Valuentum Exclusive Analysis for the Discerning Investor

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May 7, 2021

Dividend Increases/Decreases for the Week May 7
Let's take a look at companies that raised/lowered their dividend this week.

Apr 21, 2021

Abbott Expects Strong Earnings Expansion in 2021
Image: We use a discounted cash flow model to derive a fair value estimate range for companies in our coverage. The high end of our fair value estimate range for Abbott is $125 per share. We're maintaining this range after its first-quarter 2021 report. Image Source: Valuentum's 16-page stock report of Abbott. On April 20, Abbott Laboratories reported first quarter 2021 earnings that missed consensus top-line estimates but beat consensus bottom-line estimates. Last quarter, Abbott Laboratories’ ‘Diagnostics’ revenues more than doubled year-over-year due primarily to its COVID-19 pandemic-related offerings, while its ‘Medical Device’ and ‘Nutrition’ revenues were up 9% and 6% year-over-year on an organic basis, respectively. Additionally, its internationally-oriented ‘Established Pharmaceuticals’ unit posted 6% year-over-year organic sales growth last quarter. We're maintaining our fair value estimate range.

Apr 8, 2021

The Best Years Are Ahead
The wind is at our backs. The Federal Reserve, Treasury, and regulatory bodies of the U.S. may have no choice but to keep U.S. markets moving higher. The likelihood of the S&P 500 reaching 2,000 ever again seems remote, and I would not be surprised to see 5,000 on the S&P 500 before we see 2,500-3,000, if the latter may be in the cards. The S&P 500 is trading at ~4,100 at the time of this writing. The high end of our fair value range on the S&P 500 remains just shy of 4,000, but I foresee a massive shift in long-term capital out of traditional bonds into equities this decade (and markets to remain overpriced for some time). Bond yields are paltry and will likely stay that way for some time, requiring advisors to rethink their asset mixes. The stock market looks to be the place to be long term, as it has always been. With all the tools at the disposal of government officials, economic collapse (as in the Great Depression) may no longer be even a minor probability in the decades to come--unlike in the past with the capitalistic mindset that governed the Federal Reserve before the “Lehman collapse."

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!

Jan 27, 2021

ALERT: Raising Cash in the Newsletter Portfolios
Our research has been absolutely fantastic for a long time, but 2020 may have been our best year yet. With the S&P 500 trading within our fair value estimate range of 3,530-3,920 (and the markets rolling over while showing signs of abnormal behavior), we're raising the cash position in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio to 10%-20%. For more conservative investors, the high end of this range may even be larger, especially considering the vast "gains" from the March 2020 bottom and the increased systemic risks arising from price-agnostic trading (read Value Trap). The individual holdings will be reduced in proportion to arrive at the new targeted cash weighting in the respective simulated newsletter portfolios. The High Yield Dividend Newsletter and Dividend Growth Newsletter are scheduled for release February 1. We'll have more to say soon.

Jan 15, 2021

Steris Ties the Knot with Cantel Medical
Image Shown: Cantel Medical Corp is getting bought out by Steris PLC through a cash-and-stock deal. The image up above highlights Cantel Medical’s promising long-term growth outlook, though its performance in 2020 was subdued due to headwinds created by the coronavirus (‘COVID-19’) pandemic. In our view, Steris was attracted to Cantel Medical’s improving outlook (the latter started to stage an impressive rebound in the second half of calendar year 2020) and the ability for the combined firm to generate substantial synergies. Image Source: Cantel Medical Corp – December 2020 IR Presentation. On January 12, Steris PLC announced it had reached an agreement with Cantel Medical to buy the company through a cash-and-stock deal worth ~$3.6 billion (~$4.6 billion when including the assumption of debt and convertible notes) that valued CMD at $84.66 per share based on the closing price of STE on January 11. The deal includes $16.93 in cash and 0.33787 share of STE for each share of CMD. Steris is heavily focused on sterilization products for hospitals and laboratories (it also provides related services). The company intends to fund the cash component of its deal for Cantel Medical with new debt issuance and committed bridge financing, which will also be used to refinance most of Cantel Medical’s existing debt. Shares of Cantel Medical have advanced ~38% (as of the end of normal trading hours January 13) from when we first wrote about the idea back in early December 2020. Even before the acquisition was announced, investors started to warm back up to the company due to expectations that the headwinds that held the firm back last year would start to dissipate this year. In our view, Steris’ acquisition of Cantel Medical is highly complementary. It appears Steris was optimistic that Cantel Medical’s long-term growth outlook remained bright even though the firm had a rough 2020.

