Member Articles

Nvidia Is a Great Company but Its Shares Appear to be Generously Valued

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Image Source: Nvidia Corporation – October 2020 IR Presentation By Callum Turcan On November 18, Nvidia Corporation (NVDA) reported third quarter earnings for fiscal 2021 (period ended October 25, 2020) that beat both consensus top- and bottom-line estimates. The company’s GAAP revenues jumped higher by 57% year-over-year last fiscal quarter, aided by growth at its ‘Data Center’ (sales were up 190% year-over-year) and ‘Gaming’ (sales were up 37% year-over-year) business operating segments, which combined represented ~88% of its revenues last fiscal quarter. Nvidia’s ‘Professional Visualization’ and ‘Automotive’ business operating segments both posted year-over-year declines in sales. The ongoing coronavirus (‘COVID-19’) pandemic has accelerated recent trends in the digital world, such as the pivot towards offsite cloud-computing solutions to meet IT … Read more

Home Depot and Lowe’s Post Tremendous Comparable Store Sales Growth

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Image Source: Home Depot Inc – Third Quarter of Fiscal 2020 IR Earnings Infographic By Callum Turcan Executive Summary: Home Depot and Lowe’s Companies have experienced incredibly strong comparable store sales growth during the initial phases of the ongoing coronavirus (‘COVID-19’) pandemic. Past digital investments enabled both companies to better meet surging demand during these turbulent times, and demand growth is coming from both professional (i.e. contractors, home builders) and non-professional (i.e. more affluent households in the suburbs) consumers. The biggest thing holding both companies back is their large net debt loads and sizable operating lease liabilities, in our view, though please note that their cash flow profiles are stellar. It appears the North American home improvement and construction business … Read more

Normalizing our Fair Value Estimates for the Money Center Banks

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Image Source: Mike Cohen By Brian Nelson, CFA In March, during the depths of the COVID-19 meltdown, we trimmed our fair value estimates for many financials and money center banks. The reasoning was rather straightforward. Our base-case projections for the group were lowered as a result of our expectations of a global economic recession. We factored in higher credit losses due to our anticipation of slowing economic activity that would be triggered by consumers staying at home to avoid COVID-19. We also considered the impact of net interest margin (“NIM”) compression that would result from expectations of a sustained ominous inverted yield curve, and in light of heightened uncertainty regarding the fatality rate of the virus itself (at the time), … Read more

Boeing’s Financials Are Absolutely Frightening

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By Brian Nelson, CFA On November 18, 2020, Boeing (BA) announced that the US Federal Aviation Administration (FAA) withdrew its order that had grounded its 737-8s and 737-9s (737 MAX) that had been involved in two terrible accidents during the past few years, a Lion Air flight that killed 189 people and an Ethiopian Airlines jet crash that claimed the lives of 157 more. We’ll never forget these tragedies and the impact on the families and the aviation industry, more generally.   In January 2017, we had added Boeing to the Dividend Growth Newsletter portfolio, but we had removed it March 16, 2018, prior to the unfortunate and high-profile accidents that occurred several months after. During the short time it … Read more

Kohl’s Dead Cat Bounce May Still Have Legs

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Image: Kohl’s is breaking out of a month-long base on better-than-expected financial health and expectations that it will reinstate its dividend next year. By Brian Nelson, CFA The list of defunct department stores in the United States is a long one. The proliferation of e-commerce accelerated by the outbreak of the COVID-19 pandemic may have all but sealed the fate of many big box department stores that had already been struggling for years. Consumers want quality, price and convenience, and getting what they need with the click of a button on the Internet means those with sprawling real estate stores need to excel at digital initiatives, omnichannel strategies, and rightsizing their footprints–or they’ll perish like so many have before them. … Read more

Walmart’s Digital Strategy Continues to Pay Off

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Image Shown: Walmart Inc continues to distribute its free cash flows back to shareholders via dividends and share repurchases. The retailing giant’s management team has a long track record of being shareholders friendly. However, we still view shares of WMT as generously valued as of this writing, given that the top end of our fair value estimate range sits at $133 per share though WMT is currently trading closer to ~$150 per share. Image Source: Walmart Inc – Third Quarter of Fiscal 2021 IR Earnings Presentation By Callum Turcan On November 17, Walmart Inc (WMT) reported third quarter earnings for fiscal 2021 (period ended October 31, 2020) that beat consensus estimates on both the top- and bottom-lines. As we have … Read more

With Net Debt and Trading at 40x 2021 Earnings, Mettler-Toledo Is Too Pricey

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Image Source: Metler-Toledo By Callum Turcan and Brian Nelson, CFA On November 9, we increased our fair value estimate for shares of Mettler-Toledo International Inc (MTD) by a significant margin. Though our updated fair value estimate for shares is $870 each, MTD is trading at ~$1,190 at this time, well north of even the high end of our new fair value estimate range (~$1,040). We expect Mettler-Toledo to post greater than expected revenue growth and operating margin expansion over the coming years, which underpins our increased free cash flow growth forecasts for the firm from our prior valuation assessment, but shares still seem way to pricey even after the fair value estimate increase. Mettler-Toledo manufacturers precision instruments used in laboratories, … Read more

Growing Competitive Pressures, Leverage Drive Our Reduced Fair Value Estimate of CVS Health (Walgreens, Too)

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By Callum Turcan On November 9, we reduced our fair value estimate of CVS Health Corporation (CVS) (which operates pharmacies, walk-in medical clinics, retail centers, and a large health insurance business). Our new fair value estimate is $55 per share, down from $73 per share previously. CVS Health’s 52-week share price range has been $52-$77, and the company yields 2.7% at the time of this writing. We recently wrote an article here explaining some of the major broad-based drivers behind why fair value estimates can, do, and should change over time as future expectations change. From our perspective, CVS Health’s near- and medium-term outlook has become increasingly stressed. Though investors have bid up shares of CVS in the wake of … Read more

Chevron’s Forward-Looking Dividend Coverage is Becoming Stressed

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Image Shown: Chevron Corporation reduced its capital expenditure expectations a couple of times this year, though that still has not enabled the firm to generate meaningful free cash flows given the various headwinds facing its businesses. Image Source: Chevron Corporation – November 2020 IR Presentation By Callum Turcan On October 30, Chevron Corporation (CVX) reported third quarter earnings for 2020. As expected, it was a brutal report from Chevron. The ongoing coronavirus (‘COVID-19’) pandemic decimated global energy demand and severely weakened raw energy resources pricing at a time when refining margins are quite weak. This double whammy saw Chevron post a $0.2 billion GAAP net loss in the third quarter of 2020 as its revenues tanked. Dividend Coverage Facing Serious … Read more

Value Is Not Static and the Qualitative Overlay Is Vital to Our Process

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With prudence and care, the Valuentum Buying Index process and its components are carried out. Our analyst team spends most of its time thinking about the intrinsic value of companies within the context of a discounted cash-flow model and evaluating the risk profile of a company’s revenue model. We have checks and balances, too. First, we use a fair value range in our valuation approach as we embrace the very important concept that value is a range and not a point estimate. A relative value overlay as the second pillar helps to add conviction in the discounted cash-flow process, while a technical and momentum overlay seeks to provide confirmation in all of the valuation work. There’s a lot happening behind the scenes even before a VBI rating is published, but it will always be just one factor to consider. Within any process, of course, we value the human, qualitative overlay, which captures a wealth of experience and common sense. We strive to surface our best ideas for members.