Brian Nelson

Icahn’s In-depth Letter to Apple Still Does Not Remove Time Horizon

by

We believe Apple’s (AAPL) shares have valuation upside (see 16 page report), but as we have outlined before here, activist investor Carl Icahn’s proposal to force Apple to buy back stock over a certain time period (“during fiscal 2014”) as opposed to under a certain price (our fair value estimate) is imprudent. We encourage Icahn to further revise his proposal. Additionally, we think Icahn’s valuation process is too simplistic (see footnote 1), and we encourage him to disclose a more rigorous valuation assessment of the firm that takes long-term forecasts into consideration. Said differently, we’d like him to justify why Apple should trade for 16 times earnings on the basis of Apple’s own financials, not merely use the consensus market multiple for justification. … Read more

McDonald’s Operating Income Flat in Fourth Quarter

by

When a firm’s Valuentum Dividend Cushion score starts to fade as McDonald’s (MCD) score did recently, it shouldn’t come as a surprise that the trajectory of its dividend growth will start to fade, too. McDonald’s recently increased its dividend 5%, but payout expansion will become increasingly more difficult if the fast-food giant continues to post results like its fourth-quarter performance, released Thursday. During the period, McDonald’s revealed a global comparable sales decline of 0.1% as a result of a negative comparable guest count and flat consolidated operating income (up 1% excluding currencies). This performance, of course, is not conducive to large future dividend increases. In the US, McDonald’s comparable sales decreased 1.4% in the fourth quarter, as operating income advanced … Read more

Our Investment Thesis on Union Pacific Remains on Track; Pricing Growth Strong

by

Must Read: Joint Outlook for the Railroad and Coal Industries Union Pacific (UNP) showed why the company is included in the Best Ideas portfolio when it reported fourth quarter results Thursday. The company’s headline was nice: “Best-Ever Quarterly Results.” That’s saying quite a bit as coal shipments continue to provide stiff headwinds across much of the industry. Norfolk Southern (NSC), for example, recently reported an 8% decline in coal volumes during its fourth quarter, its results released Wednesday. Though revenue carloads of coal declined 10% during Union Pacific’s fourth quarter, strong pricing almost completely offset the weakness in this segment. Average revenue per car across all of Union Pacific jumped 6% in the quarter, far better than inflation. We continue to … Read more

United Technologies, Precision Castparts Confirm Aerospace Strength

by

On Wednesday, industrial conglomerate United Technologies (UTX) reported solid fourth-quarter results. During 2013, earnings per share and net income attributable to common shareholders advanced 16% and 17%, respectively, over the prior year period. Though most of it was acquired expansion, sales jumped 9%, while the company’s adjusted segment operating margin increased 90 basis points, to 15.7%. Cash flow from operations came in at $7.5 billion for the year and capital expenditures were $1.7 billion, resulting in free cash flow of $5.8 billion (or 9.3% of sales). We were particularly pleased with CEO Chenevert’s comments about witnessing an acceleration of organic growth throughout the year. Fourth-quarter organic sales growth was 4% (better than the 1% pace recorded for the entire year), … Read more

Investors Will Continue to Be Rewarded in eBay; If Nothing Else, Icahn’s Entrance Will Drive an Upward Re-Valuation of the Equity

by

Auctions and payments provider eBay (EBAY) has been a great success story for many Valuentum members, having registered a 70%+ gain since the company was added to the Best Ideas portfolio. We’ve often used eBay as an example of the Valuentum process in action (see here) and below: “(eBay) initially flashed a (Valuentum Buying Index) rating of 10 in late September 2011 (at $32 per share), and we added it to (the) Best Ideas portfolio. The VBI rating changed to a 6 in December 2011 and then back to a 10 in May 2012. Because the rating never breached a 1 or 2, we did not remove the position from our portfolio. In fact, we tactically added to it. eBay … Read more

Icahn’s In-depth Letter to Apple Must Remove the Time Horizon Associated with the Buyback Proposal in Order to Receive Valuentum’s Approval

by

Carl Icahn announced Wednesday on Twitter (TWTR), his favorite news distribution mechanism, that he has “purchased $500 million more Apple (AAPL) shares in the last two weeks” and that his investment in the iPad-maker is now worth more than $3 billion. Though the total value of his holdings is still less than 1% of Apple’s $496 billion market capitalization (as of the end of trading Wednesday), the news is making quite the splash.   Having purchased $500 million more $AAPL shares in the last two weeks, our investment has crossed the $3 billion mark yesterday.— Carl Icahn (@Carl_C_Icahn) January 22, 2014 In early December, Carl Icahn released Proposal No. 10, which is a non-binding advisory resolution that the firm complete … Read more

Verizon Posts Highest Adjusted EBITDA Margin in 8 years; Pro forma Debt Load Reduces Attractiveness of Idea

by

On Tuesday, Verizon’s (VZ) fourth-quarter performance showed us why we had been considering the firm for inclusion in the Dividend Growth Newsletter. The company experienced revenue growth across all strategic areas (84% of business), showcasing 3.4% year-over-year expansion. The most recent quarter marked the fifth consecutive period of at least 8% service revenue year-over-year growth. The communication giant’s strong cost management controls sent its full-year adjusted EBITDA margin to the highest levels in 8 years (34.9%), a very impressive showing. Wireless segment EBITDA jumped more than 22% from last year’s quarter. Verizon’s fourth-quarter adjusted earnings-per-share of $0.66 was also impressive, coming in nearly 74% higher than the level posted in the same period a year ago. For all of 2013, the … Read more

Johnson & Johnson Registers Strong Fourth Quarter Performance; 2014 Outlook Conservative

by

Johnson & Johnson (JNJ) has built one of the most comprehensive bases of health care businesses and generates an impressive 70% of revenue from top positions in the respective markets in which it operates. The health care and consumer giant remains focused on innovation and generating incremental revenue from new products as it broadens its geographic presence. Johnson & Johnson’s fourth-quarter performance, released Tuesday, showed that it continues to execute at a very high level. The company’s sales advanced 4.5% in the fourth quarter (6.3% excluding currency) thanks to strong top-line performance in its pharmaceutical division, which witnessed revenue expand more than 13%, excluding the impact from currency. Domestic sales leapt 7.4%, while international sales increased 2.4% (5.6% excluding currency). … Read more

GE’s Fourth Quarter Results Were Excellent

by

On Friday, GE (GE) reported excellent fourth-quarter results that showed robust order and backlog growth. The company’s revenue nudged 3% higher in the period as industrial sales advanced 6% (5% organic) offset in part by an expected decline in revenue from its finance arm, GE Capital. Industrial segment profit jumped 12%, with six of seven segments growing earnings. The conglomerate’s industrial segment margins during the period advanced an impressive 100 basis points, to 18.3%. Fourth-quarter operating earnings per share leapt 20%, to $0.53. GE’s cash flow performance continues to be top-notch, with full-year cash from GE operating activities (CFOA) coming in at $17.4 billion. GE’s infrastructure orders for the fourth quarter leapt 8%, ‘growth market’ orders increased 13%, and expansion … Read more