Valuentum Exclusive Analysis for the Discerning Investor

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Dec 14, 2020

Starbucks’ Long-Term Outlook Is Improving
Image Shown: Starbucks Corporation sees the total addressable market for coffee products growing by a decent clip over the coming years, which is forecasted to reach ~$450 billion in 2023. Image Source: Starbucks Corporation – 2020 Biennial Investor Day Presentation. On December 9, Starbucks Corp hosted its biennial Investor Day meeting, held virtually this year due to the ongoing coronavirus (‘COVID-19’) pandemic and updated its financial guidance for the next several fiscal years. For reference, Starbucks’ GAAP revenues and GAAP operating income fell 11% and 62% year-over-year, respectively, in fiscal 2020 (period ended September 27, 2020) as the company contended with headwinds created by the COVID-19 pandemic. Looking ahead, Starbucks expects to realize a “significant rebound” in fiscal 2021 and “outsize growth” in fiscal 2022, particularly as it concerns its non-GAAP EPS performance. We expect to raise our fair value estimate modestly upon the next update.

Dec 13, 2020

7 Hidden Dividend Aristocrats in Industrials
In the world of dividend growth investing, when a company hits the mark of raising its dividend for more than 25 consecutive years, it garners the coveted title of a Dividend Aristocrat. The accomplishment is so rare that only 65 companies in the S&P 500 have achieved this commendable feat--just 13%. Our strategic focus in the Dividend Growth Newsletter portfolio is to identify companies with attractive valuations, respectable dividend yields and strong expected dividend growth prospects for the next 25 years. This perspective is embedded within the construct of our proprietary and forward-looking Dividend Cushion ratio that can be found in each company’s Dividend Report. In this article, however, let’s cover seven hidden and relatively overlooked Dividend Aristocrats from our Industrials coverage that have promising prospects to continue raising their dividends for many more years to come (three on the list have already raised their dividends for more than 60 consecutive years). The valuations of these seven companies may be a little stretched for our taste (at the time of this writing), but we think these stocks are worth keeping on your radar given their resilient business models, shareholder-friendly management teams, notable competitive advantages, and praiseworthy status as Dividend Aristocrats. Each of the companies’ 16-page Stock Report and Dividend Report can be downloaded following their respective profiles.

Dec 12, 2020

Best Ideas Newsletter Portfolio Holding Disney Surges to All-Time Highs
Image Shown: The reach of the Disney+ video streaming service continues to grow as The Walt Disney Company keeps expanding the service into new markets. Image Source: The Walt Disney Company – December 2020 Investor Day Presentation. We continue to be big fans of The Walt Disney Company and include shares of DIS in the Best Ideas Newsletter portfolio. Back when Disney’s stock price plummeted this past March, we stuck with our capital appreciation thesis and did not panic. Since then, shares of DIS have staged an impressive comeback and are currently trading near all-time highs. Shares of Disney are up ~22% year-to-date as of this writing, significantly outperforming the S&P 500 (SPY) which is up ~14% during this period (before taking dividend considerations into account, which does not change this picture much). Our optimistic view towards Disney is underpinned by the company’s bright long-term growth outlook. Though it will take a few years for Disney’s video streaming business to become a profit generating machine, the market is clearly excited about how this segment could potentially drive Disney’s future free cash flows meaningful higher over the long haul. The high end of our updated fair value estimate range is $184 per share.

