Brian Nelson

Use Both the Dividend Cushion Ratio (Probability of a Dividend Cut) and the Qualitative Dividend Ratings in Your Assessment of the Payout

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The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. By Brian Nelson, CFA Dividend investing has probably never been as popular as the past couple years. Remember, however, the dividend is capital appreciation that otherwise would have been achieved had the dividend not been paid. If you had a stock that was $10, and it paid a $1 dividend, you don’t have a $10 stock and … Read more

Disney’s Free Cash Flow Is Expected to Surge But A Strong Recovery Is Already Priced In

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  Image Source: Valuentum By Brian Nelson, CFA On November 8, Disney (DIS) reported improved fourth-quarter results for its fiscal 2023. Revenue advanced 5% on a year-over-year basis in the quarter, and the firm drove non-GAAP diluted earnings per share to $0.82 from $0.30 in the prior year period. The company’s Disney+ streaming service added 7 million core customers in the quarter, and its commentary that its streaming business would reach profitability in the fourth quarter of next fiscal year was welcome. Cost savings will be key, and the executive team expects free cash flow to grow significantly in fiscal 2024 versus the most recently reported year. All of this was great news, but a massive recovery in free cash flow … Read more

Gilead’s Oncology Business Could Represent One Third of Product Revenue By 2030

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By Brian Nelson, CFA On November 7, Gilead Sciences (GILD) reported better-than-expected third-quarter results with revenue and non-GAAP earnings per share handily beating the consensus estimates. Gilead was once a market darling having cured hepatitis C, but success in this area has forced the company to reinvent itself, and it continues to make solid progress in HIV product sales and oncology (Trodelvy and Cell Therapy). We have Gilead on our radar for consideration, and the company’s dividend yield of ~3.7% pays investors to wait for its promising pipeline to flourish. We value Gilead north of $100 per share, far above where it is currently trading. Image: Gilead’s potential in oncology speaks to long-term sustainability. Here is what CEO Daniel O’Day … Read more

Vertex Pharma Hits All-Time Highs!

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Image: Vertex Pharma is one of our favorite biotech ideas, and the company continues to power to new highs. By Brian Nelson, CFA Shares of Vertex Pharma (VRTX) have advanced nearly 35% so far year-to-date, and the company remains one of the best positioned biopharma names, boasting a lucrative cystic fibrosis (CF) franchise and potential novel therapies in acute pain management and other areas, including CRISPR gene-editing therapy. Though revenue didn’t quite come in-line with expectations in its third quarter report, released November 6, Vertex did raise its full year 2023 product revenue guidance to ~$9.85 billion as the firm will launch its CF therapy TRIKAFTA in the 2-5 age group and as its TRIKAFTA/KAFTRIO combination experiences increased demand internationally. Here … Read more

Business as Usual at Berkshire

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Image: Berkshire Hathaway continues to be a strong free cash flow generator. By Brian Nelson, CFA Berkshire Hathaway (BRK.A) (BRK.B) reported third-quarter results on November 4 that were about in-line with what we were expecting. A huge cash balance and strong free cash flow are par for the course at Berkshire, and the company’s stake in Apple (AAPL) continues to power its equity securities portfolio. Year-to-date, shares of Berkshire are up more than 13%, but we do admit that some of the luster has come off shares in light of the performance of asset-heavy names across the utilities and energy sectors. Given Berkshire’s strong run the past few years, we’re not as enamored with shares as we once were, but … Read more

Booking Holdings Is a Net-Cash-Rich, Free-Cash-Flow Generating Powerhouse!

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Image: Booking Holdings remains an asset-light, free-cash-flow generating powerhouse. By Brian Nelson, CFA On November 2, Best Ideas Newsletter portfolio holding Booking Holdings (BKNG) reported excellent third-quarter results with revenue advancing 21.3% and non-GAAP earnings per share coming in ahead of the consensus forecast. People around the world continue to book travel and accommodations as pent-up demand from the COVID-19 pandemic continues to showcase itself in Booking Holdings’ results. Gross travel bookings advanced 24% (21% on a constant-currency basis) in the quarter on a year-over-year basis, and the firm converted this strong demand into a 51% increase in net income. We like the asset-light, free-cash-flow generating nature of Booking Holdings, and we continue to believe it belongs in the Best … Read more

Apple Doesn’t Disappoint in Fourth Quarter Fiscal 2023 Earnings

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By Brian Nelson, CFA On November 2, Apple (AAPL) put up solid results in its fourth quarter of fiscal 2023 for the period ending September 30, 2023. The company’s iPhone sales ($43.8 billion) came in in-line with Street expectations, squashing concerns about demand for its new iPhone 15. Its high-margin Services business put up a nice growth rate (+16.3%) in the period, reaching a new all-time high. Though the firm’s Mac sales didn’t impress and accounted for most of the weakness in the quarter, Apple is optimistic that the holiday season will make for a strong comeback. We don’t expect to make any changes to our fair value estimate in light of the report, which was about as expected. For … Read more

Ferrari’s Results Speak to Resilience in Ultra-Luxury Markets

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Image: Ferrari raised its guidance for 2023.  By Brian Nelson, CFA On November 2, sports car maker Ferrari N.V. (RACE) reported excellent third-quarter results that showed net revenues advancing 23.5% on a year-over-year basis, with total shipments up 8.5% from the same period a year ago. Adjusted earnings before interest and taxes (EBIT) advanced 41.6% from last year’s period, as the firm hauled in industrial free cash flow of €301 million in the quarter. Net industrial debt stood at €233 million at the end of September. As shown in the image above, management raised its year-end guidance thanks in part to a strong product mix and improved revenue from racing activities, and the firm noted that its “order book remains … Read more

AMD Continues to Enhance Artificial Intelligence Capabilities

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By Brian Nelson, CFA On October 31, Advanced Micro Devices (AMD) reported solid third-quarter results with revenue advancing 4% on a year-over-year basis and non-GAAP earnings per share coming in slightly better than expectations, with net income up more than four-fold, to $299 million. Management expressed excitement about demand for its Ryzen 7000 series PC processors and noted that its data center business is progressing well thanks to its 4th Gen EPYC CPU portfolio and Instinct MI300 accelerator shipments across various markets, including artificial intelligence [AI]. Here’s what CEO Lisa Su had to say about AI on the conference call: In PCs, there are now more than 50 notebook designs powered by Ryzen AI in market, and we are working … Read more

Caterpillar’s Pricing Power Remains Phenomenal

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Image: Price realization remains a key driver behind Caterpillar’s strong performance. On October 31, Caterpillar (CAT) reported better-than-expected third-quarter results, with revenue advancing 12% and non-GAAP diluted earnings per share handily beating the consensus forecast. Caterpillar continues to benefit from significant pricing power, but the firm is also experiencing volume increases. The firm’s adjusted operating profit margin expanded to 20.8% in the third quarter compared to 16.5% for the third quarter of 2022. Caterpillar ended the third quarter with $6.5 billion in cash and cash equivalents, short-term borrowings of ~$4.2 billion, and long-term debt of ~$1 billion and ~$7.6 billion in its ‘Machinery, Energy & Transportation’ and ‘Financial Products’ divisions, respectively. Its balance sheet, while not showcasing a net cash … Read more