Valuentum Exclusive Analysis for the Discerning Investor

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Oct 27, 2021

Lockheed Martin Shocks the Market
Image: After years of backlog growth at Lockheed Martin, the third quarter of 2021 revealed a sharp year-over-year decline to the tune of ~8.3%. The company’s outlook also left a lot to be desired. Lockheed Martin reported a terrible third-quarter 2021 report and offered a gloomy outlook, but there are still reasons to be optimistic. The company retains strong coverage of the dividend with traditional free cash flow and has a burgeoning backlog of $134.8 billion (2.04x expected 2022 revenue). Its acquisition of Aerojet Rocketdyne may breathe new life into an executive team that may need to sharpen its focus on delivering for investors, and it's hard to argue with the strength of its competitive position. We’ll be lowering our fair value estimate upon the next update, but investors are getting paid a ~3.4% dividend yield to wait for management to right the ship. The company retains its position in the simulated Dividend Growth Newsletter portfolio.

Apr 23, 2021

Lockheed Martin Boosts Guidance
Image Source: Lockheed Martin Corporation – First Quarter of Fiscal 2021 IR Earnings Presentation. Lockheed Martin Corp, maker of missile systems, space offerings, radar systems, jet fighters (including the F-35), and other advanced weaponry, will play a leading role in keeping Western armed forces (and the militaries of Western allies) ahead of rising geopolitical tensions. We include the defense contractor as an idea in the Dividend Growth Newsletter portfolio, and shares of LMT yield ~2.7% as of this writing. Lockheed Martin’s dividend growth trajectory is impressive, its free cash flow generating abilities are stellar, and it has an enormous backlog which provides a high degree of visibility as it concerns its future cash flow generating abilities.

Feb 8, 2021

Stock Market Outlook for 2021
2020 was one from the history books and a year that will live on in infamy. That said, we are excited for the future as global health authorities are steadily putting an end to the public health crisis created by COVID-19, aided by the quick discovery of safe and viable vaccines. Tech, fintech, and payment processing firms were all big winners in 2020, and we expect that to continue being the case in 2021. Digital advertising, cloud-computing, and e-commerce activities are set to continue dominating their respective fields. Cybersecurity demand is moving higher and the constant threats posed by both governments (usually nations that are hostile to Western interests) and non-state actors highlights how crucial these services are. Retailers with omni-channel selling capabilities are well-positioned to ride the global economic recovery upwards. Green energy firms will continue to grow at a brisk pace in 2021, though the oil & gas industry appears ready for a comeback. The adoption of 5G wireless technologies and smartphones will create immense growth opportunities for smartphone makers, semiconductor players and telecommunications giants. Video streaming services have become ubiquitous over the past decade with room to continue growing as households “cut the cord” and instead opt for several video streaming packages. We’re not too big of fans of old industrial names given their capital-intensive nature relative to capital-light technology or fintech, but there are select names that have appeal. Cryptocurrencies have taken the market by storm as we turn the calendar into 2021, but the traditional banking system remains healthy enough to withstand another shock should it be on the horizon. Our fair value estimate of the S&P 500 remains $3,530-$3,920, but we may still be on a roller coaster ride for the year. Here’s to a great 2021!

Feb 2, 2021

General Electric Provides Upbeat Outlook for 2021
Image Shown: An overview of GE’s cash flow forecasts on a divisional basis for 2021. Image Source: General Electric – Fourth Quarter of 2020 IR Earnings Presentation. The ongoing coronavirus (‘COVID-19’) has weighed negatively on the industrial sector for most of 2020, before the space started to recover during the latter part of the year. On January 26, industrial conglomerate General Electric reported fourth quarter earnings for 2020 that beat consensus top-line estimates but missed consensus bottom-line estimates. The company’s business operating segments are broken down into its various GE Industrial divisions (‘Power,’ ‘Renewable Energy,’ ‘Aviation’ and ‘Healthcare’) and GE Capital. What really impressed us was that GE Industrial’s free cash flow came in at $4.4 billion in the final quarter of last year which pushed the segment’s full year free cash flow up to a positive $0.6 billion in 2020. Management cited outperformance at GE’s Healthcare division and the ongoing turnaround at its energy portfolio as being key here during GE’s latest earnings call, which offset significant weakness at its Aviation division.

Jan 21, 2021

ICYMI: Valuentum's Brian Nelson on the Latest Howard Marks' Memo: "Something of Value"
Valuentum's President of Investment Research Brian Michael Nelson, CFA, explains why there are not really value and growth stocks, why most of the research in quantitative finance is spurious and needs to be redefined on a forward-looking basis, and why enterprise valuation (not the efficient markets hypothesis) should be the organizing principle of finance. Nelson explains his views about valuation, what it means to be a value investor, and investing in the context of Oaktree Capital Howard Marks' latest memo, "Something of Value," January 11, 2021.

