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Quick Take: Update on Sprint’s Leverage

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Image Source: Mike Mozart By Jessica Bishop Sprint (S) is not in good financial shape, and we view the company’s equity as a mere lotto ticket that likely won’t pay off. It’s probable that shares of Sprint may continue to converge toward $0 as the economic cycle matures. After all, these are good times, and the company is a mere penny stock. Investors have to be thinking: What’s going to happen when economic activity truly heads south? Our fair value estimate remains unchanged at $4 per share as of the latest update, however, and our relatively large fair value range reflects the tremendous risks of this overleveraged, capital-intensive business model that has only just begun to turn the corner with respect … Read more

What?!?! Microsoft Acquires LinkedIn; NO!

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Image source: LinkedIn It’s almost hard to believe that Microsoft (MSFT) CEO Satya Nadella would throw ~$26.2 billion of cash in the form of shareholder capital that could potentially go toward one of the best future dividend growth streaks in history at a large, Internet-based acquisition such as LinkedIn (LNKD), but it happened June 13. Unbelievable. We think most of the news outlets had to do a double-take before reporting the news (we did, too), and we’re not surprised that Microsoft’s shares are selling off on the announcement. Some are painting the deal optimistically, but we’re bummed out. We’re removing half of our position in Microsoft from the Dividend Growth Newsletter portfolio on the news at ~$50.18 per share for … Read more

Microsoft Restructuring Phone Hardware Business, PC Environment Remains Challenging

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Dividend Growth Newsletter portfolio holding Microsoft (MSFT) announced the restructuring of its phone hardware business July 8. In addition to a restructuring charge in the range of $750-$850 million, the company will record an impairment charge of ~$7.6 billion related to assets from the acquisition of the Nokia (NOK) Devices and Services business, which closed just under a year ago. Microsoft also announced it will cut up to 7,800 jobs, primarily in the phone business. The non-tax-deductible impairment charge will be recorded in the fourth quarter of fiscal 2015, which ended June 30, and the job cuts are expected to take place over the next several months. These sweeping initiatives underscore Microsoft’s efforts to refine its focus to meet ever-changing … Read more

The Correction: Draghi; Chip, Telecom Warnings; Oil and MLPs

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The equity markets have been under significant pressure the past few weeks, and we think there is further downside to come. Our view is that the equity markets will be lower than today’s levels within the next 6-18 months, if not tomorrow or next week or next month. We’ve taken profits on cyclicals, and we’ve already closed out the put option hedges in both portfolios for a substantial gain (the latest transaction alert email can be accessed here). Europe appears to be in a giant mess again. The region hadn’t been strong by any stretch of the imagination, but we recently picked up material weakness during Ford’s (F) recent analyst day, which in part prompted us to take a very … Read more

Microsoft to Slash 18,000 Jobs

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Quick and agile – that’s what new Microsoft (MSFT) CEO Satya Nadella is looking to embed in the firm’s culture with a sweeping announcement that it will realign its workforce. In a memo to employees, the company revealed the largest layoffs in its corporate history, targeting the reduction of the size of its overall workforce by up to 18,000 jobs. The work toward synergies and strategic alignment on its recently-acquired Nokia (NOK) Devices and Services operations is expected to account for 12,500 job cuts, comprising both professional and factory workers. The vast majority of employees will get the pink slip over the next 6 months. Though it is never pleasing to hear that workers are losing their jobs, from an investment standpoint, … 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

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

Ballmer’s Last Big Move? Acquire Nokia’s Mobile Phone Unit

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Late Monday night, news broke that Dividend Growth Newsletter portfolio holding Microsoft (click ticker for report: ) will acquire Nokia’s (click ticker for report: ) device and services business for $7.1 billion. Though rumors about a deal have swirled since the two companies partnered for the Lumia, the timing is somewhat shocking, in our view. With CEO Steve Ballmer to depart within the next twelve months, we assumed he wouldn’t make any major splashes. Deal Details On the surface, this deal seems a lot like Google’s (click ticker for report: ) acquisition of Motorola Mobility. However, the details differ materially, particularly since Microsoft didn’t acquire the entire Nokia business. Further, Nokia will retain its patent portfolio and lease its patents … Read more

Blackberry: Strategic Alternatives Signal Failure

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After the launch of its new phone and operating system came and went without much fanfare, smartphone maker Blackberry (click ticker for report: ) announced that it is exploring strategic alternatives for the company. Although most tend to associate strategic alternatives with selling the company, Blackberry is also open to partnerships and joint-ventures. Let’s start with the obvious inference out of this news: Blackberry 10 didn’t save the company. If this wasn’t clear enough when Blackberry reported weak results for its fiscal year 2014 first quarter, we think the situation is obvious now. Consumers, particularly of the high-end smartphone variety, simply do not want Blackberry products. The app world is far inferior to competitors Apple (click ticker for report: ) … Read more