Valuentum Exclusive Analysis for the Discerning Investor

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Dec 16, 2020

Public Storage Receives Interest from Activist Investor
Image Shown: A look at Public Storage’s geographical footprint at the end of 2019, keeping in mind some of these properties are owned by its strategic partners. Image Source: Public Storage – 2019 Annual Report. We are big fans of the self-storage industry and include Public Storage in the High Yield Dividend Newsletter portfolio. One of the greatest things about Public Storage is the ability for this self-storage real estate investment trust (‘REIT’) to generate sizable positive free cash flows, a rarity in the REIT world. We have covered this dynamic in detail in the past. Shares of PSA yield ~3.6% as of this writing, and we see room for significant payout growth in the coming years. Recently, Public Storage received a letter from a major activist investor that seeks to shake up the company to improve the REIT’s ability to reward shareholders going forward.

Dec 10, 2020

FTC Attacks Facebook, Win-Win Scenario for Investors
Image Shown: Facebook Inc has a large digital advertising business with global reach, but it does not have a monopoly on digital advertising or social media by any means. Image Source: Facebook Inc – Third Quarter of 2020 IR Earnings Presentation. Facebook is being sued by the FTC for allegedly engaging in monopolistic activities via its acquisition program. It's important to note that the government is not seizing Facebook's assets and that Facebook investors own the future free cash flow stream of the entire entity under any and every scenario--whether Facebook is retained in current form or whether it is broken into different parts through a potential IPO/spin-off of its Instagram and WhatsApp properties. Under a status quo scenario, we believe Facebook's shares are worth $413 each, an estimate that is backed by the company's vast net cash position and future expected free cash flow stream. In such a scenario, the company would remain one of our favorite ideas, retain its material competitive advantages (i.e. the network effect) and continue to build upon its very healthy financial profile. Further, in light of the FTC news, we believe the market will look to price Facebook more and more on a sum-of-the-parts basis, which could help to accelerate price-to-estimated fair value convergence relative to our intrinsic value estimate. In a highly improbable break-up scenario, Facebook investors could receive more than our status-quo intrinsic value estimate. The IPO market is very, very healthy at the moment, with investor interest in new issues at historic highs and many recent IPOs soaring on their first day of trading. If Facebook is forced to IPO Instagram or WhatsApp, the very, very healthy IPO market could generate proceeds for Facebook investors far in excess of what the implied value of Instagram and WhatsApp contribute to our current $413 per share fair value estimate of the combined company. Further, the cash proceeds of an IPO of Instagram or WhatsApp would stuff the coffers of Facebook's balance sheet with even more excess cash that could be used for material share buybacks or a vast one-time cash dividend--or for other value-generating opportunities. In an IPO or spin-off of Facebook's Instagram or WhatsApp properties, please note that investors are merely capturing the present value of these properties' future free cash flows sooner (not losing them)--and the market may price them at a substantial premium above our implied valuation within Facebook. The FTC news, which was largely expected, will generate headline risk for Facebook's shares, and it will undoubtedly be a source of continued share-price volatility and confusion for investors. In many respects, however, the FTC's attack on Facebook may turn out to be a win-win for Facebook investors. At the very least, if investors start to look at Facebook more and more on a sum-of-the-parts basis (pricing Facebook, Instagram and WhatsApp separately with consideration of current market conditions/relative prices, which are undoubtedly healthy for new issues), it may only accelerate status-quo-scenario price-to-fair value convergence. Facebook remains a top-weighted holding in the Best Ideas Newsletter portfolio, and we will continue to follow developments related to the FTC news.

Dec 3, 2020

This Stock Just Registered a Rare (Perfect) 10 on the VBI!
The Valuentum Buying Index (VBI) combines rigorous discounted cash flow (DCF) analysis, relative (behavioral) valuation, and technical/momentum indicators. For a stock to register a rating of a 10 on the VBI, the company would need to be 'UNDERVALUED' on a DCF basis and 'ATTRACTIVE' on a relative (behavioral) value basis. The stock would also have to be exhibiting 'BULLISH' technicals. The firm would need a ValueCreation rating of 'GOOD' or 'EXCELLENT', exhibit 'HIGH' or 'AGGRESSIVE' growth prospects, and generate at least a 'MEDIUM' or 'NEUTRAL' assessment for cash flow generation, financial leverage, and relative price strength.

