CMG

Yum! Separation on Track; China Picking Up in 3Q?

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Image Source: Yum! Brands, 2015 Annual Report By Jessica Bishop Squashing a recent report from Bloomberg that suggested the Yum! (YUM) separation had been delayed, the executive team heading the KFC, Pizza Hut and Taco Bell franchises said in its second quarter 2016 report, released after the close July 14, that all is well with plans to separate its fast-growing operations in China from the rest of the company. We outlined our latest thoughts on the China separation in our late June piece, “Yum! Does One Plus One Equal More Than Two?” and while not much has changed in the past few weeks, we continue to monitor Yum! — not only in the event the separation causes a mispricing with … Read more

Yum!: Does One Plus One Equal More Than Two?

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Image Source: Dave Proffer Yum! Brands (YUM) has a fantastic portfolio of restaurants including KFC, Taco Bell, and Pizza Hut. It operates in more than 140 countries with nearly 43,000 restaurants, and despite the maturity of its three core concepts in the US, Yum! Brands continues to expand its store base at an incredible rate, particularly in Asia (in 2015 alone, it opened almost 2,400 new restaurants companywide, averaging ~6 new restaurants daily). Yum! Brands will be pursuing major changes in the near term, however, and is set to split into two publicly-traded, independent companies by the end of 2016: ‘Yum! China’ and ‘Yum! Brands.’ Though management says the split is “a classic example of ‘one plus one equaling more … Read more

Restaurant Roundup; Valuations Overcooked

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Image source: McDonald’s Investor Relations page By Kris Rosemann McDonald’s Comps Still Expanding McDonald’s (MCD) continues to believe in the turnaround strategy it implemented about a year ago, and the market appears to be on board as well. The company’s biggest appeal remains its brand recognition, and the above screen grab of its ‘Investor Relations’ page on the corporate site hints that it is well aware of this. Nevertheless, the burger giant has had a solid string of quarters as of late. Global comparable sales in the first quarter of 2016 increased more than 6% from the year-ago period, and US comparable sales grew 5.4% thanks to the broad acceptance of its All Day Breakfast strategy. We were skeptical of … Read more

Thinking About Increasing Equity Exposure Modestly in Best Ideas Newsletter Portfolio

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  Image Source: Berkshire Hathaway By Brian Nelson, CFA I’m putting together something for you… …an annotated commentary of Berkshire Hathaway’s (BRK.A, BRK.B) recently-released 2015 annual report, and specifically Warren Buffett’s letter to shareholders. Why does my opinion on this topic matter? Well, having trained hundreds of equity and credit analysts on the concept of “economic moats” (or competitive advantages) across continents for one of the largest independent investment research firms and its clients and beyond, I believe that my opinion is at least worth hearing on the topic, if only for thought-generation, conceptual understanding, and debate. Given some of the recent technical strength at Berkshire, we are also considering taking a bite out of shares should markets remain strong, … Read more

Warming Up to IBM, Walmart Disappoints Again

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Most of us woke up to the news February 18 that Apple (AAPL) would be vigorously defending the privacy of its customers against a potential “overreaching” by the Federal Bureau of Investigation and/or others. The crux of the matter is whether Apple should unlock a phone that had been used by a shooter in the San Bernardino attacks early December, per the request of the FBI, as doing so may eventually jeopardize the personal safety and security of all Americans. Several tech CEOs have come out to support Apple, but any outcome on the matter will be difficult to predict. In a day and age where privacy is a major hot-button issue, CEO Tim Cook knows he needs to step … Read more

Your Hard-Earned Money

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By Brian Nelson, CFA It was Thursday afternoon, February 11, crude oil prices just hit a 13-year low, and the S&P 500 (SPY) was about to break below key technical support. Then, just as the markets were to fall further, rumors again emerged that OPEC may be scheduling a meeting to curb crude oil output, driving crude oil prices from the depths and the market higher off technical support. A barrel of crude oil continues to trade below the $30 mark, but it was quite the “save.” From where we stand, the market hasn’t been this fragile than at any time during the past decade or so, including during much of the Financial Crisis. Optimists may be whistling past the … Read more

Chipotle and Buffalo Wild Wings…Yikes!

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It’s a perfect storm in fast-casual… We wrote about all of the troubles at Chipotle (CMG), “Chipotle Fourth Quarter Comps Suffer Greatly; Could Qdoba Be the One to Eat Chipotle’s Lunch,” and the fast-casual burrito-maker’s fourth-quarter performance, released February 2, was a doozy. Revenue fell ~7% as comparable restaurant sales dropped almost 15% in the quarter (it still opened up 79 new restaurants, however). Chipotle’s restaurant level operating margin cratered 700 basis points, while net income fell 44%, driving earnings per share down by a similar margin during the period. All of this may have been expected, but it is still quite shocking to witness these “terrible” numbers by the fast-casual giant. Management indicated that January comparable store sales were … Read more

What’s Working in Today’s Market?

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By Brian Nelson, CFA As emerging markets around the world suffer from commodity-price-led economic weakness, capital continues to find a safe-haven in US government bonds (TLT, TBT), but for those equity-oriented funds that mandate a fully-invested status, not something we’re particularly advocates of, assets within US equities have favored “lower-beta” utilities (XLU) and consumer staples (XLP) sectors while cyclically-dependent and credit-levered sectors such as the financials (XLF) and materials (XLB) have suffered thus far in 2016. The industrials (XLI) and energy (XLE) sectors have also encountered higher-than-normal selling pressure in the first few weeks of the New Year, as investors evaluate the global economic landscape and what a prolonged period of low energy prices may mean for the lowest quality … Read more

Excited About Putting Cash to Work…Eventually

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Investors are fretting over a lot of things as of late. China (FXI) announced January 19 that fourth-quarter GDP fell to 6.8%, with many noting that the measure was a 25-year low. Even if you believe that number, which may be a stretch in light of collapsing local stock markets in Shanghai and Shenzhen, the outlook can’t be much better. Steel mills across the country are reeling, and while published housing numbers don’t look that bad, we have a difficult time believing the Chinese banks are in good shape. HSBC (HSBC), Standard Chartered, and Citigroup (C) remain most exposed to what we would describe to be the growing likelihood of a contagion from weakening commodity-dependent sectors in the country. Intel … Read more

Valuentum: A Beacon For Good

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Image Source: US Embassy “Any man who may be asked in this century what he did to make his life worthwhile, I think, can respond with a good deal of pride and satisfaction: ‘I served in the United States Navy.’” – John F. Kennedy I felt inspired today. Maybe it was President Barack Obama’s reference to a new “war on cancer” in this week’s State of the Union speech, akin to that of John F. Kennedy’s mission to “go to the moon,” or maybe it was something else, but I was reminded of the great Jack Kennedy and the second quote above: what a man does to make his life worthwhile. If I were asked what I did to make … Read more