Valuentum Exclusive Analysis for the Discerning Investor

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Schlumberger and Liberty Oilfield Services Make a Deal
Image Shown: Schlumberger NV is combining its OneStim business with Liberty Oilfield Services Inc. The picture above is an overview of the combined company on a pro forma basis. Image Source: Liberty Oilfield Services Inc – Schlumberger to Contribute OneStim to Liberty IR Presentation. On September 1, Schlumberger and Liberty Oilfield Services announced that Schlumberger would combine its onshore hydraulic fracturing business in the US and Canada, OneStim, with Liberty Oilfield Services. That includes Schlumberger’s pressure pumping and pumpdown perforating businesses in the relevant regions, and its frac sand business in the Permian Basin (West Texas and Southeastern New Mexico). In return, Schlumberger is getting a 37% equity stake in Liberty Oilfield Services (on a pro forma basis) which primarily offers pressure pumping and other oilfield services to upstream companies operating in onshore US markets. The day the news broke, shares of LBRT were up 36% during normal trading hours while shares of SLB were down 1%, as investors clearly saw Liberty Oilfield Services as the big winner from this industry consolidation.

Our Thoughts on Rackspace and Zoom Video Communications
Image Source: Rackspace Technology Inc – Second Quarter of 2020 IR Earnings Presentation. The ongoing coronavirus (‘COVID-19’) pandemic has fundamentally disrupted daily activities for households all over the globe, which has changed the way individuals work and communicate with each other. Now many are working from home, doing schoolwork and attending virtual classes from home, and seeking to stay connected with friends and family while at home. Software-as-a-Service (‘SaaS’) companies that provide solutions to the problems created by COVID-19 are well-positioned to ride out the storm, aided by their asset-light and highly scalable business models.

TikTok Up for Grabs
Image Shown: ByteDance may be forced to sell the US operations of TikTok, and there are plenty of potential suitors out there with deep pockets. On August 27, Walmart announced it was in discussions with Microsoft Corp about acquiring the US operations of popular short-video-oriented social firm TikTok from Beijing-based ByteDance. Given that Microsoft noted back on August 2 it was continuing discussions concerning a potential deal for TikTok’s US, Australian, New Zealand and Canadian operations, it is likely Walmart would be interested in acquiring an economic interest in those assets as well. Additionally, a consortium led by Oracle Corp has reportedly made a $20.0 billion bid for TikTok according to The Wrap, with $10.0 billion made up in cash and $10.0 billion of Oracle stock along with a provision that would see Oracle give ByteDance 50% of the annual profits from TikTok over a two-year period. Please note that none of this is for certain, though we are intrigued by the news. Oracle is reportedly joined by General Atlantic and Sequoia Capital, two venture capital firms that are also investors in ByteDance.

Papa John’s Posts Stellar Comparable Store Sales Growth
Image Shown: Shares of Papa John’s International Inc have surged upwards year-to date as of this writing. One company that has proven to be very resilient during the ongoing coronavirus (‘COVID-19’) pandemic is Papa John’s International. We significantly raised our fair value estimate for shares of PZZA back in June 2020. As of this writing, Papa John’s is trading right at the top of our fair value estimate range which sits at $99 per share of PZZA. The company has an asset-light business model and a quality cash flow profile, a product of its focus on franchise operations, though Papa John’s does own some of its store locations. As of December 29, 2019, Papa John’s had 5,395 restaurant locations worldwide operating in 49 countries and territories. Out of those locations, ~89% were franchised and the rest were either owned by the company or by a joint-venture the company had an economic stake in. Papa John’s success largely stems from past major investments in its digital presence and a heavy focus on home delivery and carryout offerings. With the pandemic forcing households to stay in and many restaurants to close, Papa John’s rose to the occasion to meet rising consumer demand.

Facebook Hits Another All-Time High!
Image: The Valuentum Buying Index is not a stair-step trading strategy, and we view only 9s and 10s and 1s and 2s as material considerations to consider buying or consider selling criteria. We have held prior 9s and 10s in the newsletter portfolios until they reach our fair value estimates, until their technicals roll over, until they register ratings of 1 or 2 on the VBI, or due to changes in certain criteria with respect to market conditions or overall portfolio constitution. Our best ideas remain in the newsletter portfolios and Exclusive publication.Top-weighted idea in the Best Ideas Newsletter portfolio Facebook has hit another all-time high!

