Brian Nelson

Rundown of Third-Quarter Airline Earnings: Southwest, American Airlines, Alaska Air

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As followers of Valuentum know, we’re not too fond of airline stocks. We view them as merely speculative bets on changes in the macro-economy and jet-fuel prices—two factors largely out of airline executives’ control. Though we’ve made some money in our Best Ideas Newsletter entering into put contracts in American (AMR) and the Guggenheim Airline ETF (FAA) a number of weeks ago, we cover the group—to a large extent—to serve as a reminder to investors that airline stocks are merely speculative instruments and not long-term investments. Below, we summarize the third-quarter performance of Southwest (LUV), American (AMR), and Alaska (ALK) below:   Southwest Southwest posted a net loss in its third quarter Thursday, which compares to net income of over … Read more

Lilly’s Third-Quarter Results Were Mixed; Patent Cliff Represents Major Risk

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Eli Lilly (LLY) reported mixed third-quarter results Thursday that showed strong top-line expansion but a meaningful decline in earnings. The road ahead will be challenging for Lilly as it will face a host of generic competition across its top drugs in coming years, but we are sticking with our $42 fair value estimate. Lilly’s revenue jumped 9% in the quarter (4% volume) thanks to double-digit expansion from key brands like Cymbalta (up 29%), Humalog (up 20%), Cialis (up 16%), etc. and favorable exchange rates (4%). The company also noted that it saw strong growth in animal health (up 28%), China and Japan. Though the top line growth was solid, operating expenses swelled due to marketing efforts to support new launches … Read more

Chipotle Posts Third-Quarter Results; Sees Significant Comp Declines in 2012

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Chipotle (CMG) reported third-quarter revenue and earnings Thursday, following the strong performance of best-idea Buffalo Wild Wings (BWLD) yesterday. Whereas we think Buffalo Wild Wings is an excellent growth and valuation play, we think Chipotle’s stock price has gotten way ahead of its fundamentals. Though our put option contract on Chipotle that we hold in our best ideas portfolio may expire worthless, or not, in January (it’s a $300 strike), we maintain the firm remains significantly overvalued at 37 times next year’s earnings, and we are waiting patiently. We are sticking with our $213 fair value estimate (~$275 per share on the high end) on Chipotle and expect the company’s price to converge to our fair value over time. Chipotle’s … Read more

AT&T Posts Mixed Third-Quarter Results, But Puts Up Best Free Cash Flow in Two Years

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AT&T (T) reported mixed third-quarter results Thursday that showed decent earnings and cash flow expansion but relatively weak revenue performance. We are maintaining our $24 fair value estimate. Though AT&T noted its first sequential growth in its wireline business revenues in three years and nice gains in wireless services revenue (up 4%+), total operating revenue still fell 0.3% from the same period a year ago. The firm had a net gain of 2.1 million wireless subscribers in the quarter (319,000 were postpaid)–pushing the total past 100 million–and recorded better churn rates (1.28%% versus 1.32% in the prior-year period). The company also sold 4.8 million smartphones and activated 2.7 million iPhones during the quarter, despite losing exclusivity on the iPhone earlier this … Read more

Abbott Reports Decent Third Quarter; Decides to Break Itself Into Two

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Abbott (ABT) reported strong third-quarter results Wednesday and outlined plans to split itself into two distinct entities: one in diversified medical products and the other in research-based pharmaceuticals. We liked the quarter and are fans of management’s plans to break apart the company. Our $68 fair value estimate remains unchanged. Abbott’s worldwide sales advanced 13.2% from the prior-year period thanks to solid performance from proprietary pharmaceuticals and its durable growth business (nutritionals, established pharma, lab diagnostics, and diabetes care), and the firm was able to leverage such growth into 12.4% earnings-per-share expansion, excluding a $1.5 billion litigation reserve related to a previously-disclosed DOJ investigation (Depakote). Emerging market sales continue to be a key driver, jumping 21% from the prior-year period … Read more

