Brian Nelson

As We Predicted, Ford Reinstates a Quarterly Dividend

by

It came as no surprise last week when one of our best ideas, Ford (F) reinstated its quarterly dividend. Though the dividend payable is only 5 cents a share, it amounts to a yield just shy of 2%. In total, the dividend should cost about $800 million in 2012, with plenty of room to grow in the future. However, the dividend does not affect our fair value estimate of the company, which we still assume to be at least $20. A 2% dividend yield isn’t necessarily a reason to jump into any stock, but in the case of Ford, a 2% yield is great income for a stock that we think is worth almost double. Given the company’s inconsistent cash-flow … Read more

Do Not Take DuPont’s Downward Revision Lightly; Signals Fourth-Quarter Earnings Season May Disappoint

by

DuPont (DD) lowered its 2011 full-year earnings outlook Friday, noting slower growth in certain segments during the fourth quarter as a result of global economic uncertainty. Since our fair value estimates are based on a firm’s long-term projections to arrive at its intrinsic value, we are sticking with our fair value estimate for DuPont at this time. In short, we think DuPont still remains on track to achieve our long-term projections, despite the downward revision to this year’s earnings today. In DuPont’s release, management indicated the earnings slowdown reflects:  “destocking across polymers and certain industrial supply chains than accelerated during the fourth quarter. Consumer electronics demand has further softened, and housing and construction markets remain weak.” We’re taking this news, … Read more

Chipmakers Face Weaker Demand; Texas Instruments, Lattice Semi, and Altera Cut Fourth-Quarter Guidance

by

On Thursday, Texas Instruments (TXN) updated its business outlook for the fourth quarter of 2011, and the revisions weren’t good. The chip maker reduced its top-line revenue guidance to $3.19 – $3.33 billion compared with the previous range of $3.26 – $3.54 billion and cut its EPS guidance for the quarter to $0.21 – $0.25 from $0.28 – $0.36 per share. Despite the reduced expectations in the quarter, we are sticking with our fair value estimate for Texas Instruments, as we believe such a disappointment will only be temporary. Texas Instruments noted that its revisions were prompted by broadly lower demand across a wide range of markets, customers and products, except for wireless applications processors—particularly its OMAP 4 processor, which … Read more

Fusion-iO May Have the Technology of the Future But Expectations Are Incredible

by

Fusion-iO (FIO) just came public a few months ago, without much fanfare. The company isn’t a sexy social media darling alas LinkedIn (LNKD) or Facebook, but it does help fuel the profitability behind them. When cloud computing as a sector heated up, the stock rallied to over $40. However, after the end of its lock-up period and another secondary offering, shares have fallen back below $30. While we like the technology behind the company, we think the stock is priced for perfection. There’s a great possibility that tremendous profitability lies ahead, especially with a growth in the amount of data received and used in analytics that will continue for years, if not decades to come. Nevertheless, given the risks associated … Read more

Dollar General Posts Excellent Fiscal Third-Quarter Results; Holiday Sales Expected to Remain Strong

by

On Monday, Dollar General (DG) reported solid fiscal third-quarter results and raised its fiscal 2011 earnings guidance range. Though we liked the performance, we think the firm’s shares remain fairly valued at this time. The firm’s total revenue increased 11.5% on the heels of same-store sales expansion of 6.3%, which represented its third consecutive quarter of accelerated growth (and up 2.1 percentage points from the year-ago period). The company noted strength in lower-margin consumable sales, with particular expansion in candy and snacks, perishables, packaged foods, health and pet supplies. Total merchandise inventories, at cost, only increased 5% on a per-store basis, reflecting decent inventory management.  Dollar General’s operating profit jumped 13% as its operating margin nudged up modestly in the … Read more

Lululemon’s Third Quarter Shows Continued Brand Strength

by

After a large sell off before the open following its report, investors would assume that Lululemon (LULU) really choked and completely missed the quarter. However, as we all know, the market isn’t always rational, and after taking some time to digest the news, it realized the third quarter wasn’t that bad at all. In fact, the stock is right where it was at Wednesday’s close, after the shares rallied around 12% the same day they got hammered. Revenue “miss” and margin compression caused immediate dump, but there were some positives The headline came out Thursday morning, and it wasn’t exactly what we all expected. For a company that continually crushes estimates, Lululemon’s near meaningless $5 million miss caused panic, in addition to gross margins that … Read more

AMR Files for Bankruptcy, as Expected

by

As expected, AMR Corp (AMR), the parent of American Airlines filed for bankruptcy protection Tuesday. We had been expecting the demise of the carrier as we outlined to our subscribers in our Best Ideas Newsletter. We encourage investors to not dabble in the firm’s shares after the filing today, as it is extremely likely that the shares will be cancelled (meaning current holders get nothing).  It turns out we got an answer to our rhetorical question, “Is AMR’s Equity Practically Worthless,” sooner than we had expected. View our May call on AMR’s demise here. The firm flashed a 1 on our Valuentum Buying Index in May – July, which is the lowest possible ranking on our stock-picking scale. During bankruptcy, AMR … Read more

Earnings Ahead: Lululemon – We Don’t Expect an Implosion

by

Since Valuentum identified Netflix (NFLX) as a high flyer with a ridiculous valuation over the summer–and identified the valuation of AMR Corp (AMR), the parent of American Airlines, as practically worthless–we’ve been searching for other good put candidates for our Best Ideas portfolio, which continues to outpace the S&P by nearly 2000 basis points so far this year. We admittedly missed out on Green Mountain Coffee Roasters (GMCR), though we thought the name was anything but safe, and we have steered far away from Under Armour (UA) and LinkedIn (LNKD) on the long side. This brings us to another high flyer, Lululemon (LULU). When you consider both the price action and high short interest over the last several weeks, it looks like many investors are bearish on … Read more

Deere Reports Fantastic Fourth-Quarter Results; Outlook Even More Impressive

by

Farm-equipment maker Deere & Company (DE) reported strong fiscal fourth-quarter results Wednesday that revealed the continued health of the US farmer and demonstrated higher equipment shipment volumes and improved pricing. We’re comfortable with our long-term projections and are maintaining our $82 fair value estimate on the firm.  Worldwide net sales advanced 20% in its fiscal fourth quarter, as the firm reaped the benefits of rolling out new products and strength outside of the US and Canada, where net sales were up 31% in the quarter. Equipment net sales in the US and Canada jumped 14% during the period. Both paces of growth were lower than the growth experienced for the full year, however. Revenue jumped 18% in its Agriculture & … Read more