Just How Good Have We Been?
Image: We have been absolutely pounding the table on big cap tech and large cap growth for many months now. It has been one of the rare buckets to have done well this year. By well, we mean superb. Source: Zerohedge. After capping off one of the best years in the Best Ideas Newsletter portfolio in 2019, we highlighted broad market put option ideas in late February and early March--right before the COVID-19 crash that shocked the markets. Then, just about right near the bottom, we highlighted 17 of 20 outperforming ideas--strong net-cash-rich, free-cash-flow generating powerhouses with strong secular growth tailwinds. We then went all-in in the newsletter portfolios in late April, just in time for the best 100 trading days in the S&P 500 in history. But perhaps the chart above says even more. You know that we have been absolutely pounding the table on large cap growth, big cap tech, and the NASDAQ, and the bucket of large cap growth is up 23% this year, significantly ahead of any other style. Significantly.

Update: COVID-19 Vaccine Race
Image Source: Johnson & Johnson – Second Quarter of Fiscal 2020 IR Earnings Presentation. The ongoing coronavirus (‘COVID-19’) pandemic has devasted the global economy (though things are starting to improve) and has fundamentally altered daily human life. According to a draft report from the World Health Organization (‘WHO’), there were 29 COVID-19 vaccine candidates undergoing clinical trials as of August 13 along with 138 other candidates undergoing preclinical evaluation. It is a race against the clock. Unfortunately, as of this writing on August 18, there have been ~170,000 COVID-19-related deaths in the US alone according to data from the US Centers for Disease Control and Prevention (‘CDC’). We are optimistic that one of the many “shots on goal” will end up proving successful. The US launched Operation Warp Speed to accelerate the development of a COVID-19 vaccine, which involves providing funding to companies with promising vaccine candidates. Furthermore, please note that major economies around the world have adjusted their rules and procedures to allow for multiple phases of clinical trials to be conducted concurrently. Before getting into some of the most promising COVID-19 vaccine candidates, we hope everyone, their loved ones, and their family members are staying safe out there as we ride out the pandemic.

Our Thoughts on Chevron Buying Noble Energy
Image Shown: An overview of Chevron Corporation’s all-stock acquisition of Noble Energy Inc that was announced in July 2020. Image Source: Chevron Corporation – July 2020 Noble Energy Acquisition Presentation. On July 20, Chevron Corp announced it was acquiring Noble Energy through a $5.0 billion all-stock transaction, or $13.0 billion when factoring in net debt and the book value of non-controlling interests. Shareholders of Noble Energy will receive approximately 0.12 share of Chevron for each share of Noble Energy. At the time the deal was announced, shareholders of NBL were receiving a ~12% premium based on the ten-day average closing stock prices. Chevron intends to issue ~58 million shares to cover the deal, keeping in mind the firm had approximately 1.85 billion shares outstanding on a weighted-average diluted basis as of the second quarter of 2020. The deal is expected to close during the fourth quarter of this year and is forecasted to generate $0.3 billion in annualized run-rate cost synergies one year after closing.

Santander Working Its Way Through the Pandemic
Image Shown: Santander’s underlying attributable profit is down 53% in the first half of this year compared to last year. Image Source: Santander 2Q2020 Earnings Presentation. The underlying first-half results from Banco Santander are quite reasonable. We are impressed by how well the South American, Corporate & Investment Banking, and Wealth Management & Insurance segments are holding up in such a tough environment. In its large European operations, pressures that come from the whole continent being overbanked were evident, however.

Digital Realty Boosts Guidance, Extends Growth Runway
Image Shown: An overview of Digital Realty Trust Inc’s asset base. Image Source: Digital Realty Trust Inc – Second Quarter of 2020 IR Earnings Presentation. Data center real estate investment trusts (‘REITs’) are well-positioned to ride out the storm created by the ongoing coronavirus (‘COVID-19’) pandemic due to surging demand for cloud computing services, which in turn is driving up demand for data centers. In short, data centers are primarily facilities that house server farms along with vast amounts of fiber-optic cables that interconnect with existing networks. These facilities form the backbone of modern IT infrastructure. We include Digital Realty Trust Inc (DLR) as a holding in both our Dividend Growth Newsletter and High Yield Dividend Newsletter portfolio, and continue to like the name. Shares of DLR are up ~32% year-to-date as of this writing, and that does not include meaningful dividend considerations as shares of DLR yield ~2.8% as of this writing. In mid-July, we significantly raised our fair value estimate for shares of DLR given its improving outlook, with the top end of our fair value estimate range sitting at $181 per share.