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Recent Articles
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Philip Morris International: Free Cash Flow King With Upside Potential
Oct 18, 2019
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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%.
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Dividend Increases/Decreases for the Week Ending October 18
Oct 18, 2019
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Let's take a look at companies that raised/lowered their dividend this week.
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An Update on Facebook’s Libra as Roughly Two Dozen Members Sign On
Oct 17, 2019
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Image Shown: Facebook has room to run higher, with or without Libra.
While several large financial technology and payment processing firms have recently made it clear they no longer want to be a part of the nascent Libra Association, that didn’t stop roughly two dozen members from signing the group’s charter in Geneva, Switzerland, on October 15. We really must stress that our discounted free cash flow models for Facebook don’t take in account the upside its proposed asset-back cryptocurrency Libra might generate. This opportunity represents pure upside to our forecasts, and we continue to like Facebook as a top holding in our Best Ideas Newsletter portfolio.
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Honeywell’s Aerospace Division Its Crown Jewel
Oct 17, 2019
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Image Source: 3Q 2019 Earnings Release.
We’re huge fans of Honeywell. The company’s Aero operations are its crown jewel, and while Boeing is facing some troubles these days, we don’t expect much impact on Honeywell at all. In fact, we expect commercial aerospace to remain strong, even in the face of broader industrial weakness. The risks to the company’s HBT business could be starting to mount given some concerns in commercial real estate, but management isn’t really seeing any signs of yet, pointing to only moderating growth in 2020. The SPS division, while a headwind, probably won’t be a factor next year, but it could bounce back as inventories are cleared from the channel.
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Citigroup Lags Peers in Key Metrics
Oct 17, 2019
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Image Source: Matt Buck.
Citigroup remains well capitalized with a 11.6% Common Equity Tier 1 Capital Ratio, but there isn’t room to lever up. Management has recently expressed less optimism about reaching its previously stated goal of reaching a 13.5% ROTCE in 2020, and the market consensus has them coming up short of the same goal. Operating leverage has helped the bank improve this metric by several percentage points in the past few years, but it appears that the cost-cutting road is getting increasingly difficult. Now more revenue dependent in improving its return metric, this leaves the bank also counting on the 11-year economic upcycle to continue. It is therefore unsurprising that this bank trades right near its tangible book value of $69.03 per share. Our fair value estimate remains $71 per share.
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