Valuentum Exclusive Analysis for the Discerning Investor

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Aug 3, 2022

Shares of Best Idea Alphabet Remain Incredibly Undervalued
Image Shown: Alphabet Inc Class C shares are trading at bargain basement levels, in our view. Alphabet Inc reported second quarter 2022 earnings that missed consensus top- and bottom-line estimates. However, investors were clearly expecting the tech giant to perform much worse as shares of GOOG leapt higher following the report. We continue to like Alphabet Class C shares (ticker: GOOG) as a top-weighted idea in the Best Ideas Newsletter portfolio. Our fair value estimate (adjusted for Alphabet’s recent 20:1 stock split) sits near $157 per share of GOOG, well above where shares are trading at as of this writing.

Jul 30, 2022

Meta Platforms’ Shares Remain Cheap; Long Term Focus Required
Image Shown: Meta Platforms Inc’s family of apps continued to grow its active user base last quarter. Its social media networks are used by billions of users every single day. Image Source: Meta Platforms Inc – Second Quarter of 2022 IR Earnings Presentation. On July 27, Meta Platforms reported second quarter 2022 earnings that missed consensus top- and bottom-line estimates. We appreciate that its active user base across its family of apps (Facebook, Instagram, WhatsApp, and Messenger) and its ad impressions continued to trend in the right direction last quarter, though recent softness in its pricing power is concerning. Meta Platforms is responding by scaling back its targeted operating expense growth, which we appreciate. We continue to like Meta Platforms as an idea in the Best Ideas Newsletter portfolio, though we recognize that near term headwinds are weighing quite negatively on investor sentiment towards the name.

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 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 8, 2022

Industrial Bellwethers A Mixed Bag: GE, BA, CAT, DE, UNP
Image Source: Caterpillar Inc – May 2022 Caterpillar Investor Day Presentation. In this article, we cover the industrial landscape by digging into the recent financial and operational performance of General Electric Company, Boeing Co, Caterpillar Inc, Deere & Company, and Union Pacific Corporation. Common themes include robust demand for their offerings, healthy order backlogs, and meaningful pricing power, though headwinds include substantial inflationary pressures, supply chain hurdles, and in certain instances, geopolitical tensions. General Electric will soon separate into three different publicly traded companies, and on a consolidated basis the firm is doing much better than years past. In 2022 and on a non-GAAP basis, General Electric is guiding for a 150+ basis point expansion in its adjusted organic operating margin and high-single-digit organic revenue growth, along with $2.80-$3.50 in adjusted EPS and $5.5-$6.5 billion in free cash flow (as defined by the company). Boeing’s financials continue to be in bad shape, and its operations continue to be plagued by missteps. The aerospace giant exited March 2022 with a massive net debt load of ~$45.5 billion (inclusive of short-term debt) after generating negative free cash flows in each year from 2019-2021. The company also generated negative free cash flows during the first quarter of 2022. Large working capital builds due to its inability to deliver certain aircraft, a product of its lackluster operational execution and regulatory intervention, is largely why Boeing has had difficulties generating positive free cash flows in recent years. Caterpillar’s first-quarter 2022 results were plagued by margin issues. In the period, the earth moving equipment maker’s GAAP revenues grew 14% year-over-year, but its manufacturing segment only posted a 3% year-over-year increase in operating income as higher costs weighed negatively on its profitability, offsetting pricing increases and increasing economies of scale. Caterpillar’s GAAP operating margin fell by ~140 basis points year-over-year in the first quarter, declining to 13.9%. During the first half of fiscal 2022, Deere’s GAAP revenues grew by 8% though its GAAP operating profit declined by 4% year-over-year, but the company’s performance in the fiscal second quarter indicates recent pricing actions have started to have a positive impact on its bottom-line performance. Deere raised its full-year earnings guidance in conjunction with its fiscal second quarter earnings update and now expects it will post $7.0-$7.4 billion in earnings this fiscal year. Union Pacific noted that its business volumes are measured by total revenue carloads increased by 4% year-over-year in the first quarter with strong growth seen at its agricultural and industrial freight volumes. The railroad company’s ‘operating income’ rose 19% year-over-year as its business continued to benefit from ongoing optimization efforts in the first quarter of 2022. The railroad operator remains very shareholder friendly and intends to payout roughly 45% of its earnings to investors as dividends.

