Brian Nelson

RE: Silly Rabbit, Dividends Do Matter…

by

From: Brian Nelson, CFADate: July 21, 2014 12:47 pmTo: Readers of ‘Silly Rabbit, Dividends Do Matter…’ and ‘Dividends Don’t Matter…’ — Seeking Alpha  There is truth to both — that dividends do matter and that dividends don’t matter. For valuation experts, and in the context of a free cash flow to the firm (FCFF) model, the only thing that matters is what a firm generates in enterprise free cash flow (FCFF), not how that enterprise free cash flow leaves the business, per se (1). I’ll list the many different definitions of cash flow at the bottom of this memo. When calculating intrinsic value, dividends and/or distributions do not matter to valuation (other than when a dividend and/or distribution is paid, the … Read more

IBM Still Reporting Low-Quality Earnings

by

Warren Buffett doesn’t seem to care, as he owns 6% of the firm. But we think it’s worth pointing out that IBM’s (IBM) second-quarter results, released July 17, continue to fit the theme of low-quality earnings that we brought to light after its fourth-quarter 2013 performance (click here). Please don’t misunderstand–IBM is a fantastic company with significant competitive advantages. But that doesn’t make it immune to independent, objective financial analysis. Let’s have a look at the quarterly results. For earnings growth to be sustainable, the top line must be expanding, as cost cuts, by definition, are finite. In IBM’s second-quarter report, revenue dropped 2%, while its services backlog—a key indicator of future revenue performance—dropped 1%, after adjusting for its divested customer … Read more

Dividend Increases for the Week Ending July 18

by

Below we provide a list of firms that raised their dividends during the week ending July 18. 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 Bassett Furniture (BSET): now $0.08 per share quarterly dividend, was $0.06. CIT Group (CIT): now $0.15 per share quarterly dividend, was $0.10. Education Realty Trust (EDR): now $0.12 per share quarterly dividend, was $0.11. Fidelity Southern (LION): now $0.09 per share quarterly dividend, was $0.08. Goodyear (GT): now $0.06 per share quarterly dividend, was $0.05. Greene County Bancorp (GCBC): now $0.18 per share quarterly dividend, was … Read more

GE’s and Honeywell’s Fundamentals Remain Strong

by

On Friday, General Electric (GE) and Honeywell (HON) posted solid results. GE is included in both the Best Ideas portfolio and Dividend Growth portfolio, while Honeywell is worthy of keeping a close eye on as its results shed light on the industrial sector as a whole. Our coverage universe allows us to comment on a wide variety of firms that are held outside the actively-managed portfolios. The analyst team spends most of their time evaluating the fundamentals and financials of these firms. Though we consider the best ideas to be in the portfolios, we also see the tremendous value in commenting on companies that are not directly included in the portfolios. We also provide extensive valuation and dividend analysis of … Read more

Google’s Net Cash Position Grows to $56 Billion

by

Google (GOOG, GOOGL) is trading just shy of a market capitalization of $387 billion at the time of this writing, one of the largest US-traded stocks out there. For a company this big to grow revenue 22% in its second quarter, which it reported Thursday, is quite the feat. The firm’s non-GAAP operating income came in at $5.14 billion, showcasing a 32% margin, up from $4.21 billion, matching the pace of growth on the top line. Non-GAAP earnings-per-share in the second quarter of 2014 was $6.08, compared to $4.96 in the second quarter of 2013, representing year-over-year growth just slightly higher than the 22% mark. Google is simply executing fantastically, and we continue to like shares in the Best Ideas … Read more

Microsoft to Slash 18,000 Jobs

by

Quick and agile – that’s what new Microsoft (MSFT) CEO Satya Nadella is looking to embed in the firm’s culture with a sweeping announcement that it will realign its workforce. In a memo to employees, the company revealed the largest layoffs in its corporate history, targeting the reduction of the size of its overall workforce by up to 18,000 jobs. The work toward synergies and strategic alignment on its recently-acquired Nokia (NOK) Devices and Services operations is expected to account for 12,500 job cuts, comprising both professional and factory workers. The vast majority of employees will get the pink slip over the next 6 months. Though it is never pleasing to hear that workers are losing their jobs, from an investment standpoint, … Read more

Abbott Ups Guidance; Takes Stake in Mylan

by

Abbott (ABT) has a track record that is unrivaled. The firm is more than 125 years old and remains aligned with favorable long-term healthcare trends in both developed and developing markets. We believe Abbott’s nutritionals segment is one of the most attractive businesses in all of the healthcare space, boasting such brand names as EAS, Myoplex, and ZonePerfect. Let’s take a look at the firm’s second-quarter results, which it reported Wednesday. Abbott’s sales in the quarter advanced 3% on an operational basis, while ongoing diluted earnings per share came in at $0.54, representing expansion of more than 17%. The bottom-line figure also came in above its previous guidance range of $0.50-$0.52 per share. The strong results prompted Abbott to raise … Read more

Apple and Intel Soar

by

By Brian Nelson, CFA We generally don’t like commenting on pricing performance because it immediately becomes stale, but…  …when was the last time you saw Intel (INTC) up 7% on the trading session?!?! I know I can’t remember, but that’s what happens to Valuentum stocks! Intel’s stock has surged from $24 and change in March to more than $34 per share today on the heels of a strong second-quarter report and outlook (1)…this is a big move for a ~$170 billion market-cap company that pays a nice ~3% dividend yield! …and now that we’ve let our emotions show. How can we forget about Apple (AAPL)?!?! The iPhone maker is approaching $100 per share, the split-adjusted equivalent of $700 following its … Read more

Johnson & Johnson: Beat and Raise

by

Johnson & Johnson (JNJ) has built one of the most comprehensive health care businesses, generating approximately 70% of revenue from top positions in its respective markets. The firm is focused on innovation while broadening its geographic presence, and it benefits from one of the best pharmaceutical portfolios on the market today. All of this was on display when J&J reported better than-expected second-quarter results Tuesday. Sales during the period advanced more than 9% thanks to a near-15% increase in domestic revenue. Excluding one-time items, net earnings for the quarter came in at $4.8 billion, equivalent to $1.66 per share – up 11.3% and 12.2% respectively, as compared to the same period in 2013. Leading the charge was the company’s pharmaceutical … Read more

Valuentum’s July Edition of Its Best Ideas Newsletter!

by

The Writing Is on the Wall, by Brian Nelson, CFA “The stock market is a no-called-strike game. You don’t have to swing at everything—you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’” – Warren Buffett, 1999 If there is an environment more difficult to hit a pitch out of the park, I don’t think I’ve seen one. Valuations have been shooting to the upside for some time, making it difficult for investors to hit that proverbial home run. The market is climbing a wall of worry—and now, the wall has writing on it. Janet Yellen at the Fed had something to say about valuations in its Monetary Policy … Read more