Valuentum Exclusive Analysis for the Discerning Investor

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Nov 20, 2023

Dick’s Sporting Goods Still Looks Really Cheap
Image Source: Dick’s Sporting Goods. On November 21, Dick’s Sporting Goods reported solid third-quarter results with sales up 2.8% on a year-over-year basis thanks to comparable store sales growth of 1.7% that lapped an impressive 6.5% increase in the same period a year ago. Non-GAAP earnings per share came in at $2.85 in the quarter, up from $2.60 in last year’s period. The company also raised its 2023 comparable store sales growth guidance range to 0.5%-2% from flat to 2% previously, and it raised its 2023 non-GAAP earnings per share outlook to $12.00-$12.60 from its previous range of $11.50-$12.30. We liked the news and continue to believe that shares are mispriced. Our fair value estimate stands at $160 per share, well above where shares are trading at the moment.

Nov 17, 2023

REITs Will Likely Continue To Underperform
Image: REITs have not performed as well as some may have thought. This article clearly explains that REIT dividends are risky and showcases that REIT investors have missed out on a lot of total return during the past decade or so. One has to go back a long time to see any real return from REITs, and changing working and shopping habits will likely continue to punish the broader REIT sector. We view REITs as a game of financial leverage tied to the vicissitudes of the commercial real estate cycle, all for a dividend yield that approximates that of risk-free assets these days. REITs seem to have a large following these days and many will come to the defense of REITs in their own way, but from a bird's eye view of this market, we remain puzzled by the love affair some have for them. We can only posit that some have a myopic focus on REIT-specific metrics, are not getting the best information when it comes to capital-market dependence risk, and perhaps don't truly understand the structural dynamics of the dividend payment with respect to the free dividends fallacy (i.e. that a REIT's share price is adjusted downward by the amount of the dividend on the ex-dividend date). In our view, the structural dynamics that have hurt REITs for the past decade won't be going away anytime soon, and for investors looking to maximize their returns and the longevity of their retirement savings, there are much better options than REITs.

Nov 17, 2023

Dividend Increases/Decreases for the Week of November 17
Let's take a look at firms raising/lowering their dividends this week.

Nov 14, 2023

Cash Cow Republic Services’ ESG Initiatives Bearing Fruit
Image Source: Gabriel Langton. Republic Services remains our favorite garbage hauler. The company is a cash cow, and it continues to drive dividend growth as it buys back shares. When it reported third-quarter results on October 26, the firm showed strong adjusted earnings per share expansion, to $1.54, up from $1.34 in last year’s period. For the first nine months of the year, the firm grew cash flow from operations to ~$2.7 billion, up from ~$2.38 billion during the same period last year, driving strong adjusted free cash flow generation of ~$1.8 billion, materially higher than the ~$470 million in cash dividends it paid over the same period. The board authorized $3 billion for share repurchases, and its equity yields a very healthy ~1.4% at the time of this writing.

Nov 10, 2023

Use Both the Dividend Cushion Ratio (Probability of a Dividend Cut) and the Qualitative Dividend Ratings in Your Assessment of the Payout
The Dividend Cushion ratio ranks companies on the probability of a dividend cut in the longer run, while the qualitative ratings in part assess the outlook for the health of the payout in the near term in the context of management’s willingness to preserve and raise the payout. Since the systematic application of the Dividend Cushion ratio across our coverage in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90% at identifying the risks of a dividend cut in advance of the event.

Nov 10, 2023

Dividend Increases/Decreases for the Week of November 10
Let's take a look at firms raising/lowering their dividends this week.

Nov 9, 2023

Disney’s Free Cash Flow Is Expected to Surge But A Strong Recovery Is Already Priced In
Image Source: Valuentum. On November 8, Disney reported improved fourth-quarter results for its fiscal 2023. Revenue advanced 5% on a year-over-year basis in the quarter, and the firm drove non-GAAP diluted earnings per share to $0.82 from $0.30 in the prior year period. The company’s Disney+ streaming service added 7 million core customers in the quarter, and its commentary that its streaming business would reach profitability in the fourth quarter of next fiscal year was welcome. Cost savings will be key, and the executive team expects free cash flow to grow significantly in fiscal 2024 versus the most recently reported year. All of this was great news, but a massive recovery in free cash flow is already factored into its price. Our $81 fair value estimate remains unchanged.

Nov 7, 2023

Vertex Pharma Hits All-Time Highs!
Image: Vertex Pharma is one of our favorite biotech ideas, and the company continues to power to new highs. Vertex Pharma is one of the best biopharma ideas on the market today. The company’s CF franchise throws off a lot of free cash flow, and it holds a pristine balance sheet with a huge net cash position. Not only this, but the firm’s pipeline has impressive potential. Vertex’s next line-up up therapies could go a long way toward solving the opioid epidemic, while its ventures with CRISPR Therapeutics offer further long-term upside potential in gene-editing technology, one of the most exciting areas of biotech these days. The high end of our fair value estimate range stands north of $460, and we continue to like Vertex as a core idea in the Best Ideas Newsletter portfolio.

Nov 4, 2023

Booking Holdings Is a Net-Cash-Rich, Free-Cash-Flow Generating Powerhouse!
Image: Booking Holdings remains an asset-light, free-cash-flow generating powerhouse. Booking Holdings ended the September quarter with a modest net cash position. Cash and cash equivalents totaled ~$13.3 billion and short-term investments came in at $624 million, a sum that was greater than its short-term debt load of ~$1.9 billion and long-term debt of ~$11.9 billion. The company hauled in ~$6 billion in cash flow from operations during the first nine months of 2023 and only spent $251 million on property and equipment, good for significant free cash flow generation. Its free cash flow margin so far in 2023, as measured by free cash flow divided by sales, was an impressive ~35%, showcasing just how efficient Booking Holdings is in converting its top line to cold hard cash. Our $3,164 per share fair value estimate remains unchanged at this time.

Nov 3, 2023

People Love Their Starbucks
Image: Starbucks remains a strong free cash flow generator. Operational efficiencies, sales leverage and pricing strength helped drive Starbucks' GAAP operating income growth of 42.7% and non-GAAP earnings per share to $1.06 in the quarter, up 31% on a year-over-year basis. Starbucks ended its fourth quarter of fiscal 2023 with ~$3.95 billion in cash and short-term investments and short- and long-term debt of ~$15.4 billion, resulting in a net debt position on the books. Free cash flow generation remains robust at Starbucks, however, with the measure coming in at ~$3.7 billion for the fiscal year ending October 1, 2023. We’re reiterating the high end of our fair value estimate range of $120 for Starbucks’ shares.