Brian Nelson

Carl Icahn Keeps Pressure on eBay’s Board; Shares Continue to Rally

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On Wednesday, activist-investor Carl Icahn issued another open letter to shareholders of eBay (EBAY) following the company’s response to his original open letter here. We’ve reproduced the most recent letter below. Though the likelihood and/or timing of an eBay-PayPal split is highly uncertain at this juncture (his proposal), Icahn’s pressure on eBay’s board is bringing to light the significant underpricing of eBay on a sum-of-the-parts basis (as reflected in the 16-page report), in our view. From a shareholder standpoint, the latter may be equally as important as the former, as it will inevitably result in share-price appreciation. We continue to believe that eBay is worth $78 per share, and we expect the company’s shares to converge to those levels. Here … Read more

First Solar Disappoints

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The solar industry is extremely competitive and continually evolving as constituents strive to differentiate themselves to better compete within the broader electric power industry. Significant price reductions (per watt), reduced margins, and drastic market share shifts have become commonplace for participants. Profitability can be negatively impacted from government subsidies and sovereign capital that allow firms to operate unprofitably for extended periods of time. Production overcapacity is another major concern and will likely persist for some time. We think the structure of the solar industry is very poor, and First Solar reminded us of this when it reported fourth-quarter results Tuesday. The leading global provider of photovoltaic (PV) solar energy solutions reported revenue in the fourth quarter that declined nearly $500 … Read more

Seadrill’s 10%+ Annual Dividend Yield Is a Long-term Fantasy

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As many investors know, firms can often become cheap for good reasons. That is, they are not trading cheaply because of Mr. Market’s irrational behavior, but instead are trading at depressed levels due to deteriorating underlying fundamental characteristics that actually justify its current share price, even if traditional valuation techniques (such as P/E multiple analysis) suggest the firm’s shares are inexpensive. On a similar note, firms that boast high dividend yields may do so because the market has little confidence in the sustainability of its dividend and believes a cut may be just around the corner. Though we fall short of saying that offshore deep-water drilling company Seadrill (SDRL) will slash its dividend tomorrow, our dividend-cut predictive indicator—the Valuentum Dividend … Read more

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