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Valuentum Commentary
Jan 15, 2021
Walgreens Begins to Recover
Image Shown: Shares of Walgreens Boots Alliance Inc are beginning to recover. Shares of Walgreens Boots Alliance are on the rise after the company recently posted a solid earnings report while also reaching a big divestment deal. As we recently covered, Walgreens is divesting most of its European-focused wholesale pharmaceutical distribution business to AmerisourceBergen. Please note Walgreens has a material strategic stake in AmerisourceBergen’s equity which will grow in terms of total shares once the divestment closes. That said, competitive headwinds are growing for Walgreens and the pharmacy space more broadly as Amazon recently launched its own online pharmacy. We are keeping an eye on the space. Jan 9, 2021
Walgreens Sells European-Focused Wholesale Pharmaceutical Distribution Business to AmerisourceBergen
Image Shown: Walgreens Boots Alliance Inc is undergoing a major transformation. Part of that strategy involves divesting its European wholesale pharmaceutical distribution business, Alliance Healthcare, to its strategic partner AmerisourceBergen Corporation. Image Source: Walgreens Boots Alliance Inc – Fourth Quarter and Full Year Fiscal 2020 IR Earnings Presentation. On January 6, Walgreens Boots announced it had reached a deal with AmerisourceBergen Corp to sell the "the majority of” its European-focused wholesale pharmaceutical distribution business, Alliance Healthcare, for about $6.5 billion ($6.275 billion in cash along with 2 million shares of ABC). Please note that Walgreens already owns a sizable stake in AmerisourceBergen as the former owned ~28% of the latter’s outstanding shares as of August 31, 2020. The deal is expected to close by the end of AmerisourceBergen’s fiscal 2021 (at the end of September 2021). The transaction should positively benefit both parties. Walgreens gets a nice cash infusion to help upgrade its core operations while AmerisourceBergen gains significant scale and greater exposure to European markets. The existing arrangements between Walgreens and AmerisourceBergen should assist both firms in realizing their targeted synergies, at least in theory, though the healthcare sector is inherently complex. We continue to prefer exposure to the "pharmacy-oriented" space through one of our favorite dividend growth ideas UnitedHealth Group. We also include Johnson & Johnson and the Healthcare Select SPDR ETF in the newsletter portfolios. Dec 17, 2020
UnitedHealth Group’s Dividend Growth Potential is Impressive
Image Shown: UnitedHealth Group Inc has a tremendous dividend growth runway, one that is supported by its high-quality cash flow profile, pristine balance sheet, and improving near-term outlook. Shares of UNH have staged an impressive recovery over the past several months since crashing in March 2020 due to headwinds arising from the ongoing COVID-19 pandemic. We added UnitedHealth Group to our Dividend Growth Newsletter portfolio on November 27, 2020. On November 27, we added UnitedHealth Group to the Dividend Growth Newsletter portfolio. The company has an “EXCELLENT” Dividend Growth rating as the firm is well-positioned to push through meaningful dividend increases in the coming years. Additionally, UnitedHealth Group earns an “EXCELLENT” Dividend Safety rating as its Dividend Cushion ratio sits at 3.1, and please keep in mind these metrics factor in our expectations that the company will meaningfully grow its payout going forward. As of this writing, shares of UNH yield ~1.5%. We like UnitedHealth Group’s stellar cash flow profile, pristine balance sheet, improving near-term outlook and resilient business model. During the ongoing coronavirus (‘COVID-19’) pandemic, the company’s financial performance has remained rock-solid, too. Nov 17, 2020
Growing Competitive Pressures, Leverage Drive Our Reduced Fair Value Estimate of CVS Health (Walgreens, Too)
