AMZN

Walmart’s US Comps Impress; Guidance Raised

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Walmart continues to aggressively target innovation in its operations to keep pace with Amazon, and its impressive fiscal second-quarter results led management to raise its full-year guidance for multiple metrics. By Kris Rosemann Global retail giant Walmart (WMT) is working hard to stay in front of consumers as online rival Amazon (AMZN) continues to disrupt traditional retail, “Amazon Powers Ahead; Continues to Disrupt Grocers,” and it appears to be doing a fine job. Total revenue at Walmart in its fiscal 2019 second quarter grew 3.8% from the year-ago period thanks in part to impressive comparable sales growth of 4.5% in the US, which was driven by 2%+ growth in both traffic and ticket. Net sales at Walmart International advanced 4% … Read more

Amazon Powers Ahead; Continues to Disrupt Grocers

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Image Source: Dominic Smith Amazon continues to impress as its operating leverage makes itself evident, and its integration of Whole Foods with its Prime Membership seems to improve with each subsequent update. By Kris Rosemann E-commerce giant Amazon’s (AMZN) second-quarter report, released July 26, showcased its impressive growth trajectory as reported revenue leapt 39% on a year-over-year basis, and GAAP operating income came in at nearly $3 billion, almost five times that of the year-ago period, as its GAAP operating margin expanded to ~5.6% from ~1.7%. This helped propel diluted earnings per share in the quarter to $5.07 from $0.40 in the comparable period of 2017, and free cash flow generation exploded to $4.2 billion in the quarter, nearly six … Read more

Valuentum’s Weighted Average Cost of Capital (WACC) Distribution

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The weighted average cost of capital is one of the most subjective measures in corporate finance, but it is also one of the most important ones. “The most important item over time in valuation is obviously interest rates…If interest rates are destined to be at low levels…It makes any stream of earnings from investments worth more money. The bogey is always what government bonds yield….Any investment is worth all the cash you’re going to get out between now and judgment day discounted back. The discounting back is affected by whether you choose interests rates like those of Japan or interest rates like those we had in 1982…When we had 15 percent short-term rates in 1982, it was silly to pay … Read more

PayPal on the Move to $125?

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PayPal gets the backing of a new investor, and expectations are for the equity to trade to $125 within the next 18 months. We’re not as bullish on its valuation as others might be, but we’d be really excited to see this simulated Best Ideas Newsletter idea surge! By Brian Nelson, CFA We have been mighty pleased with PayPal’s (PYPL) performance since its split from eBay (EBAY), and while we do have some concerns regarding the impending and expected non-renewal of its agreement with eBay in coming years, we fully expect PayPal to replace lost business as eBay represents just a few months of expansion at its current growth run rate. Rivalries are heating up in the online payments space, … Read more

Hasbro Shares Jump Despite Transient Challenges

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Image Source: William Warby Simulated Dividend Growth Newsletter idea Hasbro turned in another lackluster quarterly report, but its second-quarter results were better than expected as the company continues to work through a variety of what it believes are transient issues. By Kris Rosemann Hasbro (HAS) continues to face obstacles in the form of the liquidation of major customer Toys ‘R’ Us in the US and other key markets and a rapidly evolving European retail landscape, but management continues to expect to return to growth in 2019 as it adapts to the changing operating environment in Europe and fills the consumer demand void created by the departure of Toys ‘R’ Us, “Toys ‘R’ Us Liquidation News Transient to Toy Makers.” We … Read more

Amazon: The Destroyer of Other Companies’ Profits

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Image Source: Victor Amazon is stepping into the pharmacy business with the purchase of online pharmacy start-up PillPack. The market is implying the move will prove to be more than just a headache for those operating in the drug store/pharmacy and drug-distributor complex. Whether the impact will be significantly material in the coming years remains to be seen, but it’s a big directional negative for impacted parties. By Brian Nelson, CFA We saw the writing on the wall. We had once included CVS Health (CVS) in the simulated Dividend Growth Newsletter portfolio and the simulated Best Ideas Newsletter portfolio, but we ditched the company in February. We couldn’t envision a scenario at the time where things would be getting better … Read more

Owens & Minor: Dividend At Risk, But Shares Not Expensive

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We’re fans of consistent dividend payers with strong free-cash-flow coverage and solid balance sheets, but we remain very skeptical of companies with a dividend that seems “too good to be true” as the eye-popping dividend is often a byproduct of an egregious drop in the price of the stock. We believe Owens & Minor is an example of an overleveraged, slow-growth entity that may have trouble maintaining its dividend in coming years. We value shares at $20 each, however, so the market may be overreacting a bit on the downside. By Alexander J. Poulos Key Takeaways Business disruption has taken its toll on Owens & Minor’s margins and underlying profitability. From where we stand, there is little in the way … Read more

Internet Sales Taxes and Restructuring the U.S. Post Office

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The Supreme Court has been active in creating revenue opportunities for states, as in legalizing sports betting and most recently in facilitating the collection of online sales taxes. The White House has floated the idea of reorganizing the U.S. Postal Service, but we think this endeavor represents more of a tail risk for Stamps.com than anything else. Though we expect smaller online retailers to feel some pressure as a result of the online sales tax ruling (Amazon already collects online sales taxes), we don’t think the ruling, while leveling the playing field for some brick-and-mortar retailers, will change the fate of many aging department stores such as J.C. Penney and Sears, both of which may not make it to the … Read more

Oracle’s Dividend Still Very Healthy

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Image Source: May Wong Oracle issued what is likely conservative fiscal first-quarter 2019 guidance, but the company continues to generate record amounts of operating cash flow and has a solid net cash position on the books. We’re not worried about the dividend. By Brian Nelson, CFA Oracle’s (ORCL) Dividend Cushion ratio is 4.5 at the time of this writing, meaning that, on the basis of expectations of future free cash flows relative to expected cash dividends paid, assuming a nice 12-18% annual growth rate in dividends per share over the next 5 years (as shown in its dividend report), and factoring in its net cash position on the balance sheet, we expect Oracle to cover future expected cash dividends paid … Read more

Microsoft Wins GitHub Over Alphabet

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Image Source: Microsoft deal presentation Microsoft has agreed to acquire GitHub for $7.5 billion. Competing bids may have driven the price tag higher, but Microsoft’s financial flexibility remains top-notch. By Kris Rosemann On June 4, simulated Dividend Growth Newsletter portfolio idea Microsoft (MSFT) agreed to acquire privately-held GitHub, one of the world’s leading software development platforms, for $7.5 billion in stock. We like that Microsoft isn’t taking on more debt related to this transaction, and in light of Microsoft’s buyback program, the deal is more cash-like than anything else. GitHub will continue to operate independently in providing an open platform for developers after the deal closes, which is expected by the end of 2018, similar to Microsoft’s course of action … Read more