Brian Nelson

Honeywell, United Tech See Strength in Emerging Markets; No Global Recession in 2012

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This week we received some encouraging comments out of two bellwethers on the global industrial economy. As we outlined in our Best Ideas Newsletter, we continue to believe that the US will avoid a double-dip recession, and the results from FedEx (FDX) coupled with recently-issued 2012 outlooks from Honeywell (HON) and United Tech (UTX) reinforce this thesis. Honeywell issued its 2012 financial outlook this week indicating that sales will expand 4% to 7% (4% to 6% organic) despite some weakness in Europe and China and overall defense spending. Earnings-per-share from continuing operations is expected to jump as much as 19% over the prior year on margin expansion of 40 to 70 basis points. This is on the back of expectations … Read more

Adobe Posts Excellent Fourth-Quarter Results; Focus Remains on Cloud

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Software-maker Adobe (ADBE) reported fiscal fourth-quarter results after the close Thursday that showed strong revenue and earnings expansion driven by its digital media and marketing businesses. We are maintaining our above-market fair value estimate for Adobe. Revenue jumped 14% in the period, to $1.152 billion, exceeding the high end of the company’s guided range. The company generated some nice growth (record volume licensing with enterprise customers) in its flagship desktop product, CS5.5, and received some traction from new applications like Edge and Muse, which are levered to advances in HTML5. Management noted that recurring revenue now represents roughly 20% of total revenue and that it experienced strong demand in all major geographies, including Europe. Non-GAAP operating income increased nearly 16%, while … Read more

FedEx Reports Strong Fiscal Second-Quarter Results; Reaffirms Fiscal 2012 Earnings Outlook

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FedEx (FDX) reported strong fiscal second-quarter results Thursday and reconfirmed its fiscal 2012 earnings outlook. The report came as welcome news following a number of weak chipmaker earnings and warnings from DuPont (DD) and Joy Global (JOY) in past weeks. We are maintaining our $82 fair value estimate for FedEx. FedEx’s revenue advanced 10% from the same period a year ago, while operating income surged 66%. The firm’s operating margin expanded 3.5 percentage points, and net income advanced 76% from last year’s quarter. FedEx noted that it experienced particular strength from FedEx Ground, where revenue advanced 13%, and FedEx Freight and Express, where revenue increased 9% and 10%, respectively. The company’s FedEx SmartPost average daily volume increased a whopping 17% thanks … Read more

First Solar Falls Again

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First Solar (FSLR), a company we have been bearish on, came out with downwardly revised fourth quarter and 2012 guidance this week, sending shares down nearly 20%. Things have been a mess at First Solar. Solar overcapacity is still tremendous, and thanks to government subsidies, it’s nearly impossible for any US company to be the low-cost provider. Our previous fair value on the stock was $31 per share, assuming inflation-like growth in 2012 and earnings of $4.76 per share, far lower than $7.42 Street consensus. It’s been very clear to us that the solar industry is going through an almost textbook economic cycle, and not the part that’s good for generating excess returns on invested capital. At first, a few big … Read more

Valuentum’s December Edition of Its Best Ideas Newsletter

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Recent data points from earnings releases in the past couple weeks have created a cloud of uncertainty over our outlook on fourth-quarter earnings season. But we believe our portfolio is well-positioned within pockets of strength in the global economy and littered with paid-to-wait dividend-yield opportunities that will benefit once short-term, temporary issues inevitably pass.   First, let’s talk about trends impacting our aerospace exposure, which remains our largest industry weighting in the portfolio by far. Just this week, Southwest Airlines (LUV) announced one of the largest orders for planes in aerospace history, tying up a $19 billion deal (at list prices) with Boeing (BA) for delivery of over 208 narrowbody aircraft, including 200 of Boeing’s upgraded 737, the MAX. This … Read more

Joy Global Issues Fourth-Quarter Results; Warns of Slower Growth in Demand for Mining Equipment

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Mining-equipment maker Joy Global (JOY) reported mixed fourth-quarter results Wednesday, and its outlook for mining equipment demand and commodity prices, in general, left investors in a selling mood. We are sticking with our fair value estimate for Joy Global, however. Fourth-quarter organic revenue jumped about 18%, core operating income increased about 24%, and organic bookings advanced 22% from the same period a year ago. Adjusted income from continuing operations per diluted share came in at $1.82, below consensus expectations of $1.86 per share but up about 32% from last year’s quarter. Orders for surface mining equipment jumped nearly 50% from the same period a year ago, while purchases of underground mining machinery advanced 2.5% from the year-ago quarter. Strength was evident both for original equipment … Read more

Best Buy’s Fiscal Third-Quarter Results Disappoint; Excessive Promotions and Weakness in Europe to Blame

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On Tuesday, Best Buy (BBY) reported poor fiscal third-quarter results that showed modest comparable store sales growth but material operating-income deterioration. Though results of the world’s largest electronics chain came in lower than our expectations during the quarter, Best Buy reaffirmed its adjusted diluted earnings per share guidance range of $3.35 to $3.65 for the year. Nevertheless, we are placing our fair value estimate for Best Buy under review while we re-evaluate the implications of its aggressive pricing actions on long-term profitability. We expect to lower our fair value estimate for the retailer materially. Best Buy’s total revenue increased 1.7% during the period thanks to modest domestic same store sales expansion led by its online channel, offset by international performance … Read more

Intel Reduces Fourth-Quarter Revenue Forecast on Supply Chain Disruptions

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On Monday, Intel (INTC) followed the path of other chipmakers like Texas Instruments (TXN), Altera (ALTR), and Lattice Semi (LSCC) and lowered its fourth-quarter revenue and gross margin outlook, blaming hard disk drive supply shortages from the recent flooding in Thailand. We are maintaining our fair value estimate for Intel (INTC), as our estimate of its intrinsic value is based on the company’s long-term cash-flow projections, which we think are still readily achievable. Plus, flooding in Thailand should only be a temporary supply chain issue, and we believe the rebuilding of inventories after the first quarter of next year will be a positive catalyst for Intel’s shares. Intel said it now expects fourth-quarter revenue to be about $13.7 billion (+/- … Read more

As We Predicted, Ford Reinstates a Quarterly Dividend

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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

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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