Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Nov 12, 2020

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.

Nov 12, 2020

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.

Nov 11, 2020

Pfizer/BioNTech Vaccine Not a Catalyst for Portfolio Changes
Image: BioNTech. Next Generation Immunotherapy Presentation, October 2020. The world received great news this week that the days of this terrible COVID-19 pandemic may finally be numbered. On November 9, Pfizer and BioNTech announced that “their mRNA-based vaccine candidate, BNT162b2, against SARS-CoV-2 has demonstrated evidence of efficacy against COVID-19 in participants without prior evidence of SARS-CoV-2 infection.” Our thesis on the inevitable successful development of a vaccine for COVID-19 never centered on which pharma/biotech giant would be the first to develop one, but rather our thesis has always been focused on the large number of shots on goal (the large number of vaccine candidates in development, and the high probability that at least one would be effective). We’re sticking with some of the best companies out there in the newsletter portfolios, however, and we’re reiterating our fair value estimate range of 3,530-3,920 on the S&P 500 (established June 12), which we derive as 18-20x multiple on pre-pandemic 2021 earnings of $196. The S&P 500 stands within the range at ~3,560 today.

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.

Nov 10, 2020

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.

Nov 10, 2020

Public Storage Continues to Shine
Image Shown: Shares of Public Storage have recovered from the depths of the COVID-19 pandemic and have been on an upward climb over the past few months. On November 4, Public Storage reported earnings for the third quarter of 2020. As expected, headwinds created by the coronavirus (‘COVID-19’) pandemic weighed on its financial performance during this period; however, that did not stop the self-storage real estate investment trust (‘REIT’) from being very free cash flow positive. The long-term outlook for the self-storage industry in metropolitan areas in the US and elsewhere remains quite promising given the desire for households to maximize living space within their housing unit at a given budget. We include shares of Public Storage in our High Yield Dividend Newsletter portfolio and shares of PSA yield 3.5% as of this writing.

Nov 9, 2020

CubeSmart Is One of Our Favorite REITs
Image Source: CubeSmart – October 2020 Deluxe Storage Transaction IR Presentation. We continue to be huge fans of the self-storage industry, and CubeSmart is one of our favorite REITs in the space. The ability for self-storage REITs to generate sizable free cash flows in almost any operating environment highlights the resilience of their business model. Going forward, due to CubeSmart’s apparent ability to tap capital markets at attractive rates, we view the REIT’s forward-looking payout coverage favorably.

Nov 6, 2020

Garbage Hauler Republic Services Doesn’t Disappoint in Third Quarter
Image: Republic Services. We love companies with strong future expected free cash flow generation, especially ones that have strong net cash positions. Republic Services doesn’t have the strongest balance sheet, with a rather large net debt position emanating from rolling up a number of independent garbage haulers in the past, including Allied Waste, but it’s not something we’re worried about, given its strong and predictable free cash flow, contractual revenue visibility in its collection operations, and pricing power at its disposal facilities. We’re reiterating the high end of our fair value estimate range of $96 per share.

Nov 6, 2020

Dividend Increases/Decreases for the Week November 6
Let's take a look at companies that raised/lowered their dividend this week.