Member Articles

Citigroup Remains a Sub-scale US Bank

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Image Source: Matt Buck Even if Citigroup achieves improved return-on-capital targets, it would remain a sub-scale US bank from a nationwide perspective, and it remains overly reliant on Corporate and Investment banking, which is an overtraded and competitive field globally. By Matthew Warren Citigroup (C) reported middling first-quarter results April 15, with revenues down 2% versus last year, to $18.6 billion. Thanks to strong operating expense control (-3%), lower taxes, and a 9% lower share count, earnings per share advanced 11%, however. With a common equity tier 1 ratio of 11.9%, Citigroup was able to return over $5 billion to shareholders in the quarter. The bank reported a 11.9% return on tangible equity in the quarter, barely better than the … Read more

Latest Channel Checks at Malls…Scary

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We know malls come and go, and location is everything, but our latest visit to a few malls in the Chicagoland area leave us scratching our heads in a big way. One was eerily empty. By Brian Nelson, CFA A small sample set is never one to extrapolate, but our latest checks of malls in the northwest Chicagoland area came up a little surprising. We’re not sounding the alarm bells just yet, but we think some caution is in order for the largest mall REITs, including Tanger Factory (SKT), Macerich (MAC), Simon Property (SPG) and Taubman (TCO). Something just wasn’t quite right on our latest visit, and we attribute it primarily to failing anchor department stores, namely Carson Pirie Scott … Read more

Disney Pushes Deeper into the Streaming Market While Cooling Off on Future Star Wars Movie Releases

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Entertainment giant Disney has been milking the Star Wars franchise for all its worth since acquiring Lucasfilms back in 2012. Now fans are starting to shun the franchise’s blockbuster movie releases and that has management considering how to properly leverage this top tier asset going forward. By Callum Turcan Walt Disney (DIS) has long been a giant in the entertainment industry, a position further cemented by its $71.3 billion purchase of 21st Century Fox which only just closed in March. As of this writing, Disney yields 1.3% and has a great track record when it comes to dividend growth. Even better, we are very optimistic on Disney’s ability to keep growing its quarterly payout over the coming years as the firm … Read more

Wells Fargo’s Net Interest Income Guidance Disappoints

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Wells has a solid franchise, which we expect to bounce back once these troubles are squarely in the rear-view mirror, but the timing and magnitude of decline and then ultimate improvement are anyone’s guess at this tender stage of regulatory reproach and perspective client disillusionment. Our fair value estimate remains $52 per share. By Matthew Warren Wells Fargo (WFC) reported first-quarter 2019 results that showed revenue falling $300 million from last year’s first quarter, to $21.6 billion this year. Net income was $5.9 billion or $1.20 per share, up from $5.1 billion and $0.96 per share last year, respectively. Wells posted a 12.7% return on equity and 15.2% return on tangible common equity in the quarter, better than the cost … Read more

J.P. Morgan Kicks Off Earnings of the Banks

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J.P. Morgan has a major advantage when it comes to crown jewel consumer banking. The company is a powerhouse. By Matthew Warren J.P. Morgan (JPM) reported first quarter earnings of $2.65 per share, fully 30 cents per share ahead of Wall Street estimates, and well ahead of $2.37 in the strong year-ago quarter. Managed revenue was up $1.3 billion over last year’s first quarter to $29.9 billion. Return on equity was 16% in the quarter versus 15% last year and return on tangible common equity was 19%–just as in last year’s quarters. These return on capital metrics, if broadly sustainable, fully justify the firm’s shares trading at 1.5 times book and 1.9 times tangible book equity. Capital levels are very … Read more

Chevron Joins the Ranks of Exxon Mobil and Shell After Buying Anadarko

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Image Source: Chevron Corporation – IR presentation Chevron is buying Anadarko. Chevron will have to show that the projected operational synergies and related capital intensity reductions actually materialize through this acquisition, as execution risk is very material in the oil & gas world. We will be monitoring the industry as further consolidation is possible with interest rates remaining low for the time being and in light of oil prices moving sharply higher since January. By Callum Turcan Energy stocks moved upwards last Friday, April 12, on the news that Chevron Corporation (CVX) is purchasing Anadarko Petroleum Corporation (APC) for $33.0 billion in a cash and stock deal, for a total enterprise value of $50.0 billion when taking debt into consideration. … Read more

Three Upstream Companies Contend with the Shale Treadmill

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Image Source: Marathon Oil Corporation — Fourth-quarter IR presentation. Global oil prices are climbing back up again and that got us thinking about three of the biggest independent upstream players in America’s shale patch. By Callum Turcan Global oil prices are rising and that has gotten us thinking about upstream players EOG Resources Inc (EOG), Noble Energy Inc (NBL), and Marathon Oil Corporation (MRO). All three of these companies possess domestic and international producing operations, with unconventional upstream opportunities in America providing a key growth generator as market conditions allow. Stronger realizations will lead to improving financial performance on a sequential basis, but ultimately, valuations are based on price expectations over decades not quarters. This generally makes valuing upstream firms … Read more

Dividend Increases/Decreases for the Week Ending April 12

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Below we provide a list of firms that raised their dividends during the week ending April 12. 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 Antero Midstream (AM): now $0.3025 per share quarterly dividend, was $0.164. Bed Bath & Beyond (BBBY): now $0.17 per share quarterly dividend, was $0.16. Clough Global Allocation Fund (GLV): now $0.1034 per share monthly dividend, was $0.1032. Clough Global Equity Fund (GLQ): now $0.1137 per share monthly dividend, was $0.1123. Clough Global Opportunities Fund (GLO): now $0.0893 per share monthly dividend, was $0.0882. Enterprise Products Partners … Read more

This Chart Changes Everything Quant

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Image shown: Russell 3000 Value Divided by Russell 3000 Growth since September 1993, roughly one year after the publishing of the influential three-factor model. By Brian Nelson, CFA Recently, I wrote up my views on whether quant value is giving value investing a bad name. You can read that note here. The chart above changes everything quant. The chart is not so much about value and growth as it is about highlighting the hazards of extrapolating anything quantitative finance into the future. For those that don’t know why this chart is important, let me provide some background. The entire field of factor investing has been built on the idea that ambiguous and sometimes impractical metrics and data can be used to carve out … Read more