Brian Nelson

Waste Management Posts Poor Second Quarter, Lowering Our Fair Value

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Waste Management (WM) posted poor second-quarter results Thursday and lowered its earnings outlook for the year on the expectation of weaker volumes. We have reduced our fair value estimate to $39 per share on the weaker volume outlook and slightly lower yield expectations. Revenue jumped 6% thanks to higher commodity prices, improving recycling volumes and a modest improvement in pricing. The company noted that volumes hit “a soft patch” in May and June, but look to be improving modestly in July. However, it took down its full-year waste volume guidance to the range of -1.5% to -2.5%. Commentary regarding yields wasn’t all that encouraging either, with the measure facing some pressure from large municipal contracts in Florida and the Gulf Coast. … Read more

Best Idea EDAC Technology Posts Excellent Second Quarter, Raising Our Fair Value

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On June 6, we wrote a bullish piece on our outlook for commercial aerospace in coming years. In it, we outlined our take on EDAC Tech (EDAC), a supplier of precision engine components to the sector. Today, the firm posted fantastic second-quarter results, and we are raising our fair value estimate to $10 per share on the heels of stronger margin performance and backlog expansion. The stock is trading up over 50% since that June 6 article, and we include this name and other ideas in our Best Ideas Newsletter, which continues to outperform the market. We reproduce below our thoughts on EDAC Tech on June 6, which was trading just above $4 per share at the time: “…one micro-cap … Read more

Delta’s Second Quarter Results Reflect Airline Industry’s Struggles

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Delta (DAL) reported poor second-quarter results Wednesday that revealed the major carrier’s continued battle with high jet fuel costs. Total operating revenue expanded 12% thanks to double-digit enhancement in yield (pricing), but operating income plummeted roughly 44% from the same period a year ago as it faced a fuel bill that was more than $1 billion higher. The company plans to cut its December quarter capacity (seats) by as much as 4%-5% on a year-over-year basis, an extra percentage point greater than it originally planned. We view this as necessary given the global economic environment and general weakness in load factor (capacity utilization) – which fell 1.3 percentage points during the period. We believe Delta is one of the better-positioned … Read more

Boeing’s Second Quarter a Non-Event, Seek Better Opportunities Elsewhere

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Boeing (BA) reported decent second-quarter results Wednesday, but we view such a quarter as a non-event for the aerospace giant. We maintain that the future of this jet maker rests on its ability to deliver its 787 and the profitability to be garnered on this program, which we forecast to be practically nil out of the gates. Management slightly lowered its forecasts for deliveries this year due to a short-term blip in (you guessed it) its 787 program, but again we view this change as largely immaterial to investors. Interestingly, total backlog fell sequentially, but we view this more as weakness in Boeing’s narrowbody strategy than in the broader commercial aerospace segment. We were pleased with the operating cash flow performance in … Read more

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