Brian Nelson

Viewing Intrinsic Value as a Range of Outcomes: Tesla’s Margins Come Under Fire in Second Quarter, Shares Sell Off

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By Callum Turcan On July 24, Tesla Inc (TSLA) posted second quarter 2019 earnings that did not go over well with investors. For starters, the electric vehicle maker’s company-wide GAAP gross margin tanked by ~100 basis points while Tesla’s ‘Automotive’ segment’s gross margin came in at 18.9% during the quarter, down ~170 basis points from 20.6% in the same period last year. This is entirely a result of Tesla ramping up production and deliveries of the less profitable Model 3 to meet demand while production and deliveries of its higher margin Model S/X move lower. Shares of TSLA are under considerable pressure as the market adjusted its long-term view of Tesla’s gross margins and ultimately future free cash flows. Here … Read more

Coca-Cola, Visa, and More from Valuentum

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Coca-Cola, Visa and More from Valuentum — Hi everyone, — Hope you’re doing great.  — Just yesterday, we closed out six more ideas in the Exclusive, four capital appreciation ideas and two short-idea considerations, for solid “gains.” The success rates in the Exclusive publication continue to be fantastic. I encourage members to upgrade, to give the Exclusive a chance, to see if the ideas may be of interest. Subscribe to the Exclusive publication here. —  Facebook’s Meteoric Rise — Image: The market doesn’t offer opportunities like this every day. I’d say we might see something so obvious, so opportunistic, maybe once every couple years. That was Facebook in late 2018. It’s now up 60%+ from its 52-week low. — We have a lot … Read more

Best Ideas Holding Visa Posts a Great Quarter, We Continue to Like the Name

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Image Source: Visa Corporation – IR Presentation By Callum Turcan One of our favorite companies out there and a top holding in the Best Ideas Newsletter portfolio, Visa Corporation (V) reported fiscal third quarter FY2019 earnings on July 23 that were overall a net positive. Shares initially sold off on July 24 before recovering throughout the trading session and ended up over 1%. At the upper end of our fair value estimate range, we value Visa at $184 per share, and while Visa has performed tremendously since we added it to our Best Ideas Newsletter portfolio, we remain confident that shares have room to climb higher. Please note that Visa’s fiscal third quarter for fiscal year 2019 ended on June … Read more

Coca-Cola’s Valuation Is Stretched

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Image Source: Broderick By Callum Turcan Coca-Cola Company (KO) posted a great second quarter report for 2019 on July 23, sending shares up 6% on the day. Management surprised the market by upgrading their forecast for Coca-Cola’s full-year performance with guidance for organic revenue, constant currency operating income, net operating cash flow, and capital expenditures for 2019 all getting a boost. We still think shares of KO are overvalued as the market has gotten ahead of itself. Consumer staples companies trading at premium valuations late in the business cycle are prime examples of how irrational exuberance can seep into every corner of the market. Furthermore, the IMF just downgraded global GDP growth projections for both 2019 and 2020, and while … Read more

Hasbro Posts a Great Quarter, Shares Fully Valued

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Image Source: Hasbro Inc – IR Presentation By Callum Turcan Toymaker Hasbro Inc (HAS) posted a second quarter 2019 earnings report on July 23 that was very well received by the market. Revenue was up 9% year-over-year, or 11% when excluding foreign exchange headwinds (a product of a strong US dollar, a common theme for all companies with material overseas sales). Operating profit was up 47% year-over-year on a GAAP basis, reaching 13.0% of sales versus 9.7% of sales in the same period last year (a product of gross margin expansion, cost saving initiatives, and favorable product mix). While Hasbro’s net income was down sharply year-over-year, that’s entirely due to a major pension expense (the company settled its US pension … Read more

Lowering Our Fair Value Estimate of Morgan Stanley

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We are lowering our fair value estimate of Morgan Stanley to $45 from $50 to update our view of what mid-cycle results might look like. By Matthew Warren Morgan Stanley (MS) posted second-quarter 2019 results July 18 with net revenue down 3% from last year to $10.2 billion and diluted earnings per share down 5% to $1.23, better than the Wall Street consensus of $1.16 per share. The Institutional Securities segment, with net income applicable to Morgan Stanley down 23% versus last year, was the major drag on overall results, while the much smaller Investment Management unit provided some ballast with net income applicable to Morgan Stanley up 23%. Weakness in Institutional Securities was very broad-based compared to last year … Read more

Microsoft Posts a Great Quarter to Round Out a Great Fiscal Year

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Image Source: Microsoft Corporation — IR Presentation We remain very optimistic on Microsoft’s future dividend growth trajectory, and we would like to note the upper end of our fair value estimate range stands at $154 per share of Microsoft. The market at-large seems largely supportive of Microsoft’s latest earnings, and so are we. By Callum Turcan Microsoft Corp (MSFT) is included in Valuentum’s simulated Dividend Growth Newsletter portfolio, and the company reported solid fourth-quarter FY2019 results on July 18, sending shares higher by a couple percent the next day. Revenue rose 12% year-over-year, a growth rate that moves up ~200 basis points when excluding negative foreign currency headwinds, while Microsoft’s adjusted non-GAAP EPS climbed 21% to $1.37. Microsoft’s adjusted EPS … Read more

In the News: Second-Quarter Earnings Season Marches On

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We like what we saw out of a few industrial names, including Honeywell, Danaher and Dover. We thought Taiwan Semi’s report was okay, and Philip Morris continues to navigate declining cigarette volumes. We include our thoughts on some of the mid-size banks. By Brian Nelson, CFA For those just catching up, please have a read of our introductory second-quarter earnings season piece here. We saw some nice reports from J&J (JNJ) and Abbott (ABT), and while we had some concerns about the core industrial economy in light of Fastenal’s (FAST) and CSX’s (CSX) reports, news from Honeywell (HON), Danaher (DHR), and Dover (DOV) suggest that industrial activity is more likely mixed than outright deteriorating. Honeywell’s second-quarter results, released July 18, … Read more

Pounding the Table on Bank of America

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Bank of America can be bought for a valuation that reflects the bank as if it were to stand still, even though it is steadily going after the competition and improving its own efficiency and return on capital metrics. By Matthew Warren Powered ahead by its Consumer Banking segment, but held back by Global Banking and Global Markets, Bank of America (BAC) reported decent second-quarter results July 17. Total revenue was up only 2%, but ongoing tremendous cost control helped translate this into 8% net income growth, and ongoing sizable share buybacks meant diluted earnings per share were up a whopping 17%.  Image Source: Bank of America 2Q19 Earnings Presentation Quite simply, if market related revenues weren’t moving backwards from … Read more

Kinder Morgan Modestly Disappoints But Its Problems Are Transitory

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Image Shown: Kinder Morgan Inc expects a lot of organic growth opportunities will be generated via surging domestic demand for natural gas and rising natural gas export capacity in the US. Image Source: Kinder Morgan Inc – IR Presentation By Callum Turcan Natural gas pipeline giant Kinder Morgan Inc (KMI), a holding in our simulated Dividend Growth Newsletter portfolio, reported second quarter earnings for 2019 on July 17 which generally disappointed. Problems at its Elba LNG development in Georgia and weaker realized prices for raw energy resources produced by its upstream CO2 segment held down Kinder Morgan’s financial performance. We appreciate Kinder Morgan’s focus on fiscal discipline and see several of its problems as transitory, other than the raw energy … Read more