Valuentum Exclusive Analysis for the Discerning Investor

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Apr 20, 2020

Goldman Sachs Exposed to Too Much Risk
Image Source: Goldman Sachs 1Q2020 Earnings Presentation. Goldman Sachs posted a rough first quarter of 2020, results released April 15, just like its large bank peers. Regarding its on-balance sheet debt and equity investments, we remain very skeptical both about the marks on private equity and amortized cost debt, as well as the appropriateness of holding this size of assets on a leveraged bank balance sheet. In our view, it simply exposes the shareholders to too much risk, and we think these investments should be sold down to reduce risk.

Apr 19, 2020

ICYMI -- Video: Will Hasty Policy Facilitate the Next Leg Down, or Do We Have It Coming Anyway?
President of Investment Research and award-winning author of Value Trap: Theory of Universal Valuation Brian Nelson explains how US policymakers are stuck between a rock and a hard place, and how the market may be factoring in too high of a probability of a return to normalcy before 2021. This and more in the latest video report.

Apr 17, 2020

Earnings Roundup for the Week Ended Sunday, April 19, Covering Companies Across the Board
Let's take a look at several earnings reports across numerous industries in this article as the ongoing coronavirus (‘COVID-19’) pandemic forces the global economy to a crawl. Please note that as these reports primarily cover the first quarter of calendar year 2020, the impact of the pandemic has yet to be truly reflected in corporate earnings. That said, these reports still provide an important glimpse into what to expect going forward and how companies are responding to the pandemic.

Apr 17, 2020

Bank of America Retains Earnings Power and Healthy Balance Sheet
Image Source: Bank of America 1Q2020 Earnings Presentation. Growing pressure from Fed officials on banks to cut dividends, and any extremely-adverse scenario, as outlined by JPMorgan in its latest annual note, coming to fruition may suggest that no banking dividend may be completely safe in this environment. That said, assuming the US economy is able to avoid a prolonged depression-type scenario, Bank of America has the earnings power and balance sheet to withstand most probable scenarios and come out the other side continuing to nip at JPMorgan’s heels for best in class US mega-bank. We are maintaining our recently reduced $28 fair value estimate of Bank of America.

Apr 17, 2020

JB Hunt Scales Back
Image Source: JB Hunt Transportation Services Inc – First Quarter 2020 Earnings IR Presentation. JB Hunt Transportation offers trucking freight and other logistics services to customers in North America, including intermodal services (which is the firm’s largest business segment by revenue). On April 14, the company reported first-quarter 2020 results, which showed its top-line beat consensus expectations while its bottom-line missed consensus expectations. Part of the reason why JB Hunt missed bottom-line expectations was due to incentive pay increases related to the ongoing coronavirus (‘COVID-19’) pandemic and the need to compensate frontline workers for the risks they are taking (and we appreciate all the work frontline workers are doing during these challenging times). Shares of JBHT yield ~1.1% as of this writing.

Apr 16, 2020

Johnson & Johnson Beats Estimates, Adjusts Guidance in Light of COVID-19
Image Source: Johnson & Johnson – First Quarter 2020 Earnings IR Presentation. On April 14, Best Ideas Newsletter and Dividend Growth Newsletter portfolio holding Johnson & Johnson increased its quarterly dividend by over 6% sequentially to $1.01 per share which represents the firm’s 58th consecutive annual increase. We view this payout boost in the face of the ongoing coronavirus (‘COVID-19’) pandemic as a sign of management’s confidence in Johnson & Johnson’s future free cash flows, which we appreciate. Shares of JNJ now yield ~2.8% as of this writing at the new annualized payout rate.

