Member Articles

UnitedHealth Group Reiterates 2024 Adjusted Net Earnings Outlook

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Image: UnitedHealth Group’s shares have been choppy during the past couple years. By Brian Nelson, CFA On April 16, UnitedHealth Group (UNH) reported better-than-expected first quarter 2024 results. Revenue advanced nearly $8 billion on a year-over-year basis, to $99.8 billion, while adjusted earnings per share came in at $6.91. The company’s results were quite messy given the impact of the recent cyberattack on its business as well as the sale of its Brazil operations. UnitedHealth Group noted that the cyberattack impact in the first quarter was $0.74 per share, and the firm expects the full year 2024 impact to be $1.15-$1.35 per share. The company also recorded a largely non-cash $7 billion charge in the quarter due to the sale … Read more

Goldman Sachs Delivers in First Quarter

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Image Source: Goldman Sachs By Brian Nelson, CFA On April 15, Goldman Sachs (GS) reported better-than-expected first quarter 2024 results that showed a nice beat on both the top and bottom lines. Net revenue came in at $14.21 billion (consensus was at $12.9 billion) for the first quarter of 2024, roughly 16% higher than the mark achieved in the first quarter of last year. Goldman Sachs experienced higher net revenues across all of its segments. On an annualized basis, its annualized ROE came in at 14.8% in the quarter and its annualized ROTE came in at 15.9%. Goldman Sachs’ diluted earnings per common share was $11.58 (consensus was $8.68 per share) during the first quarter of the year compared with … Read more

Vertex Pharma to Acquire Alpine Immune Services

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Image: Vertex Pharma’s shares have had a nice run the past couple years. By Brian Nelson, CFA On April 10, Vertex Pharma (VRTX) announced that it had entered into an agreement where Vertex will acquire Alpine Immune Services (ALPN) for $65 per share or ~$4.9 billion in cash. Alpine’s focus is on developing protein-based immunotherapies, and the company’s lead product, povetacicept, holds great promise in patients with IgA nephropathy, a life-threatening chronic kidney disease. Here’s what Vertex management had to say about the proposed transaction: Alpine is a compelling strategic fit for Vertex and furthers our ambition of using scientific innovation to create transformative medicines targeting serious diseases with high unmet need in specialty markets. We look forward to welcoming … Read more

JPMorgan Cautious on Geopolitical Tensions and Inflationary Pressures

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Image Source: Hakan Dahlstrom By Brian Nelson, CFA On April 12, JPMorgan (JPM) reported mixed first-quarter 2024 results. The company reported revenue of $41.9 billion and adjusted net income of $14 billion, or $4.63 per share, which compared to the consensus forecast of $4.13 at the time. For the first quarter, JPMorgan registered a ROE of 17% and a ROTCE of 21%. Credit costs totaled $1.9 billion and included $2.0 billion of net charge-offs and a $72 million net reserve release. Average loans were up 16%, including First Republic, while average deposits were up 2%, including First Republic. It ended the quarter with a CET1 capital ratio of 15.0% and tangible book value per share of $88.43, implying a price-to-tangible … Read more

Fastenal Puts Up Mixed First Quarter Results

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Image: Fastenal reported mixed first quarter 2024 results. We like its business model quite a bit. By Brian Nelson, CFA On April 11, Fastenal Company (FAST) reported mixed first-quarter fiscal 2024 results with revenue and earnings per share coming in slightly lower than expectations. Net sales advanced 1.9% for the three-month period ending March 31. The company noted that adverse weather impacted sales in its first quarter by about 10 to 30 basis points on a net basis. Operating income nudged lower in the quarter modestly, while net income advanced 0.9% in the period on a year-over-year basis. Diluted earnings per share was roughly flat in the quarter on a year-over-year basis, increasing 0.6% from the same period a year … Read more

Delta Reports Strong March Quarter; Airline Stocks are Too Risky for Our Taste

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Image Source: Colin Brown By Brian Nelson, CFA On April 10, Delta Air Lines (DAL) reported solid results for its quarter ending in March. On an adjusted basis, operating revenue came in at $12.6 billion (up 6%), while adjusted operating income came in at $640 million with an operating margin of 5.1%. Adjusted pre-tax income was $380 million, revealing a pre-tax margin of 3.0%. Adjusted earnings per share came in at $0.45 per share, while the company hauled in adjusted operating cash flow of $2.5 billion. Free cash flow was a robust $1.4 billion, while its adjusted debt to EBITDAR came in at 2.9x, down modestly from the end of 2023. Return on invested capital was 13.8% on a trailing … Read more

How Well Do Enterprise-Cash-Flow-Derived Fair Value Estimates Predict Future Stock Prices? — And Thoughts on Behavioral Valuation

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Please select the image below to download, “How Well Do Enterprise-Cash-Flow-Derived Fair Value Estimates Predict Future Stock Prices? — And Thoughts on Behavioral Valuation”   Abstract: This paper attempts to solidify the efficacy of the predictive power of fair value estimates for stocks, as derived by the discounted enterprise cash flow (free cash flow to the firm) process. The piece emphasizes the difference between share prices and estimated fair (intrinsic) values and offers an overview of the discounted enterprise cash flow model, what causes fair value estimates to change, and what drivers may be most important within the context of the discounted enterprise cash flow model. The work examines the importance of both art and science in discounted enterprise cash … Read more

3 Dividend Growth Stocks for the Long Run

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Image Source: Mike Mozart By Brian Nelson, CFA Stock prices and returns are in part a function of a company’s net cash position on the balance sheet and the free cash flows that it will generate in the future for shareholders. We call net cash and future expected free cash flow generation the two primary cash-based sources of intrinsic value in determining a company’s fair value estimate. When it comes to assessing dividend health, we examine these two cash-based sources of intrinsic value, too. For example, a company with a strong net cash balance has greater financial flexibility than a firm with a large and prohibitive net debt position. Entities that generate strong free cash flows in excess of their … Read more

Geopolitical Risks Driving Crude Oil Prices Higher

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Image: Crude oil prices have staged a strong advance to start 2024. By Brian Nelson, CFA Geopolitical tensions continue to be elevated as concerns grow that the war in the Middle East could further escalate, and as the war in Ukraine continues to rage on. On April 1, Israel apparently staged an attack on an Iran embassy in Syria that killed several military officials, including three senior Iranian commanders. Iran has indicated that it would retaliate, and many are speculating that the possible attack may be on Israeli soil, which would further increase global tensions. Ukraine has also been actively targeting Russian energy infrastructure, cutting into Russia’s refining capacity.   Many are positioning in energy markets for a potential spike … Read more

Crown Castle Under Activist Fire

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Image: Crown Castle’s shares have been under pressure the past couple years. By Brian Nelson, CFA Back in January, Crown Castle (CCI) reported better-than-expected results for the fourth quarter of 2023, capping off an eventful year. Site rental revenues advanced 4% on the year, while net income dropped 10% for the full year 2023. Adjusted EBITDA nudged 2% higher on the year, however, while adjusted funds from operations (AFFO) increased at a similar pace, with the measure reaching $7.55 per share for the year, well in excess of its run-rate $6.26 per share in annual dividends. Shares yield ~6.2% at the time of this writing. Management had the following to say about the performance: Crown Castle delivered 2023 results in … Read more