Member Articles

Coca-Cola’s Valuation Is Stretched

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Image Source: Broderick By Callum Turcan Coca-Cola Company (KO) posted a great second quarter report for 2019 on July 23, sending shares up 6% on the day. Management surprised the market by upgrading their forecast for Coca-Cola’s full-year performance with guidance for organic revenue, constant currency operating income, net operating cash flow, and capital expenditures for 2019 all getting a boost. We still think shares of KO are overvalued as the market has gotten ahead of itself. Consumer staples companies trading at premium valuations late in the business cycle are prime examples of how irrational exuberance can seep into every corner of the market. Furthermore, the IMF just downgraded global GDP growth projections for both 2019 and 2020, and while … Read more

Hasbro Posts a Great Quarter, Shares Fully Valued

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Image Source: Hasbro Inc – IR Presentation By Callum Turcan Toymaker Hasbro Inc (HAS) posted a second quarter 2019 earnings report on July 23 that was very well received by the market. Revenue was up 9% year-over-year, or 11% when excluding foreign exchange headwinds (a product of a strong US dollar, a common theme for all companies with material overseas sales). Operating profit was up 47% year-over-year on a GAAP basis, reaching 13.0% of sales versus 9.7% of sales in the same period last year (a product of gross margin expansion, cost saving initiatives, and favorable product mix). While Hasbro’s net income was down sharply year-over-year, that’s entirely due to a major pension expense (the company settled its US pension … Read more

Lowering Our Fair Value Estimate of Morgan Stanley

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We are lowering our fair value estimate of Morgan Stanley to $45 from $50 to update our view of what mid-cycle results might look like. By Matthew Warren Morgan Stanley (MS) posted second-quarter 2019 results July 18 with net revenue down 3% from last year to $10.2 billion and diluted earnings per share down 5% to $1.23, better than the Wall Street consensus of $1.16 per share. The Institutional Securities segment, with net income applicable to Morgan Stanley down 23% versus last year, was the major drag on overall results, while the much smaller Investment Management unit provided some ballast with net income applicable to Morgan Stanley up 23%. Weakness in Institutional Securities was very broad-based compared to last year … Read more

Microsoft Posts a Great Quarter to Round Out a Great Fiscal Year

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Image Source: Microsoft Corporation — IR Presentation We remain very optimistic on Microsoft’s future dividend growth trajectory, and we would like to note the upper end of our fair value estimate range stands at $154 per share of Microsoft. The market at-large seems largely supportive of Microsoft’s latest earnings, and so are we. By Callum Turcan Microsoft Corp (MSFT) is included in Valuentum’s simulated Dividend Growth Newsletter portfolio, and the company reported solid fourth-quarter FY2019 results on July 18, sending shares higher by a couple percent the next day. Revenue rose 12% year-over-year, a growth rate that moves up ~200 basis points when excluding negative foreign currency headwinds, while Microsoft’s adjusted non-GAAP EPS climbed 21% to $1.37. Microsoft’s adjusted EPS … Read more

In the News: Second-Quarter Earnings Season Marches On

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We like what we saw out of a few industrial names, including Honeywell, Danaher and Dover. We thought Taiwan Semi’s report was okay, and Philip Morris continues to navigate declining cigarette volumes. We include our thoughts on some of the mid-size banks. By Brian Nelson, CFA For those just catching up, please have a read of our introductory second-quarter earnings season piece here. We saw some nice reports from J&J (JNJ) and Abbott (ABT), and while we had some concerns about the core industrial economy in light of Fastenal’s (FAST) and CSX’s (CSX) reports, news from Honeywell (HON), Danaher (DHR), and Dover (DOV) suggest that industrial activity is more likely mixed than outright deteriorating. Honeywell’s second-quarter results, released July 18, … Read more

Pounding the Table on Bank of America

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Bank of America can be bought for a valuation that reflects the bank as if it were to stand still, even though it is steadily going after the competition and improving its own efficiency and return on capital metrics. By Matthew Warren Powered ahead by its Consumer Banking segment, but held back by Global Banking and Global Markets, Bank of America (BAC) reported decent second-quarter results July 17. Total revenue was up only 2%, but ongoing tremendous cost control helped translate this into 8% net income growth, and ongoing sizable share buybacks meant diluted earnings per share were up a whopping 17%.  Image Source: Bank of America 2Q19 Earnings Presentation Quite simply, if market related revenues weren’t moving backwards from … Read more

Kinder Morgan Modestly Disappoints But Its Problems Are Transitory

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Image Shown: Kinder Morgan Inc expects a lot of organic growth opportunities will be generated via surging domestic demand for natural gas and rising natural gas export capacity in the US. Image Source: Kinder Morgan Inc – IR Presentation By Callum Turcan Natural gas pipeline giant Kinder Morgan Inc (KMI), a holding in our simulated Dividend Growth Newsletter portfolio, reported second quarter earnings for 2019 on July 17 which generally disappointed. Problems at its Elba LNG development in Georgia and weaker realized prices for raw energy resources produced by its upstream CO2 segment held down Kinder Morgan’s financial performance. We appreciate Kinder Morgan’s focus on fiscal discipline and see several of its problems as transitory, other than the raw energy … Read more

Netflix Misses Net Subscriber Growth Estimates, Shares Plummet

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By Callum Turcan Shares of Netflix Inc (NFLX) were crushed during the trading session July 18 after the video streaming company posted second-quarter 2019 earnings. The big miss in its net subscriber additions was the main reason why. The company added 2.7 million net paying subscribers to its ranks during the quarter (way below guidance calling for 5.0 million), bringing its total paid subscriber count to 151.6 million worldwide at the end of the second quarter. That’s along with 6.1 million free trial accounts, which could be viewed as a growth pipeline considering some, but not all, of those subscribers will likely become paying members. Most see the big miss on net subscriber additions as the key culprit behind Netflix’s … Read more

Our Reports on Refining Stocks

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Image Source: Rongy Benjamin Structure of the Refining Industry Results of firms in the refining industry are primarily affected by the relationship, or margin, between refined product prices and the prices for crude oil and other feedstocks. The cost to acquire feedstocks and the price at which refiners can sell refined products depends upon several factors beyond their control, including the supply/demand of crude oil and other refined products—which in turn depends on the availability of imports, production, inventories, political affairs and economic considerations. Refining margins are difficult to predict, and we expect them to continue to be volatile in the future. We’ve dropped coverage of the Refining industry: HES, HFC, MPC, PSX, VLO.

The Market is Getting Ahead of Itself with Pool Corp

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Image Source: Pool Corporation – IR Presentation By Callum Turcan Since emerging from the Great Financial Recession, wholesale pool and backyard products distributor Pool Corp (POOL) has been on an upward tear with shares climbing from ~$12 in 2009 to ~$185 as of this writing. This surge is largely why its dividend yield is at 1.2%, considering Pool allocates a considerable amount of cash flows towards dividends. We like Pool’s free cash flows and growth trajectory; however, shares appear overvalued after its epic run. Our fair value estimate for the company stands at $134 per share, up from $113 previously (as of January 2019), and the top end of our fair value range now stands at $168 per share. It’s … Read more