Nov 19, 2020

Boeing’s Financials Are Absolutely Frightening
The reality is that Boeing’s financials are still pretty scary. During the first nine months of 2020, the company burned through an incredible $15.4 billion in free cash flow, even as it cut capital spending by a few hundred million. As of the end of the third quarter of 2020, its total consolidated debt now stands at $61 billion, with total cash and marketable securities of $27.1 billion. This compares to total consolidated debt of $24.7 billion and total cash and marketable securities of $10.9 billion, as of the end of the third quarter of 2019. The grounding of the 737 MAX and the outbreak of COVID-19 have combined to be an absolute wrecking ball to Boeing’s financials, and it may take a very, very long time before things start looking better on the books. S&P, Moody’s and Fitch still give the company investment-grade credit ratings (BBB-/Baa2/BBB-), but we’re not sure the aerospace giant deserves them. Here’s what Fitch noted October 2020: “…many of the company's quantitative rating factors will be inconsistent with the 'BBB' category for three years (2019-2021) and into 2022.” It’s probably fair to say that Boeing’s debt should be rated junk, but that would cause some severe reverberations in the credit markets, in our view.

Nov 16, 2020

Value Is Not Static and the Qualitative Overlay Is Vital to Our Process
With prudence and care, the Valuentum Buying Index process and its components are carried out. Our analyst team spends most of its time thinking about the intrinsic value of companies within the context of a discounted cash-flow model and evaluating the risk profile of a company's revenue model. We have checks and balances, too. First, we use a fair value range in our valuation approach as we embrace the very important concept that value is a range and not a point estimate. A relative value overlay as the second pillar helps to add conviction in the discounted cash-flow process, while a technical and momentum overlay seeks to provide confirmation in all of the valuation work. There's a lot happening behind the scenes even before a VBI rating is published, but it will always be just one factor to consider. Within any process, of course, we value the human, qualitative overlay, which captures a wealth of experience and common sense. We strive to surface our best ideas for members.

Oct 21, 2020

Lockheed Martin Beats Expectations and Raises Guidance Yet Again
Image Shown: Lockheed Martin continued to grow its revenues and segment operating profit in the third quarter of fiscal 2020. Image Source: Lockheed Martin Corporation – Third Quarter of Fiscal 2020 IR Earnings Presentation. On October 20, Lockheed Martin Corp reported third quarter earnings for fiscal 2020 (period ended September 27, 2020) that beat consensus top- and bottom-line estimates. Lockheed Martin’s GAAP sales rose by 9% year-over-year, hitting $16.5 billion, in part due to the company increasing its F-35 aircraft deliveries to 31 in the fiscal third quarter from 28 in the same quarter last fiscal year. Additionally, all four of Lockheed Martin’s core business segments (‘Aeronautics,’ ‘Missiles and Fire Control,’ ‘Rotary and Mission Systems’ and ‘Space’) reported year-over-year sales growth. Lockheed Martin’s diluted EPS from continuing operations rose by over 10% year-over-year last fiscal quarter, though its GAAP diluted EPS was held down (still grew by 7% year-over-year) by a loss from its discounted operations relating to the resolution of a tax dispute stemming from a 2016 divestment.

Aug 18, 2020

Lockheed Martin Secures Major Aircraft Order
Image Shown: Lockheed Martin Corporation’s ‘Aeronautics’ segment is its largest in terms of operating profit. Management boosted the firm’s operating profit guidance for fiscal 2020 during Lockheed Martin’s latest earnings report. Image Source: Lockheed Martin Corporation – Second Quarter of Fiscal 2020 IR Earnings Presentation. On August 14, the US Department of Defense (‘DoD’) awarded Lockheed Martin Corporation (LMT) a ten-year $62.0 billion contract covering the sale of F-16 aircraft to overseas buyers. This is an “indefinite-delivery/indefinite-quantity (‘IDIQ’), fixed-price-incentive contract” and it is possible the ultimate sales figure under this deal will be lower than $62.0 billion. In the press release announcing the contract, the DoD noted the initial delivery order covers 90 aircraft and that this portion of the deal was worth a bit over $4.9 billion. Most of the production work on the new jet fighters will be conducted in South Carolina and Texas.

Jul 2, 2017

Prepared Remarks From Nelson Exclusive Conference Call June 30
Read President of Investment Research Brian Nelson's prepared remarks for the yearly roundup conference call, held for Nelson Exclusive members.