Member Articles

Norfolk Southern Impresses But Sustained Dividend Growth is Doubtful

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Image Source: Norfolk Southern Corporation – First quarter 2019 IR presentation While Norfolk Southern posted a solid first quarter earnings report and continued to showcase real operational improvement, an onerous net debt load combined with the long-term decline of coal in America puts its dividend growth trajectory in doubt. By Callum Turcan Norfolk Southern Corporation (NSC) is a major rail transportation provider with operations primarily located in the Midwest, the East Coast, and the Southeastern regions of the United States. As things stand today, the company yields 1.7% but its dividend coverage isn’t great with a Dividend Cushion ratio of just 0.6x. While we recognize that Norfolk Southern is a robust free cash flow generator, note that its dividend obligations … Read more

Facebook Surges! Microsoft, Visa, PayPal Quarterly Reports Solid

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Facebook did not disappoint after the close April 24. Shares are surging after hours. We continue to value the company at nearly $230 per share. — Facebook Delivers in First Quarter, Sets $3 Billion Dollar Legal Expense — We’ve been pounding the table on Facebook (FB) since adding an additional 3 percentage points of “exposure” to the Best Ideas Newsletter portfolio in the low $160s in July 2017, and we further added to the company in the newsletter portfolio with shares under $140 each near the December 2018 bottom when we went to “fully invested.” As we have said this entire time, the sell off in Facebook last summer has been a gift to long-term investors!  — Facebook’s total revenue advanced 26% on … Read more

Earnings Reports Flying In!

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Earnings reports are flying in. We thought Air Products’, Hasbro’s, and Lockheed’s quarterly updates were standouts. By Brian Nelson, CFA It’s time to make some noise! Seriously, we just debunked a decades-old myth that the average active investor theoretically cannot outperform, net of fees. We also just showed theoretically how empirical asset pricing models in using realized data are off the mark. I think both of these are huge deals in the field of finance. Make some noise. I talk about these developments in subchapters of our new book, Value Trap! You can read about the contents of the book on Amazon. I hope that we hear more about these developments on a larger scale in the coming years. How wonderful that might be. … Read more

We Like Both Apple and Intel; Facebook’s Earnings Preview

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Apple and Intel have been prominent holdings in the simulated newsletter portfolios for some time now, and we’re interested in what Facebook has to say regarding recent developments in its upcoming earnings release. By Brian Nelson, CFA Apple (AAPL) is now a $205+ stock. I can barely contain my excitement. Remember when shares were laboring under $160 when we went to “fully invested” in December 2018? We also explained why we liked Apple quite a bit, despite the share price decline, not only because of its solid net cash position on the balance sheet but also its strong future expected free cash flow generation. We value shares at $218. We don’t chase product cycles that are already implicitly embedded in our free cash … Read more

Morgan Stanley’s Lumpy Performance Calls Into Question Durability of Earnings Stream

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Image Source: reynermedia If Morgan Stanley’s activities can collapse that quickly, as they did during the fourth-quarter of 2018 when the market swooned, it really calls into question the durability of the earnings stream for all of the global players. By Matthew Warren Morgan Stanley (MS) reported first-quarter 2019 results April 17 with net revenues down 7%, earnings down 9%, and diluted earnings per share down 4%. Return on equity was 13.1% versus 14.9% last year. The firm’s efficiency ratio was 71% versus 69% in last year’s first quarter. The bank is well-capitalized with a common equity Tier 1 ratio of 16.5%, which is necessary considering the riskier nature of Morgan Stanley’s balance sheet compared to a universal bank like … Read more

PepsiCo Fights off Forex Headwinds as it Gets Ready to Take on Amazon

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Image Source: PepsiCo Inc – IR Presentation By Callum Turcan While foreign currency headwinds are proving quite troublesome, PepsiCo continues to post strong organic growth that helped drive its outperformance during the first quarter of 2019. That strong performance will be needed as Amazon gets ready to enter the energy beverage arena. PepsiCo Inc’s (PEP) shares shot up to record highs on April 17 after posting first quarter results that clearly impressed the market. With shares now trading around $127 as of this writing, the beverage and snack giant yields 2.9% with decent dividend coverage going forward. The company beat consensus top and bottom-line estimates while reaffirming 2019E guidance, which signals to the market that management is confident in PepsiCo’s … Read more

Taking a Fresh Look at Goldman Sachs

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After taking a fresh look at our valuation assumptions in the context that Goldman hasn’t really proven that it can earn above the cost of capital through the economic cycle, we have lowered our fair value estimate to $200 per share. By Matthew Warren Goldman Sachs (GS) reported first-quarter 2019 results April 15 with revenue down 13%, to $8.8 billion, and diluted earnings per share down 18%, to $5.71. Return on equity was a middling 11.1% and return on tangible common equity was 11.7%. The bank’s standardized common equity Tier 1 ratio is 13.7%, well above large bank peers. This makes sense as Goldman holds substantial investment positions such as private equity holdings on its balance sheet, which have the … Read more

Dividend Increases/Decreases for the Week Ending April 19

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Below we provide a list of firms that raised their dividends during the week ending April 19. 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 American Water Works (AWK): now $0.50 per share quarterly dividend, was $0.455. AptarGroup (ATR): now $0.36 per share quarterly dividend, was $0.34. Celanese (CE): now $0.62 per share quarterly dividend, was $0.54. CIT (CIT): now $0.35 per share quarterly dividend, was $0.25. Civista Bancshares (CIVB): now $0.11 per share quarterly dividend, was $0.09. CNX Midstream Partners (CNXM): now $0.3732 per share quarterly dividend, was $0.3603. Cross … Read more

Raising Our Fair Value Estimate for Bank of America

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Image shown: Valuentum’s fair value estimates for its banks and money center coverage. We’ve raised our fair value estimate of Bank of America. The only thing not to like with Bank of America is that banks are cyclical and the economy is overdue for a downturn. Everything else is going right at Bank of America. We have raised our fair value estimate for Bank of America to $35 per share. By Matthew Warren Bank of America (BAC) reported first-quarter 2019 results April 16, with revenue stable at $ 23 billion, pre-tax income up 4% to $8.8 billion, and thanks to 7% fewer shares outstanding, earnings-per-share was up 13% versus last year’s first quarter. It was again the crown jewel consumer … Read more

J&J Beats Low Expectations, Revises Guidance Upward

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Image Source: Johnson & Johnson Johnson & Johnson issued updated guidance for 2019 that called for stronger adjusted sales and EPS growth than previously expected, which along with earnings that beat low expectations was enough to send shares up over 1% on the day, April 16. By Callum Turcan Embattled medical giant Johnson & Johnson (JNJ) posted first quarter earnings for 2019, which the market clearly liked as shares of JNJ were bid up by 1.1% on April 16. We include the company in both the simulated Dividend Growth Newsletter portfolio and the simulated Best Ideas Newsletter portfolio. The medical giant is active in the pharmaceuticals, medical device, and packaged consumer goods segments of the healthcare world. As of this … Read more