Valuentum Exclusive Analysis for the Discerning Investor

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Jan 29, 2020

Starbucks Reports Earnings, Coronavirus to Hurt China Sales
Image Shown: How Starbucks Corporation views its competitive strengths. Image Source: Starbucks – December 2019 IR Presentation. Starbucks is trading at the upper end of our fair value range estimate, and given the headwinds facing the company in China (in terms of the competitive pressures from Luckin and the ongoing coronavirus overbreak) we see shares as fully valued as of this writing with room for meaningful downside. Its large net debt load is another concern. Shares of SBUX are priced for perfection, but exogenous headwinds could end up derailing its near-term growth trajectory.

Jan 9, 2020

Yum! Brands Buys Habit Restaurants
Image Shown: An overview of Yum! Brands Inc’s operations. Image Source: Yum! Brands Inc - Investor Fact Sheet. On January 6, quick-service restaurant chain Yum! Brands (which owns the KFC, Pizza Hut, and Taco Bell brands) announced that it was acquiring fast causal burger joint Habit Restaurants for $14 per share in cash for a total cash consideration of $375 million. Habit Burger’s footprint includes ~265 restaurants in total across more than a dozen US states and China under its namesake brand, Habit Burger Grill, and please note roughly 90% of those locations are company-owned. Having the benefit of Yum! Brands global marketing and advertising wing will support future growth endeavors at the Habit Burger Grill brand. We still aren’t interested in shares of YUM here as the top end of our fair value range estimate sits at $106, or just a few dollars ahead of where YUM is trading at as of this writing.

Dec 4, 2019

Cracker Barrel Doing Well Despite Industry Headwinds
Image Source: 2019 Annual Shareholder Meeting, November 21. First-quarter fiscal 2020 results at Cracker Barrel were solid, but the fiscal year is still early, and the restaurant industry backdrop for traffic isn’t as strong as it once was. That said, we expect Cracker Barrel to keep raising menu prices to drive strong comparable store sales performance, which should help the firm achieve operating-margin guidance of 9% during the fiscal year, propelling copious free cash flow generation and supporting capital-return efforts. That said, we’ll be watching traffic performance and cost pressures closely in the coming quarters, but for now, our discounted cash-flow derived fair value estimate of $168 per share stands, reflecting about 17.5x the high end of the firm’s adjusted earnings per share target during fiscal 2020. Cracker Barrel’s Dividend Cushion ratio remains a very healthy 1.5x. Shares yield 3.4% at the time of this writing, and this excludes any special dividends that shareholders have grown accustomed to during the past five years.

Dec 2, 2019

McDonald’s Enters the Chicken Sandwich Wars
Image Shown: Shares of McDonald’s Corporation have pulled back over the past couple of months after an epic run during most of 2019, which we view as the market recognizing shares of MCD had gotten way ahead of themselves. McDonald’s is testing out a new crispy chicken sandwich offering in two US cities; Knoxville, Tennessee and Houston, Texas. This pilot project is expected to run through January 2020. While McDonald’s offers the ‘McChicken,’ its new chicken sandwich offering is far more substantial (the McChicken is to a chicken sandwich what the ‘McDouble’ is to a burger) and meant to compete with offerings from privately-held Chick-fil-A and Restaurant Brands' Popeyes Louisiana Kitchen. We still view shares of McDonald’s as overvalued as the top end of our fair value range estimate sits at $189 per share, and MCD trades at ~$195 per share as of this writing. Shares of McDonald’s yield 2.6% as of this writing, and while the company’s free cash flow profile is impressive, its large net debt load (~$31.7 billion as of the end of September 2019) weighs negatively on the strength of its dividend coverage.

Aug 14, 2019

A Tale of Two Big Agricultural Industries: Protein Producers Win and Farm Equipment Manufacturers Lose After Recent USDA Report
Image Shown: The tale of two big agricultural companies in one chart, with shares of poultry producer Sanderson Farms Inc (SAFM) shooting up on Monday, August 12, as chicken feed prices fell after a recent USDA report (which sent corn prices sharply lower) while shares of agricultural equipment manufacturer AGCO Corporation (AGCO) tanked as the market priced in continued pressure on US farm incomes and the dynamic impact that has on demand for farm equipment. We are monitoring the agricultural industry but don’t have any agricultural-oriented equities in our Best Ideas Newsletter or Dividend Growth Newsletter portfolios for a reason. In the short- to medium-term, the space will continue to experience volatility as the next chapter of the US-China trade war unfolds.

Jun 11, 2019

Beyond Meat’s Market: $5 Billion or $1.5 Trillion?
Image: The Beyond Burger accounted for about 70% of the company’s sales in 2018. Source: S-1. The big question: how big is Beyond Meat’s opportunity? Is it $5 billion or $1.5 trillion?

Feb 15, 2019

Dividend Increases/Decreases for the Week Ending February 15
Let's take a look at companies that raised/lowered their dividend this week.

Jan 25, 2019

Dividend Increases/Decreases for the Week Ending January 25
Let's take a look at companies that raised/lowered their dividend this week.

Nov 8, 2018

Comps Accelerate and Margins Expand in Chipotle’s Third Quarter
Image Source: Mike Mozart. The once beaten down fast casual restaurant chain Chipotle is back to delivering solid comparable restaurant sales growth thanks to menu price increases, and restaurant level operating margin expanded significantly as lower marketing and promotional spending was required to appease cautious consumers.

Jun 27, 2018

Restaurant Traffic Down, Chipotle Still a Favorite Idea
Image Source: Chipotle (page 89 of 160). In late April of this year, we added Chipotle to the simulated Best Ideas Newsletter portfolio. The high end of our fair value estimate is nearly $600.