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Through March 2019, for capital appreciation ideas highlighted in the Exclusive publication, the success rate is nearly 82% (81.8%). For short-idea considerations highlighted in the Exclusive publication, the success rate is nearly 79% (78.8%). Adjusted for currency, not one income idea has cut its payout. That’s after 33 monthly editions!!!
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The Valuentum Exclusive highlights one income idea, one capital appreciation idea, and one short-idea consideration each month. The success rates have been absolutely fantastic since its inception. Each idea is highlighted in thesis form, and our team follows up on requests from members to cover updates on previously-highlighted ideas.
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Brian Nelson, CFA
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Valuentum Securities, Inc.
brian@valuentum.com
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* Success rate: The percentage of ideas highlighted in the Exclusive that have moved in the direction of our thesis (i.e. up for capital appreciation ideas and down for short idea considerations) through the current price or closed price, with consideration of cash and stock dividends. Success rates do not consider trading costs or tax implications. Trading is simulated. Past results are not a guarantee of future performance.
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Ideas mentioned by ticker symbol: AZO, HD, JCP, KSS, TJX.
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AutoZone (AZO): AutoZone has been a great success story since the firm’s stock debuted on the New York Stock Exchange in 1991, valued at just $1 billion. Today, the company’s market capitalization is over $24 billion. The automotive aftermarket industry is a strong and resilient one, with the US fleet of vehicles expected to grow to more than 290 million vehicles by 2021, with the average age expected at nearly 12 years. More cars on the road and older cars make for a very healthy market in which to operate for AutoZone. The company’s third-quarter fiscal 2019 results, released May 21, came in better-than-expected, with comparable store sales advancing 3.9% in the period. Management noted that performance in DIY (Do-It-Yourself) and growth in its Commercial business was “solid” and “accelerated,” respectively. AutoZone also noted that it is “improving (its) market share.” The company is growing nicely, but it does have a sizable net debt position. We expect to raise our fair value estimate, but shares are still not cheap. View AutoZone’s stock page >>
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Home Depot (HD): As with AutoZone, Home Depot is a fantastic retail success story. The company went public in September 1982 at just $12 per share, not adjusting for stock splits (the latest in December 1999). Shares are now trading at $190 each following its first-quarter reports that showed the home improvement retail market remains very healthy, despite some concerns regarding the housing market, more generally. Revenue advanced 5.7% in the period (comparable store sales were +2.5%), while GAAP earnings per share exceeded expectations, coming in at $2.27 in the period. The company noted that it overcame “unfavorable weather in February and significant deflation in lumber prices” during the period, and it reaffirmed its guidance for fiscal 2019. Management expects fiscal 2019 sales to advance at a 3.3% pace and diluted earnings per share to increase 3.1%, to $10.03. We plan to tweak our model following the report, but we don’t expect any material changes. View Home Depot’s stock page >>
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J.C. Penney (JCP): Our fair value estimate range for J.C. Penney at the low end is $0. We don’t think J.C. Penney’s equity will make it to the other side of the economic cycle, and shareholders of the firm today are holding a lotto ticket, and it is not likely to pay off. The company’s first-quarter results, released May 21, showed revenue falling by 5.6% (comp sales dropped 5.5%) and non-GAAP loss per share of $0.48 (-$0.48) missing expectations. Adjusted EBITDA came in at $74 million versus consensus expectations of $99.5 million and a mark that surpassed $150 million in last year’s quarter. Management expects to be free cash flow positive for fiscal 2019, but we don’t see it happening. The company has already burned through $276 million in the first quarter, despite cutting capital spending more than 30% from the same period last year. Though there may be some value in the strategic positioning of its real estate, we can’t see the investment case for J.C. Penney. View J.C. Penney’s stock page >>
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Kohl’s (KSS): The department store industry has its back against the wall, and our latest channel checks were somewhat frightening, Latest Channel Checks at Malls…Scary. Shares of Kohl’s were crushed after it reported first-quarter results May 21. Revenue dropped 2.9%, while net income fell 17% during the period, and management noted that “the year has started off slower than we’d like, with…first-quarter sales coming in below our expectation.” It seems like our channel checks were spot on. Kohl’s is excited about its nationwide rollout of its Amazon returns program, but the core business remains under pressure, with it reducing earnings per share guidance for the year to the range of $5.15-$5.45 from $5.80-$6.15 previously. Many may be attracted to the firm’s mid-single-digit dividend yield, but please be careful. Its Dividend Cushion ratio was already below 1 prior to the guidance cut, and we expect a downward revision. We think shares are about fairly valued at the moment, but they look to be most likely en route to the downside of our fair value range ($44). View Kohl’s stock page >>
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TJX Companies (TJX): If there is an apparel retailer that is handling the challenging consumer retail market well, it is TJX Companies (T.J. Maxx, Marshalls, HomeGoods). The company noted that comparable store sales advanced 5% during its first-quarter fiscal 2020 results, released May 21 (above last year’s pace of 3%). Customer traffic was the key driver thanks to strength at T.J. Maxx and Marshalls (“Marmaxx”). Management points to its “eclectic and exciting mix of merchandise and (its) treasure-hunt shopping experience, as well as the resiliency of (its) off-price retail model.” Clearly, TJX Companies is doing a lot of things right, with the firm raising its full-year earnings per share outlook by a penny, to the range of $2.56-$2.61 (up 5%-7% versus last year). In early April, TJX Companies raised its dividend 18%, to the annual rate of $0.92 (1.8% dividend yield). The company’s Dividend Cushion ratio is a fantastic 3.2. View TJX Companies’ stock page >>
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.