Brian Nelson

Cisco Reports Fiscal First-Quarter Results; Restructuring Efforts Bearing Fruit

by

Cisco (CSCO) reported fiscal first-quarter results after the close Wednesday that came in better than consensus expectations. We’re comfortable with our long-term projections for Cisco and are maintaining our above-market $22 fair value estimate. Cisco’s total revenue advanced 4.7% from the same period a year ago (slightly lower than the firm’s long-term expected pace), as both product and service sales expanded. Cisco’s widely-watched gross margin fell 160 basis points, to 61.2%, in the quarter, which was about in line with what we were expecting for the period. Though gross profit expanded and research and development investment slowed, the firm’s results were weighed down by over $200 million in restructuring and other charges during the period as Cisco tries to get its … Read more

Priceline.com Beats Expectations in Third Quarter; Best Airline Ticketing Growth in Seven Quarters

by

Priceline.com (PCLN) reported solid third-quarter results after the close Monday. We are maintaining our $584 per share fair value estimate. The firm’s gross travel bookings increased an impressive 56.2% from the same period a year ago, while revenue jumped 45% led by international sales expansion (which increased almost 80% in the period). The company noted that its airline ticketing business experienced its strongest quarterly growth in the last seven quarters, with sales increasing 8%. Importantly, the firm was able to leverage this tremendous sales growth into an 83% increase in operating income, a very nice showing. Non-GAAP net income jumped almost 90% from the same period a year ago, and diluted earnings per share came in at $9.95, above consensus … Read more

Jefferies Cuts Europe Exposure; Why This Is More Than a Headline

by

Investment-bank Jefferies (JEF) has come under scrutiny in the past few trading sessions following a downgrade of its credit rating by an independent rating firm, which cited large gross exposure to European debt, the focal point of the market’s nervousness in the past few months. In response, Jefferies pretty much opened its sovereign books to the public late last week (detailing both its long and short positions and its net exposure per country), and then announced today that it had reduced its gross exposure to Europe by half. We are quite impressed with this unprecedented transparency, but that’s not why we’re encouraged by this development. We’ve reproduced Jefferies’ press release that hit the wire this morning: Jefferies announced today that … Read more

Amgen Announces $5 Billion Buyback; Move Reinforces Our ‘Undervalued” Thesis

by

Biotech-firm Amgen (AMGN) announced Monday that it would pursue a large $5 billion share buyback (under its $10 billion stock repurchase program) to scoop up its undervalued stock. We think this move is fantastic and reinforces our view that Amgen is significantly undervalued. We are maintaining our above-market $83 fair value estimate and are encouraged by management’s actions that clearly are in favor of shareholders (over bondholders). The company will lever up its balance sheet by issuing senior notes to fund the repurchase (at attractive yields). We’re not concerned about Amgen’s investment-grade balance sheet, given its robust cash-flow generation, and think this move is decidedly value-creative. The company will pay a price not greater than $60 nor less than $54, … Read more

Buffett’s Berkshire Hathaway Weighed Down by Derivative Losses

by

Warren Buffett’s Berkshire Hathaway (BRK-B) reported third quarter results Friday that failed to impress. Net earnings attributable to Berkshire shareholders fell almost 24%. Insurance-underwriting and its non-insurance businesses performed well in the period (due primarily to a lower-earnings-quality reserve release, though), and insurance-investment income fell from the same period a year ago. However, a huge spike in derivative losses ($1.53 billion) sent the firm’s net earnings significantly lower. Berkshire suggests that the derivative losses in any given quarter or year are meaningless since they are driven by a long-term bet the firm made to sell put options on a number of global stock indices, which fell during the third-quarter. These European-style options don’t expire until June 2018, so Berkshire has … Read more

LinkedIn Valuation: Completely Absurd, Significantly Overvalued

by

A number of months ago, we wrote about Netflix (NFLX) and how we thought the shares were absurdly overvalued: Netflix Valuation: Completely Absurd, Significantly Overvalued. The stock was trading around $250 per share at that time, and now it’s trading for less than $100 per share. Today, we’re making a similar valuation call on LinkedIn (LNKD). LinkedIn posted third-quarter results Thursday after the close. When a company is growing as fast as LinkedIn, the year-over-year comparisons become relatively meaningless, and at the end of the day, we think earnings (and by extension cash flow) is what drives long-term equity prices. Our view is that the firm’s stock price will continue to hum along, until the Street grows impatient with the name (that … Read more

Starbucks Posts Fantastic Fiscal Fourth Quarter; 2012 and 2013 are Looking Even Better

by

Starbucks (SBUX) reported strong fiscal fourth-quarter results after the close Thursday that showed excellent same-store sales expansion and an improved business outlook, despite higher coffee costs. We’re sticking with our $32 per share fair value estimate, as we had expected the strong results. Total revenues, on a comparable 13-week basis, jumped about 15%, while earnings per share increased 16% to a record $0.37, excluding non-recurring items (above expectations). Global comps jumped 9% on a comparable 13-week basis thanks to a 6% jump in traffic and a 3% increase in ticket prices (US comps increased 10%, while international comps advanced 6%). Such growth accelerated from previous periods, as for the full fiscal year 2011, global comps increased 8% and came in … Read more

Best-Idea Astronics Posts Record Third-Quarter Revenue, Earnings, and Bookings

by

Best-idea Astronics (ATRO) posted excellent third-quarter results Thursday that showed both strong sales and earnings expansion. We are maintaining our above-market $47 fair value estimate, which represents about 15.6 times earnings if we annualize this quarter’s ($0.52 per share). We will be retaining our outsize position in our Best Ideas Newsletter. Astronics’ top line reached a record, advancing 13%, while diluted earnings per share jumped 41%.  Commercial transport revenue jumped 23%, while sales from its business jet segment increased 20%. The firm’s gross margin ticked down about 0.5 percentage points, which directly impacted the operating line, as SG&A as a percentage of revenue held relatively steady at 11.3% of sales. The firm’s operating margin was 14% in the third quarter … Read more

Kellogg’s Cutbacks Coming Home to Roost; Posts Weak Third Quarter and Outlook

by

Kellogg (K) reported poor third-quarter results Thursday that showed significant operating-profit declines. We were disappointed by the quarter and even more with the firm’s outlook, but we think our fair value estimate adequately captures the downward revision. We are staying pat at a $48 per share fair value estimate. The firm’s revenue advanced 5%, with internal growth at 3% in the quarter. Sales in North America jumped 4% led by its frozen foods business (its cereal business was flat in the quarter). Kellogg’s international business also did quite well, expanding roughly 7% from the same quarter last year. The firm noted that Latin America is building momentum, with internal net sales growth in the region coming it at 9% during the … Read more

A Tale of Two Teen Retailers: Abercrombie & Fitch, Aeropostale

by

On Thursday, Abercrombie & Fitch (ANF) and Aeropostale (ARO) reported third-quarter sales. The resulting stock price performace from the two was completely opposite: Abercrombie fell sharply, while Aeropostale shot up significantly. We think Abercrombie now represents a bargain under $59 per share, but we are waiting for the technicals to firm before diving into the shares in the portfolio of our Best Ideas Newsletter. We think Aeropostale is fairly valued, even after the big move. Let’s dig into the reports of both of the companies. Abercrombie was weighed down by poor results in Europe, Japan and Canada, with the company noting negative comps for its flagship stores in the regions. Though by itself, such news wouldn’t cause the massive 20%+ price … Read more