Brian Nelson

Home Depot Posts Solid Fourth Quarter Results, Hikes Dividend

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The world’s largest home improvement retailer reported solid fourth quarter results Tuesday. Comparable store sales advanced 4.4% in the period, while comp sales for US stores jumped 4.9%. Adjusting for the extra week in the same quarter a year ago, net earnings jumped nearly 20% in the fourth quarter, a very impressive showing. 2013 marked the company’s strongest comparable store sales growth in 14 years thanks in part to solid execution and a recovering housing market. Free cash flow for the year totaled $6.2 billion, about 7.9% of sales and up from $5.7 billion last year. Thanks to the strong cash flow performance, Home Depot increased its quarterly dividend to $0.47 per share ($1.88 per share on an annual basis, representing … Read more

Carl Icahn’s Open Letter to eBay Shareholders Sends Stock Higher

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On Monday, eBay (EBAY) responded to Carl Icahn’s open letter to shareholders. We have provided Carl Icahn’s open letter to eBay shareholders and a link to eBay’s response below. We like the byproduct of Carl Icahn is pushing the company to separate its PayPal unit from its legacy auction website: it forces the market to value eBay on a sum-of-the-parts basis, the value of which we believe to be significantly higher than its current price. We continue to hold shares of eBay in the portfolio of the Best Ideas Newsletter. Shares of eBay are worth $78 each, offering investors material upside. Here is Carl Icahn’s proposal to eBay shareholders (source): —————————————————- Dear Fellow eBay Stockholders, We have recently accumulated a … Read more

Surveying Recent M&A Action

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The environment for merger and acquisition (M&A) activity has arguably never been better thanks to healthy balance sheets, historically low interest rates, and equity prices that speak of optimistic times. Just in the past few weeks, we’ve witnessed a number of deals come to the fore. Let’s take a look at a few of these deals and offer our quick take on the transaction. Healthcare Actavis (ACT) – Forest Labs (FRX) DUBLIN, Ireland and NEW YORK, Feb. 18, 2014 /PRNewswire/ — Actavis plc (NYSE: ACT) and Forest Laboratories, Inc. (NYSE: FRX)…announced that they have entered into a definitive agreement under which Actavis will acquire Forest for a combination of cash and equity valued at approximately $25 billion or $89.48 per … Read more

Energy Transfer Partners’ Improved Distribution Coverage Ratio

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Energy Transfer Partners (ETP) reported solid fourth-quarter results Wednesday. Adjusted EBITDA for the master limited partnership increased $38 million from the same period a year ago, to $986 million. Distributable cash flow attributable to the partners of ETP for the quarter totaled $530 million, up $284 million from the same period a year ago. Though the increases in adjusted EBITDA and distributable cash flow were due in part to acquisitions, we’re very pleased at the significant improvement in the entity’s distribution coverage ratio, which advanced to 1.09x from 0.63x in the same period a year ago. For dividend growth investors, we’re laser-focused on the distribution coverage, as it reveals both the security of the distribution as well as the excess … Read more

DirecTV Posts Better-Than-Expected Fourth-Quarter Results

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Best Ideas portfolio holding DirecTV (DTV) released better-than-expected fourth-quarter results Thursday. Revenue in the quarter advanced 7%, while operating profit before depreciation and amortization (OPBDA) jumped 6%. Though we would prefer to see profits advance at a faster pace than revenue, both the top-line and bottom-line numbers beat the consensus forecast. The firm’s $1.53 per share in earnings during the period was an impressive $0.24 better than the consensus forecast, largely contributing to the strong stock price performance after the release. For all of 2013, DirecTV hauled in $2.61 billion of free cash flow, about 8.2% of revenue and a 14% increase from the same period a year ago. We liked the better-than-expected performance and strong cash-flow generation and have … Read more

BHP Billiton, Rio Tinto Expanding Cash Flow, Paying Down Debt

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On Tuesday, mining giant BHP Billiton (BHP) reported solid financial results for the December 2013 half year, with underlying EBIT advancing by 15%, to $12.4 billion, and underlying attributable profit jumping by 31%, to $7.8 billion. The company noted that substantial improvements in productivity and volume from lower-risk projects drove a material improvement in its underlying EBIT margin and underlying return on capital for the period. BHP Billiton’s net operating cash flow increased 65% and investing cash outflows dropped 25%, resulting in a $7.8 billion increase in free cash flow from the comparable six-month period last year. We like that both measures are moving in the correct direction to drive free cash flow expansion. The firm is wisely using its … Read more

Medtronic: A Dividend Growth Gem

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There are many things to like about cardiac rhythm (pacemaker, ICD) and restorative therapy (spinal stabilization devices) giant Medtronic (MDT), which reported fiscal third-quarter results Tuesday. Medtronic has #1 share positions in almost every product category it operates in and has a leading pipeline with some of the most compelling medical technology programs and innovative therapies. The firm’s solutions span the care continuum, and the company is a leader in some of the largest chronic disease areas, including cardiology, neuro/ortho, and diabetes.  Medtronic is poised to capture a nice piece of the massive opportunity for existing therapies in emerging markets, an incremental $5 billion by our estimate. Emerging-market exposure is only about 12%-13% of the company’s revenue mix, and performance … Read more

Coca-Cola Remains Strong; Green Mountain Deal Shakes Up Beverage Industry

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Though many investors are focused on the relatively weak global volume performance in Coca-Cola’s (KO) fourth-quarter results, released February 18, we’re not worried about the beverage giant’s fundamental strength. Excluding the impact of structural changes, comparable currency-neutral net revenues advanced 4% in the period, while comparable currency-neutral operating income jumped 6%, in line with its long-term growth target. Comparable currency-neutral earnings per share jumped 7% in the fourth quarter, roughly in-line with the full-year pace. This isn’t terrible performance by any stretch of the imagination, and the company continues to achieve global value share gains in nonalcoholic ready-to-drink beverages. Coca-Cola’s cash flow from operations declined modestly during the year, but greater scrutiny with respect to capital spending facilitated free cash flow … Read more

Realty Income Still One of Our Favorite Dividend-Focused REITs

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On February 13, the real estate investment trust (REIT) that has a 45-year track record of providing dependable monthly income from real estate reported solid operating results for the fourth quarter of 2013. The ‘Monthly Dividend Company’ has paid an impressive 522 dividends and registered an enviable 74 total dividend increases since 1994. Though we note that the past is only as important as it informs the future, we think the future remains bright for Realty Income. Image Source: Realty Income  The Dividend Growth portfolio holding’s revenue and adjusted funds from operations (AFFO) were both impacted by acquisitive activity (its purchase of American Realty Capital Trust in January 2013), advancing significantly from the same period a year ago. We were … Read more

Under Armour’s Speed-Skating Suit Debacle Not Material

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In case you haven’t been watching the winter Olympics in Sochi this year, the Games have found a way to impact the fundamentals of athletic-equipment firm Under Armour (UA). The company’s CEO Kevin Plank recently defended allegations that its high-tech suits were responsible for the US speed-skating team’s poor performance on ice. Many have pointed to the air vent in the back of the suit that allegedly acted more like a drag-racing parachute (slowing the athletes down) than second-saving aerodynamic technology. Still, even after suit modifications that patched the vent, the US speed skating team failed to win a single medal at the Games. We don’t think the poor publicity will impact Under Armour’s long-term international growth potential, but we … Read more