MDT

Price Is Almost Always Different Than Value

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It was January 10, 2000. America Online had just announced that it would acquire Time Warner to create the largest media company. The purchase price amounted to more than $160 billion, and the combined entity was estimated to have a market capitalization of ~$350 billion. The deal was the biggest corporate merger to that date and was expected to launch the next Internet revolution, according to then-CEO of AOL Steve Case. The transaction valued Time Warner at about $108 per share, a huge premium over its price of $64.75 per share the trading session before. AOL’s shares closed at $72 the day of the announcement. Just a couple years later, things were quite different. When it reported full-year 2002 results, … Read more

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

Firms Leaving United States for More Reasonable Tax Rates Elsewhere

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Considering Walgreen’s (WAG) and its plans to move to Switzerland, Pfizer’s (PFE) failed bid for UK-based AstraZeneca (AZN), and now Medtronic’s (MDT) acquisition of Ireland-based Covidien (COV), it’s very clear to us that many US-based companies want to escape the tax burden of the US. We have no interest in generating a political stance for or against tax inversion (i.e. re-incorporating overseas to reduce taxes), but Dividend Growth portfolio holding Medtronic is the latest to pursue such a strategy. The medical technology firm announced June 15 that it will acquire Covidien in a cash-and-stock transaction valued at ~$93 per share. According to the terms of the transaction, each outstanding ordinary share of Covidien will be converted into the right to … Read more

The M&A Environment Remains Robust

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Let’s take a look at a few deals that hit the wires recently – some proposed, some speculated. Analog Devices (ADI) Scoops Up Hittite Microwave (HITT) Norwood, MA (06/09/2014) – Analog Devices, a global leader in high-performance semiconductors for signal processing applications, and Hittite Microwave Corporation, an innovative designer and manufacturer of high performance integrated circuits, modules, subsystems and instrumentation for RF, microwave and millimeter wave applications, announced that the two companies have entered into a definitive agreement whereby ADI will acquire Hittite for $78 per share in cash. The closing price of Hittite’s common stock on June 6, 2014 was $60.56 per share. This agreement reflects a total enterprise value for Hittite of approximately $2 billion. ADI expects to … Read more

Focus on a Rules-Based Process Not on Short-term Outcomes

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By Brian Nelson, CFA …you should be skeptical of what investment advice you use and who your sources are. (Investment gurus) give…seemingly solid advice in (their) columns, but (as) it turns out (their) stock picking skills don’t translate so well into the mutual fund industry… …Part of the problem is that you have no idea what they’re actual track record is or the conviction they hold on each recommendation they put out there. The talking heads have no idea what your risk profile and time horizon are. There’s a huge disconnect between financial predictions you read about or see on TV and your personal circumstances. That’s why it’s so important to focus on a rules-based process instead of short-term outcomes. It … Read more

Medtronic: A Dividend Growth Gem

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There are many things to like about cardiac rhythm (pacemaker, ICD) and restorative therapy (spinal stabilization devices) giant Medtronic (MDT), which reported fiscal third-quarter results Tuesday. Medtronic has #1 share positions in almost every product category it operates in and has a leading pipeline with some of the most compelling medical technology programs and innovative therapies. The firm’s solutions span the care continuum, and the company is a leader in some of the largest chronic disease areas, including cardiology, neuro/ortho, and diabetes.  Medtronic is poised to capture a nice piece of the massive opportunity for existing therapies in emerging markets, an incremental $5 billion by our estimate. Emerging-market exposure is only about 12%-13% of the company’s revenue mix, and performance … Read more

Surveying Fourth Quarter Earnings at Health Care Firms

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The broader equity markets have been under pressure for much of January, and while it may be tempting to consider completely exiting stock investing for a time, we’re staying the course with both of our actively-managed portfolios. We had been expecting a contraction in price-to-earnings (P/E) multiples across the broader market (see our outlook here), and the performance thus far in 2014 has not been surprising. In case you may have missed it, I sent out some very important thoughts over the weekend to keep in mind as uncertainty and volatility increase through the course of 2014: Stay focused on @Valuentum portfolio holdings (best ideas), #asset allocation (cash) in portfolios and #prudence in allocating new capital. — Brian Nelson, CFA … Read more

The Best Ideas for 2014 and Beyond: Part II

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A portion of this article is excerpted from the January 2014 edition of the Dividend Growth Newsletter. Valuentum has two actively-managed portfolios: a Best Ideas portfolio and a Dividend Growth portfolio. Each portfolio has different goals and strategies. The Best Ideas portfolio seeks to find firms that have good value and good momentum characteristics and typically holds them from a Valuentum Buying Index rating of a 9 or 10 to a rating of a 1 or 2. The goal of the portfolio is to generate a positive return each year and to exceed the performance of a broad market benchmark. The Dividend Growth portfolio seeks to find underpriced dividend growth gems that generate phenomenal levels of cash flow and have … Read more

Medtronic Posts Better Than Expected Fiscal 2Q Results

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Cardiac and vascular medical giant Medtronic (MDT) reported solid fiscal second quarter results Tuesday. Revenue advanced 3.3% on a constant-currency basis, while non-GAAP diluted earnings per share jumped to $0.91, up about 3% from last year’s period. Both measures were slightly better than expected, though we note margins could have been a bit stronger. International revenue jumped 5% on a constant currency basis, while emerging market revenue leapt 13% excluding currency. Revenue in the firm’s ‘Cardiac and Vascular’ group performed well (up 4%, excluding currency), as Implantable Cardioverter Defibrillators (ICDs)* grew 4% and drug-eluting stents advanced 8%, the latter bolstered by share gains from the firm’s Resolute Integrity drug-eluting stent. Sales in the company’s ‘Restorative Therapies’ segment jumped 2% (excluding … Read more