Member Articles

Luxury Remains in Vogue: Macy’s and Ralph Lauren Report Blow-out Numbers

by

Although the broader market sold off yet again August 10, Ralph Lauren (RL) was a stand-out performer, with shares rising nearly 5% on a very impressive quarter. As with literally every company in the clothing business, gross margins fell due to rising fuel and cotton costs. However, even with a 120 basis point drop in gross margins, RL achieved outstanding profitability growth, with diluted EPS up 57% on a 32% increase in revenue. We think the quarter’s same store sales growth (19%) was even more indicative of the company’s performance. Clearly consumers are going to this high-priced boutique stores and seeking out full-priced Ralph Lauren merchandise that is far more prone to sales at Nordstrom (JWN) or Macy’s (M). We think … Read more

Ignore the Market’s Volatility; Rumors and Misinformation Plauge the Near Term

by

It’s incredible to have witnessed the volatility in the markets the past few days. To be honest, not much has changed with respect to fundamentals since a few weeks ago, a time when companies were reporting fantastic second-quarter results. In fact, according to this Reuters report, more than 70% of companies in the S&P that have reported have beat earnings estimates on 11% bottom-line growth–and that growth number includes a 27% fall in financial/bank earnings and relatively flat performance from utilities. Recessionary? We don’t think so. And do we think the fact that companies reporting prior to August 2nd have been cautious on providing outlooks due to the ill-timed debt-ceiling deadline? Yes. Does this mean that the third and fourth quarter will be weak, even … Read more

Combining Valuation and Technicals: Optimize Your Entry Point in Cisco

by

At Valuentum, we feel that the best stocks will be those that are undervalued on both a DCF basis and on a relative-value basis and are just starting to demonstrate positive technical and momentum indicators. We think this allows our subscribers to identify the most attractive stocks at the most opportune time to buy. Let’s use Cisco (CSCO) to illustrate our process. For starters, we feel the firm represents a very compelling opportunity from a DCF valuation standpoint. We provide our valuation summary below and make our DCF valuation model template available here, so that readers can use it to value any firm in their portfolio. Source: Valuentum Securities, Inc.What the above valuation reveals is that we think Cisco is worth between … Read more

Disney Posts Decent Fiscal Third Quarter; Consumer Spending at Parks, Resorts Up

by

Walt Disney (DIS) reported decent fiscal third-quarter results Tuesday that showed revenue growth of 9% and solid net-income expansion of 11%. We like the strong brands at Disney and would consider adding it to our Best Ideas portfolio under $28 per share on the basis of our discounted cash-flow process. The firm experienced solid sales growth from is Parks and Resorts (up 12%)—Disney Cruise Line and Hong Kong Disneyland Resort–and Consumer Products (up 13%)—Merchandising Licensing–segments. These two segments also led the charge with respect to operating income expansion, with Media Networks also posting nice double-digit growth thanks to strong performance from cable networks (specifically ESPN) and broadcasting (driven by lower programming and production costs). As it relates to the health of the consumer, the firm noted … Read more

Shares of Xerox Look Like a Bargain

by

As part of our process, we employ a discounted cash-flow model to arrive at a fair value estimate for every company within our equity coverage universe. In Xerox’s (XRX) case, we think the shares look undervalued at today’s prices. Our fair value estimate for Xerox is $14 per share, significantly higher than where it is currently trading. In the spirit of transparency, our DCF model valuation template can be found here. We make this template available to investors, and it can be re-used to value any other operating firm. Valuation Summary We assume annual average top-line growth will average in the mid-single-digits over the next five years. We also assume that Xerox will grow earnings at a nice double-digit clip … Read more

Best-Idea Astronics Posts Second Quarter Results; Raises Full-Year Revenue Outlook

by

Best-idea Astronics (ATRO) reported solid second-quarter results Tuesday and raised its revenue outlook for this year. Revenue jumped nearly 18% from the same period a year ago, while the firm’s operating margin expanded over 300 basis points, to 13.1%. During the quarter, the firm received its second-best quarterly bookings in history, at nearly $60 million. Bookings in its aerospace segment advanced 19% from last year’s second quarter and were up 13% on a sequential basis. Total backlog also advanced sequentially and on a year-over-year basis, and the firm noted that it expects to ship 75% of its total backlog by the end of this year. We think the firm’s order pipeline remains robust, given expected build rates of commercial aircraft … Read more

A Shopping List of 15 Solid Companies Amid This Market Turmoil

by

With the markets shedding over 6% across all major market indices today, we’ve widened our watch list to include names that have reported strong second-quarter earnings (some reporting as recent as a few weeks ago). We think firms with strong earnings potential are ones that could see the biggest bounce when the market recovers, as multiple compression from both a declining price and expanding earnings makes these names particularly interesting for investors that fall into the value camp. Though we fall short of making generalities, we’re less enthused about firms that have reported generally weaker second-quarter earnings, despite their share price declines. In other words, we’re looking to add best-of-breed names to our Best Ideas portfolio at the most opportune … Read more

Stay the Course; This is Not Lehman II, S&P Downgrade Meaningless

by

As we had indicated a few weeks ago, investors should turn off the political news related to the debt ceiling debate, and we now encourage investors to stay the course with their investment strategy, despite the media’s attempt to amplify yet another containable crisis. When we first published our report suggesting that there was no cause for worry about the debt-ceiling deadline, we received quite a number of questions about how we could be so confident. Well, first of all, there is a degree of common sense: 1) the President could take it upon himself to invoke the use of the fourteenth amendment, which indicates that the US must make good on all of its debts and 2) politicians had already lived through the mistakes … Read more

LinkedIn Posts Solid Second Quarter, Still Irrationally Overpriced

by

LinkedIn (LNKD) posted solid second-quarter results Thursday, but we maintain that the price the market has put on this company makes very little sense. We’re increasing our fair value estimate to $55 per share from $45 per share primarily on the back of higher expected EBITDA for this year versus our original expectations. Revenue growth for its second quarter more than doubled, and the firm snuck in a $0.04 GAAP EPS profit in the period – not the magnitude we’d expect from a $100-plus per share stock, no matter how optimistic its growth prospects. To get such an inflated multiple, LinkedIn should have to earn it, and a quarter of outperformance is hardly enough. Member growth was over 60% in … Read more

Nike: An Attractive Candidate in a Declining Market

by

Nike looks like an attractive investment candidate in a falling market Nike is one of the most recognizable brands on earth. With sales of over $20 billion in fiscal year 2011, it’s easily the largest athletic retailer on the planet. After growing revenues 9% in a tough retail environment, and on an enormous base of $19 billion, we think Nike is a best-in-class company, and we are initiating coverage with a fair value of $95. This implies a multiple of about 18x 2012 earnings, and earnings per share growth of over 18%. Fourth quarter profit reveals operational strength It’s not often we get excited when a company has its gross margin fall over 300 basis points in a single quarter, … Read more