Valuentum Exclusive Analysis for the Discerning Investor

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Nov 28, 2022

Deere’s Incredible Pricing Power Shines Through in Fiscal Fourth Quarter
Image: Deere put up excellent fiscal fourth-quarter results for the period ending October 30, 2022. The company's pricing power is phenomenal. Image Source: Deere. Deere & Company put up excellent fiscal fourth quarter results November 23, and the highlight of the quarter was the firm’s tremendous pricing power. Its outlook for fiscal 2023 was solid, too, and we expect considerable operating income expansion on the back of strong double-digit top-line growth as supply chain issues fall to the wayside in the coming quarters as economic conditions normalize. Deere has a sizable net debt position and traditional free cash flow faced pressure on a year-over-year basis during fiscal 2022, but the company may be one of the best ways to combat inflation through equities. Management also expects operating cash flow to bounce back to the range of $9-$9.5 billion in fiscal 2023 from $4.7 billion in the recently completed fiscal 2022. For us, however, Deere isn’t a great fit for the simulated newsletter portfolios given its pricey stock and comparatively small dividend yield of ~1%, but its outlook bodes well for the agricultural supply chain for fiscal 2023. The high end of our fair value estimate for Deere still resides below its current price of $440 per share, meaning investors are paying up to own Deere at the moment.

Nov 12, 2020

Altria May Never Make A Comeback
Image Source: Altria. Altria’s core business is under attack from almost every front, and the trend toward investing in ESG-friendly (Environment, Social and Corporate Governance) names has the company’s investor basing shrinking by the day. Aside from cigarettes, Altria has exposure to cigars, smokeless tobacco (UST), wine (Ste. Michelle), oral nicotine pouches, AB-InBev, JUUL, cannabinoid company Cronos, among other interests, but it’s clear the company’s back is against the wall as it struggles to diversify. A huge misstep with JUUL that cost it billions, very tight dividend coverage with earnings and free cash flow, a huge net debt position that will be tough to pay down given dividend obligations, and a lofty dividend yield that speaks more to risk than anything else should give investors pause. We don’t expect trouble at Altria anytime soon, but we think the red flag will go up if it ever starts to look to unload its stake in AB-InBev. If that happens, investors should run for the hills, in our view. Altria may never make a comeback, and we’ve been out of the name since it announced the deal with JUUL back in December 2018. Our fair value estimate stands at $42 per share.

Jul 31, 2020

Philip Morris International Posts Solid Guidance, Cuts Costs
Image Shown: Excluding foreign currency headwinds, Philip Morris International Inc’s financials held up relatively well during the first half of 2020, all things considered with an eye towards the pandemic. Image Source: Philip Morris International Inc – Second Quarter of 2020 IR Earnings Presentation. The ongoing coronavirus (‘COVID-19’) pandemic has severely stressed consumer spending in countries all over the globe, and that includes spending on cigarettes and other tobacco products. For a major tobacco company like Philip Morris International, this dynamic weighs negatively on its near-term outlook, though the company is well-positioned to ride out the storm for several reasons. We continue to like Philip Morris International as a holding in the High Yield Dividend Newsletter portfolio, and shares of PM yield ~6.0% as of this writing. Philip Morris International’s dividend coverage on a forward-looking basis is decent and supported by its optimistic guidance (a rebound is expected during the second half of 2020), growing demand for its heated tobacco offerings (such as IQOS, which is not an acronym), high quality cash flow profile, ongoing access to capital markets at attractive rates (particularly debt markets), pricing power at its traditional cigarette brands (such as Marlboro), and its ample liquidity position at the end of June 2020. However, we caution that Philip Morris International’s large net debt load, while manageable, weighs negatively against its dividend coverage strength. We give Philip Morris International a “GOOD” Dividend Safety rating which factors in modest per share payout growth and expected future free cash flows over the next five full fiscal years, along with its large net debt load.

May 18, 2020

Earnings Roundup for Week Ended May 17
Image Shown: We cover several earnings reports in this article across several sectors and industries to provide an overview of how corporates performed during the early stages of the ongoing coronavirus (‘COVID-19’) pandemic. Reducing expenses, generating efficiency gains, and ultimately improving the cost structure of corporates appears to be a key theme during the first-quarter 2020 earnings cycle. Management teams across the board are hunkering down and preparing for the pain to continue as global economic activity is expected to grind to a halt in the second quarter of 2020, before recovering somewhat due in part to massive fiscal and monetary stimulus measures that were launched to offset the negative impact COVID-19 is having on economic activity.

