Valuentum Exclusive Analysis for the Discerning Investor

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Dec 10, 2020

Alphabet Continues to Move Higher, Supported By Its Promising Long-Term Growth Runway
Image Shown: Alphabet Inc Class C shares have surged higher year-to-date as of this writing. We see room for additional capital appreciation upside. Alphabet is one of our favorite companies, and we include Alphabet Class C shares as a top weighting in the Best Ideas Newsletter portfolio. Shares of GOOG have staged an impressive recovery since March 2020, when the coronavirus (‘COVID-19’) pandemic sent equity markets spiraling lower, and we still see room for significant capital appreciation upside. Our favorite companies are firms with pristine balance sheets (Alphabet had ~$118.7 billion in net cash, inclusive of short-term debt and not including long-term ‘non-marketable investments,’ at the end of September 2020), high-quality cash flow profiles (Alphabet generated over $25.6 billion in free cash flow during the first nine months of 2020), and impressive long-term growth runways (ideally) supported by secular growth tailwinds (allowing for multiple “winners” in the space). We continue to be big fans of Alphabet as the firm checks all three boxes!

Nov 17, 2020

Walmart’s Digital Strategy Continues to Pay Off
Image Shown: Walmart Inc continues to distribute its free cash flows back to shareholders via dividends and share repurchases. The retailing giant’s management team has a long track record of being shareholders friendly. However, we still view shares of WMT as generously valued as of this writing, given that the top end of our fair value estimate range sits at $133 per share though WMT is currently trading closer to ~$150 per share. Image Source: Walmart Inc – Third Quarter of Fiscal 2021 IR Earnings Presentation. On November 17, Walmart reported third quarter earnings for fiscal 2021 (period ended October 31, 2020) that beat consensus estimates on both the top- and bottom-lines. As we have noted in the past, the key driver behind Walmart’s financial outperformance of late has been its e-commerce operations. Whether that be to support home delivery services or curbside pick-up options, Walmart’s past digital investments better allowed the retailing giant to meet surging demand for consumer staples and other products in the wake of the ongoing coronavirus (‘COVID-19’) pandemic. The top end of our fair value estimate range sits at $133 per share of WMT, indicating Walmart is generously valued as of this writing as its shares are currently trading near $150. However, we still view Walmart’s business model as stellar and its cash flow profile as impressive. During the first nine months of fiscal 2021, Walmart generated over $16.4 billion in free cash flow. The firm spent $4.6 billion covering its dividend obligations and another $1.2 billion buying back its stock during this period, and both of these activities were fully covered by Walmart’s free cash flows and then some. Shares of WMT yield ~1.4% as of this writing.

Nov 17, 2020

Growing Competitive Pressures, Leverage Drive Our Reduced Fair Value Estimate of CVS Health (Walgreens, Too)
The rivalries in the pharmacy space continue to intensify. Just this week, on November 17, CNBC reported that Amazon was launching Amazon Pharmacy in the US, which reportedly will include free delivery for Amazon Prime members. Shares of CVS Health sold off sharply after the news broke, as did shares of Walgreens Boots Alliance. Here, we would like to highlight how recognizing competitive threats (both existing and future) represents one of the qualitative overlays we use during the enterprise cash flow analysis process to model expected future financial performance of the company. These competitive dynamics had a large influence in our decision to reduce CVS Health’s fair value estimate. Note, we also reduced our fair value estimate of peer Walgreens Boots Alliance to $43 per share from $60 per share on November 9, too.

Nov 13, 2020

Shares of Disney are Now Surging Towards the Top End of Our Fair Value Estimate Range
Image Shown: Shares of The Walt Disney Company are steadily climbing towards the top end of our fair value estimate range, which sits at $153 per share of DIS. After the market closed on November 12, The Walt Disney Company reported its fourth quarter and full-year earnings for fiscal 2020 (period ended October 3, 2020). Its latest results beat both consensus top- and bottom-line estimates. Though Disney’s financials took a big hit from the coronavirus (‘COVID-19’) pandemic, as expected (with an eye towards the enormous headwinds facing its ‘Parks, Experiences and Products’ business segment), the company’s outlook has improved considerably as its various video streaming services continue to outperform. We include shares of Disney in our Best Ideas Newsletter portfolio with a modest weighting. As the top end of our fair value estimate range sits at $153 per share of Disney, there could be room for shares to run higher even after recent share price gains.

