Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Nov 21, 2020

Target Reaches All-Time Highs
Image Shown: Shares of Target Corporation are now trading near their all-time highs as of this writing. Shares of Target Corp recently reached an all-time high after the company reported third quarter earnings for fiscal 2020 (period ended October 31, 2020) on November 18 that smashed past consensus estimates on both the top- and bottom-lines. During its latest earnings report, Target reported that its comparable store sales rose by 20.7% year-over-year with digital comparable sales up 155% during this period. During the first nine months of fiscal 2020, Target generated over $5.0 billion in free cash flow. The top end of our fair value estimate range sits at $182 per share, and as of this writing, shares of TGT are trading near $172, indicating Target appears fairly valued at this time. Shares of TGT yield a decent ~1.6% as of this writing, and we give Target a “GOOD” Dividend Safety rating given its impressive cash flow profile.

Nov 20, 2020

Home Depot and Lowe’s Post Tremendous Comparable Store Sales Growth
Image Source: Home Depot Inc – Third Quarter of Fiscal 2020 IR Earnings Infographic. Home Depot and Lowe’s Companies have experienced incredibly strong comparable store sales growth during the initial phases of the ongoing coronavirus (‘COVID-19’) pandemic. Past digital investments enabled both companies to better meet surging demand during these turbulent times, and demand growth is coming from both professional (i.e. contractors, home builders) and non-professional (i.e. more affluent households in the suburbs) consumers. The biggest thing holding both companies back is their large net debt loads and sizable operating lease liabilities, in our view, though please note that their cash flow profiles are stellar. It appears the North American home improvement and construction business is holding up quite well, all things considered, highlighting the industry’s resilience.

Nov 19, 2020

Videogaming Business Becoming More and More Attractive
Image Shown: The video game industry has been placing a much greater emphasis on growing their mobile gaming operations in recent years. Part of that strategy has involved leveraging existing IP and well-known gaming titles to appeal to a wide range of users. Image Source: Electronic Arts Inc – Second Quarter of Fiscal 2021 IR Earnings Presentation. As households have largely been “cocooning” indoors to ride out the ongoing coronavirus (‘COVID-19’) pandemic, demand for digitally provided entertainment options has grown considerably. NPD Group, an industry-tracking firm, estimates that US video game sales (software and hardware combined) will reach $13.4 billion in total in across November and December of this year. That would be up 24% from year-ago levels, and note this is only looking at the US market, which is estimated to have 244 million consumers of video game content according to NPD Group. Many of those consumers are considered casual video game players, playing mobile games on their smartphones and tablets, though NPD Group noted the number of more dedicated gamers (measured by hours played per week) is on the rise in both nominal and absolute terms. Mobile gaming options generally rely on in-game transactions, called microtransactions, to generate revenue. Usually those offerings include aesthetic upgrades or the ability to progress through the video game at a faster pace. For more conventional video game offerings--those normally played on PCs or consoles--video game companies have increasingly been successful in selling add-on content via high-margin digital packages (and in some instances, microtransactions have also been successfully implemented). Longer term, the rise of e-sports offers another revenue generating opportunity for companies in the video game and digital advertising world. Though a nascent part of the video game industry, initial levels of interest have been impressive. Beyond rising demand for video streaming services, demand for video games, a (usually) cost-effective entertainment option, has also held up incredibly well during the pandemic with several big video game publishers reporting strong financial results of late, too. Furthermore, Microsoft Corporation and Sony Corporation recently launched their next-generation consoles, the Xbox Series X and PlayStation 5, respectively. In theory, the console refresh cycle combined with growing demand for indoors entertainment options should provide the video game industry with several major growth catalysts in the coming quarters. One of the key positive attributes of the the video game publishing industry, generally speaking, is that these companies have strong balance sheets and stellar cash flow profiles (meaning a relatively modest amount of capital expenditures are required to maintain a certain level of revenues, and thus putting the firm in a position to better generate free cash flows). However, the performance of these companies can swing wildly depending on how well their blockbuster properties perform. The hit-or-miss nature of their operations has been a big reason why we haven’t added any videogame stock to the newsletter portfolios in the past, but their business models have become more and more attractive as the years have gone on. In this note, let’s get into the details of Activision Blizzard Inc, Electronic Arts Inc, and Take-Two Interactive Software Inc, while we discuss broader industry trends.

