Valuentum Exclusive Analysis for the Discerning Investor

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Jul 29, 2022

Dividend Increases/Decreases for the Week of July 29
Let's take a look at firms raising/lowering their dividends this week.

Jul 27, 2022

High Yielding Philip Morris International’s Growth Runway Remains Intact
Image Shown: Shares of Philip Morris International moved higher in the wake of its second quarter earnings report. Philip Morris International reported second quarter 2022 earnings that beat both consensus top- and bottom-line estimates. The company raised its full-year revenue and adjusted EPS guidance for 2022 on a pro forma basis (excluding its operations in Russia and Ukraine) versus previous estimates in conjunction with its latest earnings update. Now Philip Morris International expects to generate 6%-8% net revenue growth on an organic basis and 10%-12% diluted EPS growth in 2022 versus 2021 levels (these are non-GAAP metrics). We include Philip Morris International in the High Yield Dividend Newsletter portfolio as we are big fans of its resilient business model and ample pricing power.

Jul 27, 2022

Lockheed Martin Facing Near Term Headwinds; Longer Term Outlook Remains Bright
Image Source: Lockheed Martin Corporation – Second Quarter of Fiscal 2022 IR Earnings Presentation. Lockheed Martin Corp reported earnings for the second quarter of fiscal 2022 (period ended June 26, 2022) that missed consensus top- and bottom-line estimates, largely due to delays in securing another domestic F-35 contract and supply chain hurdles. In our view, these are near term headwinds that are resolvable. Reportedly, Lockheed Martin is nearing a deal worth ~$30 billion with the US Department of Defense (‘DoD’) covering orders for around 375 F-35 aircraft. As it concerns supply chain hurdles, the resumption of normal economic activities (as the worst of the COVID-19 pandemic is put behind the world economy) should steadily allow industrial supplies and global logistics networks to catch up. These headwinds forced Lockheed Martin to reduce its guidance for fiscal 2022 in conjunction with its latest earnings update, specifically as it concerns its revenue and diluted EPS forecasts, though the defense contractor maintained its free cash flow and ‘segment operating profit’ guidance. We continue to like Lockheed Martin in the Dividend Growth Newsletter portfolio. The geopolitical backdrop (with an eye towards the Ukraine-Russia crisis, rising tensions between the US and China, and Western concerns with Iran and North Korea’s nuclear programs) is conducive for increased national defense spending in the U.S. and Western aligned nations across the globe. Lockheed Martin is well-positioned to meet those needs. Shares of LMT yield ~2.8% as of this writing.

Jul 27, 2022

Walmart’s Business Update Likely Means U.S. Is In Recession, But Near-Term Weakness Is Already Baked Into Stock Market
Image Shown: Shares of Walmart Inc dropped sharply during afterhours trading on July 25 as the retailer sharply cut its adjusted operating income and EPS guidance for the current fiscal year as inflationary pressures are taking a sizable toll on its bottom-line. On July 25, Walmart Inc issued a business update that saw the retailer sharply cut its adjusted operating income and EPS guidance for fiscal 2023 (period ended January 2023), while boosting its consolidated net sales guidance. The company also adjusted its guidance for the fiscal second quarter. Shares of WMT plummeted during afterhours trading on July 25 as investors began to price in concerns over the retailer’s deteriorating margins. We anticipated ongoing weakness in Walmart’s business. On July 4, we released an audio report, “Nelson: I Have Been Wrong About the Prospect of Near-Term Inflationary-Driven Earnings Tailwinds,” highlighting our growing concerns about consumer-tied entities in the consumer staples and consumer discretionary spaces. We continue to expect troubles at the big box retailers and across the apparel space, more generally. Here’s what Nelson had to say in early July that remains applicable today: "I simply was not expecting the magnitude of such operating-income drops across consumer-tied companies, and while I think long-term inflation will eventually help drive higher nominal earnings in the longer run when conditions reach “normalization” again, the lag will be much longer than I originally thought. The numbers out of Walmart, Target, and Nike, for example, speak not only to tremendous earnings weakness, but also to the prospect of economic recession in the U.S." A recession in the U.S. is no reason for panic, however. For starters, we believe most of the fundamental weakness across retail is baked into the stock market, but more generally, investors should not worry about recessionary trends. But why? Well, implicitly embedded within a fair value estimate of a company are expectations of a “normal” economic cycle, complete with peak and trough, with the fair value estimate driven largely by mid-cycle expectations that feed into later stages of the model. The prospects for an unexpected recession in economic activity in the near term shouldn’t cause much of a change in the fair value estimate of a company either, given not only that a recession is already implicitly embedded in the fair value estimate, as noted, but also that near-term expectations don’t account for nearly as large of a contribution to the fair value estimate as long-term normalized expectations within the valuation construct. Most of a company’s intrinsic value is driven by its performance beyond year 5 in our model, or on a mid-cycle, going-concern basis. A company’s fair value estimate range (margin of safety) also captures various scenarios regarding economic activity, including a bull and bear case. With that said, recessionary tendencies may cause pricing impacts in the market in the event that consumers/investors use the stock market as a source of income by selling stocks, causing pressure on share prices, but the discounted cash flow (DCF) model already bakes in economic cyclicality and inevitable recessions, if not directly, then implicitly by targeting long-term mid-cycle expectations and via the application of the fair value estimate range. That’s why it’s great to be a long-term investor, scooping shares up when others are forced to sell in the near term, while holding them over long periods, letting compounding work its magic.