United Technologies Reports Third-Quarter Results; Order Growth Across the Board

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United Technologies (UTX) reported solid third-quarter results Wednesday that showed strong order growth despite a challenging market environment. We are maintaining our $100 fair value estimate. The conglomerate’s revenue advanced 9% during the period (6% organic) thanks to continued expansion across all six of its business segments. Order growth was also solid during the period: Otis (up 19%), commercial HVAC at Carrier (up 11%), commercial spares at Hamilton Sundstrand (up 24%) and Pratt & Whitney’s large engine business (up 3%). United Tech’s operating margin was slightly lower than last year’s quarter due to higher research and development expenses. However, the firm’s earnings-per-share and net income advanced 13% and 11%, respectively, from the same period a year ago. Cash flow generation was … Read more

Best Idea Buffalo Wild Wings Reports Strong Third Quarter, Shares Up 6% After Hours

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Buffalo Wild Wings (BWLD) reported strong third-quarter results Wednesday that showed impressive revenue and earnings expansion. We continue to believe in the long-term growth story of “B-Dubs” and would add to our position in our Best Ideas portfolio on any significant weakness in the shares. Our $74 fair value estimate remains unchanged. Total revenue for the third quarter increased over 30% on the heels of a 5.7% same-store sales increase in company-owned restaurants and a 4.2% jump at franchised restaurants (the company had 44 additional company-owned restaurants and 41 additional franchised restaurants at the end of the quarter versus the prior-year period). Average weekly sales for company-owned restaurants were up 11.4% in the period, while the measure advanced 4.8% for franchised locations – both … Read more

eBay Posts Excellent Third-Quarter Results; Best Quarterly Revenue Gain in Six Years

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eBay (EBAY) reported strong third-quarter results Wednesday that showed particular strength in Paypal, its global payments business. The firm remains one of our best ideas, and we are maintaining our $47 fair value estimate (the stock is trading just over $30 per share). The global ecommerce and online payments leader saw revenue increase an impressive 32% from the prior-year period, while non-GAAP net income jumped 18% and non-GAAP diluted earnings-per-share advanced to $0.48 (up 20%), meeting expectations. The revenue growth number was its best performance since 2006! Paypal was particularly strong during the period, revealing a 14% increase in active registered accounts—Paypal’s net total payment volume was up over 30% in the quarter. The firm also noted that total mobile payment … Read more

New Highs for Apple: Delayed Not Canceled; Fiscal Fourth Quarter Merely a Timing Miss

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Perhaps the most valuable thing investors can learn is that stock prices are determined by future (not past) expectations of a firm’s business fundamentals, and by extension, its future free cash flow stream. The uncertainty of the future–and not the certainty of the past–is what drives stock prices and their volatility (after all, if the future were known with certainty, stocks would trade at precisely their known fair values). This consideration is important as we evaluate Apple’s (AAPL) fiscal fourth-quarter results, which came in lighter than what the Street had been expecting. Despite the miss, the iPhone-maker guided its fiscal first-quarter above consensus estimates, which should and always will trump any earnings miss as interpreted by the market in the previous quarter. Importantly, the last quarter (Apple’s fiscal fourth … Read more

Yahoo Reports Third Quarter: Asian Assets Major Source of Value; Legacy Business in Decline

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Yahoo (YHOO) reported terrible third-quarter results Tuesday. Revenue, excluding traffic acquisition costs, fell 5%, while GAAP revenue dropped 25%. The primary driver for the decline had to do with weaker revenue associated with its agreement with Microsoft (MSFT). We believe that softness in display revenue, which was roughly flat in the period, and turnover at the sales level also impacted results to some extent. The attractiveness of competing sites like Facebook and Google (GOOG) is becoming increasingly more difficult for Yahoo to overcome, in our opinion. Google’s third-quarter revenue, in contrast, advanced 33%! We are maintaining our $10 fair value estimate for Yahoo. Income from operations fell 6%, while net earnings per share dropped 26% from the prior-year period (diluted earnings per share fell 23%). Cash flow from … Read more