Brian Nelson

Opportunity Ripens for Entry Point in EDAC Tech

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EDAC Tech (EDAC) has been one of our best performing ideas since the inception of our Best Ideas portfolio. We first added the company to our Best Ideas portfolio when it was trading just above $4 per share, and we now peg its fair value north of $20 per share. The stock has been under pressure as of late, and we wanted to bring one of our very best ideas to light on share weakness. Please click the image below to download the firm’s 16-page equity report.  

Inside AbbVie: A Look at a New Pharmaceutical Giant

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On January 1, medical giant Abbott (click ticker for report: ) will start trading as two firms, Abbott and AbbVie. The companies will form two distinct, publicly-traded businesses, allowing the market to value each company separately and uniquely. Pharmaceuticals will be housed in AbbVie, while medical diagnostics, baby food, and generic drugs will remain a part of Abbott. Let’s first dig into AbbVie. We’ll have a follow up article on the new Abbott in coming days. AbbVie Led by Humira Headlining the new pharmaceuticals business is the blockbuster drug Humira, which had over $7.9 billion in sales in 2011 alone. Though originally approved for rheumatoid arthritis in 2003, the drug has been approved to treat Crohn’s disease, plaque psoriasis, ulcerative … Read more

Modest Valuation Upside Remains at Phillips 66

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Dividend Growth Newsletter portfolio holding Phillips 66 (click ticker for report: ) released positive news Friday. The refiner will raise its dividend 25% to $0.3125 per share beginning in the first quarter of 2013, and it also approved an additional $1 billion of share repurchases. Phillips 66 has been a standout performer since being distributed to shareholders of ConocoPhillips (click ticker for report: ) earlier this year, with the stock up nearly 65%. Refining has traditionally been one of the more volatile businesses of the oil and gas segment, and Phillips 66 has capitalized on a favorable cycle by generating strong earnings growth and solid cash flow. Refinery and marketing profits more than doubled during the firm’s most recent quarter, … Read more

Nelson Peltz Shakes Up Ingersoll Rand

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Industrial conglomerate Ingersoll Rand (click ticker for report: ) announced plans to spin off the firm’s security division, buy back $2 billion worth of stock, and raise its dividend 31%, to $0.21 per share. The announcement is a reaction to the activist stake taken by Trian Fund Management, the fund co-founded by Nelson Peltz. Trian owns about 7% of the company. The security division will be a combined unit of the Securities Technology segment and the firm’s residential security business, which is currently housed in the Residential Solutions segment. Annual revenues are expected to be about $2 billion, and the new company will have strong margins and free cash flow, according to management. This creates another security pure play, as … Read more

Is McDonald’s Back on Track?

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Monday morning, fast food behemoth McDonald’s (click ticker for report: ) announced stronger than anticipated same-store sales growth for the month of November. Same-store sales jumped 2.4% year-over-year at a company-wide level, easily exceeding the consensus estimate of 0.4% growth. We continue to remain on the sidelines for now, though we think the company would make a compelling addition to the portfolio of our Dividend Growth Newsletter at the right price (below the low end of our fair value range). US same-store sales increased 2.5% year-over-year, with the company citing breakfast, new items like the Cheddar Bacon Onion, and value offerings as the main drivers. Given the price point of the new sandwich and products, we believe it was the … Read more

Enbridge Capitalizes on Fantastic Shale Oil Growth

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Energy transporter Enbridge (click ticker for report: ) held its annual guidance conference for 2013 this Thursday. The company raised its dividend 12% to $1.26 per share, which is in-line with its current 10-year growth trajectory. Shareholders have seen fantastic dividend growth during the past decade, and we think the company remains in a strong position to keep raising its dividend going forward. Image Source: Enbridge On top of a strong dividend increase, Enbridge guided to 12% earnings growth in 2013 (based on current projections). Image Source: Enbridge Due to the hefty demand of Canadian and North Dakota-based shale oil, the company is investing heavily in new pipelines to bring product to market and distribution centers. Enbridge announced plans to spend … Read more

Dividends at Financial Services Firms

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After getting slammed by one of the most vicious financial crises in modern history, financial services firms sit on much more solid ground. In fact, several have taken to returning cash to shareholders via dividends. Let’s take a look at a few names in the space that recently made headlines with their dividend policies. T. Rowe Price Money manager T. Rowe Price (TROW) was hit pretty hard by contracting balance sheets and retirement accounts, as it saw revenue fall for two consecutive years. However, as accounts recovered, the company has returned to solid revenue growth, easily eclipsing its 2006-2007 numbers. The firm has raised its dividend 10% this year to $1.36 per share, and it recently announced a special dividend … Read more

Lululemon’s Growth Hasn’t Stalled

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Yoga pants and athletic apparel maker Lululemon (click ticker for report: ) reported fantastic third quarter results Thursday morning. Revenue jumped 37% year-over-year to $316.5 million, slightly better than consensus expectations. Earnings jumped 44% year-over-year to $0.39 per share, which was also slightly better than anticipated. Yet again, the company proved to be immune from broader macroeconomic pressures, with same-store sales jumping 18% compared to the same period last year. Gross margins fell but held up fairly well, dropping only 40 basis points year-over-year to 55.4%. Fourth quarter guidance implies that margins will be lower in the next quarter as well, but with sales growing at such a rapid clip, we think some slight compression is to be expected. Still, … Read more

FAQ: Why Doesn’t the ‘Percentage Undervalued/Overvalued’ Match Up to the Actual Discount/Premium to Valuentum’s Fair Value Estimate of the Company?

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We view the intrinsic value of a firm as a range, not a single point estimate. So instead of us saying that a company is worth exactly $55 per share, for example, instead we’d say it is worth between $50 (low end) and $60 per share (high end) — think of this range as our margin of safety. We use a margin of safety due to the inherent uncertainty of predicting with absolute precision a firm’s future free cash flow stream — a firm’s future free cash flows determine our estimate of the company’s intrinsic value, and the future is not known yet. As a result, the ‘percentage undervalued/overvalued’ (as shown on our 16-page reports) is calculated by comparing the firm’s current price with the … Read more