SBUX

Starbucks: One of the Lowest-Rated Equities on the Valuentum Buying Index

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Boy do people love coffee! Perhaps even more than they like the controversy surrounding Starbucks’ (SBUX) plain red holiday cups… Whatever your fancy, one thing is clear: shares of Starbucks are not cheap. Our latest fair value estimate pegs intrinsic value of the coffee giant in the high-$40s, and we think this darling may be shaping up for a larger-than-normal “correction” in the event materially adverse weakness strikes the market. Shares hit as high as $63+ at the end of October, and the company’s fiscal first-quarter results, released January 21, may spark the “kind of” profit-taking that drives eventual price-to-fair value convergence in the coming months. To be completely fair, Starbucks’ holiday performance wasn’t bad. It achieved 9% comparable store … Read more

Keurig Green Mountain Goes Private

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Keurig Green Mountain (GMCR) will be taken private by a JAB Holding Co. led investor group for ~$13.9 billion in cash. The price of ~$92 per share represents a 78% premium to the company’s December 4 closing share price, which was the result of a year of disappointing earnings and questions about the firm’s long-term growth prospects. In its fourth-quarter earnings report, Keurig recorded double-digit declines in net sales, operating income, net income, and diluted income per share. Though the price premium certainly was a surprise (greater than the high end of the fair value estimate range), the buyout hardly comes as a surprise to us. We have been of the opinion that a takeout would the best case scenario … Read more

Mixed Bag at Department Stores

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Where will consumers keep spending their money? This is a question that investors will always be trying to answer, no matter where we are in the economic cycle (during good times and bad). It is not always easy to predict the spending patterns of any demographic with any sort of precision, but let’s see how things shook out with some of the best-known department stores in the US during the third quarter of 2015. During the latter part of last decade, department store equities had been strong performers; shares of companies such as Macy’s (M), Kohl’s (KSS), and Nordstrom (JWC), for example, more than tripled from their respective bottoms during the Great Recession, but all three have witnessed their share … Read more

Yum! Brands Blows Up

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The share price chart of Yum! Brands is shown above. The writing was on the wall. We warned about the impending collapse in Yum! Brands’ (YUM) shares in our highly-selective July 14 note, “Warning! 5 Heavily-Followed Dividend-Paying Stocks to Avoid:” “The owner of KFC, Pizza Hut and Taco Bell has a solid franchise, but its share price has rocketed too far too fast, perhaps on renewed speculation that it will spin off its Yum! China division into a separate entity, which may never happen. But while speculation fuels the share price advance, there are a few things we do know for certain. The fast-food environment in the US is cutthroat, and the trend toward fast-casual is a long-term secular dynamic, … Read more

Batten Down the Hatches – Another US Market Crash Probable

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A global financial contagion like that of the Financial Crisis just six short years ago cannot be ruled out. The magnitude of wealth lost in China’s (FXI) equity market is simply staggering, and we’re already witnessing bad loans soar across China’s Big 4 banks. We’re hearing that property, used as collateral for stock margin trading in China, is often being sold for 90 cents on the dollar as speculators look to cover losses. We expect the fallout from the collapse in Chinese equity markets to eventually reverberate through their property markets, impacting loan-to-values in the commercial and residential arenas, sparking significant loss rates and asset write-downs across the Chinese financial system. We continue to assess the tangible evidence of an … Read more

Organic Growth Sweetens Nonalcoholic Beverage Industry

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The nonalcoholic beverage segment of the commercial beverage industry is highly competitive, consisting of numerous companies that make various sparkling beverages, water products, juices, fruit drinks, energy and other performance-enhancing drinks. Pricing, advertising, product innovation, and the availability of in-store private-label beverages are key drivers that impact demand. Growth for nonalcoholic beverage producers has become increasingly dependent on the emerging global middle class in recent years. For example, Latin America was the most productive region for most producers in the second quarter. Consumers in developed economies have become more and more aware of the health concerns associated with sugar-sweetened beverages like soft drinks, and have therefore been more inclined to choose healthier alternatives. Industry participants are constantly innovating their products … Read more

Warning! 5 Heavily-Followed Dividend-Paying Stocks to Avoid

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Zoetis (ZTS) The share price of Zoetis, the leader in the production and commercialization of animal health medicines and vaccines, is trading at a substantial premium to its standalone intrinsic value as a result of speculative optimism that a takeout of its shares might happen. Activist Bill Ackman’s near-10% stake in the 2013 spin-off of Pfizer (PFE) has investors believing a deal may be in the works, but there’s no real evidence of one. In fact, it appears investors are desperate to see something (anything?) happen: on June 25, for example, Zoetis leapt more than 10% immediately on unfounded rumors that Valeant Pharma (VRX) was putting together a bid. We don’t think a buyout of Zoetis is going to happen … Read more

10 Bucks per Hour; What It Really Means

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Source: US Department of Labor, Walmart Walmart (WMT) is quite savvy. The big box retailer announced February 19 it would raise the minimum wage for all of its US workers to $9 per hour in April of this year and at least $10 per hour by next February. The move comes amid ongoing public scrutiny of its labor practices, elevated worker turnover, and general malaise among the ranks on social media platforms. At face value, the news headlines show Walmart caving to public pressure, and a win for big labor, but in reality, the retailing giant is merely doing what good businesses do – pleasing customers (which are its workers, too) and widening its economic moat. Hiking wages accomplishes both. … Read more