Member Articles

AT&T Posts Mixed Third-Quarter Results, But Puts Up Best Free Cash Flow in Two Years

by

AT&T (T) reported mixed third-quarter results Thursday that showed decent earnings and cash flow expansion but relatively weak revenue performance. We are maintaining our $24 fair value estimate. Though AT&T noted its first sequential growth in its wireline business revenues in three years and nice gains in wireless services revenue (up 4%+), total operating revenue still fell 0.3% from the same period a year ago. The firm had a net gain of 2.1 million wireless subscribers in the quarter (319,000 were postpaid)–pushing the total past 100 million–and recorded better churn rates (1.28%% versus 1.32% in the prior-year period). The company also sold 4.8 million smartphones and activated 2.7 million iPhones during the quarter, despite losing exclusivity on the iPhone earlier this … Read more

Abbott Reports Decent Third Quarter; Decides to Break Itself Into Two

by

Abbott (ABT) reported strong third-quarter results Wednesday and outlined plans to split itself into two distinct entities: one in diversified medical products and the other in research-based pharmaceuticals. We liked the quarter and are fans of management’s plans to break apart the company. Our $68 fair value estimate remains unchanged. Abbott’s worldwide sales advanced 13.2% from the prior-year period thanks to solid performance from proprietary pharmaceuticals and its durable growth business (nutritionals, established pharma, lab diagnostics, and diabetes care), and the firm was able to leverage such growth into 12.4% earnings-per-share expansion, excluding a $1.5 billion litigation reserve related to a previously-disclosed DOJ investigation (Depakote). Emerging market sales continue to be a key driver, jumping 21% from the prior-year period … Read more

United Technologies Reports Third-Quarter Results; Order Growth Across the Board

by

United Technologies (UTX) reported solid third-quarter results Wednesday that showed strong order growth despite a challenging market environment. We are maintaining our $100 fair value estimate. The conglomerate’s revenue advanced 9% during the period (6% organic) thanks to continued expansion across all six of its business segments. Order growth was also solid during the period: Otis (up 19%), commercial HVAC at Carrier (up 11%), commercial spares at Hamilton Sundstrand (up 24%) and Pratt & Whitney’s large engine business (up 3%). United Tech’s operating margin was slightly lower than last year’s quarter due to higher research and development expenses. However, the firm’s earnings-per-share and net income advanced 13% and 11%, respectively, from the same period a year ago. Cash flow generation was … Read more

Best Idea Buffalo Wild Wings Reports Strong Third Quarter, Shares Up 6% After Hours

by

Buffalo Wild Wings (BWLD) reported strong third-quarter results Wednesday that showed impressive revenue and earnings expansion. We continue to believe in the long-term growth story of “B-Dubs” and would add to our position in our Best Ideas portfolio on any significant weakness in the shares. Our $74 fair value estimate remains unchanged. Total revenue for the third quarter increased over 30% on the heels of a 5.7% same-store sales increase in company-owned restaurants and a 4.2% jump at franchised restaurants (the company had 44 additional company-owned restaurants and 41 additional franchised restaurants at the end of the quarter versus the prior-year period). Average weekly sales for company-owned restaurants were up 11.4% in the period, while the measure advanced 4.8% for franchised locations – both … Read more

eBay Posts Excellent Third-Quarter Results; Best Quarterly Revenue Gain in Six Years

by

eBay (EBAY) reported strong third-quarter results Wednesday that showed particular strength in Paypal, its global payments business. The firm remains one of our best ideas, and we are maintaining our $47 fair value estimate (the stock is trading just over $30 per share). The global ecommerce and online payments leader saw revenue increase an impressive 32% from the prior-year period, while non-GAAP net income jumped 18% and non-GAAP diluted earnings-per-share advanced to $0.48 (up 20%), meeting expectations. The revenue growth number was its best performance since 2006! Paypal was particularly strong during the period, revealing a 14% increase in active registered accounts—Paypal’s net total payment volume was up over 30% in the quarter. The firm also noted that total mobile payment … Read more