Jun 29, 2022

We're Considering FedEx for the Dividend Growth Newsletter Portfolio
Image Source: Valuentum. During the past several weeks, we've grown increasingly concerned about the health of consumer-tied entities across the consumer staples and consumer discretionary spaces. Many consumer staples entities, while raising prices, aren't raising them fast enough to drive operating-income and bottom-line expansion, while many consumer discretionary companies may be facing higher freight and logistics costs and weaker performance in Greater China, as that exposed in Nike's most recently-reported quarter, where inventory advanced 23%. The tell-tale sign about the health of the consumer may be Amazon Prime Day, which is coming up on July 12-13, but based on many of the reports we've monitored this past earnings season, consumers may be willing to spend a bit more to help business revenue, but businesses are having a difficult time leveraging the price increases into operating income and earnings-per-share expansion. Perhaps we were somewhat in denial that pressure on S&P 500 earnings growth might materialize when Walmart and Target disappointed a number of weeks ago, but the Nike earnings report, released June 27, all but sealed the deal that the probability of a recession in the U.S. is material. When we look at Walmart and Target, the story was similar. Top-line growth ensued but consolidated gross margins faced pressure, and operating income tumbled. Full-year earnings per share at Walmart is now expected to be down about 1%, as the company's top-line growth just isn't enough to keep earnings moving in the right direction. For Target, the company originally guided its second-quarter operating income margin rate well below consensus estimates at the time, to 5.3%, due to pressure on gross margins from higher freight and transportation costs and measures to reduce inventory. However, just a few weeks later, Target reduced that second-quarter operating margin target again to just 2% as it is being forced to work through excess inventory with aggressive markdowns.  What does all this mean for FedEx's trajectory? Well, it all depends. Clearly, consumer-tied businesses, whether consumer staples or discretionary, are facing tremendous cost pressures, but some of those cost pressures are freight and logistics expenses, which might play into the hands of FedEx and rival UPS. For example, for its fiscal 2023 (ends May 2023), FedEx issued guidance for diluted earnings per share to the range of $22.45-$24.45, which when issued June 24, was above the consensus estimate of $22.40 at the time. FedEx was able to drive its fiscal fourth-quarter 2022 operating income higher due to a "favorable net impact of fuel," but it did note that it experienced "lower shipment demand due to slower economic growth and supply chain disruptions." We think FedEx is better positioned to pass along costs than many of the retailers, and for that reason, we think it will hold up better should the U.S. enter a recession. The same rings true for rival UPS, which reported first-quarter 2022 results on April 26. In UPS' first quarter, consolidated revenues jumped 6.4% from the same period last year, while it grew consolidated operating profit 17.6% (12.1% on an adjusted basis). We think transportation stocks such as FedEx and UPS, which are able to pass along price increases in the form of surcharges for higher fuel costs are much better positioned than the broader retailer landscape, which may face continued earnings pressure as they deal with higher input costs and larger inventory balances. We value FedEx at $295 per share, well above where shares are trading at the moment (~$240), and while the company is not immune to recessionary characteristics, its flexible pricing surcharges mean it can handle cost adversity better than most S&P 500 entities, in our view. Shares of FedEx yield ~1.9% at the moment, and while the company's Dividend Cushion ratio could be stronger, we give it high marks for both dividend strength and dividend growth potential.

Jun 14, 2022

Prologis Buying Duke Realty as Logistical Real Estate Market Consolidates Further
Image Shown: Prologis Inc is merging with Duke Realty Corporation through an all-stock acquisition that will see Prologis cement itself as a logistical real estate powerhouse in the US and worldwide. Image Source: Duke Realty Corporation / Prologis Inc – June 2022 IR Presentation announcing the acquisition of Duke Realty by Prologis. On June 13, Prologis Inc announced it was buying Duke Realty Corporation through an all-stock transaction worth ~$26 billion when including the assumption of debt. In the wake of severe capital market volatility, some major deals in the real estate investment trust (‘REIT’) space are still getting done. Back in May 2022, Duke Realty rejected Prologis’ previous offer worth ~$24 billion as being “insufficient” which prompted Prologis to sweeten the pot to get a deal done.

May 18, 2022

Newsletter Portfolio Idea Republic Services Holding Up Quite Well in the Face of Major Headwinds
Image Shown: Shares of Republic Services Inc have held up quite well over the past several months while equity markets swooned lower. On May 5, Republic Services reported first quarter 2022 earnings that beat both consensus top- and bottom-line estimates. The waste management firm is benefiting from its immense pricing power and volume growth. We continue to like Republic Services as an idea in both the Dividend Growth Newsletter and ESG Newsletter portfolios. Shares of RSG yield ~1.4% as of this writing.