The rivalries in the pharmacy space continue to intensify. Just this week, on November 17, CNBC reported that Amazon was launching Amazon Pharmacy in the US, which reportedly will include free delivery for Amazon Prime members. Shares of CVS Health sold off sharply after the news broke, as did shares of Walgreens Boots Alliance. Here, we would like to highlight how recognizing competitive threats (both existing and future) represents one of the qualitative overlays we use during the enterprise cash flow analysis process to model expected future financial performance of the company. These competitive dynamics had a large influence in our decision to reduce CVS Health’s fair value estimate. Note, we also reduced our fair value estimate of peer Walgreens Boots Alliance to $43 per share from $60 per share on November 9, too. Nov 5, 2020
UnitedHealth Remains on Our Radar for Dividend Growth Newsletter Portfolio
Image: On a price-only basis, from the beginning of 2008, UnitedHealth’s shares have advanced ~600%, while the S&P 500 has increased ~150%. The measurement period covers both the Obama and Trump administrations. UnitedHealth offers investors defensive characteristics, and the company has revealed considerable resiliency in the face of the COVID-19 pandemic, as well as through changes in healthcare laws during prior administrations. Strong earnings momentum (i.e. the recent guidance increase), solid and growing free cash flow generation, and a very healthy balance sheet are key components to its story. The company has put up sizable double-digit dividend increases in recent years, and we believe it has the capacity to continue to do so. Free cash flow generation during the first nine months of 2020 covered dividends paid by a factor of 4.2x. At 21x expected 2020 earnings, UnitedHealth isn’t too pricey in light of its free cash flow generation and balance sheet health, and its ~1.6% dividend yield isn’t too shabby, by any stretch either. We have exposure to the company via the Healthcare Select Sector SPDR ETF, but we’re keeping UnitedHealth on our radar for addition to the Dividend Growth Newsletter portfolio at the right price. Sep 3, 2020
3 Lessons in Portfolio Management Over 10 Years
Image Source: http://www.epictop10.com/. "When I left as director in the equity and credit department at Morningstar in 2011, I thought I knew a whole heck of a lot about investing. I felt like I was one in the top 5-10 in the world as it relates to the category of practical knowledge of enterprise valuation (maybe include Koller at McKinsey, Mauboussin at Counterpoint, and Damadoran at Stern on this list). After all, I oversaw the valuation infrastructure of a department that used the process extensively, and the firm was among just a few that used enterprise valuation systematically. Then, at Valuentum, our small team would go on to build/update 20,000+ more enterprise valuation models. There can always be someone else out there, of course, but I don't think anybody has worked within the DCF model as much as I have across so many different companies. That said, through the past near-10 years managing Valuentum's simulated newsletter portfolios, I've also learned a number of things to become an even better portfolio manager." -- Brian Nelson, CFA Jul 20, 2020
Walgreens Targets Cost Cuts and In-Store Doctors’ Offices
Image Source: Walgreens Boots Alliance Inc – Third Quarter Fiscal 2020 IR Earnings Presentation. On July 9, Walgreens Boots Alliance reported its third-quarter fiscal 2020 earnings (period ended May 31, 2020) and raised its dividend by ~2% on a sequential basis. Walgreens has increased its annual dividend over the past 45 consecutive years, earning it Dividend Aristocrat status, though we caution its net debt load weighs negatively on its forward-looking dividend coverage. Shares of WBA yield ~4.6% as of this writing. Jun 1, 2020
June Dividend Growth Newsletter & Intrinsic Value Investing
"But how, you will ask, does one decide what [stocks are] "attractive"? Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth,"...We view that as fuzzy thinking...Growth is always a component of value [and] the very term "value investing" is redundant." -- Warren Buffett, Berkshire Hathaway annual report, 1992 Apr 3, 2020
Repub from July 2019 -- The Valuentum Economic Roundtable
We sat down with the Valuentum team to get their thoughts on the global economy and key issues that may threaten this near 10-year bull market. Jan 31, 2020
Dividend Increases/Decreases for the Week Ending January 31
Let's take a look at companies that raised/lowered their dividend this week. Latest News and Media The High Yield Dividend Newsletter, Best Ideas
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