Apr 29, 2020

Philip Morris International is Ready to Ride Out the Storm
Image Source: Philip Morris International Inc – First Quarter of 2020 Earnings IR Presentation. On April 21, High Yield Dividend Newsletter portfolio holding Philip Morris reported first-quarter earnings for 2020 which beat both top- and bottom-line consensus estimates. Shares of PM currently yield ~6.1% as of this writing, and we view that payout as well-covered given the resilience of Philip Morris International’s free cash flows and business model (demand for tobacco and tobacco products is inelastic), along with the firm’s ability to tap its revolving credit lines and potentially debt markets if needed. Management pulled the firm’s full-year guidance for 2020 and instead offered guidance for the second quarter, given the lack of clarity over macroeconomic conditions in light of the ongoing coronavirus (‘COVID-19’) pandemic.

Feb 12, 2020

Philip Morris International Moving on Upwards
Image Shown: We increased the weighting in shares of Philip Morris International in the High Yield Newsletter portfolio back on November 18, 2019. Shares of PM have rallied aggressively off of their Fall 2019 lows through the middle of February 2020. We continue to like Philip Morris International in our High Yield Dividend Newsletter portfolio, and we remain pleased with our decision to increase the weighting of shares of PM in the portfolio. The company’s guidance for 2020 indicates further improvement in its free cash flow generation, potentially allowing for future per share dividend increases. On a final note, we want to stress that while Philip Morris International’s Dividend Cushion ratio sits at 0.8x, we adjusted its Dividend Safety rating up to GOOD given its ability to refinance its net debt load and the stability of its free cash flows (while Philip Morris International is a capital market dependent entity, the firm retains quality access to capital markets). When we update our tobacco models, there’s a good chance the company’s Dividend Cushion ratio will improve given its declining net debt load, rising free cash flows, and improving outlook.

Oct 28, 2019

High Yield Dividend Newsletter Portfolio Holdings AT&T and Philip Morris International Continue to Shine
Image Shown: AT&T continues to surge higher this year as shares of T converge towards their intrinsic value, a process supported by recent activist investor activity directed towards the company. If you may wish to add the High Yield Dividend Newsletter to your membership, please click here.We continue to like the resurgence in AT&T's shares of late. The company is rapidly converging to our $40 per share fair value estimate, and as the company divests assets and pursues deleveraging, its dividend growth profile is enhanced. Shares already yield an enticing 5.3%, too. Philip Morris has rallied considerably since it broke deal talks with Altria, and we believe the company has a relatively lower business risk profile than Altria. Both Philip Morris and Altria have Dividend Cushion ratios below the 1.25x threshold, or GOOD threshold, but given more positive overall trends at Philip Morris, we prefer the company over Altria at this time. Shares of Philip Morris yield a lofty 5.7% at the time of this writing.

Oct 18, 2019

Philip Morris International: Free Cash Flow King With Upside Potential
Image Shown: Philip Morris International's Marlboro cigarette brand remains very popular worldwide. Pricing power is essential to offsetting declines in traditional cigarette sales volumes as the company positions itself for alternative tobacco products to become a larger part of its revenue streams. Image Source: Philip Morris International – Third quarter 2019 earnings presentation. We continue to like Philip Morris International as a quality high-yield play with good dividend coverage in a low interest rate environment. Strong pricing power enables the firm to offset sales declines of its traditional cigarette volumes as the company waits for its alternative smoking offerings (like IQOS) to represent a bigger chunk of company-wide sales. Please note that foreign currency headwinds remain significant, but manageable. As of this writing, Philip Morris International yields 5.8%.

Aug 22, 2019

What’s on the Valuentum Team’s Mind?
Let’s get the Valuentum team’s thoughts on recent developments.

Oct 12, 2018

In the News: Expensive Energy, China’s Trade Surplus and Auto Market, and Big Tobacco Developments
The IEA is concerned about the impact of rising energy prices on global economic growth, and both it and OPEC have lowered near-term oil demand growth expectations. The impact of the US-China trade dispute continues to be sized up by a number of industries, including automakers, and big tobacco companies may be looking to the cannabis market for future growth as the space remains sensitive to potentially increasing regulations.