Dec 1, 2020

Walking Through the Calculation of the Dividend Cushion Ratio
Image shown: An image found on page 2 of Valuentum's Dividend Report on Kimberly-Clark. The 'Dividend Cushion Ratio Deconstruction,' shown in the image, reveals the numerator and denominator of the Dividend Cushion ratio. At the core, the larger the numerator (or the healthier a company's balance sheet and future free cash flow generation) relative to the denominator (or a company's future expected cash dividend obligations), the more durable the dividend. In the context of the Dividend Cushion ratio, KimberlyClark's numerator is larger than its denominator suggesting strong dividend coverage in the future. The 'Dividend Cushion Ratio Deconstruction' image puts sources of free cash flow in the context of financial obligations next to expected cash dividend payments over the next 5 years on a side-by-side comparison. Because the Dividend Cushion ratio and many of its components are forward-looking, our dividend evaluation may change upon subsequent updates as future forecasts are altered to reflect new information.We believe the Dividend Cushion ratio is one of the most helpful tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based, considers balance sheet health, and is forward looking. Since its development in 2012, we estimate its efficacy at ~90% in helping to forewarn readers of impending dividend cuts. For companies where Valuentum reports are available, the Dividend Cushion ratio can be found in a stock's Dividend Report or in the table on the company's stock landing page. We use Kimberly-Clark as an example of how we calculate the Dividend Cushion ratio and how useful it is for investors of all types.

Nov 27, 2020

Republic Services Is a Great Company
Image Shown: Shares of Republic Services Inc have been on an upward march over the past six months as investors warmed back up to the waste management company. We appreciate the company’s stable cash flow profile and high quality earnings, and we continue to include shares of RSG at a modest weighting in the Dividend Growth Newsletter portfolio. The waste management company Republic Services has proven to be incredibly resilient during the ongoing coronavirus (‘COVID-19’) pandemic. We are big fans of its stable cash flow profile and high quality earnings. According to Republic Services’ 2019 Annual Report the firm “is the second largest provider of non-hazardous solid waste collection, transfer, disposal, recycling, and environmental services in the United States, as measured by revenue.” The firm operated in over 40 US states and Puerto Rico as of the end of 2019. We include Republic Services in our Dividend Growth Newsletter portfolio at a modest weighting. Pricing strength (assisted by industry consolidation), revenue growth (assisted by M&A activity), and the potential for meaningful margin expansion (assisted by economies of scale) underpins Republic Services’ cash flow growth trajectory. Shares of RSG yield ~1.7% as of this writing.

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 16, 2020

Value Is Not Static and the Qualitative Overlay Is Vital to Our Process
With prudence and care, the Valuentum Buying Index process and its components are carried out. Our analyst team spends most of its time thinking about the intrinsic value of companies within the context of a discounted cash-flow model and evaluating the risk profile of a company's revenue model. We have checks and balances, too. First, we use a fair value range in our valuation approach as we embrace the very important concept that value is a range and not a point estimate. A relative value overlay as the second pillar helps to add conviction in the discounted cash-flow process, while a technical and momentum overlay seeks to provide confirmation in all of the valuation work. There's a lot happening behind the scenes even before a VBI rating is published, but it will always be just one factor to consider. Within any process, of course, we value the human, qualitative overlay, which captures a wealth of experience and common sense. We strive to surface our best ideas for members.

Nov 4, 2020

Our Thoughts on Magellan Midstream’s Latest Earnings
Image Shown: Keeping the many headwinds facing the energy infrastructure space in mind, Magellan Midstream Partners LP remains one of our favorite midstream master limited partnerships. Image Source: Magellan Midstream Partners LP – October 2020 IR Presentation. On October 30, Magellan Midstream Partners reported third quarter 2020 earnings that beat both top- and bottom-line consensus estimates. The midstream master limited partnership (‘MLP’) space has faced enormous headwinds due to the ongoing coronavirus (‘COVID-19’) pandemic, though the firm was still able to generate sizable free cash flows during the first nine months of 2020. Magellan Midstream is a modestly-weighted holding in the High Yield Dividend Newsletter portfolio, and as of this writing, units of MMP yield ~11.1%. Though that yield is quite high, given that the firm’s free cash flows should grow significantly going forward, we are optimistic the firm will be able to continue making good on its payout obligations for the time being.

Oct 30, 2020

Dividend Increases/Decreases for the Week October 30
Let's take a look at companies that raised/lowered their dividend this week.

Oct 23, 2020

Our Thoughts on Intel’s Latest Earnings Report
Image Shown: An overview of Intel Corporation’s performance during the first nine months of fiscal 2020. Image Source: Intel Corporation – Third Quarter of Fiscal 2020 IR Earnings Presentation. On October 22, Intel Corp reported third quarter fiscal 2020 earnings (period ended September 26, 2020) that largely matched consensus expectations. Intel boosted its full-year outlook for fiscal 2020 on a net basis (which included an increase in its expected free cash flows this fiscal year) during its latest earnings update, though management reduced its forecast for Intel’s expected operating margins versus previous expectations. We continue to like Intel’s ability to generate sizable free cash flows, though we are concerned with its rising net debt load of late.