Brian Nelson

IBM Puts up Fantastic Second-Quarter Results

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International Business Machines (IBM) posted strong second-quarter results Monday. The firm’s top-line increased 12% (5% adjusting for currency), while net income advanced 8% from the same period a year ago. The firm indicated that hardware, software and services revenue grew at a double-digit pace, and the company raised its full year 2011 operating earnings per share guidance to at least $13.25 from at least $13.15 previously. Revenue from markets IBM categorizes as growth now represent about 22% of its top line, with particular strength from the BRIC countries – Brazil, Russia, India, and China – which advanced over 20% in the period. The firm’s services revenue continued at a nice pace of expansion, with backlog jumping $15 billion from the … Read more

J&J Posts Second-Quarter Results, Holds the Line with Guidance

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In our latest article on Johnson & Johnson (JNJ), we indicated we’d like to see continued growth in international sales as well as some recovery in the OTC/nutritionals business (Tylenol, Motrin) in the U.S. Let’s see how J&J measured up in its second quarter. The firm’s results were in line with our estimates, and the firm kept its full-year earnings guidance at $4.90-$5.00 per share.  Net earnings, excluding special items, were $3.5 billion, or $1.28 a share (the street was expecting $1.24 per share), which excludes one-time expenses related to restructuring Cordis, a company that makes drug-coated stents, and litigation surrounding the DePuy hip recalls. This reflects bottom-line growth of about 5% from the same period a year ago. Sales … Read more

Quarter Too Good to Ignore, Raising Our Estimated Fair Value of McDonald’s

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Quarter too good to ignore…we’re raising our fair value of McDonald’s. At Valuentum, we focus on the long-term intrinsic value of a company via a discounted cash-flow valuation process. That means building an extensive model for each company, and updating it when material events occur that may change our opinion. McDonald’s second quarter results were very impressive, outpacing consensus as well as our estimates. As such, we have revisited our valuation and are raising our fair value estimate. We now forecast stronger top-line growth and better operating margins, the combination of which results in our current $87 per share fair value estimate.  Top-line and bottom-line surprised us. We originally thought forecasting top-line growth in the double-digits might be a little bullish, given lackluster same-store-sales numbers earlier in the quarter. However, in its second quarter, McDonald’s posted revenue … Read more

Our Take on United Techologies’ Second Quarter

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United Technologies (UTX) posted excellent second-quarter results Wednesday, with sales advancing 9% (6% organic) and net income jumping nearly 20% from the prior-year period. The firm’s operating margin for the quarter was 15.9%, 120 basis points higher than last year. Impressively, the firm noted that for the first time since mid-2008, all six of its business segments showed organic growth in the period. Further, order rates at Otis were up 23% thanks to strong demand from Asia and China, while order rates for commercial HVAC new equipment at Carrier jumped 13%. The firm’s aerospace segments continue to perform well, and we expect such strength to continue as Boeing (BA) and Airbus (EADSY.PK) continue to ramp up commercial aircraft deliveries in … Read more

United Continental and US Airways Troubled by Fuel Costs

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United Continental (UAL) reported a second-quarter net profit of roughly $1.49 per share Thursday (net income fell 12%), excluding special items, with passenger revenue advancing over 10% compared to the same period a year ago – unit passenger revenue improved 9% from the prior year period. The airline continues to face the burden of rising fuel costs, as second-quarter fuel expense increased a whopping 45% on a year-over-year basis. Unit costs, excluding special items advanced over 11%, driving lower profits from the prior-year period. We view United Continental’s liquidity position as adequate, with $8.6 billion in unrestricted cash, cash equivalents and short-term investments on hand as of the end of the second quarter. We’re also quite pleased with the carrier’s continued … Read more

Honeywell Posts Strong 2Q Results, Raises Full-Year Guidance

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Honeywell (HON) reported second-quarter results Friday that showed strong sales growth and solid earnings expansion. The firm’s top-line expanded 15% in the period (7% organic growth), while earnings per share jumped over 40% from the same quarter a year ago thanks to a 70 basis-point expansion of segment margins to 14.3% in the quarter. Despite the strong quarter, we are maintaining our view that Honeywell is fairly valued at this time in the mid $50s, low $60s per share. The key driver fueling the growth in the quarter was solid performance in the firm’s aerospace commercial aftermarket (up 21% in the period) reflecting strong spare sales and higher aircraft utilization rates. Total aerospace sales advanced 6% from the same period … Read more

Closely Watching McDonald’s for an Entry Point

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/280998-closely-watching-mcdonalds-for-an-entry-point We like McDonald’s (MCD): The Golden Arches’ future looks as bright as its past.There’s little need for us to explain to investors the story behind McDonald’s. At the end of 2011, McDonald’s will have over 33,500 restaurant locations nationwide, and total sales (including franchisees, which don’t count for McDonald’s Corp.) will likely exceed $100 billion. We think a discounted-cash flow method is the most effective way to determine the intrinsic value of a company in order to determine what investors should pay for shares. In the spirit of the transparency of our process, we make our discounted cash-flow valuation model template, which can be used to value any operating (non-financial) company, … Read more

Merck’s Shares Look Undervalued

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A version of this article appeared on Seeking Alpha’s website: https://seekingalpha.com/article/280602-mercks-shares-look-undervalued  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 Merck’s (MRK) case, we think using a discounted cash-flow model is the best tool for valuation. We outline below our valuation summary for Merck and offer up our model template to investors if they are interested in using it to value any operating (non-financial) company they wish. This model template can be found at DCF Valuation Model Template. Valuation Summary We think Merck’s shares are worth $43 each based on our discounted cash-flow process. We’re forecasting revenue expansion in the low-double-digits for fiscal … Read more

AMR’s Second-Quarter Results: Good News for the Shorts

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AMR Corp. (AMR), the parent of American Airlines, reported dismal second-quarter results Tuesday, as the rapid escalation in fuel prices pushed it into a deep loss during the period. Though revenue rose 8% from the same period a year ago, the company reported a net loss of $286 million, or $0.85 per share, which compares to a net loss of $0.03 per share last year. Due largely to its fuel-inefficient fleet, the carrier paid nearly 31% more in fuel costs during the period from last year’s quarter, amounting to an incremental $500 million-plus headwind. American’s mainline load factor fell 0.3 percentage points from the year ago period, suggesting that demand is not keeping up with capacity additions. We maintain our bearish … Read more

Are Boeing’s Competitive Advantages Waning? We Think So.

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Michael J. Mauboussin, when working at CSFB in 2002, published an excellent piece on the concept of an economic moat. Warren Buffet is often given the credit of coining the term. Morningstar (MORN) and other research firms like Valuentum (via its ValueCreation rating) have embraced this compelling idea, embedding the concept in their research framework. In this article, we discuss whether we think Boeing (BA) has lost its moat, in light of the recent split-order of 460 planes from American Airlines (AMR). First of all, we think the market is completely misunderstanding the long-term implications of the recently announced and massive AMR order to replace its narrowbody fleet (which was split between Boeing and Airbus). Though receiving orders is, in itself, positive, this particular order comes at the expense of Boeing’s exclusivity with AMR — the carrier currently flies … Read more