Brian Nelson

Surveying Two Potential Takeout Candidates in the Oil & Gas Space

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Valuentum updates its comprehensive outlook for crude oil and natural gas prices on an annual basis, and the 2013 edition highlighted Continental Resources (CLR) and EOG Resources (EOG) as two of our favorite M&A candidates. Continental Resources is the largest leaseholder in the Bakken (1), while EOG Resources is the largest leaseholder in the Eagle Ford (EOG has a nice position in the Bakken as well). Both firms reported third-quarter results after the market close Wednesday. Let’s get an update on underlying performance. (1) The Bakken field of North Dakota and Montana is one of the premier crude oil resource plays in the United States. It has been described by the United States Geological Survey (“USGS”) as the largest continuous … Read more

SBA Communications: An $11.7 Billion Firm with No Accounting Profits

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SBA Communications (SBAC) owns and operates wireless communications towers. The company’s primary business is leasing antenna space to wireless service providers on towers and other structures. This activity accounts for nearly all the firm’s operating profit. In the US and Canada, tenant leases are for an initial term of 5-10 years with five, 5-year renewal periods at the option of the tenant. The tenant leases have specific tenant rent escalators, which average 3%-4% per year. Before building a new tower, SBA Communications typically has at least one signed tenant lease, so new development risk is generally minimized. Sprint (S), AT&T (T), T-Mobil (TMUS), and Verizon Wireless (VZ) each account for more than 10% of revenues individually. The number of towers … Read more

Tesla Is Converging to Our Estimate of Its Intrinsic Value

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On Wednesday, Tesla (TSLA) reported in-line third-quarter results that showed record levels of Model S production, deliveries, and vehicle gross margin in the calendar quarter. The freshly-minted electric automaker generated positive free cash flow in the period ($26 million) and put up its third consecutive quarter of non-GAAP net income. The firm is now producing 550 cars per week, and Tesla plans to continue to increase production over the next several quarters to keep up with demand expansion. Tesla’s non-GAAP automotive gross margin (excluding zero emission vehicle credits) rose to 21% from 14% last quarter, as the firm was able to extract cost reductions and improve average pricing thanks to a greater mix of highly-optioned European deliveries and ones with … Read more

Energy Transfer Partners’ Distribution Coverage Improves in 3Q

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On Tuesday, energy pipeline operator and Dividend Growth portfolio holding Energy Transfer Partners (ETP) reported solid third-quarter results. Adjusted EBITDA totaled $942 million in the quarter, up $282 million from past year’s period, while distributable cash flow totaled $527 million, up $149 million from the year-ago quarter. Income from continuing operations in the third quarter also showed a nice increase of $185 million over the same period last year, to $391 million. Though strategic acquisitions in 2012 (including Sunoco) bolstered year-over-year comparisons, we were extremely impressed with ETP’s distribution coverage ratio of 1.14 in the quarter, which compares to 0.97 in the year-ago period (1). ETP recently increased its quarterly distribution to $0.905 per unit, but with coverage ratios as … Read more

Dividend Growth Portfolio Holding Emerson Hikes Dividend!

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We always love to share good news with respect to holdings in our Dividend Growth portfolio, and today gave us an opportunity. Not only did diversified industrial firm Emerson (EMR) register record operating cash flow of $3.65 billion and robust free cash flow of $3 billion during its fiscal 2013 (ending September) when it reported fiscal fourth-quarter results today–both above original expectations (shown in image below)–but the board also upped the firm’s quarterly dividend 5%, to $0.43 per quarter ($1.72 per share annualized). Image Source: Emerson, February 2013 Fiscal 2013 marked the 57th consecutive year the firm has increased dividends, and while the 5% dividend increase may not be something to write home about, significantly better-than-expected cash-flow performance suggests to … Read more

Third-Quarter Churn Rate at DirecTV’s US Business Is Best in 6 Years

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DirecTV (DTV) reported better-than-expected third-quarter results Tuesday. The firm’s quarterly revenue of $7.9 billion advanced more than 6% on a year-over-year basis, while third-quarter earnings per share exceeded forecasts by more than $0.27, coming in at $1.28, an impressive bottom-line showing. The firm repurchased $1.3 billion of stock in the third quarter, which led to the significant bottom-line beat. With every share of stock that DirecTV purchases, management is generating economic profit for shareholders (see here). < What is economic profit? DirecTV US added 139,000 net new subscribers in the period as it achieved the lowest third-quarter churn rate in 6 years. DirecTV US ARPU (average revenue per user) growth was 6.2%, and DirecTV Latin American subscriber growth was strong … Read more

Heins Bails, Blackberry Fails

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On Monday morning, beleaguered smartphone maker Blackberry (BBRY) announced the resignation of CEO Thorsten Heins, as well as a $1 billion private placement of convertible debentures. Heins’ departure comes as little surprise in the wake of weak performance from Blackberry 10 which coincided with a write-down of nearly $1 billion in inventory. As for raising capital, one might assume that a well-capitalized company like Blackberry wouldn’t need new capital; however, its current cash-burn suggests an interjection is necessary if the company wishes to attempt (another) fundamental turnaround. The New Leadership John S. Chen will replace Heins as interim CEO and chairman of the board of directors. Chen is best known for his reign atop Sybase where he was responsible for … Read more

Could IBM and Hewlett-Packard Be In a Bidding War for 3D Systems?

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First, it was reported on October 23 that Hewlett-Packard (HPQ) CEO Meg Whitman revealed that her company has plans to enter the 3D printer market in the middle of 2014. Whitman’s commentary was striking given the conviction in her intentions, which leads us to believe she is looking for a potential target that may fit well within HP labs’ research trajectory. The snail’s pace of internal innovation at Hewlett-Packard in recent years leads us to believe that Whitman will inevitably look to acquire the technology. It remains unclear, however, whether the executive suite at Hewlett-Packard has finalized the make-or-buy decision. Potential targets such as 3D Systems (DDD), Stratasys (SSYS), and ExOne (XONE) traded off on this particular news, as market participants took the … Read more

Boston Beer Continues Its Phenomenal Run in 3Q; Shares Remain Overpriced

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There’s only one word to describe Boston Beer’s third-quarter results, issued last Wednesday, and that is ‘impressive.’ Net revenue jumped 30% from the same period a year ago thanks to core shipment growth of 29% (993,000 barrels), while net income per diluted share from the period tallied $1.89, an increase of $0.36 per share from last year’s period. Third-quarter gross margins were at the midpoint of the company’s annual gross-margin target between 52%-54%, so cost pressures (increased brewery processing costs and higher ingredient expenses) were largely expected — the measure was roughly 3 percentage points lower than the year-ago mark. The growth of depletions—the total beer volume sold to retailers, excluding product loss due to breakage and samples—was 26% and … Read more

PPL Corp Reports Solid 3Q; Raises Midpoint of 2013 Earnings Forecast

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Generally speaking, we like the utility industry. Utilities provide an essential service, generally operate in a near-monopoly position and benefit from significant barriers to entry due to the capital intensity of new projects and regulatory/environmental requirements. Regulatory frameworks differ across the grid, but most utilities benefit from an assured rate of return on capital investments through predetermined rate structures, where cost adjustments are made by authorities periodically. Most constituents also benefit from stable operations and generally lower debt financing, though we note credit ratings should be monitored closely. The strong industry backdrop was apparent in PPL Corp’s third-quarter earnings release, issued last Thursday. Though adjusted earnings from ongoing operations per share declined on a year-over-year basis during the period as … Read more