Brian Nelson

One of Our Top Housing-Related Ideas Surges

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When we outlined Whirlpool (WHR) as one of our favorite housing-related plays in late May of this year, we thought shares would do well. From the May 29 write-up: “Whirlpool possesses tremendous operating leverage, so a small increase in sales will have a large impact on the bottom line. This aspect of its business model coupled with improving operational performance makes us confident that the appliance pure-play has room to the upside (the high end of our fair value range for Whirlpool is $175 per share).” Recent equity price performance hasn’t disappointed – the firm’s stock has more than doubled the market return since that article was released (14.4% versus 6.2%), as shown below, and Whirlpool’s third-quarter earnings, issued Tuesday, didn’t … Read more

Don’t Take Our Word For It; Ask CEO Reed Hastings; Netflix’s Shares Are Overpriced

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We give Netflix (NFLX) CEO Reed Hastings a lot of credit. Not too many CEOs will go on record saying that its firm’s share price is being supported by “momentum-investor-fueled euphoria,” but he did. Netflix remains one of the most overpriced stocks on the market, in our view. Click here for that list — it’s near the top. Pasted below, please find the most important part of Netflix’s third-quarter shareholder letter (red circle added by us). If you understand anything about Netflix’s stock, it should be this: “In calendar year 2003 we were the highest performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003.” Image Source: Netflix Share Price Performance Today Valuentum’s Take … Read more

Evaluating Third-Quarter Performance of a Few Bellwethers

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DuPont’s 3Q Free Cash Flow Leaves Much to Be Desired DuPont (DD) reported third-quarter results Tuesday that showed revenue advancing 5% (thanks primarily to higher volume growth) and operating earnings of $0.45 per share, a modest bump from the same period a year ago. The standout on the top line was ‘Agriculture’ sales, which jumped 15% thanks to higher insecticide volumes and higher seed prices in Latin America. Excluding its ‘Performance Chemicals’ division, which suffered from price declines for titanium dioxide, refrigerants, and fluropolymers, all operating segments posted increased operating earnings versus last year. DuPont noted that it expects fourth-quarter operating earnings to be up substantially from that of the year-ago period, but it still reiterated its full-year operating earnings … Read more

McDonald’s Underwhelms in 3Q; Outlook Not Mighty

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On Monday, McDonald’s (MCD) posted third-quarter results that left much to be desired. Global comparable sales barely moved higher at 0.9%, while consolidated operating income advanced a modest 6%. Diluted earnings per share increased at a similar pace to $1.52 per share, but the disappointment was certainly from the top line. Comparable stores in the US increased just 0.7% in the third quarter thanks to the popular Monopoly promotion and the new Mighty Wings. We thought the latter would have had a greater impact given the significant recent marketing promotions. Comparable sales in Europe jumped 0.2% thanks to strong performance in the UK and Russia, partially offset by weakness in Germany. Same-store sales in the Asia/Pacific, Middle East and Africa … Read more

Dividend Growth Gem Hasbro Boasts Excellent 3Q

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Hasbro (HAS) posted solid third-quarter revenue and earnings Monday that exceeded consensus expectations. Revenue jumped 2%, while operating profit improved 3% thanks to modest improvement in the firm’s operating margin. Adjusted net earnings of $1.31 per diluted share in the third quarter compares to $1.24 per share generated in the prior-year period, or more than a 5% increase. We were very pleased with management’s comments that brand initiatives are resonating well with consumers and that it has increased its presence in faster-growing geographies. Though performance in the US and Canada continues to languish as a result of weakness in the ‘Boys’ and ‘Preschool’ categories, the firm’s ‘International’ and ‘Entertainment and Licensing’ segments performed wonderfully. Image Source: Hasbro Sales in Europe, … Read more

Third-Quarter Industrial Earnings Support Exposure in Best Ideas Portfolio

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For starters, if you haven’t yet read through our piece on General Electric’s (GE) third-quarter earnings, it’s a must-read. The step-up in backlog and order trends at the industrial behemoth are quite remarkable, and we think GE’s performance bodes well for the sector as a whole. Still, let’s drill down on a few themes across the industrial space and how our Best Ideas portfolio is well-positioned to capture the strength of underlying trends. Danaher (DHR) Danaher reported third-quarter results Thursday that showed revenue expansion of 5.5% and diluted net earnings per share growth of 9%. The company generated 30 basis points of operating-margin improvement and generated more than $800 million in free cash flow, or about 17.8% of revenue (a very … Read more

General Electric Reveals Order Strength; Registers Record Backlog

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General Electric (GE) put up a darling of an order number Friday with its third-quarter financial results. Though revenue and operating income faced pressure during the period due to asset reductions at GE Capital and foreign-exchange headwinds, the industrial conglomerate’s order performance was off the charts: US orders jumped 18%, Europe orders advanced 17%, and growth market orders leapt 22%. Needless to say, the global business environment improved significantly during the third quarter, and we’re not sure the threat of a US government shutdown (and by extension, the shutdown itself) did much to impede the business of global industrial conglomerates. GE’s backlog of equipment and services at the end of the quarter was its highest ever at $229 billion (up … Read more

Facebook: The New Internet?

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First of all, we’d like to thank you for your ongoing support and wonderful emails about the performance of the dynamic duo today: Google (GOOG) and Baidu (BIDU), two holdings in the portfolio of our Best Ideas Newsletter. We very much appreciate your kind words. Though we (and hopefully all of our members) have profited greatly from these two behemoths in the ‘Internet Content & Services Group,’ we could have done a better job alerting you to Facebook’s recent meteoric rise. Today, we’ve raised our fair value estimate of Facebook (FB) to $76 per share (the high end of the fair value range is now $93 per share) as a result of more optimistic assumptions related to the firm’s opportunity in mobile and … Read more

Philip Morris’ Operating Income Growth Stalls in 3Q; Learn About Altria’s Hidden $21.6 Billion Potential Cash Load

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On Thursday, Philip Morris International (PM) reported third-quarter results that showed the continuation of a very challenging cigarette volume environment. Reported net revenues held the line thanks to significant pricing strength, but adjusted ‘operating companies income’ (OCI) still fell 1.9% (shown below). We’re growing skeptical of the firm’s ability to control costs, as there should have been better performance on the operating line given that pricing completely replaced volume losses in the period (price falls straight to the bottom line). Profit margin improvement was surprisingly absent, with the company’s adjusted OCI margin falling 0.9 percentage points from the year-ago period. Image Source: Philip Morris Adjusted diluted earnings per share of $1.44 was 4.3% higher than the same period a year ago, … Read more

PPG Posts Record Third Quarter Results; Our Favorite Idea in the Chemicals Industry

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Our favorite fundamental chemical idea PPG Industries (PPG) reported record third-quarter results Thursday. Net sales jumped 17% versus the prior year (about 4% organic expansion), and the firm posted record adjusted earnings per diluted share from continuing operations of $2.44, up an impressive 30%+ from the year-ago period (shown right). We liked the operating leverage inherent in performance as well as the firm’s ability to hit the ground running with impactful transactions. The company noted that aerospace and automotive OEM coatings, both up about 10%, were the key drivers behind PPG’s top-line expansion, though other business lines did contribute as well, including the company’s architectural coatings operations. Volume trends improved in all regions of the world, and the firm’s cost-reduction … Read more