Brian Nelson

An Update on One of Our Best Ideas, Ford

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Best idea portfolio member Ford Motor (F) has been on a tear lately. After bottoming at $9, shares have rallied up to over $12, until they pulled back modestly. In addition to third-quarter earnings, which were reported Wednesday, a few material events have happened, resulting in the shares rallying. Though none of them change our fair value estimate, they do strengthen our conviction in the idea. Third-quarter results, so-so Let’s get the bad news out of the way. The third quarter for Ford wasn’t a disaster, but it wasn’t great either. Improving sales trends continued, with volumes up 14% for the quarter and retail market share coming in at 13.9%. Additionally, the automotive business threw off $400 million in cash flow from … Read more

Best-Idea EDAC Tech Reported Strong Third-Quarter Performance

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Best-idea EDAC Tech (EDAC) reported excellent third-quarter results that exceeded our expectations. We are sticking with our conservative $10 per share fair value estimate and retaining our allocation in our Best Ideas portfolio. As followers of Valuentum know, EDAC Tech has been one of the biggest generators of alpha in our portfolio and continues to be one of our largest positions (at about 10%)—our cost basis is just over $4 per share. We were particularly pleased with its third-quarter results, as management mentioned the quarter would be slightly weaker, on average, on its second-quarter conference call. However, the third quarter was far from that. The firm’s top-line expanded an impressive 18%, while earnings per share came in at $0.19, which was … Read more

Under Armour Posts Strong Third Quarter; Shares Remain Overvalued

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Under Armour (UA) posted terrific third-quarter results Wednesday. Sales were up nearly 42%, with net income up 32%. As a result, we are raising our optimistic case fair value to $53 per share, implying a 24x 2012 earnings multiple, and another year of 30%+ revenue growth. Higher price mixes, higher costs One of the most positive takeaways from the quarter was Under Armour’s ability to sell higher price-point apparel. CEO Kevin Plank mentioned the success in the hooded sweatshirt market, which consumers generally purchase in the $20-25 range, selling for upwards of $70. Additionally, Plank cited continued success with their charged cotton t-shirts and storm fleece hoodies. However, these higher price-points were tempered by the large rollout of footwear and higher … Read more

Netflix Takes a Dive, Down 35%!

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Click below to view our “absurdly overvalued” call on Netflix when the stock was trading around $250 per share: http://seekingalpha.com/article/281777-netflix-s-valuation-completely-absurd-significantly-overvalued << Learn More About Our DCF Valuation Model Template

3M Posts Another Weak Quarter; Results Should Not Be Extrapolated to Broader Economy

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3M (MMM) reported disappointing third-quarter results Wednesday that showed negligible earnings expansion and guided to weak fourth-quarter performance. The firm is one of the few industrial names that have disappointed investors this earnings season, and we think such a weak report is by far an exception. We maintain that a recession is nowhere in sight, and our fair value estimate—which considers the long-term intrinsic value of the company–of $93 per share for 3M remains unchanged. Worldwide organic sales growth advanced just shy of 3%, as the firm noted weakness in the electronics market (LCD TVs)—which was well known and expected—and slowing growth in the developed world (a trend that left little impact on other industrial firms sporting strong third-quarter results). Though … Read more

First Solar drops 25% as CEO Gillette Resigns

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The problems continue to mount at First Solar (FSLR). After dipping on the news of the Solyndra bankruptcy, shares of the solar power giant have been in a steady decline, which was accelerated by today’s resignation of CEO Robert Gillette. Though no reasons for the resignation were given, we assume Gillette and the board didn’t see eye-to-eye, or he just wanted to get out before things got completely out of hand. Founder and board chairman Mike Ahearn will become CEO for the interim. With Europe, one of the world’s largest solar customers, on a clear path towards austerity, we expect demand for solar panels will continue to fall. With demand falling, and First Solar producing panels for a higher cost … Read more

Amazon Posts Miserable Fourth Quarter Profit Guidance; Sales Expansion Still Impressive

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Amazon (AMZN) reported third-quarter results that may turn out to be the biggest disappointment of earnings season so far. The online retailer reported earnings per share of 14 cents, which is 37 cents less than the same quarter last year (a 73% decline in net income) and also well below expectations. Fourth-quarter guidance also indicates that the company expects operating income to be between a $200 million loss and a $250 million gain, a huge range. We think the rollout of its suite of Kindles at ultra-low (and perhaps money-losing) prices is the primary reason behind the wide profit expectations. But there was also good news that came out of the Amazon’s report. Net sales increased 44% (39% excluding currency impact) … Read more

Amgen Posts Mixed Third-Quarter Results, Sales of Epogene Nosedive

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Amgen posted mixed third-quarter results Monday. Though the firm’s top line and bottom line increased by 3% each, Amgen’s performance was bolstered by a lower tax rate and reduced shares outstanding (lower earnings quality growth), while being muddied by a large legal charge. Nonetheless, we are maintaining our $80+ fair value estimate, as we think our long-term projections remain in the ballpark. The firm’s top line expansion was led by a 9% increase in international product sales. Combined Neulasta and Neupogene sales jumped 6%, while US sales of Xgeva, the firm’s new cancer drug, reached $100 million in the quarter following its recent launch. Sales of Sensipar/Mimpara jumped 18%, sales of Vectibix jumped 13%, and sales of Nplate increased 28%. … Read more

Caterpillar Posts Excellent Third-Quarter Results, Record Backlog

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Caterpillar reported excellent third-quarter results Monday that showed the best quarterly sales in history and an all-time record high backlog. This is probably the best report we’ve seen out of third-quarter earnings season thus far. We think the strong results support our view that the global economy is not headed south in a hurry, and our $110 fair value estimate for Caterpillar remains unchanged at this time. Revenue advanced over 40% (in part due to the acquisition of Bucyrus), but on an ex-Bucyrus basis, sales still jumped an impressive 30%+. Machinery and power system sales jumped 44% from the same period a year ago led primarily by sales volume in new equipment, though aftermarket, price realization and currency were notable … Read more

Honeywell Lifts 2011 Outlook; Organic Growth Remains Robust

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Honeywell (HON) reported fantastic third-quarter results Friday that showed strong organic revenue growth and impressive margin improvement. We liked the firm’s performance and outlook, and we are maintaining our $61 fair value estimate. The conglomerate’s revenue advanced 14%, with 8% coming organically – a level matching General Electric’s (GE) organic expansion during its quarter. Honeywell’s third-quarter performance was driven particularly by aerospace, an industry which we continue to overweight in our best ideas portfolio. We firmly believe the build rates by Boeing (BA) and Airbus (EADSY.PK) will accelerate in coming years thanks to the jet makers’ massive backlogs and material narrowbody rate increases. Honeywell, as well as a number of other component suppliers, are well-positioned to capitalize on this strength. … Read more