Member Articles

Visa Provides Investors with Underrated Growth Prospects

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Although the Durbin Amendment had yet to go in effect, Visa (V) reported a terrific fourth quarter, which has made us even more bullish about the firm’s near-term and long-term prospects. Due to a better than expected outlook for 2012, and a favorable ruling by the Fed regarding the Durbin Amendment, we think Visa is now worth $126 per share, roughly a 25% premium to where the stock currently trades. Management focused on returning cash to shareholders What really sticks out about Visa’s fiscal 2011 performance is the dedication to return cash to shareholders. In addition to increasing the quarterly dividend by 47% to 22 cents, Visa bought back over $2 billion worth of shares. And on top of that, the firm announced … Read more

Boeing Investors Need to Focus on Earnings Quality; Cash Flow Remains Weak

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On Wednesday, Boeing reported strong third-quarter results that revealed earnings expansion and continued commercial backlog expansion. We’re sticking with our fair value estimate. The commercial jet maker’s revenue jumped 4% led by a 9% increase in commercial airplane sales, and the firm leveraged that top-line expansion into 24% earnings from operations. Boeing’s net income and earnings per share increased by more than 30% each thanks to roughly 1.5 percentage points of operating-margin growth. The aerospace giant’s free cash flow, however, was less than impressive, falling to practically nil from the same period a year ago—meaning earnings quality is still far from sound (largely due to the flexibility of program accounting). We’d be more comfortable in Boeing’s bottom-line (the guidance of … Read more

Investors in Ancestry.com Look to Seasonally Strong First Quarter, Release of 1940 Census

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Ancestry.com (ACOM) reported disappointing third-quarter results Wednesday that showed management was a bit too optimistic in its subscriber growth forecasts for this year. However, we still like the story – and 30%+ revenue growth is nothing to sneeze at. We maintain the firm is significantly undervalued and expect some short covering in the weeks ahead, as the Street begins to look at 2012 numbers and anticipates the release of the 1940 US Federal Census in April. We’re holding strong with the position in the portfolio of our Best Ideas Newsletter.  Ancestry.com’s revenue advanced 30% thanks to strong subscriber growth, with the firm eclipsing the 1.7 million mark, representing 24% growth from the third-quarter of 2010. Churn edged up a bit … Read more

An Update on One of Our Best Ideas, Ford

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Best idea portfolio member Ford Motor (F) has been on a tear lately. After bottoming at $9, shares have rallied up to over $12, until they pulled back modestly. In addition to third-quarter earnings, which were reported Wednesday, a few material events have happened, resulting in the shares rallying. Though none of them change our fair value estimate, they do strengthen our conviction in the idea. Third-quarter results, so-so Let’s get the bad news out of the way. The third quarter for Ford wasn’t a disaster, but it wasn’t great either. Improving sales trends continued, with volumes up 14% for the quarter and retail market share coming in at 13.9%. Additionally, the automotive business threw off $400 million in cash flow from … Read more

Best-Idea EDAC Tech Reported Strong Third-Quarter Performance

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Best-idea EDAC Tech (EDAC) reported excellent third-quarter results that exceeded our expectations. We are sticking with our conservative $10 per share fair value estimate and retaining our allocation in our Best Ideas portfolio. As followers of Valuentum know, EDAC Tech has been one of the biggest generators of alpha in our portfolio and continues to be one of our largest positions (at about 10%)—our cost basis is just over $4 per share. We were particularly pleased with its third-quarter results, as management mentioned the quarter would be slightly weaker, on average, on its second-quarter conference call. However, the third quarter was far from that. The firm’s top-line expanded an impressive 18%, while earnings per share came in at $0.19, which was … Read more

Under Armour Posts Strong Third Quarter; Shares Remain Overvalued

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Under Armour (UA) posted terrific third-quarter results Wednesday. Sales were up nearly 42%, with net income up 32%. As a result, we are raising our optimistic case fair value to $53 per share, implying a 24x 2012 earnings multiple, and another year of 30%+ revenue growth. Higher price mixes, higher costs One of the most positive takeaways from the quarter was Under Armour’s ability to sell higher price-point apparel. CEO Kevin Plank mentioned the success in the hooded sweatshirt market, which consumers generally purchase in the $20-25 range, selling for upwards of $70. Additionally, Plank cited continued success with their charged cotton t-shirts and storm fleece hoodies. However, these higher price-points were tempered by the large rollout of footwear and higher … Read more

Netflix Takes a Dive, Down 35%!

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Click below to view our “absurdly overvalued” call on Netflix when the stock was trading around $250 per share: http://seekingalpha.com/article/281777-netflix-s-valuation-completely-absurd-significantly-overvalued << Learn More About Our DCF Valuation Model Template

3M Posts Another Weak Quarter; Results Should Not Be Extrapolated to Broader Economy

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3M (MMM) reported disappointing third-quarter results Wednesday that showed negligible earnings expansion and guided to weak fourth-quarter performance. The firm is one of the few industrial names that have disappointed investors this earnings season, and we think such a weak report is by far an exception. We maintain that a recession is nowhere in sight, and our fair value estimate—which considers the long-term intrinsic value of the company–of $93 per share for 3M remains unchanged. Worldwide organic sales growth advanced just shy of 3%, as the firm noted weakness in the electronics market (LCD TVs)—which was well known and expected—and slowing growth in the developed world (a trend that left little impact on other industrial firms sporting strong third-quarter results). Though … Read more

First Solar drops 25% as CEO Gillette Resigns

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The problems continue to mount at First Solar (FSLR). After dipping on the news of the Solyndra bankruptcy, shares of the solar power giant have been in a steady decline, which was accelerated by today’s resignation of CEO Robert Gillette. Though no reasons for the resignation were given, we assume Gillette and the board didn’t see eye-to-eye, or he just wanted to get out before things got completely out of hand. Founder and board chairman Mike Ahearn will become CEO for the interim. With Europe, one of the world’s largest solar customers, on a clear path towards austerity, we expect demand for solar panels will continue to fall. With demand falling, and First Solar producing panels for a higher cost … Read more

Amazon Posts Miserable Fourth Quarter Profit Guidance; Sales Expansion Still Impressive

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Amazon (AMZN) reported third-quarter results that may turn out to be the biggest disappointment of earnings season so far. The online retailer reported earnings per share of 14 cents, which is 37 cents less than the same quarter last year (a 73% decline in net income) and also well below expectations. Fourth-quarter guidance also indicates that the company expects operating income to be between a $200 million loss and a $250 million gain, a huge range. We think the rollout of its suite of Kindles at ultra-low (and perhaps money-losing) prices is the primary reason behind the wide profit expectations. But there was also good news that came out of the Amazon’s report. Net sales increased 44% (39% excluding currency impact) … Read more