Jul 26, 2022

Johnson & Johnson’s Underlying Performance Remains Strong
Image Source: Johnson & Johnson – Second Quarter of 2022 IR Earnings Presentation. Johnson & Johnson reported second quarter 2022 earnings that beat both top- and bottom-line estimate consensus estimates. Johnson & Johnson maintained the midpoints of its full-year non-GAAP adjusted operational sales and earnings per share guidance during its latest earnings update but reduced its reported sales and earnings guidance due to headwinds stemming from a strengthening US dollar. We continue to like Johnson & Johnson as an idea in both the Best Idea Newsletter and Dividend Growth Newsletter portfolios. Shares of JNJ yield ~2.6% as of this writing. Please note that Johnson & Johnson is in the process of spinning off its ‘Consumer Health’ segment as a separate publicly traded entity by 2023 through a tax-free transaction. The firm is still working out the details and intends to finalize the organizational design of the new enterprise by the end of this year.

Jul 25, 2022

High-Yielding Life Storage Is One of Our Favorite Self-Storage REITs
Image Source: Life Storage Inc – First Quarter of 2022 Earnings Press Release. We are big fans of the self-storage industry as real estate investment trusts (‘REITs’) operating in this space have historically generated “excess” free cash flows after covering their total dividend obligations. Life Storage Inc, a self-storage REIT, is one of our favorite income generation ideas. As of this writing, shares of LSI yield ~3.9% after Life Storage pushed through a nice 8% sequential increase in its dividend in July 2022, bringing its quarterly payout up to $1.08 per share ($4.32 on an annualized basis).

Jul 22, 2022

Dividend Increases/Decreases for the Week of July 22
Let's take a look at firms raising/lowering their dividends this week.

Jul 20, 2022

UnitedHealth Group Beats Estimates and Once Again Raises Guidance
Image Shown: Shares of dividend growth idea UnitedHealth Group Inc moved higher by ~5% during normal trading hours on July 15 after reporting a stellar earnings update. The health care giant once again raised its full-year earnings guidance for 2022 in conjunction with its latest earnings update. Shares of UNH have held up quite well year-to-date in the face of volatile capital markets. On July 15, UnitedHealth Group reported second quarter 2022 earnings that beat both consensus top- and bottom-line estimates. The health care giant also boosted its non-GAAP adjusted EPS guidance to $21.40-$21.90 for 2022, up from $21.20-$21.70 previously, in conjunction with it second quarter earnings update. Please note that this is the second time UnitedHealth Group has increased its earnings guidance for 2022 (it also boosted its full-year forecasts back in April 2022), and we appreciate management’s confidence in UnitedHealth Group’s near term outlook. We include UnitedHealth Group as an idea in the Dividend Growth Newsletter portfolio, and shares of UNH yield ~1.3% as of this writing. At the high end of our fair value estimate range, we assign UnitedHealth Group a fair value estimate of $599 per share, well above where UNH is trading at as of this writing. UnitedHealth Group has a fortress-like balance sheet, “moaty” business characteristics, a bright growth outlook, and is a stellar free cash flow generator.

Jul 19, 2022

Dick’s Sporting Goods Facing Revenue “Normalization,” Long-Term Story In Tact
Image Source: Dick’s Sporting Goods Inc – First Quarter of Fiscal 2022 Infographic. Inflationary pressures, labor shortages, and supply chain hurdles are all weighing negatively on Dick’s Sporting Goods’ near term outlook. The retailer’s net cash position and strong cash flow generating abilities should help see it through this period of revenue “normalization,” and its longer term growth runway remains robust (underpinned by new store concepts, the potential for meaningful unit store count growth, ongoing customer loyalty and digital initiatives, and various in-store product layout optimization efforts). We continue to like Dick’s Sporting Goods as an idea in the Dividend Growth Newsletter portfolio. Shares of DKS yield ~2.2% as of this writing, and we see ample room for the retailer to push through substantial dividend increases over the long haul.

Jul 15, 2022

Dividend Increases/Decreases for the Week of July 15
Let's take a look at firms raising/lowering their dividends this week.