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DirecTV Shines in First Quarter; Merger Talk Icing on the Cake

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We profiled pay TV provider DirecTV (DTV) earlier last week (click here), branding it as a Valuentum stock, and the firm’s first-quarter performance, released today, helped to support our view on shares. The company surpassed 38 million total subscribers in the quarter (including Sky Mexico, which is accounted for using the equity method), while adjusted operating profit before depreciation and amortization (OPBDA) advanced 7% on an adjusted basis. The firm’s free cash growth was excellent during the period, jumping 25%, to $886 million. Though traditional free cash flow (cash from operations less capital expenditures) is different than enterprise free cash flow (free cash flow to the firm), they are highly correlated. The strong cash flow performance in the quarter offers … Read more

Highly-Rated Best Ideas Portfolio Holding DirecTV Catches a Bid

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At Valuentum, we think companies that are attractive from a variety of different investment perspectives–whether it be growth, value, income, momentum, etc.–have the greatest probability of capital appreciation and relative outperformance. By definition, these stocks, which we call Valuentum stocks, have strong valuation and pricing support coupled with solid revenue/earnings expansion potential and, where applicable, strong dividend growth prospects. We accept the technical market dynamic that the more deep-pocketed institutional investors that are interested in a stock for reasons based on their respective investment mandates (or preferences), the more likely it will be bought and the more likely the price will move higher to converge to its true cash-flow-derived intrinsic value (the action of buying a stock pushes its price … Read more

Earnings from 15 Dividend Growth Giants

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History has revealed that the best performing stocks during the previous decades have been those that shelled out ever-increasing cash to shareholders in the form of dividends. In a recent study, S&P 500 stocks that initiated dividends or grew them over time registered roughly a 9.6% annualized return since 1972 (through 2010), while stocks that did not pay out dividends or cut them performed poorly over the same time period. Such analysis is difficult to ignore, and we believe investors may be well-rewarded in future periods by finding the best dividend-growth stocks out there. Let’s take a look at the recent performance of 15 high dividend payers and disclose their ‘valuation ratings’ and most recent Valuentum Dividend Cushion scores. Valuentum … Read more

Thank you…

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By Brian Nelson, CFA Earlier this week, I received an email from a colleague and valued member of our services. I wanted to share it here for others to read. I haven’t included his name, but if he wants me to, I can add it in. It is filled with wisdom, experience and kindness. And it really made my year to read his words. The Valuentum community, I believe, is the best community of investors out there. Sir, if you do happen to read your own email on our site, we very much have appreciated your feedback, and we hope to continue to live up to your praises. We are dedicated, and our team has been rejuvenated by your words. … Read more

AT&T Is Not a Position in Valuentum’s Dividend Growth Portfolio

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Sometimes it’s difficult to entertain a variant perspective on a tried-and-true investment. But that’s what we think investors should do when they think about AT&T’s dividend growth potential. AT&T’s Valuentum Dividend Cushion score is below 1 (meaning that the sum of our expectations of the company’s future dividend payments and existing debt balance overwhelms the sum of its future expected free cash flow and existing cash balance). We don’t expect this telecom bellwether to cut its dividend anytime soon (especially given its shareholder base, which comprises mostly of investors holding shares for the dividend payment), but we think there are many other more attractive places for long-term dividend growth than AT&T’s equity. The historical track record of a company’s dividend … Read more

Verizon Posts Highest Adjusted EBITDA Margin in 8 years; Pro forma Debt Load Reduces Attractiveness of Idea

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On Tuesday, Verizon’s (VZ) fourth-quarter performance showed us why we had been considering the firm for inclusion in the Dividend Growth Newsletter. The company experienced revenue growth across all strategic areas (84% of business), showcasing 3.4% year-over-year expansion. The most recent quarter marked the fifth consecutive period of at least 8% service revenue year-over-year growth. The communication giant’s strong cost management controls sent its full-year adjusted EBITDA margin to the highest levels in 8 years (34.9%), a very impressive showing. Wireless segment EBITDA jumped more than 22% from last year’s quarter. Verizon’s fourth-quarter adjusted earnings-per-share of $0.66 was also impressive, coming in nearly 74% higher than the level posted in the same period a year ago. For all of 2013, the … Read more

SoftBank Reported to Be Exploring a Deal for Sprint to Scoop Up T-Mobile

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On Friday, Bloomberg reported that SoftBank is exploring a deal for Sprint (S) to scoop up the majority of T-Mobile US (TMUS). The news outlet reported that SoftBank has discussed financing a bid with as many as six banks, including Credit Suisse, Mizuho, and Goldman Sachs. The banks are reported to be the same ones that backed the SoftBank-Sprint tie-up. According to Bloomberg’s sources: The plan would be to take control of T-Mobile by paying cash for the 67 percent stake owned by Deutsche Telekom AG…Sprint would then be integrated with T-Mobile, combining the third- and fourth-largest U.S. wireless carriers. Deutsche Telekom has said that it’s prepared to sell its $16 billion stake in T-Mobile, which has mostly been an … Read more

Evaluating AT&T’s 3Q Performance

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A Few Words from CFO John Stephens Telecom giant AT&T (T) announced strong third quarter results October 23. Revenue increased 2.2% year-over-year to $32.2 billion, just below consensus expectations. Earnings per share, excluding one-time items, increased 6.5% year-over-year to $0.66, a penny above consensus estimates. However, due to an increase in capital expenditures, free cash flow has fallen more than $3 billion year-to-date to $11.1 billion, equal to 11.6% of revenue.  Smartphone Takeover Image Source: T 3Q13 Slides  As has become the norm, wireless revenue drove AT&T’s top-line growth, expanding 5.1% year-over-year to $17.1 billion. The strong performance was driven by an increase in wireless data revenue of 17.6%, as a higher percentage of consumers opt for higher ARPU plans. During the third quarter, … Read more

Verizon’s Investment Grade Credit Rating May Be Challenged

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On Thursday, Verizon (VZ) reported better than expected top- and bottom-line performance in its third quarter, which showed impressive subscriber additions and healthy iPhone sales. We continue to evaluate Verizon for addition to the portfolio of our Dividend Growth Newsletter, though we note its pursuit of Verizon Wireless has complicated matters quite a bit (given the outsize debt load it will take on). We’d like to see how the financials shake-out post-transaction, as there are quite a few moving parts that will negatively impact the firm’s Valuentum Dividend Cushion score (and potentially challenge its investment-grade rating). Verizon added 1.1 million net retail wireless connections and 927,000 net retail postpaid connections in the period, leading to quarter-end marks of 101.2 million total … Read more

Finisar Sees Margins Surge on Telecom Demand

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After posting a strong end to fiscal year 2013, fiber-optics maker Finisar (click ticker for report: ) registered fantastic results for its fiscal 2014 first quarter Thursday. The firm set an all-time quarterly revenue record of $266 million, up 9.3% sequentially and exceeding consensus estimates. Earnings per share on a non-GAAP basis soared 55% year-over-year to $0.31 per share, in-line with consensus expectations. The boom in telecom carriers like AT&T (click ticker for report: ), Sprint (click ticker for report: ), and T-Mobile (TMUS) investing in 4G LTE technology helped lift demand during the first quarter. Telecom had been an area of weakness during the firm’s fourth quarter. CEO Eitan Gertel added some commentary on the products driving first-quarter strength … Read more