Valuentum Exclusive Analysis for the Discerning Investor

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Devon Energy Completes High-Grading Process, Free Cash Flows Remain Elusive
Image Shown: An overview of Devon Energy Corporation’s remaining asset base, which consists of upstream oil and gas operations spread across four major unconventional plays in the US. Image Source: Devon Energy Corporation – December 2019 IR Presentation. Times are tough in the oil & gas patch, especially for upstream producers of raw energy resources like Devon Energy Corp. Not only are global oil prices low, which drags down natural gas liquids pricing for products like propane and butane, but North American natural gas supplies are trading at rock-bottom prices as well. Devon Energy has attempted to cope by divesting less economical assets and shifting all of its focus towards its best well locations, a process known as high-grading. Due to the recent strength in WTI, shares of DVN have started to march towards the upper end of our fair value range estimate and currently yield 1.4% as of this writing. Devon Energy is placing a great focus on developing “liquids-rich” plays, which refers to developing well locations with high crude oil and natural gas liquids production mixes.

Our Reports on Stocks in the Leisure Industry
Image Source: Hasbro. The leisure industry is composed of firms that span the cruise line business to those that make toys and children’s products. The cruise business has grown significantly in recent years, but still remains relatively small compared to the overall vacation industry (including land-based destinations). Competition among toy companies is intensifying due to recent trends toward shorter toy life cycles, the increasing use of technology in toys, and the proliferation of electronic consumer products and video games. All industry participants compete for consumer discretionary income. We’re neutral on the structure of the group.

Dividend Increases/Decreases for the Week Ending December 20
Let's take a look at companies that raised/lowered their dividend this week.

FedEx’s Earnings Miss
Image Source: FedEx Corporation – 2019 Annual Stockholders Meeting September 2019 IR Presentation. In the days leading up to FedEx Corp latest earnings report where the firm missed by a mile, news broke that Amazon is now blocking third-party sellers that use its marketplace platform from using the FedEx Ground delivery service (which handles North American volumes) to ship to Prime customers. This comes on the heels of FedEx and Amazon ending two significant shipping contracts earlier this year, including the arrangement where FedEx Ground would handle some of Amazon’s packages, a deal that expired at the end of August. Please note that FedEx Ground is a small-package delivery service that caters to America and Canada, and that other FedEx options for certain packages bought through or sold by Amazon are still available. We are still staying away from FedEx as its ability to generate free cash flows remains pressured by its need to invest heavily in the business to keep up with the likes of Amazon and others. FedEx’s dividend payout could be at risk should exogenous shocks (i.e. a breakdown in the partial US-China trade war truce) continue weakening its financial performance.

Cisco, Intel, Johnson & Johnson, and PayPal in the News
Cisco is trading at the low end of our fair value estimate range, and the company’s healthy dividend yield is well supported. Intel remains one of our favorite ides, and we expect a stellar dividend-growth trajectory at the company, too. Johnson & Johnson’s shares look poised to break out to new highs, and PayPal continues to execute nicely.

ICYMI: Interview with Valuentum’s Callum Turcan
Callum Turcan helps head up Valuentum’s research product and is co-editor of the company’s newsletters. We sat down with Callum to get his thoughts on new developments in the market and economy. Let’s kick things off with his thoughts on Brexit.

As Expected, Broadcom’s Organic Revenues Didn’t Grow in Fiscal 2019
Image Source: Broadcom Inc – November 2019 IR Presentation. On December 12, Broadcom reported fourth-quarter earnings for its fiscal 2019 (period ended November 3, 2019). While GAAP revenues for the full fiscal year were up 8% year-over-year, hitting $22.6 billion, please note that includes the uplift from Broadcom acquiring CA Technologies. Shares of AVGO initially traded down 2%-3% on December 13, as investors digested the firm’s guidance for fiscal 2020. As of this writing, shares of AVGO yield 3.4%.

Oracle’s Dividend Growth Trajectory Remains Solid
Image Source: Oracle Corporation – Financial Analyst Meeting Presentation, September 2019. On December 12, Oracle Corp reported second quarter earnings for its fiscal 2020 (period ended November 30, 2019). Massive share repurchases reduced Oracle’s diluted outstanding weighted-average share count from 3,908 million in the first half of fiscal 2018 to 3,370 million in the first half of fiscal 2019. That played a key role in boosting Oracle’s EPS performance (diluted GAAP EPS was up 12% year-over-year in the first half of fiscal 2020) as its revenues were broadly flat during this period. We continue to like Oracle in our Dividend Growth Newsletter portfolio given the strength of its free cash flow profile and promising outlook. Shares of ORCL yield 1.7% as of this writing, and its strong Dividend Cushion ratio of 2.7x provides for a solid payout growth trajectory. Shares of Oracle sold off initially on its weaker than expected sales performance last quarter, but we remain optimistic on its future potential as we’ll cover in this note.

Our Reports on Stocks in the Broad Chemicals Industry
We've optimized our chemicals coverage.

Dividend Increases/Decreases for the Week Ending December 13
Let's take a look at companies that raised/lowered their dividend this week.