Nov 17, 2020

Walmart’s Digital Strategy Continues to Pay Off
Image Shown: Walmart Inc continues to distribute its free cash flows back to shareholders via dividends and share repurchases. The retailing giant’s management team has a long track record of being shareholders friendly. However, we still view shares of WMT as generously valued as of this writing, given that the top end of our fair value estimate range sits at $133 per share though WMT is currently trading closer to ~$150 per share. Image Source: Walmart Inc – Third Quarter of Fiscal 2021 IR Earnings Presentation. On November 17, Walmart reported third quarter earnings for fiscal 2021 (period ended October 31, 2020) that beat consensus estimates on both the top- and bottom-lines. As we have noted in the past, the key driver behind Walmart’s financial outperformance of late has been its e-commerce operations. Whether that be to support home delivery services or curbside pick-up options, Walmart’s past digital investments better allowed the retailing giant to meet surging demand for consumer staples and other products in the wake of the ongoing coronavirus (‘COVID-19’) pandemic. The top end of our fair value estimate range sits at $133 per share of WMT, indicating Walmart is generously valued as of this writing as its shares are currently trading near $150. However, we still view Walmart’s business model as stellar and its cash flow profile as impressive. During the first nine months of fiscal 2021, Walmart generated over $16.4 billion in free cash flow. The firm spent $4.6 billion covering its dividend obligations and another $1.2 billion buying back its stock during this period, and both of these activities were fully covered by Walmart’s free cash flows and then some. Shares of WMT yield ~1.4% as of this writing.

Nov 11, 2020

Realty Income Remains Resilient and Its Outlook is Improving
Image Shown: An overview of Realty Income Corporation’s asset base and historical financial performance. Image Source: Realty Income Corporation – Third Quarter of 2020 IR Earnings Presentation. On November 2, Realty Income Corp posted third quarter earnings for 2020 that saw the real estate investment trust’s (‘REIT’) funds from operations (‘FFO’) come in flat year-over-year at $0.82 per share, while its adjusted funds from operations (‘AFFO’) declined by 2% year-over-year, hitting $0.81 per share. Realty Income invests in single-tenant commercial properties, and its business has faced headwinds from the ongoing coronavirus (‘COVID-19’) pandemic. However, things are starting to improve, though there is ample room for additional improvement. We like the relative resilience of Realty Income’s financials and continue to include shares of O at a modest weighting in our Dividend Growth Newsletter portfolio. As of this writing, shares of Realty Income yield ~4.4% and for reference, the REIT pays out a monthly dividend.

Nov 10, 2020

McDonald’s: Holding Up Well During the Pandemic
McDonald’s is without a doubt a fantastic enterprise with a storied history and moaty characteristics. The firm is holding up quite well and has managed to drive innovation to overcome almost every obstacle it has faced in the past. Though there are long-term risks to the dividend payout based on the Dividend Cushion ratio, the company’s credit marks and free cash flow generation are enough for us to be confident in a growing payout for the foreseeable future. Shares are fairly valued at the moment, but dividend growth investors might want to take a hard look at this fast-food behemoth for their portfolios.

Oct 22, 2020

Our Thoughts on Netflix’s Latest Earnings
Image Shown: An overview of Netflix Inc’s historical financial and operational performance and a snapshot of its outlook for the fourth quarter of 2020. Image Source: Netflix Inc – Letter to shareholders covering the third quarter of 2020. On October 20, the video streaming giant Netflix reported third-quarter 2020 earnings after the market close that underwhelmed lofty investor expectations and saw shares of NFLX move lower the next day. We recently updated our cash flow models for the Discretionary Spending industry, and our current fair value estimate for NFLX sits at $488 per share, near where Netflix is trading as of this writing. The recent selloff in Netflix’s stock price is largely about investors scaling back their expectations for Netflix’s net paid subscriber growth figures, in our view, and is not a sign of underlying weakness in the company’s business model.

Oct 13, 2020

Disney Moves Higher
Image Shown: Shares of Walt Disney Company, a holding with a modest weighting in our Best Ideas Newsletter portfolio, are recovering. The ongoing pandemic created significant headwinds for Disney, though stellar paid subscriber growth at its Hulu, ESPN+, and Disney+ video streaming services are helping offset some of those headwinds. On October 12, Walt Disney Company announced a major restructuring that fundamentally places a greater focus on its direct-to-consumer (‘DTC’) strategy, which rests on its video streaming services. We have written about Disney’s impressive video streaming performance in the past. Please note beyond Disney+ and EPSN+, Disney owns 67% of Hulu with Comcast Corp owning the remaining 33% stake.

Oct 2, 2020

Dividend Increases/Decreases for the Week October 2
Let's take a look at companies that raised/lowered their dividend this week.

Aug 26, 2020

Papa John’s Posts Stellar Comparable Store Sales Growth
Image Shown: Shares of Papa John’s International Inc have surged upwards year-to date as of this writing. One company that has proven to be very resilient during the ongoing coronavirus (‘COVID-19’) pandemic is Papa John’s International. We significantly raised our fair value estimate for shares of PZZA back in June 2020. As of this writing, Papa John’s is trading right at the top of our fair value estimate range which sits at $99 per share of PZZA. The company has an asset-light business model and a quality cash flow profile, a product of its focus on franchise operations, though Papa John’s does own some of its store locations. As of December 29, 2019, Papa John’s had 5,395 restaurant locations worldwide operating in 49 countries and territories. Out of those locations, ~89% were franchised and the rest were either owned by the company or by a joint-venture the company had an economic stake in. Papa John’s success largely stems from past major investments in its digital presence and a heavy focus on home delivery and carryout offerings. With the pandemic forcing households to stay in and many restaurants to close, Papa John’s rose to the occasion to meet rising consumer demand.