Valuentum Exclusive Analysis for the Discerning Investor

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Shares of Disney are Now Surging Towards the Top End of Our Fair Value Estimate Range
Image Shown: Shares of The Walt Disney Company are steadily climbing towards the top end of our fair value estimate range, which sits at $153 per share of DIS. After the market closed on November 12, The Walt Disney Company reported its fourth quarter and full-year earnings for fiscal 2020 (period ended October 3, 2020). Its latest results beat both consensus top- and bottom-line estimates. Though Disney’s financials took a big hit from the coronavirus (‘COVID-19’) pandemic, as expected (with an eye towards the enormous headwinds facing its ‘Parks, Experiences and Products’ business segment), the company’s outlook has improved considerably as its various video streaming services continue to outperform. We include shares of Disney in our Best Ideas Newsletter portfolio with a modest weighting. As the top end of our fair value estimate range sits at $153 per share of Disney, there could be room for shares to run higher even after recent share price gains.

Dividend Increases/Decreases for the Week November 13
Let's take a look at companies that raised/lowered their dividend this week.

ICE’s Purchase of Ellie Mae Gives Us Pause
Image Source: IntercontinentalExchage. Intercontinental Exchange’s acquisitive behavior and weakening balance sheet have given us pause. The company may have bitten off more than it can chew with its $11 billion cash and stock acquisition of Ellie Mae, a cloud-based provider in mortgage finance, and we question its new debt-funded strategic direction, which takes it further from its core bread-and-butter operations we liked so much.

Altria May Never Make A Comeback
Image Source: Altria. Altria’s core business is under attack from almost every front, and the trend toward investing in ESG-friendly (Environment, Social and Corporate Governance) names has the company’s investor basing shrinking by the day. Aside from cigarettes, Altria has exposure to cigars, smokeless tobacco (UST), wine (Ste. Michelle), oral nicotine pouches, AB-InBev, JUUL, cannabinoid company Cronos, among other interests, but it’s clear the company’s back is against the wall as it struggles to diversify. A huge misstep with JUUL that cost it billions, very tight dividend coverage with earnings and free cash flow, a huge net debt position that will be tough to pay down given dividend obligations, and a lofty dividend yield that speaks more to risk than anything else should give investors pause. We don’t expect trouble at Altria anytime soon, but we think the red flag will go up if it ever starts to look to unload its stake in AB-InBev. If that happens, investors should run for the hills, in our view. Altria may never make a comeback, and we’ve been out of the name since it announced the deal with JUUL back in December 2018. Our fair value estimate stands at $42 per share.

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.

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.

Reiterating Our $229 Fair Value Estimate for Berkshire Hathaway
Image Shown: Shares of Berkshire Hathaway Inc Class B are moving on upwards. Berkshire Hathaway reported third quarter 2020 earnings this past Saturday, November 7. The insurance and industrial conglomerate reported that its GAAP income almost doubled year-over-year as its investment portfolio reported large gains. However, that masked pressures at some of Berkshire Hathaway’s myriad businesses as the company navigated the storm created by the ongoing coronavirus (‘COVID-19’) pandemic. Berkshire Hathaway continued to generate significant free cash flows during the first nine months of 2020, and we are reiterating our fair value estimate of $229 per share of Berkshire Hathaway Class B shares.

Follow Up on Our Call on Ameresco
Image Shown: Since we highlighted Ameresco Inc back in August, shares of AMRC have continued to surge higher. We caution that recent trading activity has been quite volatile, due primarily to the ongoing election count process in the US. Back in August 2020, we published a note on Ameresco, which provides a comprehensive slate of energy services for its clients. Ameresco appears uniquely well-positioned to capitalize on rising demand from enterprises, government agencies, and other entities to appear “green” without breaking the bank. Given that the company’s core offerings involve reducing its customers' long-term operating costs (particularly O&M expenses) and improving its clients' cost structure, it appears Ameresco’s offerings should be quite appealing to a large range of customers. We will continue keeping an eye on Ameresco going forward.

Another Great Day for Best Ideas Newsletter Portfolio Holdings!
Image: The holdings in the Best Ideas Newsletter during the trading session November 5. We continue to pound the table on our best ideas. We don't traditionally update members on daily performance of the Best Ideas Newsletter portfolio, but we want to continue to emphasize our best ideas (what they are and where to find them). We have written extensively in the past that we put the Valuentum Buying Index and the Dividend Cushion ratio into practice as we manage the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, respectively. For example, it may not make much sense to be searching for other ideas without at least considering our best ideas first. As the architect behind our process, we believe we have the unique insights to put our methodologies into practice the best. That's why we always say our best ideas are included in the newsletter portfolios.

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.