Dec 11, 2020

AT&T’s Outlook Is Getting Brighter
Image Shown: An overview of AT&T Inc’s capital allocation priorities over the coming years and a snapshot of its financial position at the end of September 2020. Image Source: AT&T Inc – Third Quarter of 2020 IR Earnings Presentation. The rollout of 5G wireless packages in the US combined with expected growth at its video streaming business has significantly improved AT&T’s outlook during the past few months. We include shares of AT&T in the High Yield Dividend Newsletter portfolio, and as of this writing, shares of T yield ~6.6%. Headwinds caused by the ongoing coronavirus (‘COVID-19’) pandemic weighed negatively on AT&T’s financial and operational performance in 2020, though the company remains on track to generate enormous amounts of free cash flow this year. AT&T currently expects to generate $26.0 billion or more in free cash flow in 2020, a forecast that the firm reiterated on December 8. The company has guided its dividend cash-flow payout ratio (dividend obligations divided by free cash flow) to come in near the high 50s% area this year. Please note that back in April 2020, AT&T expected its dividend cash-flow payout ratio in 2020 would be in the 60s% range, but its outlook was negatively impacted by the COVID-19 pandemic. Things are starting to turn around in part due to the recent successes AT&T has had at its video streaming business after things got off to a slow start.

Dec 11, 2020

Dividend Increases/Decreases for the Week December 11
Let's take a look at companies that raised/lowered their dividend this week.

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 10, 2020

Alphabet Continues to Move Higher, Supported By Its Promising Long-Term Growth Runway
Image Shown: Alphabet Inc Class C shares have surged higher year-to-date as of this writing. We see room for additional capital appreciation upside. Alphabet is one of our favorite companies, and we include Alphabet Class C shares as a top weighting in the Best Ideas Newsletter portfolio. Shares of GOOG have staged an impressive recovery since March 2020, when the coronavirus (‘COVID-19’) pandemic sent equity markets spiraling lower, and we still see room for significant capital appreciation upside. Our favorite companies are firms with pristine balance sheets (Alphabet had ~$118.7 billion in net cash, inclusive of short-term debt and not including long-term ‘non-marketable investments,’ at the end of September 2020), high-quality cash flow profiles (Alphabet generated over $25.6 billion in free cash flow during the first nine months of 2020), and impressive long-term growth runways (ideally) supported by secular growth tailwinds (allowing for multiple “winners” in the space). We continue to be big fans of Alphabet as the firm checks all three boxes!

Dec 9, 2020

3 Speculative Stocks for Your Radar
Image Source: Mark Morgan. Etsy operates the online marketplace Etsy.com, which connects creative entrepreneurs with consumers looking to find unique crafts and goods. Stitch Fix was founded in 2011 and provides customers with personalized shipments ('Fixes') of apparel, shoes and other items that are hand-picked by the company's stylists. Uber Tech first started in 2010 to make it easy for people to get a ride from point A to point B with the simple touch of a button. All three are breaking out to new highs, and we wanted to put them on the radar of risk-seeking investors.

Dec 8, 2020

Visa Is a Great Company
Image Shown: Visa Inc’s operations are on the rebound, though meaningful headwinds remain. Image Source: Visa Inc – Fourth Quarter and Full-Year Earnings for Fiscal 2020 IR Presentation. We recently took a fresh look at our valuation of Visa, and we raised the company’s fair value estimate to $219 per share. The high end of Visa’s current fair value estimate range sits at $263 per share, indicating there is room for substantial capital appreciation upside under a more bullish/upside scenario (note that upside and and downside scenarios help inform each company's fair value estimate range). We continue to be big fans of Visa, and the firm is not only one of our top ideas in the financial-technology/payment-processing space that includes innovators in blockchain and cryptocurrency, but it is also one of our top ideas in our entire coverage universe.

Dec 7, 2020

Dollar General Continues to Impress
Image Shown: Shares of Dollar General Corporation have surged higher over the past year. On December 3, Dollar General Corp reported third quarter earnings for fiscal 2020 (period ended October 30, 2020) that saw its same-store sales grow by over 12% year-over-year, which when combined with its steadily growing store count, saw the firm’s GAAP revenues jump higher by over 17% year-over-year. Dollar General has made great strides in upgrading its digital operations, expanding its store base, adding new products to its stores, and improving its cost structure during the past several fiscal years. These past initiatives are filtering down to Dollar General’s bottom line as its diluted GAAP EPS was up 63% year-over-year in the fiscal third quarter. We continue to be big fans of Dollar General and include shares of DG in the Best Ideas Newsletter portfolio.