Apr 16, 2020

JPMorgan Outlines Scenario Where Dividend Could Be Cut
Source: JPMorgan 1Q20 Earnings Presentation. JPMorgan posted a terrible first-quarter 2020 report April 14, missing analyst expectations (which are a wild guess in times like these) by a long shot. If the economy continues to worsen, JPMorgan’s results will get uglier from here. On the earnings call, management indicated that second-quarter provisioning might be incrementally worse if the economy worsens. There is also room for deterioration in its Markets segment if trading activity dies down and one would expect the Asset & Wealth Management segment results to worsen if the markets are flat-to-down from here. The government rescue programs might also prove to be a temporary fix and consumer and business debt might just go bad later after an initial fix from stimulus funds received from the government. In the firm’s annual letter, Chairman and CEO Jamie Dimon also painted the picture for how the dividend could possibly be cut if things turn out worse than the more adverse scenario that the firm is postulating as one potential outcome.

Apr 13, 2020

Historic Oil Deal Reached
Image Source: Chevron Corporation - March 2020 Security Analyst Meeting Presentation. Over the Easter holiday weekend, members from the Organization of Petroleum Exporting Countries (‘OPEC’), non-OPEC members that are part of the OPEC+ group (countries that in the recent past have joined forces with OPEC to curtail global oil supplies in a formal manner), and non-OPEC members outside of the OPEC+ group such as Brazil, Canada, and the United States came to an agreement to cut their collective oil output by north of 10 million barrels per day. Global oil and other raw energy resource prices have been simply demolished year-to-date due to a combination of demand destruction from the ongoing coronavirus (‘COVID-19’) pandemic and the emergence of a price war between Saudi Arabia and Russia. Please note that oil demand destruction due to the “cocooning” of households (and the related drop off in refined petroleum product demand from automobiles, airplanes, etc.) may be as high as 35 million barrels per day according to some analysts, an enormous figure that’s resulting in major stockpile buildups all over the world. Other analysts don’t necessarily see the level of demand destruction as that high (projections are being updated constantly); however, they are still calling for a drop off in demand that’s in the ten(s) of millions of oil barrels per day range (at least in the short-term, depending on how long the pandemic lasts). Even if this agreement is effectively implemented, that won’t result in oil prices (and other raw energy resource prices) returning to pre-COVID-19 levels in the short/medium-term, in our view, but will make emerging from this pandemic an easier task given that global oil storage capacity is nearing its limit. As of this writing on April 13, oil prices are trading up modestly but are still down by well over 50% year-to-date.

Apr 13, 2020

Dollar General Near All-Time Highs, Decides to Issue Long-Term Debt at Attractive Rates
Image Source: Dollar General Corporation – May 2016 Investor Day Presentation. Dollar General is now trading near its all-time highs after rising ~8.5% year-to-date, at a time when the S&P 500 is down almost 15%, as of the end of normal trading hours on April 9. We include shares of DG in our Best Ideas Newsletter portfolio and recently covered some of Dollar General’s operational updates in our ‘US Beer Sales Reportedly Surge During the Pandemic, Dollar General Well-Positioned to Meet Rising Demand’ article that can be viewed here. We are following up on that piece, and our note covering Dollar General’s most recent financial updates that can be viewed here, to highlight how Dollar General is maintaining its liquidity position during these harrowing times. The ongoing coronavirus (‘COVID-19’) pandemic is wreaking havoc on global economies and staying on top of debt maturities is a key part of maintaining the funds needed to meet surging demand for consumer staples products (keeping inventory management and other considerations in mind). Shares of DG yield ~0.9% as of this writing.

Apr 13, 2020

Pinterest Sees Interest in its Social Media Site Grow During COVID-19 Pandemic
Image Source: Pinterest Inc – Fourth Quarter of 2019 Earnings IR Presentation. Social media firm Pinterest published an operational and financial update after the market close April 7 that caught a lot of investor’s eyes. Pinterest reported that its user base, measured by monthly active users (‘MAUs’), had continued to grow sequentially in the first quarter of 2020 on both a domestic and international basis. While the ongoing coronavirus (‘COVID-19’) pandemic has likely negatively impacted its digital advertising business, Pinterest is communicating to investors that over the longer term, its social media offering is growing in popularity which supports growth down the road.