Member Articles

Visa Remains a Growth Story, Shares Have Upside

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If you’ve been watching Visa (V) and Mastercard (MA) over the last two years, both were highflying stocks with tremendous room for revenue and earnings growth. However, in a seemingly random act, Senator Dick Durbin decided to identify service revenues from the debit card duopoly as detrimental to the consumer. Since the famed “Durbin Amendment” was added to Dodd-Frank, the shares of Visa have dipped as low as $66 when the Federal Reserve announced an 11 cent processing limit on debit cards, to as high as $90 after news broke that the Federal Reserve doubled the limit to 22 cents. Although we think the company is more valuable without price ceilings, on a discounted-cash flow basis, shares of Visa are worth $107 … Read more

Best Idea Ancestry.com Raises Full-Year Guidance

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Best idea, Ancestry.com (ACOM) reported solid second-quarter results Thursday that showed nice subscriber growth and impressive EBITDA margins. The firm raised its outlook for revenue and adjusted EBITDA in 2011, but held the line with its previous subscriber guidance, a move we think is conservative given the huge influx of subscribers in its first quarter. We think the firm has tremendous upside and are retaining our current position in our Best Ideas portfolio.   Subscriber growth of 28% from the same period a year ago fueled a 36% increase in the company’s top line during the quarter. We were particularly impressed with the level of average monthly revenue per subscriber, which continues to move steadily upward. Churn did increase a … Read more

Precision Castparts Posts Strong Fiscal First Quarter Results

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Metal-bender and best idea, Precision Castparts (PCP) reported excellent fiscal first-quarter results Thursday that showed continued strength in the commercial aerospace end market and additional traction in industrial gas turbines (sales were up 15%) and its seamless pipe business (sales were up 28%). We think the name is still worthy of a position in our Best Ideas portfolio.   Precision’s sales jumped 16% in the quarter, and the firm was able to leverage that growth into a 19% year-over-year improvement in operating income. The company’s consolidated segment operating margin jumped to 25% from 24.3% in the year-ago period. We continue to believe Precision Castparts is a prime beneficiary of the strengthening build rates of commercial airplanes during the next few … Read more

Waste Management Posts Poor Second Quarter, Lowering Our Fair Value

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Waste Management (WM) posted poor second-quarter results Thursday and lowered its earnings outlook for the year on the expectation of weaker volumes. We have reduced our fair value estimate to $39 per share on the weaker volume outlook and slightly lower yield expectations. Revenue jumped 6% thanks to higher commodity prices, improving recycling volumes and a modest improvement in pricing. The company noted that volumes hit “a soft patch” in May and June, but look to be improving modestly in July. However, it took down its full-year waste volume guidance to the range of -1.5% to -2.5%. Commentary regarding yields wasn’t all that encouraging either, with the measure facing some pressure from large municipal contracts in Florida and the Gulf Coast. … Read more

Best Idea EDAC Technology Posts Excellent Second Quarter, Raising Our Fair Value

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On June 6, we wrote a bullish piece on our outlook for commercial aerospace in coming years. In it, we outlined our take on EDAC Tech (EDAC), a supplier of precision engine components to the sector. Today, the firm posted fantastic second-quarter results, and we are raising our fair value estimate to $10 per share on the heels of stronger margin performance and backlog expansion. The stock is trading up over 50% since that June 6 article, and we include this name and other ideas in our Best Ideas Newsletter, which continues to outperform the market. We reproduce below our thoughts on EDAC Tech on June 6, which was trading just above $4 per share at the time: “…one micro-cap … Read more

Delta’s Second Quarter Results Reflect Airline Industry’s Struggles

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Delta (DAL) reported poor second-quarter results Wednesday that revealed the major carrier’s continued battle with high jet fuel costs. Total operating revenue expanded 12% thanks to double-digit enhancement in yield (pricing), but operating income plummeted roughly 44% from the same period a year ago as it faced a fuel bill that was more than $1 billion higher. The company plans to cut its December quarter capacity (seats) by as much as 4%-5% on a year-over-year basis, an extra percentage point greater than it originally planned. We view this as necessary given the global economic environment and general weakness in load factor (capacity utilization) – which fell 1.3 percentage points during the period. We believe Delta is one of the better-positioned … Read more

Boeing’s Second Quarter a Non-Event, Seek Better Opportunities Elsewhere

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Boeing (BA) reported decent second-quarter results Wednesday, but we view such a quarter as a non-event for the aerospace giant. We maintain that the future of this jet maker rests on its ability to deliver its 787 and the profitability to be garnered on this program, which we forecast to be practically nil out of the gates. Management slightly lowered its forecasts for deliveries this year due to a short-term blip in (you guessed it) its 787 program, but again we view this change as largely immaterial to investors. Interestingly, total backlog fell sequentially, but we view this more as weakness in Boeing’s narrowbody strategy than in the broader commercial aerospace segment. We were pleased with the operating cash flow performance in … Read more

Under Armour’s Second Quarter Earnings: Our Thesis Remains Intact – Shares Are Overvalued

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UA beats consensus expectations, but we think our thesis is still intact. Under Armour (UA) reported second-quarter earnings Tuesday morning, with results topping consensus top-line and earnings per share estimates. Revenue grew by 42% and diluted EPS by 73%. However, the $0.12 per share earnings number only beat our estimate by two cents, and the company was cash flow negative. We still think Under Armour should be trading at around $50, and see no reason to raise our fair value estimate. We make our DCF valuation model template available here, which can be used to value any operating firm. Gross margins fall As we predicted, gross margins fell by 250 basis points, which was even worse than we expected. The company … Read more

Buffalo Wild Wings’ Strong Top Line, Growth Story Intact

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Buffalo Wild Wings (BWLD) reported decent second-quarter results Tuesday that showed impressive top-line expansion but some cost pressures due to its store-expansion plans. 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 as a result of the report. Total revenue for the second quarter increased over 26% on the heels of a 5.9% same-store sales increase in company-owned restaurants and a 2.7% jump at franchised restaurants (the firm operated 43 additional company-owned restaurants versus the same period a year ago). Average weekly sales for company-owned restaurants were up nearly 12% in the period, while the measure advanced 4% for franchised … Read more

Intel’s Shares Look Significantly Undervalued

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As of late, Intel (INTC) has been the Microsoft (MSFT) of the chip space. For example, the company beats estimates (in Q1 2011 by a lot), and then maybe moves up or down a percent or two. On its second-quarter earnings call, Intel announced that capital investments will total more than $10 billion for the year, and that PC growth was low double-digits rather than mid-double digits. The shares then experienced a mild sell-off. However, the company continues to have a near monopoly in a growing sector and produces gobs of free cash flow. On a discounted cash flow valuation, we think Intel shares are worth $26 under a bear-case scenario, but $34 in our estimated scenario. However, given the … Read more