New Highs for Apple: Delayed Not Canceled; Fiscal Fourth Quarter Merely a Timing Miss

by

Perhaps the most valuable thing investors can learn is that stock prices are determined by future (not past) expectations of a firm’s business fundamentals, and by extension, its future free cash flow stream. The uncertainty of the future–and not the certainty of the past–is what drives stock prices and their volatility (after all, if the future were known with certainty, stocks would trade at precisely their known fair values). This consideration is important as we evaluate Apple’s (AAPL) fiscal fourth-quarter results, which came in lighter than what the Street had been expecting. Despite the miss, the iPhone-maker guided its fiscal first-quarter above consensus estimates, which should and always will trump any earnings miss as interpreted by the market in the previous quarter. Importantly, the last quarter (Apple’s fiscal fourth … Read more

Yahoo Reports Third Quarter: Asian Assets Major Source of Value; Legacy Business in Decline

by

Yahoo (YHOO) reported terrible third-quarter results Tuesday. Revenue, excluding traffic acquisition costs, fell 5%, while GAAP revenue dropped 25%. The primary driver for the decline had to do with weaker revenue associated with its agreement with Microsoft (MSFT). We believe that softness in display revenue, which was roughly flat in the period, and turnover at the sales level also impacted results to some extent. The attractiveness of competing sites like Facebook and Google (GOOG) is becoming increasingly more difficult for Yahoo to overcome, in our opinion. Google’s third-quarter revenue, in contrast, advanced 33%! We are maintaining our $10 fair value estimate for Yahoo. Income from operations fell 6%, while net earnings per share dropped 26% from the prior-year period (diluted earnings per share fell 23%). Cash flow from … Read more

Best Idea Intel Reports Fantastic Third Quarter, Sets Company Records Across the Board

by

On Tuesday, Intel (INTC) put up record third-quarter results. We maintain the firm is one of our best ideas at these levels and are considering adding to our position in the portfolio of our Best Ideas Newsletter. Our $36 fair value estimate, which remains significantly above current levels, is unchanged after the excellent report. The first sentence of Intel’s press release tells most of the story behind the quarter: “Intel…reported third-quarter results, setting new records for microprocessor units shipped, EPS, earnings and revenue, which was up 28 percent year-over-year.” In fact, it’s difficult to find much not to like in chip giant’s performance during the period. As mentioned above, revenue hit $14.2 billion (an all-time record), operating income hit $4.8 billion (up … Read more

J&J Posts Strong Top-Line Growth in 3Q on International Expansion, Bottom Line Weak

by

Johnson & Johnson (JNJ) reported mixed results on Tuesday that showed strong top-line expansion but relatively flat earnings growth due to higher marketing costs and missteps that led to product recalls. We don’t see any reason to change our $83 fair value estimate at this time. J&J’s top line jumped nearly 7% led by international revenue, which skyrocketed over 16% during the period (roughly half of that organic with the balance being currency). International pharmaceutical revenue jumped an impressive 27% in the period. Domestic sales, however, were pretty much weak across the board: domestic consumer sales fell about 4.5%, domestic pharmaceutical sales fell over 6%, while domestic medical-device sales dropped nearly 1%. As expected, domestic pharma sales were hurt by … Read more

Coca-Cola Posts Strong Third Quarter, But Cautions About Currency Headwinds

by

On Tuesday, Coca-Cola (KO) reported strong third-quarter results that showed solid revenue expansion, volume growth, and market share gains. Overall, we liked the performance in the quarter and are maintaining our $67 fair value estimate. Thanks primarily to the acquisition of its bottler group (Coca-Cola Enterprises), net revenue advanced about 45% from the prior-year quarter. Even though the year-over-year comparisons weren’t apples-to-apples, international volume growth was supurb, advancing 5% during the period – brand Coca-Cola led the charge outside of the US. Sparkling beverage volume grew 17% in India, 11% in Argentina, 7% in China and 6% in both Mexico and France.  But even North America saw decent expansion, with organic volume growth of 1% in the period (and year-to-date). … Read more