Brian Nelson

Disney: Iger’s Back, Peltz Concedes, Thousands of Jobs Gone, Dividend Coming Back Soon

by

  Image Source: Valuentum By Brian Nelson, CFA The Walt Disney Company (DIS) has had a rough go at it of late. The firm suffered tremendously during the worst of the COVID-19 pandemic, which forced consumers to stay at home and its parks to close. The firm eliminated its dividend to shore up cash, and recently-ousted CEO Bob Chapek may have sent the company on a crash course with Netflix (NFLX). Former CEO Bob Iger is back, however, and activist Nelson Peltz has conceded that Disney is working to get back on track. With 7,000 jobs on the chopping block and a still-yet-to-be-reinstated dividend, Disney’s wounds have yet to heal, and we remain skeptical the entertainment and media giant will … Read more

Chipotle’s Fourth Quarter 2022 Results Not Bad, Has Incredible Long-Term Unit Restaurant Potential

by

Image Source: Valuentum By Brian Nelson, CFA Best Ideas Newsletter portfolio holding Chipotle Mexican Grill (CMG) reported solid fourth-quarter earnings results February 7, but they came up short relative to more optimistic consensus expectations. Total revenue advanced 11.2% in the quarter thanks to solid comparable restaurant sales expansion of 5.6%. Consensus, however, was looking for 7% comparable restaurant sales expansion in the period. We’re not reading too much into the miss. During the fourth quarter, the burrito maker’s operating margin leapt ~550 basis points, to 13.6%, and its restaurant level operating margin came in at 24% in the quarter, which was up 380 basis points from the same period a year ago. Adjusted diluted earnings per share was $8.29 in the … Read more

Net-Cash-Rich Vertex Pharma’s Lucrative Cystic Fibrosis Franchise Continues to Power Performance

by

Image Source: Vertex Pharma By Brian Nelson, CFA There are two primary sources of cash-based intrinsic value that we focus on at Valuentum—net cash on the balance sheet and future expectations of free cash flow. Best Ideas Newsletter portfolio holding Vertex Pharma (VRTX) ended 2022 with $10.78 billion in cash and cash equivalents and no debt, while cash flow remains robust. For example, during the first nine months of 2022, the company hauled in $3.05 billion in cash flow from operations and only shelled out $171.1 million in capital spending. That speaks to a hugely cash generative operation. As a biotech play, Vertex Pharma offers investors the best of both worlds, in our view: 1) It’s an established, net-cash-rich player … Read more

Two Top Income Ideas Locked in Hostile Takeover Battle

by

Image Source: Public Storage By Brian Nelson, CFA On February 5, self-storage giant Public Storage (PSA) announced that it had launched a hostile takeover attempt of rival Life Storage (LSI) for all of its outstanding shares in an all-stock transaction. According to the terms of the overture, Life Storage shareholders would receive 0.4192 shares of PSA for every share of LSI that they own, implying a 19% premium to the 20-day volume weighted average price of PSA and LSI, as of February 3. We like the proposal and believe that a combined PSA-LSI will be able to drive material synergies. For example, PSA’s same-store direct operating margin is ~80%, while LSI’s is roughly 7 percentage points lower. The combined entity … Read more

Trio of Earnings Reports from Apple, Alphabet, and Amazon Give Pause to Markets

by

  Image Source: Valuentum By Brian Nelson, CFA Market sentiment had been improving on the back of Tesla’s (TSLA) strong fourth-quarter report and Meta Platforms’ (META) return to financial discipline, but a trio of ho-hum reports from Apple (AAPL), Alphabet (GOOG) (GOOGL) and Amazon (AMZN), released after the close February 2, have dampened enthusiasm to a degree. However, after a very weak 2022, the stock market has some ground to make up, in our view, and investors have a lot to be optimistic about. With inflation peaking in June 2022 for this part of the economic cycle, most companies generally reporting benign fourth-quarter 2022 earnings, and the largest market indices breaking out of their technical downtrends, equities still have more … Read more