Nov 5, 2020

Amazon’s Fair Value $4,000+ at the High End of the Range
Image: Amazon. If we were not already very tech/consumer/e-commerce heavy in the Best Ideas Newsletter portfolio with Facebook and Alphabet, etc., we’d seek to include Amazon in the Best Ideas Newsletter portfolio, too. We love Amazon’s strong and growing free cash flow generation and its robust net cash position on the balance sheet. Its competitive position and ties to future growth in key areas of AWS and e-commerce make it among the most attractively-positioned companies out there. We value shares of Amazon at over $4,000 each at the high end of the range, and we would not be surprised to see them trading there in the not-too-distant future. CEO Jeff Bezos expects that 2020 "is going to be an unprecedented holiday season."

Oct 29, 2020

Disney Is One Of Our Favorite Streaming Companies
Image Shown: Shares of The Walt Disney Company continue to recover from the pandemic-induced crash in March 2020. One of our favorite companies with significant exposure to the video streaming arena is the entertainment behemoth The Walt Disney Company. The company’s various streaming services include ESPN+, Disney+, Hulu, among others. On October 12, Disney announced a major restructuring which effectively reorganized several of its business operating segments around supporting its video streaming ambitions, with an eye towards ensuring sizable investments in original content would be put towards good use.

Oct 22, 2020

Our Thoughts on Netflix’s Latest Earnings
Image Shown: An overview of Netflix Inc’s historical financial and operational performance and a snapshot of its outlook for the fourth quarter of 2020. Image Source: Netflix Inc – Letter to shareholders covering the third quarter of 2020. On October 20, the video streaming giant Netflix reported third-quarter 2020 earnings after the market close that underwhelmed lofty investor expectations and saw shares of NFLX move lower the next day. We recently updated our cash flow models for the Discretionary Spending industry, and our current fair value estimate for NFLX sits at $488 per share, near where Netflix is trading as of this writing. The recent selloff in Netflix’s stock price is largely about investors scaling back their expectations for Netflix’s net paid subscriber growth figures, in our view, and is not a sign of underlying weakness in the company’s business model.

Oct 14, 2020

Our Thoughts on Apple Launching Its First-Ever 5G-Capable iPhone
Image Shown: Shares of Apple Inc have surged higher year-to-date. On October 13, Apple announced its first-ever lineup of 5G-capable iPhones along with a new smart home speaker offering HomePod Mini. While the 5G-capable iPhone announcement was largely expected, we appreciate the good news all the same. We include shares of Apple as a holding in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios and are big fans of the name. The HomePod Mini offering represents Apple’s way of staying competitive with similar offerings from Amazonand Alphabet.

Oct 13, 2020

Disney Moves Higher
Image Shown: Shares of Walt Disney Company, a holding with a modest weighting in our Best Ideas Newsletter portfolio, are recovering. The ongoing pandemic created significant headwinds for Disney, though stellar paid subscriber growth at its Hulu, ESPN+, and Disney+ video streaming services are helping offset some of those headwinds. On October 12, Walt Disney Company announced a major restructuring that fundamentally places a greater focus on its direct-to-consumer (‘DTC’) strategy, which rests on its video streaming services. We have written about Disney’s impressive video streaming performance in the past. Please note beyond Disney+ and EPSN+, Disney owns 67% of Hulu with Comcast Corp owning the remaining 33% stake.

Oct 12, 2020

Dollar General’s Promising Growth Outlook
Image Source: Dollar General Corporation – Fiscal 2019 Annual Report. We are big fans of Dollar General Corp and continue to like shares of DG as a holding in our Best Ideas Newsletter portfolio. After updating our discounted cash flow model, we increased the fair value estimate and the top end of our fair value estimate range for Dollar General. Under our “bull” case scenario, Dollar General now has a fair value estimate of $223 per share. Even if Dollar General surpasses the top end of our fair value estimate range, we prefer to let our winners run until their technicals turn against them. The latest 16-Page Stock Report covering Dollar General can be accessed here.