Brian Nelson

Red Hat Continues to Generate Strong Cash Flow

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Open-source software provider Red Hat (click ticker for report: ) reported solid third-quarter results last week. The firm that is synonymous with Linux posted revenue growth of 18% (21% excluding currency) year-over-year to $344 million, a touch better than consensus estimates. Non-GAAP earnings per share ticked up a penny to $0.29, also in-line with consensus expectations. We plan to update our report soon. On the revenue side, subscription sales increased 19% year-over-year to $294 million, while training and services revenue increased 14% to $49 million. We were even more impressed by the company’s growth in deferred revenue, which totaled $988 million—21% higher than at the same time a year ago. The firm has done an excellent job of retaining its … Read more

Apple’s Market Share Is Great; Its Profits and Cash Flow Are Even Better

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Adding to the wall of worries that has crushed the share price of Apple (click ticker for report: ) during the past several months are fears that the firm doesn’t have incredible market share outside of the US. Recent estimates peg Apple’s US market share at 53.3%, up tremendously from its 35.8% market share registered a year ago. Such a figure reveals that more than half of all smartphone sales are coming from Apple, even though its phones tend to cost more than those of its competitors—even for an out-of-date model like the 4S. No one seems to be denying the firm’s top-notch execution and performance in the US. Android (click ticker for report: ), on the other hand, has … Read more

Nike Reports Second Quarter Results; Shares Split

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Late last week, athletic footwear and apparel heavyweight Nike (click ticker for report: ) reported strong second-quarter results. Revenue of $6 billion was 7% higher than a year ago, and it was also slightly better than consensus expectations. Earnings were also better than expected, growing 11% year-over-year to $1.14 per share, aided immensely by a large share buyback. We plan to adjust our report and fair value estimate on Nike to account for the stock split soon. We like to focus on Nike’s gross margins, which were down 30 basis points year-over-year to 42.5%. Though we are pleased to see gross margin declines moderate, we are a bit worried that gross margins are going to be permanently lower than the … Read more

Ecommerce Sales Surge During the Holiday Season

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It should be no surprise to Valuentum members that ecommerce sales were fantastic this holiday season as we continue to hold payment processors Visa (click ticker for report: ) and PayPal – via eBay (click ticker for report: ) – in the portfolio of our Best Ideas Newsletter. Digital business analytics firm comscore (SCOR) reported that for the first 51 days of the November-December 2012 holiday season, retail ecommerce spending advanced 16% versus the same period a year ago, a breakneck pace. Impressively, the data show that the 5-week work week ending December 21, 2012 registered a rate of expansion of 53% in spending. We continue to focus on high-VBI rated firms that are benefiting from long-term secular tailwinds, and … Read more

Bed Bath & Beyond Posts a Mediocre Third Quarter

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Wednesday afternoon, home store Bed Bath & Beyond (click ticker for report: ) reported lackluster third-quarter sales growth. Revenue fell short of expectations, up 15% year-over-year to $2.7 billion. Earnings, on the other hand, jumped 8% year-over-year to $1.03 per share, a penny better than consensus expectations. Though we don’t expect a material change to our valuation, we plan to update our report soon. Earnings guidance was the real disappointment, as the company provided a fourth quarter earnings range of $1.60-$1.67 per share compared to the consensus calling for $1.75 per share. During the company’s prepared remarks, it blamed the integration of Cost Plus World Market and Linen Holdings for half of the margin weakness in the fourth quarter, with … Read more

The New Car Effect Hits CarMax

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Used-car dealer CarMax (click ticker for report: ) reported stellar third-quarter results Thursday morning. Revenue surged 15% year-over-year to a better-than-anticipated $2.6 billion. Earnings also grew 15% year-over-year to $0.41 per share, easily exceeding the consensus estimate. Our fair value estimate is unchanged. Given how the new-car recovery continues, it may seem surprising that CarMax would see such strong sales gains. Used-car revenues jumped 17% year to $2.06 billion, with total units jumping 16% and comparable store units jumping 12% compared to the same period last year. However, this shouldn’t be too surprising, in our view, given the aging fleet of cars in the US coupled with the better used-car inventory stimulated by the new car recovery. As consumers purchase … Read more

You Are Ahead of the News As a Valuentum Member

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Remember When We Said Economic Prognosticators Were Off Their Rockers? From the September 2012 edition of our Best Ideas Newsletter (see page 2), released September 15, 2012: “Could you imagine if you had listened to bond-king Bill Gross (please note he is not the equity king), Marc Faber (author of the Gloom, Boom & Doom report) or the Economic Cycle Research Institute (ECRI), which called for a recession in September 2011 – some 30% in the S&P 500 ago (yes, 30%!). Aside from being incorrect, bearish economic prognosticators fully admit that their expectations have little to do with what may happen to the equity markets in the future (as Bernanke’s unlimited QE has shown). Still, such admissions do not stop … Read more

Best Idea EDAC Tech Falling Prey to Profit Taking…Nothing More

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We continue to like EDAC Tech (EDAC) and peg its fair value north of $20 per share. The stock has been roughly a triple for our members. We think the recent sell-off is a result of nothing more than profit taking in advance of the potential for capital gains taxes to increase next year. ”In the aerospace market, we are very bullish. Boeing has announced in their earnings reports that their order book is extremely high. We are facing a time of unprecedented growth in the development of new aircraft engines.” Source: EDAC Tech CEO Dominick Pagano (Wall Street Transcript), November 12, 2012. << Read the full Wall Street Transcript Interview with EDAC Tech’s CEO Dominick Pagano

Leucadia: Berkshire Light?

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After acquiring the remaining shares outstanding of Jefferies (JEF) a few months ago, Leucadia (LUK) has come into the spotlight. This under-the-radar holding company has been compared to Berkshire Hathaway (BRK.A) in the sense that it owns several unrelated companies and uses the cash flows to invest in different businesses. However, calling the two firms similar is a bit of a misstatement given Berkshire’s enormous insurance operations, and a slightly different investing style. Unlike Berkshire, which has an enormous “elephant gun” able to acquire relatively large companies with ease (Berkshire also tends to concentrate on reliable, large cap companies with strong balance sheets), Leucadia concentrates on deep value in struggling or unloved companies and industries. Interestingly enough, the companies are … Read more