Dec 8, 2020

Cantel Medical Surges Higher
Image Shown: Shares of Cantel Medical Corp popped higher during normal trading hours December 8 after the firm’s latest earnings report indicated its recovery was well underway. On December 8, Cantel Medical Corp reported first quarter earnings for fiscal 2021 (period ended October 31, 2020) that beat both top- and bottom-line consensus estimates. Furthermore, Cantel Medical’s $297 million in GAAP revenues last fiscal quarter exceeded the top end of its forecast that was published on October 22, which had been raised above the revenue guidance range management put forward during the firm’s fourth quarter of fiscal 2020 earnings call that was held on September 17. We published a note back on December 2 highlighting that “we think Cantel Medical is one for the radar of a risk-seeking investor” on the back of its improving near-term revenue outlook. In that article, we mentioned that it was crucial for Cantel Medical to show signs that its margins were moving in the right direction after deteriorating over the past couple of fiscal years. During its latest earnings report, Cantel Medical’s financial performance clearly indicated that a recovery was well underway.

Dec 2, 2020

Things Are Looking Up at Cantel Medical But Many Risks Remain
Image Source: Cantel Medical Corporation – Fourth Quarter and Full Year Earnings for Fiscal 2020 IR Presentation. Medical device and instrument maker Cantel Medical will be a major beneficiary of recent news regarding the growing chances that a safe and viable COVID-19 vaccine will potentially get approved soon. Though the company’s financial performance has deteriorated in recent fiscal years and organic revenue has faced headwinds, the firm’s upwardly-revised guidance (particularly its sales guidance) for the first quarter of fiscal 2021 was a highly encouraging sign, and Cantel noted that the level of elective medical procedures are starting to stabilize. Its recent October 2019 acquisition of Hu-Friedy’s dental operations will put the company in a better position to compete for business as well, though we note rising confirmed COVID-19 hospitalizations around the world continue to pose a threat to the pace of elective surgeries/procedures. Cantel’s near-term outlook is looking up, in our view, but high financial leverage (net debt to adjusted EBITDA), weak organic growth trends, rising expected operating expenses and capital spending, stronger and larger rivals that compete through bundling partnerships across the medical device/instrument arena, moderate customer concentration risk, and recent capital-spending cutbacks (coupled with a suspended dividend) to shore up capital put this idea firmly in the high-risk/speculative category. Nonetheless, given signs of a turnaround based on the recent guidance raise, we think Cantel Medical is one for the radar of a risk-seeking investor. We’ll be paying close attention to its revenue and margin performance when it reports fiscal first-quarter 2021 earnings December 8.

Nov 17, 2020

With Net Debt and Trading at 40x 2021 Earnings, Mettler-Toledo Is Too Pricey
Image Source: Mettler-Toledo. As of this writing, shares of MTD are trading at ~$1,190, which is well above the top end of our updated fair value estimate range, which sits at ~$1,040 per share. Though we like Mettler-Toledo’s business, competitive advantages and outlook, we think investors have gotten way ahead of themselves. The firm exited September 2020 with a net debt load (inclusive of short-term debt) of ~$1.1 billion, and the stock is trading at more than 42x 2021 expected earnings per share! We may have been a bit conservative with our prior fair value estimate, but Mettler-Toledo seems very overvalued, in our view, despite its fantastic business.

Sep 3, 2020

3 Lessons in Portfolio Management Over 10 Years
Image Source: http://www.epictop10.com/. "When I left as director in the equity and credit department at Morningstar in 2011, I thought I knew a whole heck of a lot about investing. I felt like I was one in the top 5-10 in the world as it relates to the category of practical knowledge of enterprise valuation (maybe include Koller at McKinsey, Mauboussin at Counterpoint, and Damadoran at Stern on this list). After all, I oversaw the valuation infrastructure of a department that used the process extensively, and the firm was among just a few that used enterprise valuation systematically. Then, at Valuentum, our small team would go on to build/update 20,000+ more enterprise valuation models. There can always be someone else out there, of course, but I don't think anybody has worked within the DCF model as much as I have across so many different companies. That said, through the past near-10 years managing Valuentum's simulated newsletter portfolios, I've also learned a number of things to become an even better portfolio manager." -- Brian Nelson, CFA