Member Articles

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

Disney Achieves Profitability Across Combined Streaming Businesses

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Image: Disney’s shares are under pressure despite marked improvement in earnings. By Brian Nelson, CFA On August 7, The Walt Disney Company (DIS) reported better than expected fiscal third quarter results with both revenue and non-GAAP earnings per share exceeding the consensus forecasts. Revenue advanced to $23.2 billion from $22.3 billion in the same quarter last year, while adjusted diluted earnings per share increased to $1.39 from $1.03 in the prior-year quarter. Revenue increased 4% in its Entertainment division, 5% in its Sports segment and 2% in its Experiences division. Segment operating income surged in its Entertainment division, while segment operating income faced pressure at Sports and Experiences. Management had the following to say about the quarter: Our performance in … Read more

Amazon’s Second Quarter Results Were Mixed But Free Cash Flow Improved Significantly

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Image: Amazon traded aggressively lower following its second-quarter results. By Brian Nelson, CFA On August 1, Amazon (AMZN) reported mixed second quarter results for the period ended June 30, 2024, with revenue coming up short but GAAP earnings per share beating consensus. Adjusting for foreign currency, net sales advanced 11% led by 19% growth in AWS segment sales, which came in higher than expectations of 17.6% growth. Operating income advanced to $14.7 billion in the second quarter, up from $7.7 billion in the same period a year ago. AWS segment operating income increased more than 70% on a year-over-year basis. Net income increased to $13.5 billion in the second quarter compared to $6.7 billion in the second quarter of 2023. … Read more

What to Do During This Market Selloff

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By Brian Nelson, CFA In short, nothing. The U.S. stock market (SPY) was chugging along nicely until what was interpreted as a very favorable Consumer Price Index (CPI) print on July 11 that sent a rotation out of large cap growth and big cap tech into the beaten down areas of smaller cap stocks, prompting a broader market sell-off. The reasoning goes that, with inflation largely under control, smaller companies will benefit more from future rate cuts via reduced interest expense relative to larger companies. Though this is true, to varying degrees, the magnitude of the rotation was somewhat surprising, as rate cuts should benefit large cap growth (SCHG) and big cap tech (XLK), too, but we’ve seen this rotation … Read more

Apple Beats Expectations, Remains a Free Cash Flow Cow

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Image: Apple’s shares have done quite well since the beginning of 2022. By Brian Nelson, CFA Apple (AAPL) reported calendar second quarter (fiscal third quarter) results on August 1 that beat the consensus estimate for both revenue and GAAP earnings per share. The iPhone maker put up June quarter records for both revenue and earnings per share while its Services revenue hit a new all-time high. Quarterly revenue was up 5% year-over-year, while quarterly earnings per diluted share came in at $1.40, up 11% on a year-over-year basis. Apple’s quarterly commentary was positive: During the quarter, we were excited to announce incredible updates to our software platforms at our Worldwide Developers Conference, including Apple Intelligence, a breakthrough personal intelligence system … Read more

In the News: MO, META, QCOM, PSA, ALB

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By Brian Nelson, CFA Altria Group’s (MO) Performance to Be Weighted to the Second Half of the Year On July 31, Altria Group reported second-quarter results that came in lower than expectations. Revenue net of excise taxes declined 3% to $5.3 billion as the firm experienced lower net revenue in its smokeable product segment, which was not completely offset by higher net revenue in its oral tobacco products segment. Adjusted diluted earnings per share came in unchanged at $1.31, as lower other operating companies income was offset by a lower share count. The company narrowed its full-year 2024 earnings per share guidance to the range of $5.07-$5.15, representing an adjusted diluted earnings per share growth rate of 2.5%-4.0%. Altria Group … Read more

Microsoft’s Cash Flow Generation Robust, Azure Expected to Accelerate

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Image Source: Microsoft By Brian Nelson, CFA On July 30, Microsoft reported better-than-expected calendar second quarter (fiscal fourth quarter) results with revenue and GAAP earnings per share beating the consensus forecasts. Revenue jumped 15% (16% in constant currency), while operating income advanced at a similar year-over-year pace. Net income of $22 billion increased 10% (11% in constant currency) on a year-over-year basis. Diluted earnings per share also increased 10% (11% in constant currency). Management was upbeat in the press release: Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft. As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms … Read more

Dividend Aristocrat Enterprise Products Partners Showcases Strong Earnings Growth in Second Quarter

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Image Source: 2Q 2024 Enterprise Products Partners Earnings Slides By Brian Nelson, CFA On July 30, Enterprise Products Partners (EPD) reported decent second quarter results. During the quarter, the midstream energy company generated net income attributable to common unitholders of $1.4 billion, or $0.64 per unit on a fully diluted basis, a 12% increase from the same period a year ago. Distributable cash flow [DCF] came in at $1.8 billion, up from $1.7 billion in last year’s quarter and covered its distribution 1.6 times. Enterprise increased its distribution 5% in the second quarter, to $2.10 per common unit on an annualized basis, marking the 26th consecutive year it has raised its payout. Management commented on the second quarter performance: Enterprise … Read more

Phillips 66 Records Strong Free Cash Flow in Second Quarter

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Image Source: Phillips 66 Investor Update By Brian Nelson, CFA Phillips 66 (PSX) reported strong second quarter results July 30, with the firm generating second-quarter earnings of $1.0 billion or $2.38 per share. Adjusted earnings were $984 million or $2.31 per share. The company experienced record midstream NGL pipeline and fractional volumes and noted that synergy capture is driving lower costs. The company recorded strong refining operations with 98% crude utilization and 86% clean product yield. Management commented on the strong quarter: We are systematically executing on our strategic priorities, which is reflected in our second-quarter results. Refining crude utilization was our highest in five years and we lowered our costs by nearly a dollar per barrel, reflecting the success … Read more

McDonald’s Speaks of Cautious Consumer But Traction with $5 Meal Deal

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By Brian Nelson, CFA McDonald’s (MCD) reported results July 29 that showed both revenue and non-GAAP earnings per share coming in lower than the consensus forecast. Consolidated sales were flat (up 1% in constant currencies), while systemwide sales fell 1% (up 1% in constant currencies). Global comparable store sales fell 1% in the quarter, lower than the consensus forecast, with negative comparable store sales across all of its segments. U.S. comps fell 0.7%, International Operated Markets [IOM] comps fell 1.1%, while International Developmental Licensed Markets [IDLM] comps dropped 1.3%. Performance wasn’t as bad as the decline in comps would suggest given the 11.7% comp McDonald’s lapped from the same quarter of 2023. U.S. comps were impacted by negative comparable guest … Read more