Brian Nelson

Caterpillar Posts Strong Fourth-Quarter Results; Sees Global Economic Acceleration in 2012

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On Thursday, Caterpillar (CAT) reported strong fourth-quarter results and rounded out a very strong and record-breaking 2011. We’re comfortable with our $110 fair value estimate of Caterpillar, and we don’t expect to make any changes to it at this time. Caterpillar’s fourth-quarter sales achieved an all-time quarterly record, increasing 35% from the same period in 2010. Machinery and Power System sales jumped 36% thanks primarily from demand for new equipment, while Financial Products revenues advanced a modest 3%. The company noted that the improvement in sales volume in the quarter occurred across the world in all geographic regions and in nearly all segments. Excluding its recent acquisition of Bucyrus, revenue jumped an impressive 24%. Caterpillar’s fourth-quarter profit came in at … Read more

United Technologies Releases Fourth-Quarter Results; Reaffirms 2012 Outlook

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United Technologies (UTX) rounded out a solid 2011 with another decent but less-than-impressive quarter. Though we plan to revisit our assumptions on the industrial conglomerate, we don’t expect to make a material change to our fair value estimate at this time.   Organic revenue growth was a mere 2% in the fourth-quarter, but the meager growth was more due to significant strength in the aerospace aftermarket in the prior-year period than any underlying weakness. Order growth, however, was a bit lighter than we had hoped. New equipment orders at Otis advanced only 2%, while commercial HVAC new equipment orders at Carrier expanded 5%. Commercial spares orders at Hamilton Sundstrand were up 17%, but spares orders at Pratt & Whitney’s large … Read more

Xerox’s Fourth-Quarter Disappoints But Cash Flow Generation Remains Strong

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Xerox (XRX) reported fourth-quarter results Wednesday that showed strong earnings growth but flat revenue performance. We continue to believe the shares look undervalued. Revenue growth from the company’s services businesses advanced 6% in the quarter, but such growth was offset by a 5% decline in revenue from its technology businesses. Strength in the firm’s services businesses was driven by an increase in both business process outsourcing and document outsourcing, while its technology business saw weakness in the sale of document systems and supplies. Management blamed the poor economic environment in Europe for its subpar revenue performance. We continue to like Xerox’s services portfolio and believe that it has a competitive advantage in providing its clients cost-efficient ways to more productively … Read more

Boeing’s Backlog Increases in Fourth Quarter

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The Boeing Co. (BA) reported fourth-quarter results Thursday that showed continued cost pressures as it relates to its pension obligations but more importantly a surging commercial aerospace backlog. We’ll be evaluating our long-term assumptions for Boeing, but we don’t expect to make a material change to our fair value estimate at this time. We have little interest in opening up a position in Boeing, given its fairly valued status and the substantial execution risk embedded in achieving its aggressive commercial delivery schedule (and its at-risk defense exposure due to impending budget cuts). That said, we are very constructive on the commercial aerospace supply chain, as parts suppliers benefit from the implicit backing of Boeing and do not need customers to … Read more

And…It’s Another Great Year for McDonald’s But the Shares Look Fairly Valued

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Earlier this week, McDonald’s (MCD) reported an excellent fourth quarter and very strong year. With earnings and revenue in-line with our estimates, we’re sticking with our $88 per share fair value estimate. Earnings for the year grew 15% to $5.27 a share, while same store sales accelerated to a 5.6% pace compared to last year. However, we were most surprised by the performance in Europe—same store sales grew by 7.3% in the fourth quarter, even as the Eurozone deals with a fiscal crisis and a possible recession. We think this highlights the outstanding value proposition McDonald’s offers customers in spite of challenging economic conditions. Margins did fall slightly in the quarter, and though we do not see much room for improvement in the mid-term, operating … Read more

Coach Reports Strong Fiscal Second-Quarter Results, Highlights Opportunities in China

