ARCO

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

McDonald’s Speaks of Cautious Consumer But Traction with $5 Meal Deal

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By Brian Nelson, CFA McDonald’s (MCD) reported results July 29 that showed both revenue and non-GAAP earnings per share coming in lower than the consensus forecast. Consolidated sales were flat (up 1% in constant currencies), while systemwide sales fell 1% (up 1% in constant currencies). Global comparable store sales fell 1% in the quarter, lower than the consensus forecast, with negative comparable store sales across all of its segments. U.S. comps fell 0.7%, International Operated Markets [IOM] comps fell 1.1%, while International Developmental Licensed Markets [IDLM] comps dropped 1.3%. Performance wasn’t as bad as the decline in comps would suggest given the 11.7% comp McDonald’s lapped from the same quarter of 2023. U.S. comps were impacted by negative comparable guest … Read more

McDonald’s Continues to Be Impacted By the War in the Middle East

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Image: McDonald’s shares have largely traded sideways the past couple years.  By Brian Nelson, CFA On April 30, McDonald’s (MCD) reported mixed first-quarter results with revenue coming in roughly in-line with consensus and non-GAAP earnings per share missing slightly. During the first quarter, global comparable sales advanced 1.9% led by strength in the U.S. offset in part by weakness in its International Developmental Licensed Markets segment due to the war in the Middle East. Management continues to focus on execution as it outlined in the first-quarter press release: Our global comparable sales growth in the first quarter marks 13 consecutive quarters of positive comparable sales growth with 30% growth over the last 4 years. As consumers are more discriminating with … Read more

McDonald’s Facing Macro Challenges, Impacts from the War in the Middle East

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Image Source: Mike Mozart By Brian Nelson, CFA On February 5, McDonald’s Corp (MCD) reported decent fourth-quarter results with strong revenue growth coming roughly in-line with consensus estimates and non-GAAP earnings per share exceeding the Street’s forecast. Though the firm noted that it is experiencing some macro challenges and that its operations continue to be impacted by the war in the Middle East, we like having McDonald’s as a core restaurant holding in the Best Ideas Newsletter portfolio in part because of its mostly franchised business model that handles inflationary pressures well and its strong and world-renowned brand name. The high end of our fair value estimate range of McDonald’s stands at $345 per share, and the company yields ~2.25% … Read more

6%+ Dividend Yielder Cracker Barrel Needs to Raise Menu Prices More Aggressively

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By Brian Nelson, CFA Cracker Barrel Old Country Store (CBRL) is a high-yielding restaurant idea with a unique concept that has fallen on more difficult times of late. Our recent channel checks indicate that Cracker Barrel has a lot of room to raise prices versus peers, but the firm is having a hard time executing on this front as overall traffic trends remain challenged. Right now, Cracker Barrel yields ~6.3%, and if the company can turn things around, it might make for one of the most interesting income ideas on the market. The high end of our fair value estimate range of Cracker Barrel stands north of $100 (its shares are trading at ~$80 each), but investors should remain cautious … Read more

Brief Take: Chart of Best Ideas Newsletter Portfolio Idea Chipotle Looks Beautiful!

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Image: Chipotle’s shares have surged to a 52-week high. We continue to like the company’s long-term market opportunity. Brian Nelson, CFA Chipotle’s (CMG) shares have broken out to a 52-week high, and its chart looks beautiful. We attribute the recent strength in shares to greater conviction by the market in the company’s long-term restaurant growth potential. The company expects to open 255-288 new restaurants in 2023, a number that includes roughly a dozen or so restaurants that will be relocated to accommodate a Chipotlane drive-through. Adding more Chipotlanes, an initiative that grew out of meeting the needs of consumers during the worst of the COVID-19 pandemic, is key to our long-term thesis on the name. The pace of restaurant growth … Read more

Dividends, Dividends, Dividends

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Valuentum’s President of Equity Research Brian Nelson shares three unique insights on dividends not commonly discussed among investors. The transcript of the video can be found in this article. Brian Nelson, CFA: This is Brian Nelson from Valuentum Securities. I wanted to share with you three insights on dividends that I don’t think are talked about enough in today’s dividend growth investing handbook. The first is the idea that the dividend is a symptom of a company’s strength so the key driver behind a firm’s valuation is its free cash flows, and the dividend is a symptom of the company being able to continue to generate those free cash flows and to pay a portion of those cash flows to … Read more

Chipotle’s Fourth Quarter 2022 Results Not Bad, Has Incredible Long-Term Unit Restaurant Potential

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Image Source: Valuentum By Brian Nelson, CFA Best Ideas Newsletter portfolio holding Chipotle Mexican Grill (CMG) reported solid fourth-quarter earnings results February 7, but they came up short relative to more optimistic consensus expectations. Total revenue advanced 11.2% in the quarter thanks to solid comparable restaurant sales expansion of 5.6%. Consensus, however, was looking for 7% comparable restaurant sales expansion in the period. We’re not reading too much into the miss. During the fourth quarter, the burrito maker’s operating margin leapt ~550 basis points, to 13.6%, and its restaurant level operating margin came in at 24% in the quarter, which was up 380 basis points from the same period a year ago. Adjusted diluted earnings per share was $8.29 in the … Read more

Something New!

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Hi everyone: To stay true to our mission, you’ll find something new regarding our methodology. In the coming weeks, you’ll see this table in our work going forward. We just wanted to let you know. We appreciate your membership very much!   ——————————————— About Our Name But how, you will ask, does one decide what [stocks are] “attractive”? Most analysts feel they must choose between two approaches customarily thought to be in opposition: “value” and “growth,”…We view that as fuzzy thinking…Growth is always a component of value [and] the very term “value investing” is redundant.                          — Warren Buffett, Berkshire Hathaway annual report, 1992 At Valuentum, we take Buffett’s thoughts one step further. We think the best opportunities arise from an understanding of … Read more

McDonald’s, Chipotle’s Third-Quarter Results Were Solid, Strong Comp Performance

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Image Source: Valuentum By Brian Nelson, CFA On a day where a high-profile stock such as Meta Platforms (META) is down more than 20%, it’s difficult to focus on the positives. But we are – we recently replaced Meta Platforms with McDonald’s (MCD) in the simulated Best Ideas Newsletter portfolio, and we’re not looking back. McDonald’s is popping nearly 4% during the trading session October 27, and we continue to point to the high end of the fair value estimate range for shares as a reasonable intermediate term target ($300 per share). We’ve been quite concerned about the macro environment during the past several months as inflation changed from a positive catalyst to business pricing and strong equity returns in … Read more