S

Utilities and Telecoms to Benefit Most from Corporate Tax Reduction?

by

Image Source: Michael Vadon By Kris Rosemann and Brian Nelson, CFA Speculation over which sectors may be the biggest beneficiaries of the incoming Trump administration has been running rampant in recent weeks, and we’ve received questions from members pertaining to this topic, specifically with respect to the utilities and telecom sectors. In fact, an article in the Financial Times, released mid-November, tabbed the utilities (XLU) and telecom (XTL) spaces as two sectors that may be able to generate outsize earnings improvements thanks to a reduced corporate income tax. But will they truly benefit over the long haul? Let’s walk through our take on the impact a potential reduction in corporate tax rates may provide these two areas. It may not all be … Read more

Image: Returns Following the Trump Victory

by

To download the table for easier viewing, please select the link . Financials: Trump’s Treasury Secretary choice Steven Mnuchin wants to repeal most of the burdensome Dodd-Frank legislation. A steepening yield curve is helping banks and may drive improved net interest margins in coming periods. Goldman Sachs is ripping higher, leading the Dow’s charge.   Crude Oil: The world is moving to a better balance in supply/demand dynamics in the energy markets. OPEC is talking, has agreed to cuts, and expectations for improved economic growth are helping energy resource pricing. High-beta companies such as Continental Resources are rallying hard.   Energy: Capital spending cuts are bolstering free cash flow in the upstream space as energy resource pricing improves. Reduced regulations could help … Read more

AT&T Targeting Disruption in Transformational Merger

by

Key Takeaways AT&T has agreed to acquire Time Warner for $85.4 billion in cash and stock in a deal that is expected to close by the end of 2017. Strict regulatory scrutiny can be expected. The deal has the potential to disrupt the traditional pay-TV industry while setting AT&T apart from its competitors in the wireless telecom industry, where growth has become sparse for the firm. The telecom industry is maturing, and price-slashing competition has changed the game as network differentiation has largely become a thing of the past. We’re not fans of the debt that will come with the completion of the deal, but the prospects of what the combined entities could produce are certainly interesting. We view the … Read more

Apple V. Samsung

by

Image Source: Lr43_L1000009 By Kris Rosemann Samsung’s (SSNLF) issues with its Galaxy Note 7 smartphone began in late August when the firm postponed shipments of the smartphone due to product quality testing. The event was not a major issue, as early demand for the device had outpaced supply, already causing shipment delays to some markets. Shortly after the delay was announced, claims of the smartphones’ batteries exploding surfaced, and Samsung subsequently announced it would recall Galaxy Note 7s across the globe. The recall announcement only began the saga of despair for the Galaxy Note 7 series. One week later, the FAA issued a warning that the devices could be an airborne fire hazard and suggested consumers refrain from using the smartphones … Read more

Apple’s Brand as Strong as Ever

by

By Kris Rosemann Recent quarterly performance had some naysayers doubting the true power of Apple (AAPL). The second quarter of fiscal 2016 (calendar first quarter) marked the first decline in sales in a quarter in thirteen years due largely to pressure on iPhone sales, and the third quarter of the fiscal year continued the year-over-year sales weakness. As Apple hosted its company event September 7, shares remained under pressure as many anticipated ongoing weakness in demand for the iPhone, even with a new iteration being introduced. The declines continued in the days immediately after due in part to the firm’s decision not to release first-weekend estimates of pre-order sales volumes. Management indicated that it believes the measure is a meaningless … Read more

Quick Take: Update on Sprint’s Leverage

by

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

Cord Cutting and the New Age Consumer

by

Image Source: Mike Mozart Disney’s Quarterly Performance Reignites Fear On May 10, Disney’s (DIS) shares fell after the company reported lower-than-expected fiscal second-quarter earnings. Investors are concerned with the media and entertainment giant’s weakness in advertising revenue and subscribers in its Media Networks segment, which accounts for more than 60% of the company’s operating income. Was the fiscal second quarter the beginning of a long-term trend for the segment at Disney? As more and more consumers continue to opt away from traditional cable TV, will not only its subscriptions decline, but will demand for advertising space on the networks also fall as fewer consumers are reached through the medium? Investors are fearing the worst. The development is certainly worth following … Read more

Goodbye Radio Shack, Hello Office Products Behemoth

by

RadioShack will close its doors, while Staples and Office Depot are planning to tie the knot. 3D printing stocks may be in for a world of hurt in 2016, while GM and Ford benefit from strong employment and low gas prices. RadioShack (RSH) has finally defaulted on its debt. The company is reportedly in talks to sell half of its stores to Sprint (S) and close the remainder, should Amazon (AMZN) lose interest. Standard General, the largest shareholder in the archaic electronics retailer holds most all the cards, however, and we’ll soon see whether complete liquidation is in RadioShack’s future in the coming days. The sad reality is that the struggling electronics store chain may only have its real estate … Read more

Verizon Warns, AT&T and Sprint Sell Off

by

The telecom services industry is in a pricing war, and we want no part of it. From outlining how AT&T’s (T) best dividend growth years are behind it (see its dividend report ) and revealing Verizon’s (VZ) potentially prohibitive debt load (see here) to Sprint’s (S) cutthroat pricing behavior and T-Mobile’s (TMUS) aggressive marketing, we’ve been pounding the table on how the telecom services industry is a mess right now. Verizon announced in a warning December 8 that the operating environment is not getting any better, and in our view, it may not for some time: As (Verizon) is accelerating the upgrades of high-quality customers to 4G, total retail postpaid disconnects are trending higher both sequentially and year over year … Read more

Sprint Falls Back Down to Under $5 Per Share

by

To us, there really never was an investment case for Sprint (S). Let us explain. In investing, the “capital stack” represents the firm’s capital structure, beginning with net debt at the bottom and moving up to equity at the top. In order for any firm to have any equity value, the present value of its risk-adjusted future free cash flows must sum to a value greater than its net debt. The hypothetical firm shown below in the image has equity value because the present value of its risk-adjusted future free cash flows is greater than the sum of its net debt. At Valuentum, we spend most of our time paying attention to the firm’s regulatory filings. In Sprint’s most recent … Read more