Valuentum Exclusive Analysis for the Discerning Investor

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Feb 22, 2020

Is a Stock Market Crash Coming? -- Coronavirus Update and P/E Ratios
Image Source: World Health Organization, Coronavirus disease 2019 (COVID-19), Situation Report -- 32. We don’t think this is the environment to put new capital to work, and we remain highly cautious of what COVID-19 means for global economic growth not just in the first quarter of 2020 but for the rest of this year (maybe longer). Right now, the US markets are not really factoring in anything related to COVID-19, and perhaps may be adjusting to China’s stimulus in artificially propping up the markets as if the outbreak is somehow a “positive thing.” With the S&P 500 trading at 19.0 forward earnings estimates--estimates that are likely too high given the evidence we are seeing with respect to a slowdown due to COVID-19--and corporate debt levels more elevated than ever before (note, a high net debt level should depress the P/E in enterprise valuation--US corporate debt has advanced 50% over the past decade, to $10 trillion), it is our contention that the current market reflects a “situation-equivalent” forward P/E (i.e. rightsizing for new net debt relative to the dot-com peak and adjusting for lower forward earnings expectations compared with current forecasts) perhaps greater than 24.4, which was recorded at the peak of the dot-com bubble. Though interest rates are lower than they were at the time of the dot-com crash, suggesting a modest reasonable bump to normalized forward P/E ratios of ~15 times to reflect “fair valuations,” we could seriously be in for fundamental-driven crash soon, as both the earnings multiple and earnings estimates contract aggressively. Hypothetically, a contraction to a 16x forward multiple on earnings estimates just 10% lower than currently forecast implies an S&P 500 of 2,566, or a swoon of about 20%-30% from current levels--and that would just get us down to 16x still-respectable forward numbers. How quantitative-driven price-agnostic trading may impact this scenario is not known either, and all of this could be setting up for a wild ride in the coming weeks and months. Fasten your seatbelts. We’ll have a few newsletter portfolio alerts coming Monday.

Feb 7, 2020

Update on Wuhan 2019 Novel Coronavirus Outbreak: 31,000+ Infections, 630+ Deaths
Image Source: 2019-nCoV, Centers for Disease Control and Prevention. The number of infections and deaths related to the Wuhan 2019 Novel Coronavirus has surged since our last update, but we maintain our view that investors should keep a level head. We continue to wait to add protection to the newsletter portfolios as the market absorbs a massive liquidity injection from the PBOC.

Jan 23, 2020

Resetting Your Mental Model
Image Source: affen ajlfe. Having the right mental model and using the right information can be the reason why you win or lose in investing.

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.

Oct 25, 2019

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

Oct 20, 2019

Our Reports on Stocks in the Restaurants - Fast Casual & Full Service Industry
The restaurant industry has benefited from a long-term trend toward eating out, but the space has become increasingly more competitive as new concepts are introduced and successful chains expand. Not only are there pricing pressures and trade-down threats, but rising costs for commodities and labor have pressured profits. Barriers to entry are low, and many constituents have a difficult time differentiating themselves. We tend to like larger chains that benefit from scale advantages and international expansion opportunities, though niche franchises can be appealing. We’re neutral on the structure of the group.

Sep 17, 2019

DGN Holding Cracker Barrel Posts a Solid Quarter, Issues Promising Fiscal 2020 Guidance
Image Source: Cracker Barrel - IR Presentation.  Dividend Growth Newsletter portfolio holding Cracker Barrel Old Country Store reported fourth quarter earnings for its fiscal 2019 (ended August 2) on September 17 that were positively received by the market. We like Cracker Barrel’s dividend growth trajectory as its payout expands alongside its free cash flows.

Jul 30, 2019

McDonald’s Not on the Value Menu
Image Source: Valuentum's 16-page Report of McDonald's. We can’t get anywhere close to McDonald’s share price with our discounted cash-flow valuation process. That doesn’t mean that shares are destined to fall, but it may indicate that the stock has pulled forward future returns. In any case, investors in McDonald’s should be cautious.

Jun 5, 2019

Cracker Barrel 's Lofty (and Hidden) Dividend Yield
Image Source: Cracker Barrel Presentation (10/17). We continue to like Cracker Barrel as an idea in the Dividend Growth Newsletter portfolio. Its special dividends fly under the radar, offering those that are willing to dig a bit deeper in the analysis a nice reward.

Dec 31, 2018

Valuentum Stock Screeners
Brian Nelson provides members with an update on Valuentum's stock screeners and the significant number of forward-looking data we provide. This article was sent to members via email December 29.