Member Articles

5 Reasons to Consider Not Owning McDonald’s

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1. Difficult Comps to Come in Late 2016/Early 2017 McDonald’s (MCD) has come roaring back to life. The company reported strong third-quarter performance October 22 and posted an impressive 4% global comparable sales growth rate in the period. We thought the fundamental performance was great, even though consolidated revenue and consolidated operating income dropped 5% and 2% in the quarter on a reported basis, respectively. On a year-over-year basis, constant-currency performance showed 7% top-line growth and 10% operating-income growth, both of which we thought were solid. That said, the market seems to be accepting the report as evidence that McDonald’s is permanently back on track, but we’re striking a more cautious tone. We think the quarterly results and a few … Read more

Dividend Growth Newsletter REITs

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Realty Income’s (O) Dividend Track Record Pictured: Income investors in Realty Income have been handsomely rewarded through the years. Source: Realty Income HCP’s (HCP) Dividend Track Record Pictured: HCP has rewarded income investors in each of the past 30 years with consecutive annual dividend increases. Source: HCP Let’s Talk Interest Rates There’s a lot to think about these days with respect to REITs and rising interest rates. In the equity valuation context, for one, a rising nominal interest rate, by itself, is negative. Increased borrowing costs translate into a higher discount rate applied to a REIT’s future  projected net operating income (or a higher cap rate used in the valuation process), and by extension, results in a lower intrinsic value … Read more

Email Transaction Alerts

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We know many of you use our services for a wide variety of different reasons, whether for a primary source of fair value estimates and fair value ranges, to assess the risk of the sustainability of the dividend through our Dividend Cushion ratio, or to apply the Valuentum Buying Index as an overlay to your own processes and beyond. For those that are following changes to our newsletter portfolios, we’re going to make a few today. None of these should be surprising. First, we’re taking some profits in Altria (MO), removing half of our position in both newsletter portfolios. Specifically, we’ll be removing 158 shares in the Best Ideas Newsletter portfolio and 101 shares in the Dividend Growth Newsletter portfolio … Read more

Catching Up With Some of Our Best Ideas

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Teva Pharmaceutical (TEVA) Teva Pharmaceutical has been a key source of outperformance for the Best Ideas Newsletter portfolio since its addition in mid-2013, with its return excluding dividends currently at ~50%. We continue to think the generic pharma space offers significant opportunities for participants, and we like Teva’s global market position. We’re particularly big fans of its ‘first-to-file’ position in the US generics market, and we like its efforts to protect specialty drug Copaxone as the world’s leading treatment of multiple sclerosis. In the third quarter of 2015, foreign exchange rates took a slight toll on Teva’s reported revenue, which fell 5% from the year-ago period to $4.8 billion; on a constant currency basis, revenue increased 3%. Non-GAAP operating income … Read more

Social Media Update

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Note: Valuentum covers over a thousand companies and offers insights and updates behind core holdings in the newsletter portfolios. We did a more in-depth analysis of the “investability” of social media players at the end of the second quarter, and not much has changed. Twitter (TWTR) found its long-term answer at CEO, but its valuation distribution, or range of probable fair value outcomes, is equivalent to a lotto ticket, one that’s not likely to pay off. Facebook (FB) continues to put up astounding numbers of active users, and LinkedIn (LNKD), while offering potential as a business-networking social media site remains unproven through the course of a more challenging job market, in our view. On fundamental basis, Facebook is our favorite … Read more

Flash: Dividend Cushion Ratio Predicts Another Dividend Cut

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Textainer Group (TGH), the world’s largest lessor of intermodal containers based on fleet size, announced a cut to its dividend November 3, from the previous quarterly level of $0.47 per share to the present level of $0.24. The news was not expected, with shares of the Bermuda-based company tumbling more than 25% on the day of announcement. When will investors learn the raw, predictive power behind the Dividend Cushion ratio? Textainer had a Dividend Cushion ratio of -3.3 at the time of the cut. Anything below 1 and certainly negative speaks to concern regarding the sustainability of the dividend at the present level. We’ll be adjusting our forward expectations of the dividend, but we’ll also be adding Textainer to this … Read more

Update: A 10%+ Cost of Capital for Midstream Equities Is Reality

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< This article was published on valuentum.com/ on October 27 and was subsequently modified yesterday. > Kinder Morgan (KMI) disclosed how it would raise much-needed financing October 26, and our worst fears were realized: The marginal cost of raising capital in the midstream space has soared. As recently as earlier this year, Kinder Morgan’s executive team had been guiding analysts to a 3.3% cost of capital (“hurdle rate”), (see page 28 here), a level we had outlined was absolutely ludicrous. The 3.3% mark broke down into a 4.1% yield on equity and a 2.4% cost of debt, evenly split. Here’s what we wrote in our June 30 piece, “Kinder Morgan’s Fair Value: $29 Per Share,” when Kinder Morgan’s shares were in … Read more

Commodity Prices Affect Waste Industry Performance

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Waste industry economics are relatively easy to understand. Municipal solid waste has to end up somewhere, and therefore whoever has the most diverse disposal operations can set the bar with respect to pricing, which impacts tipping fees and the economics of transfer facilities and collection operations. After all, garbage pick-up operators won’t be in business for long if they pay more to dispose of waste than they charge to pick it up. We view disposal operations as having oligopolistic tendencies, even if collection operations face some of the most intense pricing competition of any industry. As for the players, Waste Management (WM) and Republic Services (RSG) have the largest disposal operations in the US. At the end of 2014, Waste … Read more

Strong Performance from Big Tobacco in Third Quarter

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What was once one of our favorite hidden gem holdings has turned into a ‘letting this winner run’ scenario. Newsletter portfolios holding Altria (MO) reported quality third-quarter results October 29, as it grew revenue at a solid 3.2% rate. The firm’s fundamentals remain rock-solid, as it leveraged the revenue expansion into adjusted diluted earnings per share growth of 8.7% to $0.75. Management reaffirmed its 2015 full-year guidance for adjusted diluted earnings per share of $2.76-$2.81, which represents growth of 7.5%-9.5% over 2014 levels. The company was also pleased to report its continued cooperation and support of the AB-Inbev (BUD) and SABMiller (SBMRY) merger as SABMiller’s largest shareholder. The deal offers a compelling opportunity for Altria to strengthen its position in … Read more

Correction: Understanding the MLP Valuation Conversation

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A correction was performed to the table in this article October 29, 2015, at 7:20pm. How to interpret the changes: In this illustrative example that includes both growth capital spending and a marginal cost of capital of 10%, holders of MLPs will have to wait years before the intrinsic value of the security catches up to the present market price (comparison shown in orange). Said differently, units in this example are significantly overpriced in today’s market.