Exclusive Analysis for the Discerning Investor
Valuentum’s Brian Nelson explains how an accounting focus on operating earnings per share instead of an economic focus on return on invested capital has completely disrupted IBM’s (IBM) business. January 20, 2015.
Summary: We think Facebook has just scratched the surface of its earnings potential. Let’s address the potential for a single stock bubble in Facebook, the company’s most recent results, and why we think it garners a very attractive Economic Castle rating. We value shares of Facebook at $100 each, implying roughly 25% upside based on the firm’s most recent closing price. ———- “Intrinsic value represents the conclusion to any and all stock research: What is the company worth? DCF valuation captures the expectations of a firm’s competitive advantages, growth prospects, strategic endeavors, and any other qualitative factor. No other process does this. Putting to numbers a plethora of advanced fundamental items in arriving at a fair value estimate is the … Read more
It appears that we may get a Santa Claus rally after all. Call it window dressing. Call it drinking at the Fed’s punch bowl. Call it what you will. But the Dow Jones Industrial Average (DIA) polished off its biggest two-day gain in six years to propel itself back to near all-time highs again. The S&P 500 (SPY), shown above, is now within throwing distance of setting new record ground, and spirits remain high as we approach the Christmas holiday and New Year. Collapsing prices at the gas pump, though highlighting risks to global economic growth, may be helping to spread the holiday cheer. For clarification, we continue to be optimistic about the future returns in the newsletter portfolios, but … Read more
The taper came and went, and the markets don’t seem to care. The S&P 500 notched yet another high this week. The correction that we warned about came and went as well, almost as if market forces created such an event just to move higher. From my experience, the market, at the present moment, is trading almost purely on technicals. For example, once we touched the 10% official mark of a correction, we started to move higher, and once the markets started to move higher, the move accelerated. Consecutive gap ups following pull-backs have become the norm. This market has become almost a pure technical market, where traders and moving averages are taking precedent over fundamentals. This won’t last forever. The … Read more
We knew something was terribly wrong. IBM’s (IBM) earnings quality had been waning, and we thought a big miss might be on the horizon. We wrote here in January 2014: Never did we ever think we’d be using Big Blue as an example of poor earnings quality, but its fourth-quarter 2013 results, released January 21, fit the mold. The first is revenue growth. IBM’s fourth-quarter 2013 revenue dropped 5.5%, a pace that exceeded that of the 4.6% drop for the year, indicating an acceleration of the revenue decline. We’re viewing this as a sign that the worst may still be ahead of Big Blue as it tries to steer the company back to growth. Without a solid backdrop of revenue growth, earnings-per-share expansion will … Read more
There’s a lot we can talk about with respect to Apple’s solid fiscal third-quarter results–and we will–but the most important takeaway from this article is how we strive to add incremental value to your research and analysis of the iPhone giant. First of all, we don’t play the quarterly earnings beat-or-miss game at Valuentum. You can read about how we think about near-term forecasts and what we think are the most important drivers behind a firm’s long-term intrinsic value here. Most sell-side analysts and commentators spend the majority of their time analyzing factors that impact the company’s financial performance (not necessarily its stock price) over the next couple years, a time frame that generally accounts for ~20% of a company’s total … Read more
Warren Buffett doesn’t seem to care, as he owns 6% of the firm. But we think it’s worth pointing out that IBM’s (IBM) second-quarter results, released July 17, continue to fit the theme of low-quality earnings that we brought to light after its fourth-quarter 2013 performance (click here). Please don’t misunderstand–IBM is a fantastic company with significant competitive advantages. But that doesn’t make it immune to independent, objective financial analysis. Let’s have a look at the quarterly results. For earnings growth to be sustainable, the top line must be expanding, as cost cuts, by definition, are finite. In IBM’s second-quarter report, revenue dropped 2%, while its services backlog—a key indicator of future revenue performance—dropped 1%, after adjusting for its divested customer … Read more
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
Below we provide a list of firms that raised their dividends during the week ending May 2. 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 Airgas (ARG): now $0.55 per share quarterly dividend, was $0.48. American Campus Communities (ACC): now $0.38 per share quarterly dividend, was $0.36. Ameriprise Financial (AMP): now $0.58 per share quarterly dividend, was $0.52. BB&T Corporation (BBT): now $0.24 per share quarterly dividend, was $0.23. Chevron (CVX): now $1.07 per share quarterly dividend, was $1.00. CorEnergy Infrastructure Trust (CORR): now $0.129 per share quarterly distribution, was $0.125 … Read more
Share buybacks are not always a good thing. We typically like a firm’s buyback program if it is executed at a level below that of the company’s cash-flow-derived intrinsic value estimate. The buyback activity at these levels creates value in the sense that the cash reduced on the balance sheet (as a result of the repurchases) is less than the positive impact of a lower share count (equity value is divided by shares outstanding to arrive at intrinsic value per share). Under a scenario where a company buys back stock above its intrinsic value estimate, management is effectively destroying shareholder capital – the cash reduced on the balance sheet (as a result of the repurchases) is more than the positive … Read more