Member Articles

Alphabet Working to Balance Rising Spending and Driving Revenue Growth

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Alphabet’s top-line growth remains impressive, but rising costs continue to pressure margin performance. Free cash flow generation is still robust, which provides the backbone for its fortress-like balance sheet, but capital spending levels advanced at a significant rate in 2018. By Kris Rosemann Simulated Best Ideas Newsletter portfolio idea Alphabet (GOOG, GOOGL) turned in a strong finish to 2018, but rising mobile-driven traffic acquisition costs are expected to continue weighing on margin performance. Revenue at Alphabet in the fourth quarter, results released February 4, jumped 22% on a year-over-year basis as reported thanks to its continued strength in Mobile Search as well as support from YouTube, Cloud, and Desktop Search, but operating income growth came in at only ~7% as … Read more

The Dividend Cushion Ratio Was Ahead of Tupperware’s Cut

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Image shown: Tupperware’s landing page at Valuentum after the company announced a ~60% dividend cut. Tupperware slashed its dividend before the Dividend Growth Newsletter hit your inboxes Friday evening. The company was included at the bottom of a list of companies with the highest multiplicative combination of Dividend Yield x Dividend Cushion ratio (mostly due to its outsize yield). The Dividend Cushion ratio flagged it as an outsize risk, nonetheless, and it was not included in any simulated newsletter portfolio. By Kris Rosemann On January 30, prior to the release of the February Dividend Growth Newsletter, Tupperware (TUP) announced that it would cut its dividend. The company had been yielding at a high-single-digit rate, but that was a red flag, as … Read more

Our Reports on Stocks in the Truck Machinery Industry

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Image Source: Oliver Bildesheim Structure of the Truck Machinery Industry Firms in the oligopolistic truck machinery industry make commercial vehicles, diesel engines, and aftermarket truck parts. A strong brand name and reputation, a fuel-efficient and regulatory-compliant vehicle portfolio, efficient manufacturing operations, an expansive dealer network, and a rock-solid balance sheet to finance customers are keys to success. Still, demand for commercial trucks is cyclical, severe price discounting remains present, and meeting emissions rules can be costly. Rising commodity prices can also keep a tight lid on profit expansion. We’re neutral on the structure of the group. —– We’ve discontinued coverage of the Truck Machinery Industry. << Our Dividend Reports

In The News: M&A Activity, Clorox Offsets Cost Headwinds, Sony Cuts Expectations

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Let’s take a look at some of the top stories around the markets February 4. By Kris Rosemann Shares of Ultimate Software Group (ULTI) jumped on the announcement of its agreement to be taken private by a consortium of investors led by Hellman & Friedman for $331.50 per share, or roughly $11 billion. We like the deal for Ultimate Software shareholders as it represents a material premium to both our fair value estimate for shares and its recent share price levels. Microcap developer and manufacturer of energy solutions Maxell Technologies (MXWL) has agreed to be acquired by Tesla (TSLA) for $4.75 per share in stock. Shares of Maxwell will be exchanged for a fraction of Tesla stock that will be … Read more

Earnings Roundup: Amazon, Facebook, Honeywell, PayPal, Visa

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Let’s talk about our views on Amazon, Facebook, Honeywell, PayPal, and Visa. We think Facebook’s equity offers the biggest bargain, but Visa remains our top idea, as it has been for some time. By Brian Nelson, CFA Amazon’s Shares Are Trading Below Our Fair Value Estimate But Sensitivity to Assumptions Is Great Image shown: The probability distribution of our fair value estimate range for Amazon. The company is trading below our fair value estimate of ~$2,000, but above the low end of the fair value estimate range of ~$1,500. We think shares are fairly valued if they are trading on the yellow line. Amazon’s fair value estimate is very sensitive to its operating margin. Here are the three things that … Read more

Our Reports on Stocks in the Wireless Telecom Services Industry

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Image Source: American Tower Structure of the Wireless Telecom Services Industry Most firms in the wireless telecom services industry lease antenna space on communication sites/towers to wireless service providers, radio and television broadcast companies, and tenants in other industries. Tenant leases are typically long-term, noncancellable, have high renewal rates (98%+) and include attractive built-in annual rent escalations. Tower operators enjoy consistent demand for their sites, have high operating leverage (incremental costs to add new tenants are minimal), and require little capital expenditures to maintain their communication sites. We like the structure of the group. We have dropped coverage of the Wireless Telecom Services Industry. We cover other telecom stocks: Telecom Services: BCE, CTL, DCM, EQIX, FTR, S, T, TMUS, VOD, … Read more

Altria’s Sprawling Business to Underperform Long-Term Bottom-Line Target in 2019

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Image Source: Melanie Tata Altria’s business has grown increasingly complex recently as it has levered up to add exposure to new growth opportunities. We don’t find the convoluted company attractive, even after considering its lofty yield, and its core cigarette business continues to face material industry-wide volume declines. By Kris Rosemann We extinguished Altria (MO) from the simulated Dividend Growth Newsletter portfolio December 21 after assessing the announcement of its deal to acquire a 35% stake in US e-cigarette leader JUUL Labs. Here’s our conclusion from the announcement of our decision, “Parting with Altria on News of Stake in JUUL:” We think Altria may have thrown in the towel on harvesting its core smoking demographic and may now be entering … Read more

Microsoft’s Free Cash Flow Strong Despite Robust Strategic Growth Investments

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Image Source: Mike Mozart Microsoft continues to take advantage of strong demand for its hybrid cloud portfolio, and it is winning business from leading enterprise customers. Free cash flow generation remains strong despite significantly higher levels of strategic growth investments. By Kris Rosemann Shares of simulated Dividend Growth Newsletter portfolio idea Microsoft (MSFT) faced a bit of selling pressure following its fiscal second quarter report, results released January 30, as investors digested mixed quarterly results, a relative slowdown in Azure revenue growth, and roughly in-line guidance for the full fiscal year. We still like shares, and operating margin expansion and robust free cash flow generation drive optimism while management continues to focus on strategic growth investments. Overall revenue growth in the … Read more

Earnings Roundup: Big Name Dividend Payers

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Image Source: Simon Cunningham Let’s take a quick look at the fourth quarter earnings reports of a few wide-ranging, big-name dividend payers, all of which are leaders in their respective industries. Included in this article: Boeing, McDonald’s, and AT&T. By Kris Rosemann Boeing Reports Record Fourth Quarter Results Shares of aerospace giant and former simulated Dividend Growth Newsletter Portfolio idea Boeing (BA) rallied following its fourth quarter report, released January 30, as it turned in record fourth quarter marks for revenue, operating profit, and GAAP earnings per share. Revenue in the period advanced 14% on a year-over-year basis thanks to record commercial aerospace deliveries and higher defense and services volumes. Its ‘Commercial Airplanes’ segment led the way in terms of … Read more

Facebook +10% After Hours; How ‘Bout That VBI Rating!

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No changes to simulated newsletter portfolios. By Brian Nelson, CFA You’ve got to know when to hold ’em Know when to fold ’em Know when to walk away And know when to run — Kenny Rogers, The Gambler Facebook (FB) just reported solid fourth-quarter results (here are the slides). Was there really any doubt Facebook would come roaring back? After all, Facebook is 10-rated on the Valuentum Buying Index. Net balance sheet health and free cash flow generation are so important in determining when to “hold ’em” and when to “fold ’em.” When it was obvious that Kinder Morgan (KMI) and General Electric (GE) were in a lot of trouble and needed to be discarded, how can one truly sour on a company … Read more