DFS

ESG Issues Plague Discover

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Image: Discover’s shares have faced pressure due to a card misclassification issue and the resignation of CEO Roger Hochschild. Discover Financial’s (DFS) shares have faced a difficult 52-week stretch as corporate news hasn’t been great. The company’s equity is down nearly 14%, while the S&P 500 (SPY) is up more than 8% over the same time stretch. Though Discover has the potential to bounce back from the troubles it has encountered, the firm has certainly been in hot water since it disclosed a card product misclassification. From its press release on July 19: Beginning around mid-2007, Discover incorrectly classified certain credit card accounts into our highest merchant and merchant acquirer pricing tier. Incremental revenue resulting from this card product misclassification … Read more

CFA Institute Blog: “Hide-‘Til-Maturity” Accounting

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The Silicon Valley Bank collapse recalls the tussle over the accounting for financial instruments after the global financial crisis [GFC] in 2009, particularly the debate about whether some financial instruments should be carried at amortized cost (held-to-maturity, HTM) rather than at fair value (available-for-sale, AFS), or what is referred to as the “mixed measurement model.”  — Sandy Peters, CPA, CFA To read the article on the CFA Institute Blog >> —– Related: 4 Very Good Reasons Why We Don’t Like Dividends of Banking Stocks Banks & Money Centers: AXP, BAC, BBT, BK, C, DFS, FITB, GS, HBC, JPM, KEY, MS, NTRS, PNC, RF, STI, TFC, USB, WFC Valuentum does not believe the long-term dividend health of any financial institution can be accurately … Read more

ALERT: Going to “Fully Invested” in the Best Ideas Newsletter Portfolio

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Image: Since the publishing of the first edition of the book Value Trap, the stylistic area of large cap growth (SCHG) has meaningfully outperformed both the equal-weight S&P 500 (SPY) and small cap value (IWN). Summary of Best Ideas Newsletter portfolio changes UnitedHealth Group (UNH): 0% –> 4%-6% Booking Holding (BKNG): 0% –> 4%-6% Chipotle (CMG): 1%-2% –> 6%-8% Technology Select Sector SPDR (XLK): 0% –> 4%-6% By Brian Nelson, CFA With the debt-ceiling debate behind the markets, the regional banking crisis largely in the rear-view mirror, and the Fed winning the fight against inflation, a continuation of the strength in the markets as witnessed from the October 2022 lows can probably be expected. We “rode” the latest upswing with … Read more

We Prefer Visa

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By Brian Nelson, CFA Visa Inc. (V) has probably the best business model in our coverage universe. The company benefits from a network effect, acts as a toll-road operator collecting fees every time one of its cards is swiped, and the credit card giant puts up huge operating and free cash flow margins. Visa is a top “weighting” in the portfolio of the Best Ideas Newsletter, and we don’t see that changing anytime soon. The high end of our fair value estimate range for Visa stands at ~$259 per share. Image: Our estimate of Visa’s range of fair value estimate outcomes. Image Source: Valuentum Our discounted cash flow process values each company in our coverage on the basis of the … Read more

Long Live Apple and Large Cap Growth!

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Image: Since the release of the book Value Trap in December 2018, an ETF that tracks large cap growth (SCHG) has outperformed not only the S&P 500 (SPY), but also the areas of dividend growth (SDY) and small cap value (IWN) by sizable margins. By Brian Nelson, CFA We explained in part why we don’t like the dividends of banking firms in this note here, and we’re starting to see dividend cuts in the regional banking space, with PacWest Bancorp (PACW) as the latest banking entity to slash its quarterly payout. Right now, executives in the regional bank arena seem to be like deer caught in headlights, and we’re even seeing banking deals fall apart. The proposed deal between Toronto-Dominion … Read more

Dividend Increases/Decreases for the Week of April 21

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Below we provide a list of firms that raised their dividends during the week ending April 21. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week                          Bar Harbor Bankshares (BHB): now $0.28 per share quarterly dividend, was $0.26. Builders Capital Mortgage (BCF:CA): now $0.3945 per share quarterly dividend, was $0.1972. CapStar Financial (CSTR): now $0.11 per share quarterly dividend, was $0.10. Costco (COST): now $1.02 per share quarterly dividend, was $0.90. Cross Timbers Royalty Trust (CRT): now $0.2446 per share monthly dividend, was $0.1792. Discover Financial Services (DFS): now $0.70 … Read more

Quick Take: Fed Raises 25 Basis Points; This Banking Crisis Is Far from Over

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Image: FOMC Chairman Powell answers a reporter’s question at the March 20, 2019 press conference. By Brian Nelson, CFA On March 22, 2023, the Federal Reserve raised its benchmark rate 25 basis points, to the range of 4.75%-5%, a move that we think reflects a government agency that is now more or less a deer caught in headlights–given the nascent regional banking crisis in the United States. The bottom line is that the U.S. banking system does not have enough cash on hand to redeem all deposits (it never has), and with respect to U.S. banks, deposit insurance is only up to $250,000 per depositor, per FDIC-insured bank, per ownership category. The U.S. public has grown concerned, and that may … Read more

ALERT: We’re ‘Raising Cash’ in the Newsletter Portfolios

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Image: American Union Bank, New York City. April 26, 1932. Public Domain “We firmly believe that an investment in a bank must come with the acknowledgement of the distinct possibility that another financial crisis may occur at an unknown time in the future. Why? Banks do not keep a 100% reserve against deposits. Our good friend George Bailey knew this very well when he tried to discourage Bedford Falls residents from making a “run” on the famous and beloved Building and Loan.” – Brian Nelson, CFA, September 4, 2013   SUMMARY OF CHANGES Best Ideas Newsletter Portfolio Johnson & Johnson (JNJ): 4%-6% à 0% Exxon Mobil (XOM): 4%-6% à 0% Chevron (CVX) 3%-5% à 0% Dollar General (DG): 3%-5% à 0% Korn/Ferry (KFY): 1%-2% à 0% … Read more

SVB Financial, Silvergate Capital, Credit Suisse Reveal Cracks in Global Financial System

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Image: SVB Financial looks to be collateral damage of the Fed’s rate-hiking cycle, and we can’t rule out that other regional banks could have also managed interest-rate risk wrong. Shares of SVB Financial have collapsed, and other banks could be facing similar issues that have yet to come to light. Image Source: TradingView By Brian Nelson, CFA We don’t include any banks in the newsletter portfolios, but we include slight “exposure” to the Financial Select Sector SPDR (XLF) in the Best Ideas Newsletter portfolio, primarily for diversification reasons. We have never been fans of the banking business model, and here is what we wrote in the first edition of Value Trap: Theory of Universal Valuation: It’s likely we will have … Read more

Visa’s Q1 Fiscal 2023 Solid, Puts Up 64%+ Operating Margin

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Image: Visa is a free cash flow generating powerhouse and is insulated from rising delinquency and charge offs, unlike others in the credit card space. Image Source: Visa By Brian Nelson, CFA On January 26, Best Ideas Newsletter portfolio holding Visa (V) reported excellent first-quarter fiscal 2023 results. Net revenues advanced 12% in the quarter, and Visa leveraged that top-line expansion into 17% growth in non-GAAP net income. The company’s operating margin for the period came in at an impressive 64.1%, a decline from last year’s quarter but still a sight to see. Non-GAAP earnings per share leapt 21%, to $2.18, which came in better than the consensus estimate. Shares of Visa have jumped more than 11% so far in … Read more