Brian Nelson

Bank of America is Working Through a Difficult Time

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When putting all the puzzle pieces together, we see Bank of America facing the headwinds of low rates and sizable credit provisioning with relative ease thanks to its substantial pre-tax, pre-provision earnings power. As long as the economy doesn’t get drastically worse from here, long term investors will benefit from normalized valuations on more normalized earnings in the not-too-distant future. By Matthew Warren Bank of America (BAC) posted difficult second quarter results July 16, though it beat analyst consensus estimates on both the top and the bottom lines. As you can see in the upcoming graphic down below, total revenue was down 3% compared to last year while net income was down 52% thanks to substantial provisioning for future credit … Read more

Our Reports on Stocks in the Food Products (Small/Mid-Cap) Industry

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Structure of the Food Products Industry The food products industry is composed of a number of firms with strong brand names. However, market supply/demand dynamics and intense competition still impact product prices, while fluctuations in commodity costs can make earnings quite volatile. Private-label competition, competitors’ promotional spending, and changing consumer preferences often drive demand trends. The group’s customers—such as supermarkets, warehouses, and food distributors—continue to consolidate, increasing buying power over constituents and hurting margins. Still, we’re generally neutral on the group. We’ve reallocated our resources to cover more recession-resistant stocks. See here.

Citigroup Navigating the Banking Downturn Fairly Well

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All in all, we think Citigroup management is doing a decent job of navigating this economic downturn. The shares trade at a discount to tangible book value. We think a large part of the reason for this is that this is a very complex bank, operating across a wide variety of products and geographies. If the team can make it through this downcycle without any skeletons coming out of the closest, we think the stock has the potential to re-rate higher. By Matthew Warren On July 14, Citigroup (C) posted a difficult second-quarter set of results, though the firm did manage to beat analyst consensus estimates on both the top and bottom lines. Outsize revenue gains in investment banking and … Read more

Our Reports on Stocks in the Energy Equipment & Services (Large) Industry

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Image Source: البصراويStructure of the Energy Equipment Industry The energy equipment industry is heavily tied to the exploration and production (upstream) expenditures of oil and gas producers across the globe. Many industry constituents participate in a number of different market segments to offer a complete range of products/services to customers. The fortunes of the group are levered to energy prices (crude/natural gas), as higher prices make drilling projects more attractive and increase the demand for oilfield equipment and services. However, falling prices have an opposite effect, creating long boom and bust cycles. We’re neutral on the structure of the group. We’ve reallocated our resources to optimize our energy coverage. See here.

JPMorgan Reports Second Quarter, Notes Peculiar Times

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Image Shown: Overview of JPMorgan’s 2Q2020 earnings. Image Source: JPMorgan 2Q2020 Earnings Presentation There was a fair amount of discussion on JPMorgan’s conference call about how the company (and the rest of the banking industry) are taking large provisions now for charge offs that they expect to come in the future. The future and the timing and magnitude of the eventual write-offs are quite murky indeed, which helps explain the volatility of banking shares in general, and especially for those institutions that might fall over in an “adverse scenario.” JPMorgan is not one of those banks that is at risk. It stands on high ground in the industry thanks to its scale, diversification (a huge benefit this quarter), high quality … Read more

Our Reports on Stocks in the Diversified Mining Industry

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Image Source: Peter Craven Structure of the Diversified Mining and Gold Mining Industries The diversified mining industry is highly cyclical and almost entirely commoditized, with little differentiation from one firm to the next. Rising input costs can only be passed on to consumers if industry-wide prices increase. Exploration and development require large capital investments, which could pressure cash flows during weak economic times. A miner’s position on the cost curve for each respective resource is a critical investment consideration, given the volatility of commodity prices. Though emerging market growth will be a key source of demand for years to come, we don’t like the structure of the group. Gold miners are tied to the world price of gold, which depends … Read more

Our Reports on the Retail REIT Industry

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Structure of the REIT – Retail Industry The retail REIT space is competitive, and incremental supply from failing retailers could complicate the return profile of many constituents. That said, however, strip center supply additions are near the lowest levels on a historical basis, offering potential opportunities for income expansion via higher rents and lease rollovers. Access to the capital markets will remain critical for participants, and the issuance of additional common/preferred stock should be expected. Geographic and industry diversity, tenant credit strength, and occupancy rates should be monitored closely. We’re generally neutral on the group. For our REIT stock reports, please click here.

Wells Fargo Has Become An “Epic Disappointment”

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Wells Fargo is so far out of line with its large US banking peers that it is truly competing with one arm tied behind its back. Or perhaps both arms. While some might try to be heroic and bet on a huge turnaround, we think it is more prudent to watch from the sidelines. What an epic disappointment this bank has become, so far a fall from grace as compared to when it used to be regarded as one of the best in class of the biggest US banks. What a shame! By Matthew Warren Wells Fargo (WFC) delivered a stinker of a second quarter July 14, missing on both the top and bottom lines, and cutting the dividend by … Read more

Levi Strauss Skips Dividend Payment

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Image Shown: An overview of Levi Strauss & Co.’s historical financials and operational footprint. As you can see, most of Levi Strauss’ sales are conducted through its wholesale segment. The company’s own e-commerce sales channel has historically represented just a small part of Levi Strauss’ total net revenues. Image Source: Levi Strauss & Co. – December 2019 Investor Presentation By Callum Turcan On June 7, Levi Strauss & Co. (LEVI) reported second-quarter fiscal 2020 earnings (period ended May 24, 2020) that missed consensus estimates on both the top- and bottom-line. The apparel retailer noted it would reduce its “non-retail, non-manufacturing workforce” headcount by 700 employees to save an annualized $0.1 billion on corporate overhead as the ongoing coronavirus (‘COVID-19’) pandemic … Read more

Dividend Increases/Decreases for the Week Ending July 10

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Below we provide a list of firms that raised their dividends during the week ending July 10. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week Dr. Reddy’s Laboratories (RDY): now INR 25.00 per share annual dividend, was INR 20.00. Duke Energy (DUK): now $0.965 per share quarterly dividend, was $0.945. General Finance Corp Cum Red Perp Pfd Shs Series C (GFNCP): now $2.30 per share quarterly dividend, was $2.25. H.B. Fuller (FUL): now $0.165 per share quarterly dividend, was $0.1625. John B. Sanfilippo & Son (JBSS): now $0.65 per share annual … Read more