Valuentum Exclusive Analysis for the Discerning Investor

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Image Source: Björn Lammers

By Brian Nelson, CFA

On September 6, Dividend Growth Newsletter portfolio holding Lockheed Martin (LMT) announced in a regulatory filing that it expects to deliver 97 F-35 fighter jets during 2023, down from its previous expectation of 100-120 planes. Reports indicate that the production hiccup occurred at supplier L3Harris Technologies (LHX) with respect to the development of the aircraft’s integrated core processor, pushing back Lockheed’s delivery timeline for the combat jet. Though the news is not good, we’re not reading much into it. Lockheed noted that it continues to produce F-35s at a pace of 156 per year. We’re viewing this as a mere timing issue and not making any changes to our $440 per share fair value estimate of Lockheed as a result.

Newsletter portfolio holding Apple (AAPL) is in the market’s crosshairs of late. Back on August 4, the firm broke through its multi-month uptrend, and we had been expecting a pullback in shares since then. With future versions of the Apple Watch down the pike, upside potential with respect to its ‘Vision Pro,’ Buffett’s endorsement of the iPhone, its booming Services business, and potential upside with respect to artificial intelligence [AI], we’re not reading much into concerns over reports of a Chinese government agency iPhone ban (at work). Apple has far too many things going for it, and far too many options in the longer run to adapt to any demand shifts in China for us to abandon ship. We’re viewing the sell-off as being consistent with its weaker technical action following its third-quarter fiscal 2023 results, and we’re comfortable reiterating the high end of our fair value estimate range of $200 per share for this net-cash-rich, free-cash-flow generating behemoth.

High-yielding midstream and utility giant Enbridge (ENB) announced September 5 a transformative deal with Dominion Energy (D) to purchase three natural-gas utilities for $14 billion in cash and assumed debt. Enbridge already has a massive net debt load, and the firm’s intrinsic value estimate is based on a forward assumption that considers only maintenance capital spending outlays (not all capital spending), giving it a free pass on growth capital investment within our valuation framework. Nonetheless, our fair value estimate stands at $32 per share after our latest update (was $40 per share), a level about in-line with where shares are currently trading. The proposed deal with Dominion will add greater complexity to a story that frankly doesn’t need it. The company’s forward estimated dividend yield of ~7.9% will turn many income investors’ heads, but Enbridge’s elevated degree of leverage is just asking for trouble.

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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson's household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies. 

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