Brian Nelson

JC Penney’s Strategy Change Was and Is Necessary

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Department store chain JC Penney (click ticker for report: ) and its CEO Ron Johnson have been under tremendous scrutiny since Johnson took the reins in November of 2011. Johnson, independently wealthy from his days leading the retail push at Apple, came in looking to revamp the retailer and ignore the Street in the process. Sales declines have been staggering; same-store sales fell 26.1% during the third quarter and internet sales, in a secular uptrend, declined 37%, leading to a 26.6% decline in total sales. Earnings, on a non-GAAP basis, fell from $0.18 per share to a loss of $0.93 per share. The company also generated negative $389 million in free cash flow, though the majority was due to cash … Read more

Jamie Dimon Agrees; Housing Is Back

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Since the turn of the year, the housing market has been on the mend (click here for when we spotted the recovery), and homebuilders have been posting excellent results as of late. At the end of July, we more definitively announced that we thought the US housing market was back, and subsequent results and commentary have strengthened our thesis. We plan to take a close look at our valuation models of a number of homebuilders today, but we don’t expect any companies’ share prices to fall outside of their updated fair value ranges, which we plan to release this afternoon. During the past several months, many US major banking institutions and mortgage originators have been posting fantastic results. Both JP Morgan Chase (click ticker … Read more

Disney Paints a Cloudy Picture for 2013

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Media giant Disney (click ticker for report: ) reported solid fiscal year 2012 fourth quarter results Thursday afternoon. The company saw revenue jump 3% year-over-year to $10.8 billion, a tad below consensus expectations. Earnings were in-line with expectations, increasing 17% year-over-year to $0.68 per share. Free cash flow, one of our favorite metrics when evaluating a company, fell nearly in half during the period to $602 million, though the decline reflected accounting timing more than any broader weakness. Fiscal year 2012 free cash flow jumped 22% year-over-year to $4.2 billion—enough to pay for the Lucasfilm deal on its own. Despite the hiccup in the current period, we expect free cash flow trends to remain strong at the media giant. On … Read more

Best Idea Precision Castparts Buys Titanium Metals; We Like the Deal

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On Friday, Precision Castparts (click ticker for report: ) announced that it has entered into an agreement to buy Titanium Metals (click ticker for report: ) for $16.50 per share in cash, roughly in line with our fair value estimate. We’re huge fans of this deal and expect Precision Castparts to extract significant synergies, similar to what it was able to accomplish when it bought Special Metals in 2006. Precision Castparts’ CEO Mark Donegan is perhaps the best aerospace executive when it comes to integrating acquisitions and delivering value to shareholders. The tie-up provides Precision Castparts with valuable titanium capacity, and we think the deal helps Precision optimize its supply chain by giving it greater control of input costs via … Read more

Groupon’s Results Miss the Mark; Liquidity Not a Concern…Yet

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Once again, online deals retailer Groupon (GRPN) missed the mark when it reported third quarter results Thursday afternoon. Revenue fell slightly short of expectations, growing 32% year-over-year to $568.6 million. The firm’s loss shrank to $2.9 million, or break-even on a per share basis, which was short of consensus calling for a profit of $0.03. Roughly 80% revenue expansion in North America was overshadowed by weak 3% international growth. Further, third party and other revenue was flat year-over-year at $423.5 million. All of Groupon’s growth came from Groupon Goods, as Direct Revenue increased significantly year-over-year to $144.9 million and doubled quarter-over-quarter. However, we’re not too bullish on this dramatic shift. Gross margins in the Groupon Goods business totaled 12% compared … Read more

Kohl’s Should be Thanking JCP

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Thursday morning, Wisconsin-based department store Kohl’s (click ticker for repot: ) reported mediocre third quarter results. The retailer grew sales 2.6% year-over-year to $4.5 billion driven by 1.1% same-store sales growth. Earnings grew 14% year-over-year to $0.91 per share, exceeding consensus estimate by a few pennies. While earnings were better than expected, the earnings per share growth was due to share buybacks and modest operating leverage rather expanding gross margins. Kohl’s shrunk its share count 11% since the same period in 2011. Gross margins dipped 44 basis points year-over-year to 38.1%, and management noted that the firm has been highly promotional, leading to lower earnings. We’re also skeptical about the company’s inventory build, which now stands at $4.8 billion, 17% … Read more

Why Dividend Growth Investing Needs to be Forward Looking

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Shares of Exelon (click ticker for report: ) have been tumbling lately due to the possibility of a dividend cut. The utility company needs rates to increase in order to keep up its current payout. That may not occur, and CEO Chris Crane noted that the firm may have to cut its dividend in order to keep its strong credit rating standing, which is fundamental to running Exelon’s business. In the aftermath of the announcement, both Jefferies and Argus cut the ratings on the stock, but we think both firms were a bit late to the party. Inside our Valuentum Dividend Report for Exelon, we can see what we thought about Exelon on October 30. The fact that Exelon’s dividend … Read more

McDonald’s Falling Prey to Competition

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Fast-food giant McDonald’s (click ticker for report: ) reported weak October same-store sales numbers Thursday. CEO Don Thompson continues to invite criticism as sales and profits have begun to fall since taking the reins from legendary CEO Jim Skinner. Global same-store sales fell 1.8% year-over-year, while global sales fell 0.8% (+0.6% ex-currency). Weakness was broad-based, with US same-store sales falling 2.2% year-over-year, Europe falling 2.2%, and Asia-Pacific, Middle East and Africa falling 2.4%. While we think Europe can be explained by overwhelmingly negative macroeconomic sentiment and lower price-points, we think the US is more of a company-specific issue. Competition in the US market was fairly dormant for the past several years, with Wendy’s (click ticker for report: ) and Burger … Read more