Valuentum Exclusive Analysis for the Discerning Investor

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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

Cantel Medical Surges Higher
Image Shown: Shares of Cantel Medical Corp popped higher during normal trading hours December 8 after the firm’s latest earnings report indicated its recovery was well underway. On December 8, Cantel Medical Corp reported first quarter earnings for fiscal 2021 (period ended October 31, 2020) that beat both top- and bottom-line consensus estimates. Furthermore, Cantel Medical’s $297 million in GAAP revenues last fiscal quarter exceeded the top end of its forecast that was published on October 22, which had been raised above the revenue guidance range management put forward during the firm’s fourth quarter of fiscal 2020 earnings call that was held on September 17. We published a note back on December 2 highlighting that “we think Cantel Medical is one for the radar of a risk-seeking investor” on the back of its improving near-term revenue outlook. In that article, we mentioned that it was crucial for Cantel Medical to show signs that its margins were moving in the right direction after deteriorating over the past couple of fiscal years. During its latest earnings report, Cantel Medical’s financial performance clearly indicated that a recovery was well underway.

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.

Dec 7, 2020

Salesforce’s Growth Story Continues
Image Shown: Salesforce Inc expects its impressive revenue growth story will continue at a brisk pace going forward. Image Source: Salesforce Inc – Company IR Presentation. On December 1, Salesforce Inc reported third quarter earnings for fiscal 2021 (period ended October 31, 2020) that saw the Software-as-a-Service (‘SaaS’) giant beat both consensus top- and bottom-line estimates. While Salesforce has historically focused on growing its core customer relationship management (‘CRM’) offerings, the firm more recently has been expanding into new and adjacent areas to extend its impressive growth runway. Salesforce announced it was acquiring Slack Technologies at the start of December for ~$27.7 billion in a cash-and-stock deal. This acquisition will significantly grow Salesforce’s collaboration offerings (particularly for workplace needs), an area it has had trouble expanding into in the past. Our fair value estimate for Salesforce sits at $221 per share (under our “base” case scenario) and the top end of our fair value estimate range sits at $265 per share (under our “bull” case scenario).

Dec 4, 2020

DocuSign Has All the Makings of a Long-Term Winning Enterprise
Image Source: DocuSign Investor Presentation Winter 2020. DocuSign is executing well on its strategy to transform the foundation of doing business. The company’s large and under-penetrated market opportunity, essential cloud product suite that lines up favorably against the competition, accelerated billings expansion, and growing customer base with well-known brand names (which add credibility to its product offering) represent a number of key positives to the investment thesis. Though GAAP losses continue to pile up, DocuSign is free cash flow positive and sports an asset-light business model with considerable earnings leverage (as sales continue to expand at a rapid clip). DocuSign’s largely subscription-based business model offers a nice degree of visibility into future revenue trends, and its balance sheet is relatively healthy with a decent net cash position. DocuSign has all the makings of a long-term winning enterprise, as long as it avoids any security/execution miscues that could tarnish its brand and/or derail trust among its customers, impairing future growth. We expect to raise our fair value estimate of DocuSign upon its next report update and point to the high end of our existing fair value estimate range of $295 per share for bullish investors.

Dec 4, 2020

Dividend Increases/Decreases for the Week December 4
Let's take a look at companies that raised/lowered their dividend this week.

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 2, 2020

Things Are Looking Up at Cantel Medical But Many Risks Remain
Image Source: Cantel Medical Corporation – Fourth Quarter and Full Year Earnings for Fiscal 2020 IR Presentation. Medical device and instrument maker Cantel Medical will be a major beneficiary of recent news regarding the growing chances that a safe and viable COVID-19 vaccine will potentially get approved soon. Though the company’s financial performance has deteriorated in recent fiscal years and organic revenue has faced headwinds, the firm’s upwardly-revised guidance (particularly its sales guidance) for the first quarter of fiscal 2021 was a highly encouraging sign, and Cantel noted that the level of elective medical procedures are starting to stabilize. Its recent October 2019 acquisition of Hu-Friedy’s dental operations will put the company in a better position to compete for business as well, though we note rising confirmed COVID-19 hospitalizations around the world continue to pose a threat to the pace of elective surgeries/procedures. Cantel’s near-term outlook is looking up, in our view, but high financial leverage (net debt to adjusted EBITDA), weak organic growth trends, rising expected operating expenses and capital spending, stronger and larger rivals that compete through bundling partnerships across the medical device/instrument arena, moderate customer concentration risk, and recent capital-spending cutbacks (coupled with a suspended dividend) to shore up capital put this idea firmly in the high-risk/speculative category. Nonetheless, given signs of a turnaround based on the recent guidance raise, we think Cantel Medical is one for the radar of a risk-seeking investor. We’ll be paying close attention to its revenue and margin performance when it reports fiscal first-quarter 2021 earnings December 8.

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.