Brian Nelson

Under Armour’s Second Quarter Earnings: Our Thesis Remains Intact – Shares Are Overvalued

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UA beats consensus expectations, but we think our thesis is still intact. Under Armour (UA) reported second-quarter earnings Tuesday morning, with results topping consensus top-line and earnings per share estimates. Revenue grew by 42% and diluted EPS by 73%. However, the $0.12 per share earnings number only beat our estimate by two cents, and the company was cash flow negative. We still think Under Armour should be trading at around $50, and see no reason to raise our fair value estimate. We make our DCF valuation model template available here, which can be used to value any operating firm. Gross margins fall As we predicted, gross margins fell by 250 basis points, which was even worse than we expected. The company … Read more

Buffalo Wild Wings’ Strong Top Line, Growth Story Intact

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Buffalo Wild Wings (BWLD) reported decent second-quarter results Tuesday that showed impressive top-line expansion but some cost pressures due to its store-expansion plans. 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 as a result of the report. Total revenue for the second quarter increased over 26% on the heels of a 5.9% same-store sales increase in company-owned restaurants and a 2.7% jump at franchised restaurants (the firm operated 43 additional company-owned restaurants versus the same period a year ago). Average weekly sales for company-owned restaurants were up nearly 12% in the period, while the measure advanced 4% for franchised … Read more

Intel’s Shares Look Significantly Undervalued

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As of late, Intel (INTC) has been the Microsoft (MSFT) of the chip space. For example, the company beats estimates (in Q1 2011 by a lot), and then maybe moves up or down a percent or two. On its second-quarter earnings call, Intel announced that capital investments will total more than $10 billion for the year, and that PC growth was low double-digits rather than mid-double digits. The shares then experienced a mild sell-off. However, the company continues to have a near monopoly in a growing sector and produces gobs of free cash flow. On a discounted cash flow valuation, we think Intel shares are worth $26 under a bear-case scenario, but $34 in our estimated scenario. However, given the … Read more

UPS Posts Strong Second Quarter, But Cautious on Outlook

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UPS (UPS) reported decent second-quarter results, with revenue expanding 8.1% and adjusted earnings per share advancing 25% from the prior-year period. The firm’s adjusted operating margin increased 110 basis points from the same quarter a year ago to 12.6%, which fueled consolidated operating profit growth of over 20% in the period. We think UPS’ shares are slightly overvalued and think there are better places for investors’ money at this time. UPS mentioned that domestic package volume growth was relatively flat in the quarter due to the slow economy, but operating profit in the segment jumped nearly 30%. International package revenue was strong, showing over 13% growth thanks to an 8% increase in export volumes and pricing expansion. UPS’ supply chain … Read more

3M Posts Weak Second Quarter, Blames Japan Earthquake and LCD TV Sales

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3M (MMM), best-known for making Scotch tape and Post-it Notes, reported second-quarter results Tuesday that showed weakness in LCD TV end-market demand and cost pressures related to higher input prices and the earthquake in Japan. Sales increased over 14% (about 4% organic) but the firm failed to leverage this expansion into meaningful earnings growth, which advanced less than 4% in the period. We were slightly disappointed by the performance, but we are maintaining our $92 fair value estimate.     Sales in Europe jumped over 24%, while Latin America/Canada increased over 20% in the period (revenue generated in the US improved almost 9%). The company experienced strength in its Industrial and Transportation and Safety segment thanks to growth in renewal … Read more

Ignore Debt Ceiling News, Focus on Corporate Earnings

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Simply put, the United States is not going to default on its debt. In other words, we think any market action resulting from the debt-ceiling issue will be irrelevant in coming months, and resolve itself in due time — as it has with any other crisis. Further, we remain unconvinced that this topic is a legitimate concern for long-term equity investors. The fact that America has a large national debt (and a problem with entitlement programs) is well documented in every history and social-studies textbook in grammar schools across the country; how can this be something that will blindside the markets? We’re not talking about derivatives on complex mortgage instruments here. The debt-ceiling deadline is purely a political issue, one … Read more

Strong Second Quarter For Roper, Even Stronger Outlook

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Roper Industries (ROP) reported solid second-quarter results Monday that showed significant revenue and earnings expansion. Sales jumped 23% (16% organic) in the period to an all-time high, while net earnings expanded over 40%, despite a higher tax rate. The firm’s adjusted EBITDA margin expanded over 280 basis points to 28.5% in the period, a strong showing. Free cash flow jumped 41% from the same period a year ago to $145 million, which represented 21% of the firm’s sales in the quarter. This is the strongest free-cash-flow conversion rate the firm has seen in years (at least since 2006), and we expect Roper to continue to achieve free-cash-flow levels in the high-teens and low twenties as a percentage of revenue, on … Read more

Eaton Posts Solid Quarter, Ups Guidance on Margin Outlook

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Eaton Corp. (ETN), a diversified industrial manufacturer, reported excellent second-quarter results Monday that showed strong revenue growth and solid earnings expansion. The firm’s top line expanded 21% during the period (14% core), while the company’s segment margins at the operating level reached all-time highs of 13.9%. This led to net income expansion of almost 50% from last year’s quarter, a fantastic showing. Eaten also bumped up its end-market growth expectations for 2011 by a percentage point to 11%, while it raised the midpoint of its full-year earnings per share guidance by $0.15 to $4.06 per share at the high end. Eaton’s results are consistent with the strength we’ve seen at other industrial companies, including United Technologies (UTX), Honeywell (HON), and … Read more

CNH Posts Fantastic Quarter, Outlook for Equipment Strong

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CNH Global (CNH), the second-largest maker of farm equipment after Deere (DE), posted fantastic second-quarter results Monday, with net sales increasing 24% and net income more than doubling. The firm experienced substantial strength in agricultural equipment and construction equipment revenue, up 22% and 30%, respectively, and translated this performance into solid profitability improvement. CNH’s operating margin increased to 10.7% during the quarter from 8.4% in the same period a year ago. We were quite pleased with CNH’s performance and have added it to our watch list, a component of our Best Ideas Newsletter. CNH expects demand for agricultural and construction equipment to remain firm through the remainder of 2011, noting strengthened conditions for commodity prices and, by extension, improving farming … Read more

Kimberly-Clark Posts Mixed Second-Quarter Results, Input Costs Pose Key Threat

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Kimberly-Clark (KMB) reported mixed second-quarter results that showed decent revenue growth but bottom-line pressure due to cost inflation. Sales jumped to an all-time high during the period, up 8% (3% organic) driven by modest volume and price increases, though operating profit fell 12.1% from last year’s quarter as cost inflation more than offset its efficiency initiatives. The firm’s operating margin plummeted from the year-ago period to 11.9% in the quarter, off 270 basis points, and well below our expectations. Despite the poor outlook regarding commodity-cost  inflation, we are maintaining our $63 fair value estimate. Kimberly-Clark raised its full-year sales outlook for 2011 to growth of 5% to 7% from 4% to 6% (organic growth 2% to 4%)–sales are up 6% so … Read more