Brian Nelson

Positive US Housing Data Persists; The Recovery is Real

by

Through the course of this week, we’ve received a number of positive data points suggesting the US housing recovery is well on its way. Long-time Valuentum members know that we’ve been very bullish on the housing turn since early 2012 (view the January 2012 edition of our Best Ideas Newsletter here). The S&P/Case-Shiller Index kicked off the week’s events with a 12% year-over-year price increase in the 20-city composite index for April (there’s a two month lag in the data). The 10-city index also rose 11.6% year-over-year. Both metrics have recovered to 2004 levels, but both remain well below the 2007 all-time (“bubble”) highs. Image Source: S&P Dow Jones Indices Image Source: S&P Dow Jones Indices We were also very … Read more

Verizon Might Jump Into Canada

by

After weeks of mounting speculation, US telecom giant Verizon (click ticker for report: ) has allegedly offered a deal valued at $700 million to acquire Canadian mobile provider Wind Mobile. In addition to potentially acquiring Wind Mobile, Verizon is also in talks to acquire another carrier, Mobilicity, and it could enter the bidding for government spectrum offers. Why is Verizon interested now? For years, Canadian regulations have previously disallowed a foreign entity from fully-owning a domestic telecom business, but it has only been recently that ownership rules have started it loosen. Still, the country remains dominated by the “Big Three” in the mobile carrier space: Rogers Communications (RCI), BCE (click ticker for report: ), and Telus (TU). However, Canadian regulators … Read more

Weak Food Sales Spoil Walgreens’ Third Quarter

by

The US’ largest drug store chain, Walgreens (click ticker for report: ), reported lackluster third quarter results Tuesday morning, but the results did not deviate enough from our forecast to warrant a change in our valuation. Revenue increased 3.2% year-over-year to $18.3 billion, falling slightly short of consensus estimates. Earnings per share were also a bit lighter than consensus expectations, increasing 18% year-over-year to $0.85 per share on a non-GAAP basis. Although results were only marginally below consensus estimates, we believe the negative reaction can be attributed to the weak comparable-store sales growth in front-end items (candy, soda, etc.), which carry higher gross margins. Front-end same-store sales increased just 0.4% in the third quarter, even though the company benefited from … Read more

Poor Weather Punishes Sonic

by

Fast-food franchise Sonic (click ticker for report: ) reported a lackluster third quarter Monday as the firm dealt with lousy weather throughout the US. Revenue decreased a modest 2% year-over-year to $146 million, falling short of consensus expectations. Earnings per share increased 8% year-over-year to $0.26 per share, roughly in-line with consensus estimates. Management continues to anticipate that the firm will generate $45-$50 million in free cash flow for fiscal year 2013. The story for Sonic during the third quarter was weak same-store sales growth. Aggregate same-store sales grew an anemic 0.1% year-over-year, with franchise-owned locations sales up 0.2% and corporate-owned sales down 1.1% year-over-year. The main culprit behind the decline was weather, which the firm believes accounted for 300-400 … Read more

Rio Tinto Doesn’t Sell Its Diamond Business

by

In a slightly surprising move, Best Ideas Newsletter portfolio holding Rio Tinto (click ticker for report: ) announced that it will no longer pursue selling its diamond business. Miners have been looking to divest non-core assets to lower debt loads and increase returns to shareholders, so Rio’s decision to hold on to the business will obviously not help to achieve those goals. We’ve long cautioned that the impact of BHP (click ticker for report: ), Anglo American, and Rio selling assets at the same time could work to depress asset values, and that appears to be the case with respect to Rio’s diamond business. Rio Tinto wanted $1.3 billion for a business that was unprofitable in 2012 and only marginally … Read more

Sprint May Be Settled But What About Clearwire?

by

After a drawn-out saga, Dish Network (click ticker for report: ) dropped its pursuit of Sprint (click ticker for report: ) Friday. Sprint seems intent on accepting SoftBank’s offer, and we do not believe Dish could afford to offer more for the US’ third-largest wireless company. Yet, a dropped bid for Sprint does not mean Dish is out of the running for Clearwire (CLWR). On Thursday, Sprint raised its bid for Clearwire to $5 per share, a move valuing Clearwire at $14 billion (and something we had anticipated). Many may suspect that Dish’s decision to end its pursuit of Sprint as a declaration of peace, but we aren’t sure that is the case. Dish founder/chairman Charlie Ergen is well aware … Read more

Dividend Increases for the Week Included Realty Income and US Bancorp; Dividend Cuts Included a Number of Mortgage REITs

by

Below we provide a list of firms that increased or decreased their dividends for the week ending June 21. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports, please click here. Dividend Increases for the Week Ending June 21 CVB Financial (CVBF): now $0.10 per share quarterly dividend, was $0.085. Darden Restaurants (DRI): now $0.55 per share quarterly dividend, was $0.50. Fifth Third Bancorp (FITB): now $0.12 per share quarterly dividend, was $0.11. First Internet Bancorp (INBK): now $0.06 per share, was $0.04 (post-split). Host Hotels & Resorts (HST): now $0.11 per share quarterly dividend, was $0.10. John Wiley & Sons (JW.A): now $0.25 per share quarterly dividend, was … Read more

Oracle Posts a Weak Quarter to End Its Fiscal Year

by

Enterprise hardware and software maker Oracle (click ticker for report: ) ended its fourth quarter with the same lackluster revenue and earnings growth that it posted in the previous quarter. Revenue was flat year-over-year at $11 billion, falling short of consensus estimates. Earnings also fell short of consensus expectations, but grew 5% year-over-year to $0.87 per share on a non-GAAP basis. Earnings per share were helped by management repurchasing $2.8 billion worth of shares during the fourth quarter. Even though top- and bottom-line numbers were weak, Oracle remains a cash machine, generating $13.6 billion in free cash flow for fiscal year 2013—this is 36.6% of annual revenue of $37.2 billion! Yet again, the issue with Oracle remains its hardware and … Read more

Why Valuation Matters: The Homebuilders

by

Although the broader stock market sold off aggressively Thursday (the S&P 500 fell 2.5%), one industry was under particular pressure: the homebuilders. Shares of PulteGroup (click ticker for report: ), Lennar (click ticker for report: ), KB Home (click ticker for report: ), Toll Brothers (click ticker for report: ), DR Horton (click ticker for report: ), and Ryland (click ticker for report: ) all suffered declines of at least 5%. Homebuilding stocks have greatly benefitted from improving housing trends, but share prices had moved well ahead of the respective firms’ fundamentals. In our housing market industry overview released late May, we mentioned that homebuilding valuations looked particularly stretched. The group’s elevated prices coupled with the potential for the Federal … Read more

Finisar Rides the Cloud to Success

by

Fiber-optics maker Finisar (click ticker for report: ) reported stronger than anticipated fiscal fourth-quarter results Wednesday afternoon. Revenue rose 2% sequentially to $243 million, modestly exceeding expectations. Earnings per share increased 18% quarter-over-quarter to $0.20 per share on a non-GAAP basis (which excludes stock-based compensation and impairment charges), which was far better than expected. Surprisingly, telecom spending was not what drove the improved results at Finisar. This runs counter to what we heard from Ciena (click ticker for report: ) just a few weeks ago. In fact, telecom revenue declined 12% sequentially to $79.5 million. Management said the problem in telecom was twofold—sluggish carrier spending combined with lower telecom prices that it had in place a year ago. Though Finisar’s … Read more