Member Articles

Merck’s Shares Look Undervalued

by

A version of this article appeared on Seeking Alpha’s website: https://seekingalpha.com/article/280602-mercks-shares-look-undervalued  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 Merck’s (MRK) case, we think using a discounted cash-flow model is the best tool for valuation. We outline below our valuation summary for Merck and offer up our model template to investors if they are interested in using it to value any operating (non-financial) company they wish. This model template can be found at DCF Valuation Model Template. Valuation Summary We think Merck’s shares are worth $43 each based on our discounted cash-flow process. We’re forecasting revenue expansion in the low-double-digits for fiscal … Read more

AMR’s Second-Quarter Results: Good News for the Shorts

by

AMR Corp. (AMR), the parent of American Airlines, reported dismal second-quarter results Tuesday, as the rapid escalation in fuel prices pushed it into a deep loss during the period. Though revenue rose 8% from the same period a year ago, the company reported a net loss of $286 million, or $0.85 per share, which compares to a net loss of $0.03 per share last year. Due largely to its fuel-inefficient fleet, the carrier paid nearly 31% more in fuel costs during the period from last year’s quarter, amounting to an incremental $500 million-plus headwind. American’s mainline load factor fell 0.3 percentage points from the year ago period, suggesting that demand is not keeping up with capacity additions. We maintain our bearish … Read more

Are Boeing’s Competitive Advantages Waning? We Think So.

by

Michael J. Mauboussin, when working at CSFB in 2002, published an excellent piece on the concept of an economic moat. Warren Buffet is often given the credit of coining the term. Morningstar (MORN) and other research firms like Valuentum (via its ValueCreation rating) have embraced this compelling idea, embedding the concept in their research framework. In this article, we discuss whether we think Boeing (BA) has lost its moat, in light of the recent split-order of 460 planes from American Airlines (AMR). First of all, we think the market is completely misunderstanding the long-term implications of the recently announced and massive AMR order to replace its narrowbody fleet (which was split between Boeing and Airbus). Though receiving orders is, in itself, positive, this particular order comes at the expense of Boeing’s exclusivity with AMR — the carrier currently flies … Read more

Altria Reports Second-Quarter Results

by

Altria (MO) reported its second-quarter results Wednesday. Adjusted earnings advanced 6% from the prior-year quarter and are now on pace to increase 5.4% for the full year (its pace through the first half). Income from the firm’s cigarettes segment increased nearly 3% on an adjusted basis, with Marlboro delivering sequential retail share growth of 0.4 percentage points. Both Copenhagen and Skoal also showed improving market share in the period. Altria is not immune to economic malaise, as it indicated that the business environment for 2011 will likely remain challenging, as adult consumers face personal financial pressure and high unemployment. However, the firm reiterated its full-year guidance for adjusted earnings in the range of $2.01 and $2.07, which reflects growth of … Read more

AMR Likely to Split Massive Order Between Boeing, Airbus

by

This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/280307-amr-likely-to-split-massive-order-between-boeing-airbus As we outlined a few weeks ago in “AMR’s Big Order to Pressure Cash Flow, Boeing in Precarious Position,” we indicated the increasing likelihood that AMR (which holds American Airlines) may split a massive $15 billion-plus order between Boeing (BA) and Airbus to replace its aging fleet of narrowbodies. This would represent a huge shift at the major carrier, as AMR currently flies all-Boeing aircraft. Verbatim from our July 1 report: Boeing is in a rather precarious position. Airbus has claimed all along that it will capture customers currently flying the 737 with its A320neo (new engine option), an upgrade to its A320 that has the option to sport more fuel-efficient engines. The … Read more

Best Idea Apple Reports Fantastic Third Quarter

by

Apple (AAPL) reported its fiscal third-quarter results after the market close Tuesday, and they were fantastic. The firm’s top- and bottom-lines exceeded both consensus and our expectations, and we continue to believe that there is further upside to the shares. We added them to our Best Ideas List June 17, a trading session before its near-term bottom at about $310 per share. The stock surged to over $400 per share during after-hours trading Tuesday, and we will continue to monitor its trading activity in the coming weeks to see if taking a slice of our position off the table may be warranted. We will update our subscribers before we take any action. Apple posted quarterly revenue of $28.6 billion and earnings per … Read more

Yield Outlook Deteriorates for Airline Stocks

by

This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/280098-yield-outlook-deteriorates-for-airline-stocks As we had outlined in our industry primer for airlines, the yield (pricing) environment for the group is treacherous and remains under perpetual pressure. The International Air Transport Association [IATA] released its July 2011 Airline Business Confidence Survey. Importantly, the IATA commented on the outlook for yields, which we reproduce below: While both passenger and cargo transport businesses saw improving yield performance during the second quarter of 2011, the trend is flattening. With demand-supply conditions weakening and concerns that markets may not bear further fare/rate rises, prospects for yields over the year ahead look flat. With over 80% of respondents reporting increased input costs during Q2, clearly high fuel costs have … Read more

Clean Energy Fuels: An Interesting Long-Term Play on Natural Gas

by

This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/279549-clean-energy-fuels-an-interesting-long-term-play-on-natural-gas  Before the Chesapeake (CHK) announcement earlier this week that it would invest $1 billion over the next 10 years in the proliferation of natural gas vehicle technologies, we had some serious concerns about Clean Energy’s (CLNE) financial health. After all, the cost of developing natural gas fueling stations is not small potatoes, and the current number of these facilities is undoubtedly insufficient in the U.S. Clean Energy’s major barrier to success, in our opinion, is that it needs more places for natural gas vehicles to fill up such that demand for the purchase of natural gas vehicles will increase, and the firm would then subsequently reap the benefits of this self-reinforcing trend through its … Read more

A Deep Look Into Microsoft’s Valuation

by

This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/279186-a-deep-look-into-microsofts-valuation 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 Microsoft’s (MSFT) case, using a discounted cash-flow model is the best tool for valuation, given the firm’s robust cash-flow characteristics. We outline below our forecasts and fair value estimate for Microsoft and offer up our model template to investors if they are interested in using it to value any operating (non-financial) company they wish. This model template can be found at DCF Valuation Model Template. Valuation Summary We think Microsoft’s shares are worth $35 each. We’re forecasting revenue expansion in the low-double-digits for fiscal 2011 … Read more

Merger Mania in the Brazilian Air Travel Market: A Net Positive

by

This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/278846-merger-mania-in-the-brazilian-air-travel-market-a-net-positive As long-time followers of Valuentum know, we’re not too fond of airline stocks. Essentially, we view them as merely a speculative bet on the trajectory of economic growth and the direction of jet fuel prices. But while the price of black gold remains largely out of airline executives’ control, it’s hard not to like the economic growth prospects of the Brazilian air travel market, which has been on a tear during the past several years thanks in part to heavy discounts on fares offered by low-cost carriers such as Gol (GOL). Plus, the 2014 World Cup and the 2016 Olympics, both to be held in Brazil, will serve as temporary and … Read more