Exclusive Analysis for the Discerning Investor
Brian Nelson << DirecTV’s Valuation Thesis, May 1 << DirecTV’s First Quarter Analysis, May 6 According to Reuters citing sources from Dow Jones, DirecTV (DTV) is working with advisers on a possible merger with AT&T (T). Shares have advanced to nearly $90 in after-hours trading, converging to our $99 per share fair value estimate. DirecTV is a holding in the Best Ideas portfolio, where we house all of our best ideas. DirecTV’s landing page >> More details to come!
French energy firm Alstom has been in the news a lot recently. From General Electric’s (GE) initial interest in the firm reported April 23 to Siemens’ (SI) offering to top GE’s bid April 27 to the French government politically opposing GE’s bid for Alstom’s assets May 5, the saga continues. As of the latest information available (May 6), Alstom continues to review both GE’s and Siemens’ respective offers: The Board of Directors of Alstom announced…that it has received a binding offer from General Electric to acquire its Energy activities. The scope of the transaction includes the Thermal Power, Renewable Power and Grid Sectors, as well as corporate and shared services. With 65,000 employees, these businesses registered €14.8Bn in sales in … Read more
Our dividend growth thesis on Chevron (CVX) has been rather simple at the core: For investors seeking dividend growth exposure to Big Oil, Chevron hands-down has the most financial flexibility of all the majors – irrespective of what happens to energy prices – and therefore, we think the firm is extremely well-positioned among its peer group to have the best dividend growth prospects through the course of the multi-year (and inevitably volatile) energy price cycle. A look at a breakdown among the net cash positions across the energy majors in the third quarter of last year, for example, shows Chevron with a net-neutral net cash position, while its peers BP (BP), Exxon (XOM), ConocoPhillips (COP) and Shell (RDS) all revealed … Read more
We profiled pay TV provider DirecTV (DTV) earlier last week (click here), branding it as a Valuentum stock, and the firm’s first-quarter performance, released today, helped to support our view on shares. The company surpassed 38 million total subscribers in the quarter (including Sky Mexico, which is accounted for using the equity method), while adjusted operating profit before depreciation and amortization (OPBDA) advanced 7% on an adjusted basis. The firm’s free cash growth was excellent during the period, jumping 25%, to $886 million. Though traditional free cash flow (cash from operations less capital expenditures) is different than enterprise free cash flow (free cash flow to the firm), they are highly correlated. The strong cash flow performance in the quarter offers … Read more
Realty Income (O), the ‘Monthly Dividend Company’ is our top choice for income exposure to the real estate investment trust (REIT) industry. Though the REIT may not have the allure of healthcare REITs such as Health Care REIT (HCN) or Omega Healthcare (OHI), which are benefiting from aging-demographic tailwinds, or Digital Realty Trust (DLR), which is tied to data-center proliferation and boasts Facebook (FB) as a top-10 customer, we think many investors are growing more and more cautious on Realty Income’s retail exposure, and it is partly because of this reason that we think an opportunity in shares exists. Said differently, investors aren’t giving Realty Income a fair shake, and we think its retail portfolio risks are exaggerated. First, however, … Read more
Below we provide a list of firms that raised their dividends during the week ending May 2. 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 Airgas (ARG): now $0.55 per share quarterly dividend, was $0.48. American Campus Communities (ACC): now $0.38 per share quarterly dividend, was $0.36. Ameriprise Financial (AMP): now $0.58 per share quarterly dividend, was $0.52. BB&T Corporation (BBT): now $0.24 per share quarterly dividend, was $0.23. Chevron (CVX): now $1.07 per share quarterly dividend, was $1.00. CorEnergy Infrastructure Trust (CORR): now $0.129 per share quarterly distribution, was $0.125 … Read more
One of the key benefits of using a discounted cash-flow model is that it allows the user to adequately price a variety of businesses, irrespective of where they are in the economic or product cycle or whether they are engaged in a turnaround or reaching peak levels of operating performance. Unlike a forward price-to-earnings (PE) ratio or even a price-earnings-to-growth (PEG) ratio, where near-term performance can cause mis-valuations at times, the DCF allows the user to forecast fundamentals through the course of the business cycle or through the course of the product cycle in order to arrive at mid-cycle profit projections, which remain critical within the framework of intrinsic value estimation. Though Big Pharma continues to steal headlines via Pfizer’s … Read more
April Was A Great Month! by Brian Nelson, CFA I’m very excited about this edition of the Dividend Growth Newsletter! For starters, two of the holdings in the Dividend Growth portfolio – Johnson & Johnson (JNJ) and Kinder Morgan Energy Partners (KMP) – increased their respective payouts since the last update. Kinder Morgan Energy Partners now yields in excess of 7%, while Johnson & Johnson has been such an excellent performer, surpassing $100 per share, that its yield is now just shy of 3% (following the raise). We’re very happy about the pace of income growth from portfolio constituents and expect this to continue. In this edition, we highlight Abbott (ABT), as one of the ideas that we’re hoping to add … Read more
At Valuentum, we think companies that are attractive from a variety of different investment perspectives–whether it be growth, value, income, momentum, etc.–have the greatest probability of capital appreciation and relative outperformance. By definition, these stocks, which we call Valuentum stocks, have strong valuation and pricing support coupled with solid revenue/earnings expansion potential and, where applicable, strong dividend growth prospects. We accept the technical market dynamic that the more deep-pocketed institutional investors that are interested in a stock for reasons based on their respective investment mandates (or preferences), the more likely it will be bought and the more likely the price will move higher to converge to its true cash-flow-derived intrinsic value (the action of buying a stock pushes its price … Read more
By Brian Nelson, CFA We often receive questions about our methodology. For our new members, the Valuentum style has three distinct components: a discounted cash flow assessment (intrinsic value calculation), a relative valuation assessment, and a timeliness assessment. We’ll focus on the first pillar in this article. The Valuentum process is grounded in financial statement analysis, where our analyst team derives the ValueCreation, ValueRisk, and ValueTrend ratings of a company. Together, these ratings provide a quantitative and objective assessment of the strength of a firm’s competitive advantages, or in Warren Buffet’s terminology, the firm’s economic moat. To derive the ValueCreation rating of each company, the Valuentum team compares a company’s return on invested capital (ROIC) to its estimate of its … Read more