Valuentum Exclusive Analysis for the Discerning Investor

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Jan 28, 2022

Visa Remains One of Our Favorite Ideas
Image Shown: Visa Inc, one of our favorite companies, has been growing robustly of late. Image Source: Visa Inc – First Quarter of Fiscal 2022 IR Earnings Presentation. On January 27, Visa reported first quarter earnings for fiscal 2022 (period ended December 31, 2021) that beat both consensus top- and bottom-line estimates. Shares of V shot higher after its results were made public. We include Visa as a “top-weighted” idea in the Best Ideas Newsletter portfolio and remain huge fans of the company. Our fair value estimate sits at $255 per share of V, well above where Visa is trading at as of this writing, indicating the payment processing giant has ample room to run higher from current levels. Shares of V yield a modest ~0.7% as of this writing.

Jan 28, 2022

Dividend Increases/Decreases for the Week January 28
Let's take a look at companies that raised/lowered their dividend this week.

Jan 27, 2022

Apple Blows Past Expectations in Fiscal First Quarter!
Image Source: Valuentum. On January 27, 2022, Apple put up one of the best quarters by any company in history and a record for the Cupertino-based iPhone-making giant. Revenue for the quarter ending December 25, 2021, of $123.9 billion advanced 11% on a year-over-year basis, while quarterly earnings per share came in at $2.10. The top line beat expectations by more than $5 billion, even with supply chain hurdles, and the bottom-line beat of $0.20 per share was more than 10%, a huge delta considering the size of the company. We’re viewing the report very positively, and we think the strong performance may ease some broader market concerns. Apple’s gross and operating margins looked healthy, and only performance in its iPad division came in a bit light, but this was almost entirely driven by supply chain issues. Apple generated a solid $19.5 billion in revenue from its ‘Services’ division during the period, up from $15.8 billion in the year-ago quarter, showcasing its ever-growing and “sticky” installed base. Warren Buffett is a big owner of Apple’s stock, and we continue to be in favor of buybacks at Apple, too, even at these price levels. Though Apple’s market capitalization is sizable, we value shares close to $190 each at the high end of our fair value estimate range. Apple remains one of our favorite ideas in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio.

Jan 27, 2022

Net Cash Rich Tesla Reports Solid Free Cash Flow, Closes Out 2021 on a High Note
Image Shown: A look at Tesla Inc’s new ‘Gigafactory’ manufacturing facility in Austin, Texas, that is currently under development. Image Source: Tesla Inc – Fourth Quarter of 2021 IR Shareholder Deck. On January 26, Tesla reported that it had produced ~306,000 vehicles and delivered ~309,000 vehicles during the final quarter of 2021. The electric vehicle (‘EV’) and battery maker beat both consensus top- and bottom-line estimates in the fourth quarter as it continued to successfully ramp its production capabilities. We plan to fine-tune our cash flow valuation model covering Tesla to take its latest earnings report into account, but we still expect the point fair value estimate to be below where shares are trading at the time of this writing (~$937 per share).

Jan 26, 2022

Capital Spending a Key Headwind to Broader Markets in 2022
One of the biggest themes in 2022 is the amount of money companies will spend in capex (“capital expenditures”). A key reduction to net cash flow from operations to arrive at traditional free cash flow is capital expenditures, and we’re seeing some of the largest companies spend aggressively to the detriment of internal free cash flow generation. Though such spending may be necessary, in most cases, to enhance long-term revenue and earnings growth, the higher spending this year is a notable trend that we think may be posing a headwind to the broader equity markets so far in 2022.

Jan 26, 2022

Lockheed Martin On the Road to Recovery, Improved Free Cash Flow Visibility
Image: Heath Cajandig. Lockheed Martin is a great play on rising geopolitical uncertainty, and after a “big bath” of a third quarter, the company’s most recently reported fourth-quarter 2021 results, released January 25, offered investors much better greater clarity on free cash flow coverage of its dividend while revealing sequential improvement in its backlog. Though its deal with Aerojet Rocketdyne may not pass muster with the FTC, we’re okay with that. Lockheed Martin already has a sizable net debt position, and given the recent disappointment in the third quarter of last year, we’re not against management focusing more on righting the ship from an organic basis than trying to push through business combinations that could jeopardize the regained fundamental momentum. Lockheed Martin remains an idea in the Dividend Growth Newsletter portfolio, yielding ~3% at the moment. The stock could continue to catch favor as geopolitical tensions intensify.

