Member Articles

Papa John’s Slashes Guidance; Blames Founder

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Pizza chain Papa John’s continues to struggle through board room drama and other public relations headaches related to recent developments surrounding its founder and largest shareholder. The company cut its 2018 guidance in a material way in its second quarter report. By Kris Rosemann Public relations nightmares such as the situation currently surrounding Papa John’s (PZZA) are extremely rare and do not always result in a material tangible negative impact on a company’s financial performance, but this does not appear to be the case for the pizza chain. Founder John Schnatter made headlines after his comments on player protests in the National Football League, once a key partner for the company, on the third quarter 2017 earnings call, and he … Read more

Amazon Powers Ahead; Continues to Disrupt Grocers

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Image Source: Dominic Smith Amazon continues to impress as its operating leverage makes itself evident, and its integration of Whole Foods with its Prime Membership seems to improve with each subsequent update. By Kris Rosemann E-commerce giant Amazon’s (AMZN) second-quarter report, released July 26, showcased its impressive growth trajectory as reported revenue leapt 39% on a year-over-year basis, and GAAP operating income came in at nearly $3 billion, almost five times that of the year-ago period, as its GAAP operating margin expanded to ~5.6% from ~1.7%. This helped propel diluted earnings per share in the quarter to $5.07 from $0.40 in the comparable period of 2017, and free cash flow generation exploded to $4.2 billion in the quarter, nearly six … Read more

Gilead Sciences at the Crossroads

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We continue to be big fans of the transformation currently underway at Gilead Sciences. That said, however, we were initially surprised by CEO John Milligan’s decision to step down. By Alexander J. Poulos Key Takeaways CEO John Milligan announced he is stepping down thus closing the book on the original management team that grew Gilead from a tiny upstart into a biotech behemoth. Sales of the HCV franchise appear to be stabilizing leading credence to 2018 is a “trough year” for Gilead. HIV sales continue to ramp thanks to strong uptake of Biktarvy. We are anxiously awaiting the data read from Filgotinib at year end. Executive Departures We were initially caught off-guard by CEO John Milligan’s decision to relinquish his … Read more

Valuentum’s Weighted Average Cost of Capital (WACC) Distribution

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The weighted average cost of capital is one of the most subjective measures in corporate finance, but it is also one of the most important ones. “The most important item over time in valuation is obviously interest rates…If interest rates are destined to be at low levels…It makes any stream of earnings from investments worth more money. The bogey is always what government bonds yield….Any investment is worth all the cash you’re going to get out between now and judgment day discounted back. The discounting back is affected by whether you choose interests rates like those of Japan or interest rates like those we had in 1982…When we had 15 percent short-term rates in 1982, it was silly to pay … Read more

Dividend Increases/Decreases for the Week Ending August 3

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Below we provide a list of firms that raised their dividends during the week ending August 3. 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 States Water (AWR): now $0.275 per share quarterly dividend, was $0.255. Andeavor Logistics (ANDX): now $1.03 per share quarterly dividend, was $1.015. Ares Capital (ARCC): now $0.39 per share quarterly dividend, was $0.38. Astec (ASTE): now $0.11 per share quarterly dividend, was $0.10. BP (BP): now $0.615 per ADS quarterly dividend, was $0.595. BP Midstream Partners (BPMP): now $0.2725 per share quarterly dividend, was $0.2675. … Read more

Apple Soars! $200+ Per Share!

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We continue to like Apple. It has been a bright spot in an otherwise challenging calendar second-quarter earnings season. By Brian Nelson, CFA It’s hard to get excited about Apple’s (AAPL) fantastic performance given the bloodbath at Facebook (FB) and Twitter (TWTR) of late, but the iPhone maker’s shares have been on an absolute tear! For those just getting familiar with the simulated Dividend Growth Newsletter portfolio, Apple is among the highest-weighted ideas, and it has been so for some time (Apple is among the highest-weighted stocks in the simulated Best Ideas Newsletter portfolio, too). The company simply has investors excited, and we still think shares are undervalued on the basis of our enterprise discounted cash flow model. We value … Read more

Johnson & Johnson: Headline Risk But Business Solid

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We remain big fans of the steady hand displayed by the venerable Johnson & Johnson as the pharmaceutical bellwether continues to perform admirably. During its second-quarter results, we came away impressed with the continued strength in the Oncology division, which masks the deceleration in growth in Cardiovascular Disease. There continues to be headline risk with respect to talcum powder litigation, but J&J’s underlying business remains solid, in our view. By Alexander J. Poulos Examining J&J’s Franchise Strength We wrote up Johnson & Johnson’s (JNJ) second-quarter results July 19, “Johnson & Johnson Powers Ahead, Litigation Overhang Remains,” but we think a closer examination of the underlying trends of the three largest components of J&J’s pharma division will be helpful to readers. … Read more

Facebook: $236 Fair Value Estimate, Now Rated 6 on the Valuentum Buying Index

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Image Source: Facebook’s second-quarter slide presentation We were blindsided by Facebook’s outlook, and so was the market. Nobody feels worse about the Facebook idea than we do. Not only was Facebook a top weighting on the Valuentum Buying Index, but it also grew to a rather large position in the simulated Best Ideas Newsletter portfolio. We added Facebook to the simulated Best Ideas Newsletter portfolio at $112.10 in January 2016, and a good portion of its outsize returns have been eroded since its peak at ~$220. We still like shares, but for the company to return to top-rated status, the market would have to get behind it in the form of an advancing stock price. By Brian Nelson, CFA We … Read more

Chipotle Raises Comps Guidance on Price Increases

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Simulated Best Ideas Newsletter portfolio idea Chipotle raised its 2018 comparable restaurant sales guidance after a strong second quarter revealed the effectiveness of menu price hikes. By Kris Rosemann Once beaten down Chipotle (CMG) appears to have found its way back into the good graces of consumers. The fast casual burrito restaurant’s second quarter results, released July 26, showed a continued decline in traffic (comparable restaurant transactions fell 1.8% from the year-ago period), but a 4% menu price increase helped drive average check growth and ultimately a 3.3% year-over-year increase in comparable restaurant sales in the period. Total revenue advanced 8.3% from the second quarter of 2017 thanks in large part to new restaurant openings, and the company has more … Read more