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Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Cisco’s Investor Update Reveals Challenges

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On Thursday, switching and routing giant Cisco (CSCO) hosted its 2013 Financial Analyst Conference, and management’s commentary during the meeting wasn’t encouraging. The firm’s fiscal first quarter 2014 results, released mid-November, had showcased significant order weakness (see here) and commentary on the company’s fiscal first-quarter conference call indicated that the firm did not anticipate material improvement in its order growth during the second quarter, but CEO John Chambers’ reiteration of his view today that emerging markets remain “extremely challenged,” particularly in Brazil and Russia, has sent shockwaves across much of the networking industry. It appears the market had been building in expectations that some order stabilization would occur at this point during the quarter, and Chambers comments may have mitigated … Read more

Cisco’s Outlook Comes up Short; Shares under Pressure

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On Wednesday, networking giant Cisco (CSCO) reported mixed fiscal first-quarter results (ending in October), and the company’s order performance in the period and fiscal second-quarter guidance came up short versus expectations. Revenue in the fiscal first-quarter dropped 2% year-over-year, but non-GAAP net income and earnings per share advanced 11.6% and 10.4%, respectively, from the prior-year period. Non-GAAP diluted earnings per share of $0.53 came in a few pennies better than expected. Net cash from operations advanced to $2.65 billion from $2.47 billion in the year-ago period, while capital expenditures expanded to $315 million from $265 million. Free cash flow was $2.3 billion, or 19.3% of sales (a strong figure). Cash and investments totaled $48.2 billion and short and long-term debt totaled … Read more

Finisar Sees Margins Surge on Telecom Demand

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After posting a strong end to fiscal year 2013, fiber-optics maker Finisar (click ticker for report: ) registered fantastic results for its fiscal 2014 first quarter Thursday. The firm set an all-time quarterly revenue record of $266 million, up 9.3% sequentially and exceeding consensus estimates. Earnings per share on a non-GAAP basis soared 55% year-over-year to $0.31 per share, in-line with consensus expectations. The boom in telecom carriers like AT&T (click ticker for report: ), Sprint (click ticker for report: ), and T-Mobile (TMUS) investing in 4G LTE technology helped lift demand during the first quarter. Telecom had been an area of weakness during the firm’s fourth quarter. CEO Eitan Gertel added some commentary on the products driving first-quarter strength … Read more

Finisar Rides the Cloud to Success

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Fiber-optics maker Finisar (click ticker for report: ) reported stronger than anticipated fiscal fourth-quarter results Wednesday afternoon. Revenue rose 2% sequentially to $243 million, modestly exceeding expectations. Earnings per share increased 18% quarter-over-quarter to $0.20 per share on a non-GAAP basis (which excludes stock-based compensation and impairment charges), which was far better than expected. Surprisingly, telecom spending was not what drove the improved results at Finisar. This runs counter to what we heard from Ciena (click ticker for report: ) just a few weeks ago. In fact, telecom revenue declined 12% sequentially to $79.5 million. Management said the problem in telecom was twofold—sluggish carrier spending combined with lower telecom prices that it had in place a year ago. Though Finisar’s … Read more

Ciena Surges on Robust Telecom Spending

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After Cisco (click ticker for report: ) CEO John Chambers hinted at an acceleration in enterprise spending, network specialist Ciena (click ticker for report: ) reported much stronger than anticipated second quarter results Thursday. Revenue jumped 6% year-over-year to $508 million, smashing consensus expectations. Non-GAAP operating profit was halved to $0.02 per share, but that was better than the expected loss. On a GAAP basis, the firm still lost $0.27 per share. Cash flow for the year isn’t great as the company greatly expanded its accounts receivable, but we figure this will even out as the year progresses. What drove growth during the quarter? We’ve identified a few factors. Capital investment from the American wireless carriers is returning, even if the … Read more

How to Think About Corporate Tax Reform

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2,350-2,750 on the S&P? Could the Coronavirus Catalyze a Financial Crisis?

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Image: We think a rather modest sell-off in the market to the target range of 2,350-2,750 on the S&P 500 is rather reasonable in the wake of one of the biggest economic shocks since the Global Financial Crisis. The chart above shows how far markets have advanced since 2011, and an adjustment lower to the target range of 2,350-2,750 is rather modest in such a context and would only bring markets to late 2018 levels (note red box as the target range). The range reflects ~16x S&P 500 12-month forward earnings estimates, as of February 14, adjusted down 10% due to COVID-19. When companies like Visa talk about a couple percentage points taken off of growth rates, one knows that … Read more

Nelson: The 16 Most Important Steps To Understand The Stock Market

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A previous version of this article appeared on our website July 21, 2013. Refreshed and updated throughout, as of July 2018. By Brian Nelson, CFA After earning my MBA at the University of Chicago Booth School of Business and training stock and credit analysts from large organizations over the past decade or so, I have heard just about every question (though I admit I am still surprised by many things and remain a very humble student of the markets). I’ve also spent years perfecting the discounted cash flow process for large research organizations such as Morningstar and studied under one of the most famed aggressive growth investors of all time, Richard Driehaus. My knowledge runs the gamut from value through … Read more