Valuentum Exclusive Analysis for the Discerning Investor

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Jul 24, 2020

Dividend Increases/Decreases for the Week Ending July 24
Let's take a look at companies that raised/lowered their dividend this week.

Jul 23, 2020

Microsoft Closes Out Fiscal 2020
Image Shown: An overview of Microsoft Corporation’s financial performance during the fourth quarter of fiscal 2020. The company reported strong year-over-year revenue growth across its three main business segments. Image Source: Microsoft Corporation – Fourth Quarter Fiscal 2020 Earnings PowerPoint Presentation. On June 12, 2020, we added Microsoft Corp back to the Best Ideas Newsletter and the Dividend Growth Newsletter portfolios. We strongly appreciate Microsoft’s net cash position, high quality cash flow profile, and its long-term outlook, which is underpinned by secular growth tailwinds. On July 22, Microsoft posted fourth quarter fiscal 2020 (period ended June 30, 2020) that beat both consensus top- and bottom-line estimates, though its guidance for the current fiscal quarter was lighter than what analysts had expected. The top end of our fair value estimate range for Microsoft sits at $234 per share, indicating shares of MSFT have room to run further still after climbing ~34% year-to-date as of the end of normal trading hours on July 22 (before taking dividend considerations into account). Additionally, we give Microsoft “EXCELLENT” Dividend Growth and Dividend Safety ratings due to its promising payout growth outlook and stellar Dividend Cushion ratio of 3.9 (which factors in annual double-digit per share dividend increases over the coming fiscal years). Shares of MSFT yield ~1.0% as of this writing.

Jul 23, 2020

Earnings Update: LMT, ISRG, KO, PM
Image Source: As with many companies these days, Coca-Cola pulled its 2020 outlook due to uncertainties surrounding COVID-19. Second Quarter 2020 Earnings Call. We released a few preliminary thoughts on second quarter earnings in our note here, but we wanted to elaborate on a few new reports, too. Lockheed Martin is included in the Dividend Growth Newsletter portfolio, while Intuitive Surgical was highlighted as a COVID-19 play during the March swoon. Coca-Cola remains an excellent bellwether on the global economy, while Philip Morris remains a holding in the High Yield Dividend Newsletter portfolio (subscribe). Let’s cover the second quarter reports from these companies in this note.

Jul 22, 2020

Second Quarter Earnings Roundup
The figure above shows the performance of the simulated Best Ideas Newsletter portfolio from inception May 17, 2011, through December 15, 2017, relative to its declared benchmark, the S&P 500 (SPY), on an apples-to-apples basis, with dividends collected but not reinvested for both the newsletter portfolio and the SPY, as reported in the monthly newsletter. The simulated Best Ideas Newsletter portfolio outperformed the S&P 500, including reinvested dividends in the benchmark, since inception (May 17, 2011) and since the inaugural release of the newsletter (July 13, 2011) through the end of the measurement period (December 15, 2017). The results are hypothetical and do not represent returns that an investor actually earned. Past results are not indicative of future performance.

Jul 22, 2020

IBM’s Cloud Transition Continues
Image Source: International Business Machines Corporation – 2019 Annual Report. On July 20, IBM reported second quarter 2020 earnings that beat both consensus top- and bottom-line estimates. Most of the market’s excitement centered on IBM’s ‘Cloud & Cognitive Software’ segment posting year-over-year revenue growth of ~3% in the second quarter while its company-wide GAAP revenue declined by ~5% year-over-year, though initial gains in IBM’s share price faded away during regular trading hours on July 21. In the earnings press release, IBM noted its “total cloud revenue” grew by 30% year-over-year last quarter. Shares of IBM are trading near their fair value estimate of $129 as of this writing, indicating that shares of IBM appear fairly valued.

Jul 22, 2020

Banks & Money Centers Industry Report
We’ll talk about how banks make money, and the three most important costs of running a bank. The Great Financial Crisis revealed the tremendous risks of banking equities, and we’ll walk through these in depth. We’ll discuss how to conceptualize where we are in the banking cycle, and how that helps inform our valuation process for banks, which is different than traditional operating entities. The stress tests have helped many of the big banks from pursuing hazardous endeavors during the past decade, and we’ll go into how to think about the yield curve in the context of banks. Investors should expect ongoing digitalization of banks and increased M&A as the competitive environment only intensifies. Three of our favorite banks are JPMorgan Chase, Bank of America, and US Bancorp, and we’ll be looking to consider adding any of these to the Best Ideas Newsletter portfolio or Dividend Growth Newsletter portfolio at the right price. Banks and Money Centers: AXP, BAC, BK, BBT, C, DFS, FITB, GS, HBC, JPM, KEY, MS, NTRS, PNC, RF, STI, TCB, USB, WFC.

Jul 21, 2020

Johnson & Johnson Beats Estimates and Raises Guidance
Image Source: Johnson & Johnson – Second Quarter of 2020 IR Earnings Presentation. On July 16, Johnson & Johnson reported second quarter 2020 earnings that beat both consensus top- and bottom-line estimates. Most importantly, Johnson & Johnson increased its full-year guidance for 2020 as the firm is well-prepared to ride out the ongoing coronavirus (‘COVID-19’) pandemic, in our view. We continue to like shares of JNJ in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios. As of this writing, shares of JNJ yield ~2.7%.

Jul 21, 2020

Morgan Stanley Puts up a Tremendous Quarter
Image Shown: Morgan Stanley’s 2Q2020 Results Broken Down by Segment. Image Source: Morgan Stanley’s 2Q2020 Earnings Supplement. Morgan Stanley truly shined during this quarter of extreme volatility. While credit provisioning was higher year over year, Morgan Stanley simply does not have many of the credit exposures that are leading to huge multi-billion-dollar credit provisions at some of its money-center banking peers. Though its wealth management business' net income (applicable to Morgan Stanley) was down 10% year over year, and Investment Management was up only 20%, it was the Institutional Securities stunning 95% advance in net income that made this quarter a (temporary) gem of notable brilliance.

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.

Jul 20, 2020

Bank of America is Working Through a Difficult Time
Image Shown: Summary of Bank of America’s 2Q2020 results. Image Source: Bank of America 2Q2020 Earnings Presentation. When putting all the puzzle pieces together, we see Bank of America facing the headwinds of low rates and sizable credit provisioning with relative ease thanks to its substantial pre-tax, pre-provision earnings power. As long as the economy doesn’t get drastically worse from here, long term investors will benefit from normalized valuations on more normalized earnings in the not-too-distant future.