Member Articles

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

Dividend Growth Newsletter Portfolio Earnings Roundup

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Three simulated Dividend Growth Newsletter portfolio ideas reported second-quarter earnings July 26. Let’s take a look at the results. By Kris Rosemann Altria Tightens Bottom-Line Guidance Despite Double-Digit Smokeable Volume Declines Simulated newsletter portfolio idea Altria’s (MO) top line continues to contract alongside industry-wide volume declines, but its second quarter report, released July 26, revealed its domestic cigarettes market share also took a hit, falling 70 basis points from the year-ago period to 50.2%. Net revenue fell 5.4% as domestic cigarette shipment volume declined 10.8% on a year-over-year basis due to the aforementioned industry decline, trade inventory movements, and retail share losses. Adjusted operating companies income (OCI) in its smokeables segment fell 2.8% as volume declines were partially offset by … Read more

Novartis: Business Transformation in Progress

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Image shown: The performance of Novartis’ stock price since the beginning of 2017. We’re still fans of Novartis as we feel the steps taken by the new CEO to radically reshape the healthcare conglomerate will unlock significant shareholder value. The company remains one of our favorite dividend growth ideas within the healthcare space. By Alexander J. Poulos Key Takeaways The transformation of Novartis continues as the company looks to shed its conglomerate image. The Alcon division will be split-off in what we believe should unlock significant shareholder value. The core new drug discovery business continues to perform well as new products, most notably Cosentyx, continues to show strength. We agree with the decision to retain the Sandoz generic drug division … Read more

AbbVie’s Outlook Remains Blurred

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Image Source: Global Panorama We remain bearish on the outlook for AbbVie as we do not believe the clinical pipeline will be able to adequately offset the loss of revenue when key product Humira loses patent protection beginning in October as a biosimilar enters the European market. By Alexander J. Poulos Key Takeaways AbbVie remains over-reliant on sales of Humira to drive top-line sales–a major red flag as the worldwide patent protection is about to lapse. Humira will lose patent protection in Europe, and thus in our view, we think we are about to witness peak Humira sales in 2018. We feel investors are over-estimating the productivity of the clinical pipeline, and while there is always a chance AbbVie may … Read more

Boeing’s Massive Backlog Still Growing, Near-Term Margin Concerns Crop Up

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Image Source: Robert Sullivan Commercial aerospace giant Boeing continues to ride a wave of strong demand as its massive backlog continues to grow, but a write down related to the troubled KC-46 tanker appears to have investors thinking twice about its near-term margin performance. By Kris Rosemann Shares of former simulated Dividend Growth Newsletter portfolio idea Boeing (BA) faced a bit of selling pressure in the July 25 trading session following its second quarter earnings release as a write down related to additional costs in the troubled KC-46 tanker program helped caused a margin guidance reduction in its ‘Defense, Space & Security’ segment. Delivery of the first aircraft in the program is expected in October 2018, more than two years … Read more

Alphabet’s Top-Line Growing Nicely; Spending Also on the Rise

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Simulated Best Ideas Newsletter portfolio idea Alphabet continued its impressive top-line expansion in its second quarter of 2018, but we’re keeping a close eye on growing cost and capital spending levels. A massive ~$5.1 billion fine from the European Commission also impacted reported results in the period. [Update: Subsequent to the publishing of this article, on July 26, we raised our fair value estimate of Alphabet to $1,543.] By Kris Rosemann Google parent company Alphabet (GOOG, GOOGL) reported ongoing top-line strength in its second quarter report, released July 23, as reported revenue advanced 26% on a year-over-year basis thanks in part to a 58% jump in paid clicks on Google properties from the year-ago period. However, the second quarter was … Read more

PayPal on the Move to $125?

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PayPal gets the backing of a new investor, and expectations are for the equity to trade to $125 within the next 18 months. We’re not as bullish on its valuation as others might be, but we’d be really excited to see this simulated Best Ideas Newsletter idea surge! By Brian Nelson, CFA We have been mighty pleased with PayPal’s (PYPL) performance since its split from eBay (EBAY), and while we do have some concerns regarding the impending and expected non-renewal of its agreement with eBay in coming years, we fully expect PayPal to replace lost business as eBay represents just a few months of expansion at its current growth run rate. Rivalries are heating up in the online payments space, … Read more

FERC Clarifies MLP Tax Changes

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Image shown: The prices of MLPs have collapsed since mid-June 2015 as the stock market has surged.  The status quo for many MLPs looks to be restored, though that doesn’t mean MLPs are out of the woods. We continue to expect many to transition to corporates in coming years, and the idea of consolidation/buyouts may bring new investor capital to the space. By Brian Nelson, CFA The transitions away from the master limited partnership (AMLP) model won’t stop, as executive teams seek to find more transparent ways to operate their businesses. Frac sand distributor Hi-Crush Partners (HCLP) is the latest entity considering a transition to a C-corp in a long line of MLP transitions/roll-ups that began with Kinder Morgan’s (KMI) … Read more