents and no debt, while cash flow remains robust. For example, during the first nine months of 2022, the company hauled in $3.05 billion in cash flow from operations and only shelled out $171.1 million in capital spending. That speaks to a hugely cash generative operation. As a biotech play, Vertex Pharma offers investors the best of both worlds, in our view: 1) It’s an established, net-cash-rich player
Two Top Income Ideas Locked in Hostile Takeover Battle
February 7, 2023
Image Source: Public Storage By Brian Nelson, CFA On February 5, self-storage giant Public Storage (PSA) announced that it had launched a hostile takeover attempt of rival Life Storage (LSI) for all of its outstanding shares in an all-stock transaction. According to the terms of the overture, Life Storage shareholders would receive 0.4192 shares of PSA for every share of LSI that they own, implying a 19% premium to the 20-day volume weighted average price of PSA and LSI, as of February 3. We like the proposal and believe that a combined PSA-LSI will be able to drive material synergies. For example, PSA’s same-store direct operating margin is ~80%, while LSI’s is roughly 7 percentage points lower. The combined entity
Trio of Earnings Reports from Apple, Alphabet, and Amazon Give Pause to Markets
February 3, 2023
Image Source: Valuentum By Brian Nelson, CFA Market sentiment had been improving on the back of Tesla’s (TSLA) strong fourth-quarter report and Meta Platforms’ (META) return to financial discipline, but a trio of ho-hum reports from Apple (AAPL), Alphabet (GOOG) (GOOGL) and Amazon (AMZN), released after the close February 2, have dampened enthusiasm to a degree. However, after a very weak 2022, the stock market has some ground to make up, in our view, and investors have a lot to be optimistic about. With inflation peaking in June 2022 for this part of the economic cycle, most companies generally reporting benign fourth-quarter 2022 earnings, and the largest market indices breaking out of their technical downtrends, equities still have more