Meta’s Free Cash Flow Generation Has Returned, But TikTok Has Permanently Changed the Competitive Landscape

by

Image: Meta Platforms’ free cash flow has bounced back a bit, but the firm’s top-line growth remains challenged as it transitions away from a secular growth powerhouse into a cyclical story with encroaching competition. Image Source: Meta Platforms By Brian Nelson, CFA As we outlined in our introductory note in the February edition of the Dividend Growth Newsletter (pdf), the Federal Reserve is slowing its pace of benchmark rate increases as signs of inflation start to slow. Though there may still be pockets of input cost pressures, particularly with respect to prices at the pump and food-at-home expenses, for the most part, the negative wealth effect from falling asset prices around the globe is successfully working itself through the system. … Read more

Phillips 66 Rounds Out Cash-Rich 2022; Dividend Remains Solid

by

Image Source: Phillips 66 By Brian Nelson, CFA On January 31, Phillips 66 (PSX) reported messy fourth-quarter 2022 results. Adjusted earnings, however, came in at $1.899 billion, which showed a nice advance from the $1.298 billion mark in the year-ago period. The company’s adjusted earnings, however, fell from the $3.122 billion number it recorded in the prior sequential period. On a sequential basis, adjusted earnings in its refining business fell to $1.626 billion from $2.883 billion. Here’s what drove the weakness: The decrease was due primarily to lower realized margins. Realized margins declined from $26.87 per barrel in the third quarter to $19.73 per barrel in the fourth quarter mainly due to lower market crack spreads and clean product differentials. … Read more

Visa’s Q1 Fiscal 2023 Solid, Puts Up 64%+ Operating Margin

by

Image: Visa is a free cash flow generating powerhouse and is insulated from rising delinquency and charge offs, unlike others in the credit card space. Image Source: Visa By Brian Nelson, CFA On January 26, Best Ideas Newsletter portfolio holding Visa (V) reported excellent first-quarter fiscal 2023 results. Net revenues advanced 12% in the quarter, and Visa leveraged that top-line expansion into 17% growth in non-GAAP net income. The company’s operating margin for the period came in at an impressive 64.1%, a decline from last year’s quarter but still a sight to see. Non-GAAP earnings per share leapt 21%, to $2.18, which came in better than the consensus estimate. Shares of Visa have jumped more than 11% so far in … Read more

We Don’t Think Intel Will Spoil the Tech Rally

by

Image Shown: The Invesco QQQ ETF (QQQ) has broken through its technical downtrend, and we don’t think Intel’s poor outlook will derail this tech rally. Image Source: TradingView By Brian Nelson, CFA The Invesco QQQ ETF (QQQ) has rallied more than 12% to start 2023, and we don’t think much will derail the advance. The pace of inflation looks like it peaked in June 2022 and save for a few big quarterly earnings misses from Goldman Sachs (GS) and Intel (INTC), fourth-quarter 2022 earnings season is shaping up better than feared for a lot of companies. The labor market is easing a bit, and a breakout of both the equal-weight S&P 500 (RSP) and the market-cap weight S&P 500 (SPY) … Read more

Market-Cap Weighted S&P 500 Breaks Out; Have We Already Seen the Bottom?

by

Image: The market-cap weighted S&P 500 (SPY) has broken through its downtrend. The markets could be headed meaningfully higher. Image Source: TradingView By Brian Nelson CFA Excess savings in consumer bank accounts from the pandemic stimulus and government intervention that was issued during the worst of the COVID-19 pandemic will start to deplete almost entirely by the middle of this year. Talk of the debt ceiling on the U.S.’s national debt of $31.5 trillion is emerging, and interest on the debt will start to crowd out other spending with respect to the national budget. The markets, however, are forward looking, and many of these concerns are largely “baked in.” Within the discounted cash-flow model, for example, we take into consideration … Read more