Brian Nelson

Our Thesis on Apple Remains Firmly Intact

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On Tuesday, Apple () reported tremendous fiscal 2012 second-quarter results. The iPad-maker’s revenue came in at $39.2 billion, while net earnings were $11.6 billion, or $12.30 per diluted share, blowing by consensus estimates (which were $10.02 per share). We are maintaining our $636 per share fair value estimate at this time and expect the firm to converge to that level in short order. Apple’s growth rates were absolutely fantastic and compare to revenue of $24.7 billion and net earnings of $6 billion, or $6.40 per diluted share, in the same period a year ago. The company’s gross margin also advanced roughly 6 percentage points from the same period a year ago, revealing significant pricing power within its supply chain. As … Read more

IBM Increases Dividend; Annual Yield Still Not That Attractive

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On Tuesday, IBM () boosted its dividend 13%, and we continue to expect double-digit growth in its payout in coming years. However, we like the dividend profiles of a few of its tech peers better, namely Microsoft (MSFT) and Intel (INTC). << About our Dividend Growth Newsletter — BusinessWire (April 24) “The IBM (IBM) board of directors today declared a regular quarterly cash dividend of $0.85 per common share, payable June 9, 2012 to stockholders of record May 10, 2012. Today’s dividend declaration represents an increase of $0.10, or 13 percent higher than the prior quarterly dividend of $0.75 per common share. This is the 17th year in a row that IBM has increased its quarterly cash dividend, and the … Read more

3M Issues First-Quarter Results; Raises Bottom End of Full-Year Guidance Range

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3M (MMM) issued strong first-quarter results Tuesday that revealed expansion in almost every business segment. The company’s performance was one of the better ones we’ve seen from industrial firms so far this quarter. We also liked GE’s (GE) report here and Honeywell’s (HON) report here and were quite pleased with the recently upwardly-revised outlooks from Parker-Hannifin (PH) and Illinois Toolwork (ITW). 3M’s management followed the lead of its industrial peers and also raised the lower end of its full-year 2012 earnings-per-share outlook range. Our fair value estimate of the company remains unchanged, however. << Our 16-page Equity Report on 3M (MMM) – login required On a reported basis, net revenue advanced 2.4% thanks to an 8.6% jump in its Industrial and Transportation segment, a 5.5% improvement … Read more

United Tech’s HVAC Orders Represent Another Positive Data Point on US Housing

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Industrial conglomerate, United Technologies (), posted mixed first-quarter results Tuesday that showed strength in its residential HVAC and commercial aerospace businesses but weakness in its Otis elevator division. Though we weren’t pleased by order trends in China and Europe, we are sticking with our fair value estimate for the firm. The firm’s net sales fell 2% in the period thanks to divestitures and currency headwinds, though organic sales did edge up a meager 1%. The firm’s segment operating margin dropped 10% mainly because of higher research and development costs, but on a reported basis, the company’s operating margin came in at 13.7% (versus 13.3% in the year-ago period). Earnings per share advanced 24%, to $1.31 per share, in the quarter … Read more

Concerns about Hasbro’s First-Quarter Performance Overblown; We Expect a Strong Back Half of 2012

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On Monday, Hasbro () reported disappointing first quarter results. Though we were not happy with the performance in the quarter, we maintain our view that the firm’s dividend growth profile remains strong. Our fair value estimate of Hasbro remains unchanged. Hasbro’s net revenue in the first quarter fell 3%, and the company did little to adjust its cost structure effectively to mitigate the earnings decline. Earnings fell into the red, with the company posting a $0.02 per share net loss during the quarter (it had earned $0.12 per share in the same period a year ago). Excluding severance-related costs, earnings per share came in at $0.04 (consensus estimates were at $0.08 per share). One of the bright spots, however, was that its … Read more

D.R. Horton’s Fiscal Second-Quarter Results Speak to a Firming Housing Market; Its Cancellation Rate Drops to Pre-Crisis Levels

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D.R. Horton (), one of the largest homebuilders in the US, posted excellent fiscal 2012 second-quarter results that support our view that the domestic housing market is firming. Though we liked its performance, we still believe the homebuilding group is a bit ahead of itself as it relates to valuation, and we remain on the sidelines. We continue to prefer ancillary, diversified plays on the housing market via the two banking exchange-traded funds we hold in the portfolio of our Best Ideas Newsletter. << About Our Best Ideas Newsletter The statistics conveying D.R. Horton’s growth off “the bottom” were fairly impressive. Homebuilding revenue in its fiscal second quarter jumped 28% thanks to a more than 20% increase in homes that … Read more

We’re Impressed with Under Armour’s First-Quarter Results; Raising Our Fair Value

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Under Armour (UA) reported strong first-quarter results that were in-line with our expectations. On the heels of the strong report, we’ve reassessed our discounted cash-flow model and are now forecasting more optimistic future assumptions. The high end of our fair value range is now $78 per share, as we expect the firm to raise prices on its core segment products and leverage marketing expenses better than we had previously assumed. We initially extrapolated Nike’s (NKE) slightly slower apparel growth into the view that Under Armour might struggle disproportionately in the first quarter of 2012, given the unseasonably mild weather across much of the US. However, to our surprise, sales increased 23% versus the first quarter a year ago, and net … Read more

McDonald’s Menu Items and Value Proposition Drive Same-Store-Sales Growth; We’re Raising Our Fair Value

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On Friday, McDonald’s (MCD) reported first-quarter results that were yet again superb, reaffirming the company’s position as the premier restaurant in the fast-food space. Due to the excellent operating results and upward revisions in our earnings projections in the out-years, we are raising our fair value to $95 per share, with $114 per share now being the high end of our fair value range. << Our 16-page Equity Report on McDonald’s (MCD) — login required McDonald’s drove global same store sales growth of 7.1% compared to the same quarter a year ago, highlighted by an 8.9% increase in same store sales in the US. By any measure, McDonald’s is about as saturated as possible in the US, but new products such … Read more

Kellogg’s Dividend Hike Less than Impressive; In Line with Our Expectations

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On Friday, Kellogg () announced that it plans to hike its dividend 2%, in line with our projections. Though the firm boasts an outsize yield (3.26% annual yield), our Valuentum Dividend Cushion, which assesses a firm’s capital structure and future cash flow generation in comparison to its future dividend payments, indicates that future growth in its dividend will continue to be lackluster. << About Our Valuentum Dividend Cushion — GlobeNewswire (Friday, April 20) “Kellogg Company today announced that its Board of Directors declared a dividend of $0.43 per share on the common stock of the Company, payable on June 15, 2012, to shareowners of record at the close of business on June 1, 2012. The ex-dividend date is May 30, 2012. … Read more

Honeywell and General Electric Reveal Industrial Strength

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On Friday, General Electric (GE) and Honeywell (HON) set the tone for industrial earnings in the first quarter. We continue to believe aerospace will be a bright spot and are expecting strong performance from our three aerospace holdings when each reports results in coming trading sessions: Precision Castparts (PCP), Astronics (ATRO), and EDAC Tech (EDAC). General Electric’s industrial performance was nothing short of excellent, in our opinion. For starters, industrial segment revenue jumped 14% on impressive double-digit organic growth (11%). Importantly, orders followed suit. Infrastructure orders, for example, advanced 20%, with equipment orders up nearly 30% and services up 11%. On an organic basis, orders increased 14%, outpacing organic top-line expansion. Industrial segment orders from growth markets also did quite well, jumping 21% in the … Read more