Member Articles

M&A Roundup: Sprint and T-Mobile Finally Official, Marathon Petroleum to Become Nation’s Largest Refiner

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Image Source: Mike Mozart A number of notable deals hit the wires over the weekend or Monday morning. Lets’ take a quick look. We expect to update our reports on the respective companies in the coming days. By Kris Rosemann Key Takeaways Sprint and T-Mobile are officially tying the knot. Though the deal faces regulatory scrutiny, we think T-Mobile shareholders are getting the best of the deal. If the transaction is consummated and synergies are achieved as planned, both sets of shareholders should be happy though. The wireless telecom industry will continue to be extremely debt and capital intensive, however. We think the Sprint-T-Mobile deal will ultimately get approved, but we are not particularly fond of betting on how regulatory … Read more

Portfolio Diversification Begins at Alexion; Shares Cheap

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We view the acquisition of differentiated, late-stage molecules at an attractive rate as the optimal use of free cash flow for many in the biotech industry. The finite commercial life of a patented drug forces continued innovation as near-total revenue erosion is a certainty once patent protection has lapsed. Let’s review some of the recent events at Alexion to gain a further understanding of the underlying trends affecting the business. By Alexander J. Poulos Key Takeaways We have become incrementally more-positive in our outlook for Alexion. Our fair value estimate of $158 per share stands considerably higher than the company’s share price at the moment. Last year, Alexion’s shares had been punished by reports of questionable sales practices of Soliris, … Read more

Dividend Growth Ideas Microsoft and Intel Deliver Strong Free Cash Flow

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Microsoft and Intel continue to deliver robust levels of free cash flow, which are core drivers of their respective dividend strength. By Kris Rosemann Microsoft’s Commercial Cloud Driving Growth Simulated Dividend Growth Newsletter portfolio idea Microsoft (MSFT) turned in a solid fiscal third quarter report April 26 as total revenue advanced 16% from the year-ago period, operating income advanced 23%, and diluted earnings per share jumped 36%. Commercial cloud revenue growth of 58% was a key driver of the strong top-line expansion with strong growth in the US, Western Europe, and the UK, and the quarter marked the 10th consecutive quarter in which Azure posted 90%+ revenue growth. The company’s operating margin expanded by two percentage points from the comparable … Read more

Amazon Surges; Fair Value Under Review

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  Amazon is no “online book store.” The company’s web services operation is a powerhouse, and its earnings potential is starting to show. We liked the company’s first-quarter 2018 results a lot. By Brian Nelson, CFA On April 26, Amazon (AMZN) reported fantastic first-quarter 2018 results after the market closed. During the period, net sales increased an incredible 43% from last year’s quarter, while operating income jumped more than 90%, to ~$1.9 billion, compared with ~$1 billion in the year-ago period. CEO Jeff Bezos continues to talk up Amazon Web Services, and the company is backing up his excitement with a surging top line and improved profitability. Operating cash flow increased 4%, to $18.2 billion, on a trailing 12-month basis, … Read more

Best Ideas: Reiterating ~$240 Fair Value on Facebook; Adding Chipotle

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We couldn’t be more pleased with Facebook’s first-quarter 2018 results, and we are reiterating our ~$240 per-share fair value estimate on the company. We’re also adding Chipotle as an idea to the simulated Best Ideas Newsletter portfolio, and we’re putting three other speculative considerations on your radar. By Brian Nelson, CFA Facebook (FB) seems to be back in the driver’s seat. We never thought it was out of the race, but many may have thought the negative press would do its shares in … permanently. Not the case. Facebook’s first-quarter 2018 results were fantastic, adding to other strong reports from core simulated Best Ideas Newsletter portfolio ideas, “A Trifecta of Good Reports: Visa, Facebook, PayPal.” Shares of Facebook still look … Read more

What’s Working (or NOT Working) in Today’s Market?

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Image shown: Crude oil continues to lead gainers while consumer staples, REITs, and energy MLPs continue to get shellacked. By Kris Rosemann The stock market during the first few months of 2018 has been marked by a meaningful return to volatility. Commodity prices from crude oil (USO) to aluminum have had their moments in the sun as material supply/demand imbalances of years past continue to sort themselves out, with the help of a few key players, of course (OPEC member nations in the case of crude oil, and Chinese pollution regulations and US trade policy changes in the aluminum example). Geopolitical uncertainty is keeping both world leaders and investors on their toes as the world continues to navigate multiple denuclearization … Read more

A Trifecta of Good Reports: Visa, Facebook, PayPal

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We continue to like the long-term potential at Visa and absolutely love the level of its operating margins. Facebook is going to continue to get bad press, but fundamentally, we think the company is going to make it through to shine once again. PayPal had a nice first-quarter report, and while we would like to see more security with respect to its relationship with eBay, the company’s pace of growth suggests it could easily grow out of its early ties with the auction website. By Brian Nelson, CFA There were three notable reports after the close April 25: Visa (V), Facebook (FB), and PayPal (PYPL). We continue to be huge fans of Visa’s long-term potential, and its level of operating … Read more

The Transformation of Novartis Continues

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Image Source: Taki Steve Leadership change can often bring a great deal of uncertainty especially when a new leader is replacing a successful CEO. In the case of Novartis, we are witnessing a focused effort to streamline the business: a deliberate attempt to shift focus from a sprawling healthcare enterprise towards a more pure-play pharma/biotech powerhouse with an innovative, cutting-edge product portfolio. By Alexander J. Poulos Key Takeaways We liked that Novartis divested its stake in its healthcare joint-venture with GlaxoSmithKline, and we were very pleased with the large sale price of $13 billion. The cash proceeds will offer increased financial flexibility at Novartis. We’re not completely against the company’s near-$9 billion deal for AveXis, though this, too, had a … Read more

Demand Bouncing Off Multi-Year Bottom at Caterpillar

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Improvement in Caterpillar’s underlying end markets is driving its performance, and management took the opportunity following a solid showing in the first quarter of 2018 to raise its bottom-line guidance for the full year. The market, however, did not look favorably on management’s comments that the first quarter should be expected to be the “high-water mark” for the year in terms of margin performance. We’ve updated our fair value estimate of shares. By Kris Rosemann It may seem like an eternity ago, but as recently as 2016, Caterpillar (CAT) was at the tail end of its only stretch of four years of consecutive annual sales declines in more than 90 years of business. The demand environment for the heavy machinery … Read more

Twitter’s Problems: Slow Growth in the US and Low-ROI for Small Business

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Image Source: Xiaobin Lui We like Twitter’s improved free cash flow generation and net cash position on the balance sheet, but it’s too hard for small businesses to build customer trust on the platform, and the lack of engagement from followers at mom-and-pop businesses is almost hard to believe. It seems like Twitter remains primarily a distribution platform for politicians, the media and celebrities, those already having exposure from other avenues. Small, mom-and-pop businesses – the bread and butter behind future advertising revenue at Twitter – can’t make Twitter work for them as returns on their investment remain minimal, at best. By Brian Nelson, CFA We had warmed up to Twitter (TWTR) in February because we thought the platform may … Read more