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In contrast to the profit warning from Tiffany (TIF) a couple weeks ago, Coach (COH), best known for its luxurious handbags, posted solid second-quarter results Wednesday and provided a very optimistic tone about its brand’s potential in China. We’ll be re-evaluating our long-term expectations for Coach, but we don’t expect to make a material change to our fair value estimate at this time. Coach’s sales expanded 15% in the quarter, while earnings per diluted share advanced 18%, to $1.18 per share (versus consensus expectations of $1.15 per share). Direct-to-consumer sales increased 17%, as North American comparable store sales rose 8.8% (above our mid-single-digit estimate). The firm remains optimistic about its Men’s business, which it expects to double during fiscal year … Read more

Johnson & Johnson Posts Fourth-Quarter Results; We Like JNJ’s Dividend Growth Profile

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Johnson & Johnson (JNJ) reported mixed fourth-quarter results Tuesday. Though we weren’t exactly enthralled by the firm’s performance, we believe JNJ to be a key holding in the portfolio of our Dividend Growth Newsletter. Our fair value estimate for JNJ is unchanged at this time. The company’s fourth-quarter and full-year 2011 sales increased 3.9% and 5.6%, respectively, from the same period last year. Revenue increased in all three segments–consumer, pharmaceuticals, and medical devices/diagnostics–led by strong international growth. Drugs such as Stelara and Remicade continue to garner high demand, while new applications for Xarelto may contribute to expansion in coming quarters. Though the top-line expansion was decent, recalls and related charges–including litigation and product liability–continued to plague JNJ’s bottom line, amounting … Read more

Best Idea Apple Exemplifies Valuentum’s Methodology: Is it a Value or Growth Stock? Both…It’s a Valuentum Stock

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On Tuesday, Apple (AAPL) posted excellent first-quarter results by almost every measure. The iPad-maker had its highest quarterly revenue and earnings ever and set all-time records for iPhone, iPad, and Mac sales. The performance also relieved some concerns regarding the leadership transition to new Apple CEO Tim Cook following the passing of legendary innovator Steve Jobs. Though we continue to hold the firm in the portfolio of our Best Ideas Newsletter, we may look to trim our position and take some profits in coming weeks. Our above-market fair value estimate for Apple remains unchanged. The company blew by consensus expectations pretty much across the board: revenue ($46.33 billion), gross margin (44.7%), and earnings per share ($13.87). Apple sold a whopping … Read more

Harley-Davidson Swings to Fourth-Quarter Profit; Sees More Motorcycle Sales in 2012

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Harley-Davidson (HOG) reported strong fourth-quarter sales that showed a solid uptick in motorcycle sales. We think the motorcycle-maker’s results bode well for the US economic environment.   Harley’s revenue jumped nearly 12% on the heels of a 10.9% increase in unit motorcycle sales worldwide (unit motorcycle sales jumped almost 12% in the US). On an international basis, dealers experienced a 9.7% increase in unit sales. With global motorcycle sales increasing less than 6% for the entire year, the fourth quarter indicates that we are in the midst of accelerated demand for motorcycles on the basis of increased consumer confidence.   Harley-Davidson’s income from continuing operations swung to a gain of $54.6 million ($0.24 per share) versus a loss of over … Read more

Texas Instruments Calls Bottom in Chip Demand Despite Poor Fourth-Quarter Results; We Prefer Intel

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Texas Instruments (TXN) reported messy fourth-quarter results after the close Monday that were littered with one-time charges, making year-over-year comparisons difficult. We’ll be taking a close look at our forecasts for Texas Instruments, but we do not expect to make a change to our fair value estimate at this time. At face value, the performance was subpar. Texas Instruments’ revenue fell 3%, operating profit dropped 70%, while earnings per share tumbled 68%. Analog revenue, which includes high volume analog & logic, power management, etc., advanced 12% in the quarter, while the remaining segments (Embedded Processing, Wireless—OMAP application processors) experienced sharp revenue declines. Operating profit fell across all major revenue categories, with the steepest fall coming from its Embedded Processesing unit, … Read more