Brian Nelson

ICYMI: Let’s Play Devil’s Advocate: What’s the Bear Case for Realty Income?

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By Brian Nelson, CFA We like Realty Income Corp. (O) a lot, but it’s not hard to see that the REIT could potentially have all the makings of a black swan. For one, the stock is loved by almost everyone–REIT investors, income investors, and dividend growth investors alike. Many are simply enamored by its monthly dividend, which it has raised nearly 120 times since it was listed on the NYSE in 1994. Over its 54-year history, the REIT has paid 632 consecutive monthly dividends, too. There’s a ton of things to like about Realty Income, but for this note, let’s build and examine the bear case, one that can be broken into three pillars: 1) its retail exposure, 2) its … Read more

Trash Taker Republic Services’ Outlook Keeps Getting Better

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Image Source: Republic Services By Brian Nelson, CFA Republic Services (RSG) reported solid second-quarter 2023 results July 31, and it raised its full-year 2023 guidance across the board. During the period ending June 30, 2023, total revenue advanced 9.1% with more than half coming via organic means, while GAAP earnings per share of $1.41 exceeded the consensus forecast by $0.10. Republic Services continues to experience strong pricing power, helping to drive double-digit EBITDA expansion in the quarter. Adjusted free cash flow came in at ~$1.265 billion through the first six months of the year. Earlier in July, Republic Services increased its dividend ~8% to a quarterly payout of $0.535 per share (was $0.495). Shares yield ~1.4% at the time of this … Read more

Johnson & Johnson Belongs in the “Too Hard” Bucket

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Image Source: Johnson & Johnson By Brian Nelson, CFA Johnson & Johnson (JNJ) recently entered the “too hard” bucket for us. We dropped J&J from the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio on March 13 of the year, as we lost interest in the company given the uncertainties surrounding talc liabilities and the Kenvue (KVUE) split-off. We prefer simplicity across our newsletter portfolios, and J&J’s results have often been messy, to say the least. Though J&J’s second-quarter 2023 performance, released July 20, was a bit better, we no longer have much interest in the name, given its net debt position and contingent talc liabilities. We’re also not interested in shares of its split-off Kenvue, having completely removed … Read more

4 REITs For Consideration

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CubeSmart (CUBE) Digital Realty Trust (DLR) Realty Income Corp (O) Public Storage (PSA) ———- NOW READ: Why Are the Dividends of REITs So Risky?  NOW READ: The Impact Rising Interest Rates Have on Equity REITs NOW READ: There Are No Free ‘Income’ Lunches ———- It’s Here!  The Second Edition of Value Trap! Order today!   —– Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.  Valuentum members have access to our 16-page … Read more

First Read: Microsoft, Alphabet Cash Components Wonderful in Calendar Q2 2023

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By Brian Nelson, CFA There are two primary cash-based sources of intrinsic value, and Microsoft (MSFT) and Alphabet (GOOG) (GOOGL) have gobs of them: net cash on the balance sheet and free cash flow. Both Microsoft and Alphabet reported calendar second-quarter results after the market close July 25, and while much will be said about their respective earnings reports, the reality is that the fundamental backdrop for both remains incredibly strong. We think both deserve a hearty weighting in the portfolio of the Best Ideas Newsletter, and we don’t plan to make any changes to our long-term fair value estimates as a result of the quarterly prints. Let’s talk about the health of Microsoft’s and Alphabet’s respective balance sheets. At … Read more

Public Storage Picks Up Simply Self Storage; M&A Remains Hot in Self Storage

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Image Source: Public Storage By Brian Nelson, CFA On July 24, Public Storage (PSA) announced that it had agreed to acquire Simply Self Storage from Blackstone (BX) Real Estate Income Trust (BREIT) for $2.2 billion. The news follows the Public Storage-Life Storage (LSI) takeout saga that ended with Life Storage running to Extra Space Storage (EXR) for a deal. A PSA-LSI deal had made a lot of sense, and we’re not sure why LSI wanted nothing to do with PSA, but it may have had to do with a poor cultural fit. LSI apparently said it wasn’t for sale right before it tied the knot with EXR–moves that just didn’t seem to add up, in our view. In any case, … Read more

Tesla Is A Net-Cash-Rich, Free-Cash-Flow Generating, Secular-Growth Powerhouse

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Image: Tesla is generating billions and billions of dollars in free cash flow. By Brian Nelson, CFA The cash-based sources of intrinsic value (and the trajectory of growth in them) are the most important considerations when it comes to assessing the attractiveness of an equity. Two of the most important cash-based sources of intrinsic value are net cash on the balance sheet and future expected free cash flows, and in these two areas, Tesla (TSLA) excels. Though we won’t be adding Tesla to any of the newsletter portfolios anytime soon, we like it within a diversified basket of large-cap growth equities, of which the Best Ideas Newsletter in some ways approximates. When Tesla reported its second-quarter 2023 results July 19, … Read more

AT&T: A High Yield Dividend Disaster, Now An ESG Nightmare

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Image: AT&T’s shares continue to disappoint. By Brian Nelson, CFA There are sometimes reasonable risks to take with respect to new ideas, and AT&T (T) may have been one of them a few years ago. But not today, in our view. We removed the company from the High Yield Dividend Newsletter portfolio way back in November 2021, and we’re not looking back. The company has been struggling for a long time now, and we don’t think the future is very bright. Another dividend cut cannot be ruled out. AT&T’s dividend story has been a very convoluted one. When the company filed its 2020 Annual Report in February 2021, CEO John Stankey noted that the executive team would support the dividend. … Read more

Philip Morris’ Cash-Flow Dividend Coverage Resilient, ZYN Performance Impressive

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By Brian Nelson, CFA On July 20, Philip Morris (PM) reported strong second-quarter 2023 results that showed 14.5% reported revenue growth and a non-GAAP earnings per share beat of $0.12. Adjusted operating income faced headwinds from global inflationary pressures, but still advanced 6.9% in the quarter. Adjusted diluted (currency-neutral) earnings per share growth came in at 16.9% in the period. For the full year, Philip Morris is targeting organic sales expansion of 7.5%-8.5% and adjusted diluted earnings per share in the range of $6.13-$6.22 per share on the year, reflecting a high-single-digit pace of expansion and a modest increase from prior expectations. Cigarette makers continue to transition to a smoke-free world, and Philip Morris is walking the line between combustible … Read more

Stock Report Updates

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In our 16-page equity research reports, we offer a fair value estimate for each company based on a rigorous and transparent discounted cash flow process, assess the attractiveness of a stock based on a firm-specific margin of safety, and provide a relative valuation comparison in the context of the company’s industry and peers. Each report includes detailed pro forma financial statements, explicit fundamental forecasts, and scenario analysis. A cross section of the ValueCreation and ValueRisk ratings provides a financial assessment of a company’s business quality (competitive position), while the ValueTrend and Economic Castle ratings offer insight into the trajectory of a firm’s economic profit creation (ROIC versus WACC). Included in each 16-page report is a company’s rating on the Valuentum Buying Index (VBI), a methodology that combines rigorous financial and valuation analysis with … Read more