Jan 25, 2022

Microsoft’s Fiscal Second Quarter Impressive
Image: Mike Mozart. We’re reiterating our bullish view on newsletter portfolio holding Microsoft Corp. following its fiscal second-quarter report released January 25. We’re huge fans of the company’s strong economic moat and while its net balance sheet cash will erode somewhat in light of its proposal to acquire Activision, the company’s cloud opportunity and suite of recurring-revenue services makes for one attractive free-cash-flow generating powerhouse. The market may have wanted more from Microsoft’s fiscal second-quarter report, ended December 31, 2021, but it was solid across the board, in our view. We’re sticking with our $342 per share fair value estimate at the time of this writing.

Jan 25, 2022

Johnson & Johnson’s Pending Split-Up, Talc Liabilities, New CEO Add Complexity to a Once-Clean Dividend Growth Story
Image Shown: J&J continues to face legal liabilities due to talcum powder lawsuits. Image Source: Mike Mozart. We prefer simple dividend growth stories. Unfortunately, J&J is no longer one of them. A split of Johnson & Johnson’s consumer products division from its medical device and pharma divisions in the next 18-24 months means that dividend growth investors will have added complexity as a new CEO takes the helm, all the while the board manages its growing talc liabilities during a global pandemic. Shares of J&J haven’t been as strong a performer as other stocks on the market the past five years, but we still like its firm foundation and nice combination of dividend yield and potential dividend growth for now. That may change in the coming months to years, however.

Jan 23, 2022

Netflix’s Subscriber Growth Is Slowing Down, Competition Heating Up
Image Shown: Netflix Inc’s paid subscriber base is expected to grow at a slower pace in the near term compared to the performance seen in recent years. Image Source: Netflix Inc – Shareholder letter covering the fourth quarter of 2021. On January 20, Netflix reported fourth-quarter 2021 earnings after the bell. The video streaming giant met consensus top-line estimates and beat consensus bottom-line estimates last quarter as original content such as the South Korean TV show Squid Game (released September 2021) proved to be quite popular in markets around the globe and helped Netflix retain interest in its service. During Netflix’s latest earnings call, management noted that the violent Squid Game TV show had been renewed for a second season when asked by an analyst about the issue. However, the near-term guidance Netflix provided in conjunction with its latest earnings update signaled that growth in its paid subscriber base was expected to slow down in the first quarter of 2022 on both a year-over-year and sequential basis. During regular trading hours on January 21, shares of NFLX were pummeled.

Jan 23, 2022

RH’s Financials, Long-Term Potential Great But Housing Market and Deteriorating Wealth Effect Pose Risks
Image Shown: Shares of RH have exploded higher since the news broke that Berkshire Hathaway Inc had taken a stake in the firm’s equity back in 2019, though shares of RH have shifted lower in recent months. RH is an innovative home furnishing company that pairs its products with interior/exterior design services to offer a comprehensive package. The company primarily targets affluent households in the U.S., Canada, and the U.K. RH has tremendous pricing power and its margins have increased significantly in recent fiscal years, even during the COVID-19 pandemic, and its net revenues are trending higher as well. The firm is expanding into the high-end hospitality industry and has several projects that are set to come online in 2022 and beyond. RH is a stellar free cash flow generator with a manageable net debt load. Though the company has been executing nicely of late, as witnessed by its stellar financial performance and recent guidance increases, shares of RH have sold off in recent months. In our view, the recent selloff is a function of broad based market weakness, but it also may be due to investors growing more concerned about the impact higher interest rates and a deteriorating wealth effect may have on housing and home furnishing demand and on its push into the hospitality space, respectively. We continue to view RH’s long-term capital appreciation upside potential favorably, however.