Member Articles

Johnson & Johnson’s Talc Problems Hit Another Bump

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Image Shown: Johnson & Johnson’s embattled ‘Baby Care’ segment performed poorly during the third quarter of 2019. Image Source: Johnson & Johnson – IR Presentation. By Callum Turcan Johnson & Johnson (JNJ) was back in the news Friday October 18 when the company announced it was voluntarily recalling “a single lot” of its embattled Johnson’s Baby Powder product in the US due to alleged asbestos contamination risks. The US Food and Drug Administration tested a single bottle from this lot, according to Johnson & Johnson, with the federal regulator noting that sub-trace levels (no greater than 0.00002%) of chrysotile asbestos had been detected in the bottle. Johnson & Johnson plans to vigorously contest these allegations and maintains that its talc … Read more

Our Reports on Stocks in the Restaurants – Fast Casual & Full Service Industry

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Structure of the Restaurants – Fast Casual & Full Service Industry The restaurant industry has benefited from a long-term trend toward eating out, but the space has become increasingly more competitive as new concepts are introduced and successful chains expand. Not only are there pricing pressures and trade-down threats, but rising costs for commodities and labor have pressured profits. Barriers to entry are low, and many constituents have a difficult time differentiating themselves. We tend to like larger chains that benefit from scale advantages and international expansion opportunities, though niche franchises can be appealing. We’re neutral on the structure of the group. For coverage of firms in the Restaurant – Fast Casual & Full Service Industry, please click here.

Goldman Sachs’ Return Metrics Remain Subpar

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Image Source: Goldman Sachs 3Q2019 Earnings Presentation By Matthew Warren Goldman Sachs (GS) reported third-quarter results October 15. The bank missed analyst consensus estimates for revenue by $10 million, and GAAP EPS of $4.79 per share missed by $0.09. Overall firm revenues dropped 6% versus the year-ago period, operating expenses increased 1%, net earnings were down 26%, and diluted EPS tumbled 24%. The weakness was most pronounced in investment banking where revenues fell 15% versus last year’s quarter and Investing & Lending where revenues plummeted 17%. Goldman Sachs generated a sub-par return on equity (ROE) of 9% (down 2.1 percentage points versus last year) and return on tangible equity (ROTE) of 9.5% during the quarter. While Goldman management tried to … Read more

Buffett Favorite, Bank of America a Bargain

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“If Bank of America can continue to narrow the return on capital gap to JPMorgan, we expect its shares will grow into our $35 fair value estimate.” — Matthew Warren By Matthew Warren and Brian Nelson, CFA On October 16, Bank of America (BAC) reported third-quarter results that showed adjusted EPS of 75 cents per share, as compared to the average analyst estimate of 68 cents per share, and 66 cents in the year-ago quarter. The adjustment was for the previously announced $2.1 billion pre-tax impairment charge related to Bank of America’s investment in its merchant services joint venture from 2009, which negatively impacted EPS by 19 cents per share. The bank plans to create this capability in-house going forward. … Read more

Philip Morris International: Free Cash Flow King With Upside Potential

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Image Shown: Philip Morris International’s Marlboro cigarette brand remains very popular worldwide. Pricing power is essential to offsetting declines in traditional cigarette sales volumes as the company positions itself for alternative tobacco products to become a larger part of its revenue streams. Image Source: Philip Morris International – Third quarter 2019 earnings presentation By Callum Turcan Philip Morris International (PM) posted third quarter 2019 earnings on October 17. As of this writing, Philip Morris International yields 5.8%, and we include shares of PM in our simulated High Yield Dividend Newsletter portfolio. While the company cut its full-year forecast for 2019 partially due to a tax charge, the deconsolidation of a subsidiary, and foreign currency headwinds, Philip Morris International is still … Read more

Dividend Increases/Decreases for the Week Ending October 18

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Below we provide a list of firms that raised their dividends during the week ending October 18. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week 1st Source (SRCE): now $0.29 per share quarterly dividend, was $0.27. Aquesta Financial Holdings (AQFH): now $0.11 per share annual dividend, was $0.10. Brunswick (BC): now $0.24 per share quarterly dividend, was $0.21. Canadian Banc Corp (CNDCF): now CAD 0.0883 per share monthly dividend, was CAD 0.0795. CNX Midstream Partners (CNXM): now $0.4001 per share quarterly dividend, was $0.3865. Credit Suisse Crude Oil Shares Covered Call … Read more

An Update on Facebook’s Libra as Roughly Two Dozen Members Sign On

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Image Shown: Facebook has room to run higher, with or without Libra. While several large financial technology and payment processing firms have recently made it clear they no longer want to be a part of the nascent Libra Association, that didn’t stop roughly two dozen members from signing the group’s charter in Geneva, Switzerland, on October 15. We really must stress that our discounted free cash flow models for Facebook don’t take in account the upside its proposed asset-back cryptocurrency Libra might generate. This opportunity represents pure upside to our forecasts, and we continue to like Facebook as a top holding in our Best Ideas Newsletter portfolio. By Callum Turcan Regulatory and political fears have apparently scared off several companies … Read more

Honeywell’s Aerospace Division Its Crown Jewel

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We’re huge fans of Honeywell. The company’s Aero operations are its crown jewel, and while Boeing is facing some troubles these days, we don’t expect much impact on Honeywell at all. In fact, we expect commercial aerospace to remain strong, even in the face of broader industrial weakness. The risks to the company’s HBT business could be starting to mount given some concerns in commercial real estate, but management isn’t really seeing any signs of yet, pointing to only moderating growth in 2020. The SPS division, while a headwind, probably won’t be a factor next year, but it could bounce back as inventories are cleared from the channel. By Brian Nelson, CFA Honeywell (HON) has facilitated a number of changes … Read more

Citigroup Lags Peers in Key Metrics

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Image Source: Matt Buck By Matthew Warren Cititgroup’s (C) third-quarter report, released October 15, showed revenue of $18.57 billion, which beat consensus by $30 million and non-GAAP EPS of $1.97 which beat by $0.02. GAAP EPS of $2.07 beat by $0.12. Revenue in the quarter was up only 1%, as currency headwinds lowered overall reported growth rates. The efficiency ratio worsened slightly to 56.3% from 56.1% in last year’s quarter. On this key metric, the bank lags its money center peers. Similarly, it lags peers with respect to return on tangible common equity (ROTCE), too, which came in at 12.2% in the quarter, though this metric has improved markedly under the current management team. Earnings before taxes were down 1%, but … Read more

Wells Fargo’s 4%+ Dividend Yield Offers Support to Shares

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Image Source: Mike Mozart By Matthew Warren On October 15, Wells Fargo (WFC) reported third-quarter results that showed revenue up 0.3% to $22.01 billion, which beat consensus estimates by $690 million. Earnings came up short with non-GAAP EPS of $1.07 missing by $0.11 and GAAP EPS of $0.92 missing by $0.31. The adjusted figure excludes a $1.6 billion (0.35/share) discrete litigation accrual (related to previously disclosed retail sales practices matters) and a $1.1 billion (0.20/share) gain from its previously-announced sale of its Institutional Retirement and Trust Business. Net interest margin compressed from 2.94% in last year’s quarter to 2.66% in this year’s quarter, due to the lower interest rate environment and assets repricing lower more quickly than deposits. Deposits grew only … Read more