Brian Nelson

Disney Posts Decent Fiscal Third Quarter; Consumer Spending at Parks, Resorts Up

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Walt Disney (DIS) reported decent fiscal third-quarter results Tuesday that showed revenue growth of 9% and solid net-income expansion of 11%. We like the strong brands at Disney and would consider adding it to our Best Ideas portfolio under $28 per share on the basis of our discounted cash-flow process. The firm experienced solid sales growth from is Parks and Resorts (up 12%)—Disney Cruise Line and Hong Kong Disneyland Resort–and Consumer Products (up 13%)—Merchandising Licensing–segments. These two segments also led the charge with respect to operating income expansion, with Media Networks also posting nice double-digit growth thanks to strong performance from cable networks (specifically ESPN) and broadcasting (driven by lower programming and production costs). As it relates to the health of the consumer, the firm noted … Read more

Shares of Xerox Look Like a Bargain

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As part of our process, we employ a discounted cash-flow model to arrive at a fair value estimate for every company within our equity coverage universe. In Xerox’s (XRX) case, we think the shares look undervalued at today’s prices. Our fair value estimate for Xerox is $14 per share, significantly higher than where it is currently trading. In the spirit of transparency, our DCF model valuation template can be found here. We make this template available to investors, and it can be re-used to value any other operating firm. Valuation Summary We assume annual average top-line growth will average in the mid-single-digits over the next five years. We also assume that Xerox will grow earnings at a nice double-digit clip … Read more

Best-Idea Astronics Posts Second Quarter Results; Raises Full-Year Revenue Outlook

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Best-idea Astronics (ATRO) reported solid second-quarter results Tuesday and raised its revenue outlook for this year. Revenue jumped nearly 18% from the same period a year ago, while the firm’s operating margin expanded over 300 basis points, to 13.1%. During the quarter, the firm received its second-best quarterly bookings in history, at nearly $60 million. Bookings in its aerospace segment advanced 19% from last year’s second quarter and were up 13% on a sequential basis. Total backlog also advanced sequentially and on a year-over-year basis, and the firm noted that it expects to ship 75% of its total backlog by the end of this year. We think the firm’s order pipeline remains robust, given expected build rates of commercial aircraft … Read more

A Shopping List of 15 Solid Companies Amid This Market Turmoil

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With the markets shedding over 6% across all major market indices today, we’ve widened our watch list to include names that have reported strong second-quarter earnings (some reporting as recent as a few weeks ago). We think firms with strong earnings potential are ones that could see the biggest bounce when the market recovers, as multiple compression from both a declining price and expanding earnings makes these names particularly interesting for investors that fall into the value camp. Though we fall short of making generalities, we’re less enthused about firms that have reported generally weaker second-quarter earnings, despite their share price declines. In other words, we’re looking to add best-of-breed names to our Best Ideas portfolio at the most opportune … Read more

Stay the Course; This is Not Lehman II, S&P Downgrade Meaningless

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As we had indicated a few weeks ago, investors should turn off the political news related to the debt ceiling debate, and we now encourage investors to stay the course with their investment strategy, despite the media’s attempt to amplify yet another containable crisis. When we first published our report suggesting that there was no cause for worry about the debt-ceiling deadline, we received quite a number of questions about how we could be so confident. Well, first of all, there is a degree of common sense: 1) the President could take it upon himself to invoke the use of the fourteenth amendment, which indicates that the US must make good on all of its debts and 2) politicians had already lived through the mistakes … Read more

LinkedIn Posts Solid Second Quarter, Still Irrationally Overpriced

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LinkedIn (LNKD) posted solid second-quarter results Thursday, but we maintain that the price the market has put on this company makes very little sense. We’re increasing our fair value estimate to $55 per share from $45 per share primarily on the back of higher expected EBITDA for this year versus our original expectations. Revenue growth for its second quarter more than doubled, and the firm snuck in a $0.04 GAAP EPS profit in the period – not the magnitude we’d expect from a $100-plus per share stock, no matter how optimistic its growth prospects. To get such an inflated multiple, LinkedIn should have to earn it, and a quarter of outperformance is hardly enough. Member growth was over 60% in … Read more

Nike: An Attractive Candidate in a Declining Market

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Nike looks like an attractive investment candidate in a falling market Nike is one of the most recognizable brands on earth. With sales of over $20 billion in fiscal year 2011, it’s easily the largest athletic retailer on the planet. After growing revenues 9% in a tough retail environment, and on an enormous base of $19 billion, we think Nike is a best-in-class company, and we are initiating coverage with a fair value of $95. This implies a multiple of about 18x 2012 earnings, and earnings per share growth of over 18%. Fourth quarter profit reveals operational strength It’s not often we get excited when a company has its gross margin fall over 300 basis points in a single quarter, … Read more

Kraft Posts Solid Second-Quarter Results, Raises Outlook, and Breaks Up Company

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Kraft Foods (KFT) reported solid second-quarter results Thursday and indicated that it would split its high-growth global snacks business and its mature, high-margin North American grocery business. The firm also bumped up its 2011 organic net revenue growth and operating earnings per share outlook, to at least 5% (was 4%) and $2.25 (was $2.20), respectively. We were impressed with the firm’s second-quarter performance and think its move to create two independent public companies will create value for shareholders over the long haul. Kraft’s second-quarter net revenues advanced over 13% (7.1% organic) thanks to strong pricing expansion, which accounted for 5.5 percentage points of growth, while operating income jumped 6% as pricing effectively offset higher raw material costs, though its underlying … Read more

Clorox Posts Fiscal Fourth-Quarter Results, Fiscal 2012 to Disappoint

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The Clorox Company (CLX) reported fiscal fourth-quarter results Wednesday that showed modest top-line expansion and poor earnings-quality growth. The firm managed to leverage a 4% increase in revenue (2% from volume) into a 20% jump in earnings per share, but the latter was primarily bolstered by a lower tax rate (down 450 basis points) and share buybacks. Pre-tax earnings from continuing operations were weighed down by higher commodity costs and higher advertising spend (the firm’s gross margin fell 80 basis points), and they only increased 5% during the period. Clorox hopes that pricing increases through fiscal 2012 will help offset even higher expected commodity prices, helping to preserve gross margins at current levels for the fiscal year. We’re skeptical that Clorox will be able to do so … Read more

Open Table Reveals Strong Growth in its Second Quarter, Shares Slightly Expensive

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Open Table (OPEN), which provides online restaurant reservation services, reported solid second-quarter results Tuesday that showed a 50%-plus increase in revenue, installed restaurants and seated diners from the same period a year ago. North American results were solid, with adjusted EBITDA jumping nearly 70% from last year’s quarter. The firm’s international results also revealed improvement. Open Table’s installed restaurant and seated diners base outside of North America more than tripled, and the company reduced its EBITDA loss for this segment to $0.5 million from $1.2 million in the same period a year ago. Subscription, reservation, and installation (other) revenues jumped 20%, 70%, and 172% in the quarter. Consensus had been looking for better performance from subscription and international expansion, but … Read more