Valuentum Exclusive Analysis for the Discerning Investor

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May 18, 2020

Earnings Roundup for Week Ended May 17
Image Shown: We cover several earnings reports in this article across several sectors and industries to provide an overview of how corporates performed during the early stages of the ongoing coronavirus (‘COVID-19’) pandemic. Reducing expenses, generating efficiency gains, and ultimately improving the cost structure of corporates appears to be a key theme during the first-quarter 2020 earnings cycle. Management teams across the board are hunkering down and preparing for the pain to continue as global economic activity is expected to grind to a halt in the second quarter of 2020, before recovering somewhat due in part to massive fiscal and monetary stimulus measures that were launched to offset the negative impact COVID-19 is having on economic activity.

Apr 27, 2020

COVID-19 Idea Consideration Chipotle Continues to Deliver
Image Shown: Shares of Chipotle Mexican Grill Inc have sharply rebounded over the past month as investors started to take into consideration the firm’s pristine balance sheet, ability to meet consumer demand via delivery services, and quality cash flow profile, keeping short-term headwinds in mind. On April 21, Chipotle Mexican Grill reported earnings for the first quarter of 2020 that beat both consensus top- and bottom-line estimates. Same-store sales rose 3.3% year-over-year almost entirely due to the strength of its digital business where sales were up almost 81% and represented over 26% of Chipotle’s sales last quarter. Chipotle’s GAAP revenues were up almost 8% year-over-year last quarter though its GAAP operating income fell by over 35% due to elevated operating costs as the firm coped with the emerging (at the time) coronavirus (‘COVID-19’) pandemic. In particular, ‘food, beverage and packaging’ and wage expenses were elevated as Chipotle adjusted its business.

Mar 26, 2020

US Congress Is Getting Ready to Pass a Massive ~$2.2 Trillion Fiscal Stimulus Bill
Image Shown: US equities have started to recover some of their lost ground as the likelihood that the US Congress will pass a massive ~$2.2 trillion fiscal stimulus and emergency spending package, dubbed the CARES Act, has increased significantly over the past week as seen through the bounce in the SPDR S&P 500 ETF Trust. President Trump has clearly indicated that he intends to sign such a bill into law as soon as possible, with the US House of Representatives expected to take up the legislation this upcoming Friday morning on March 27. On March 25, the US Senate worked late into the night to secure a bipartisan compromise on a massive ~$2.2 trillion fiscal stimulus and emergency spending bill to offset the negative impact of the ongoing novel coronavirus (‘COVID-19’) pandemic. The bill passed 96-0 after several senators forced a vote on an amendment on that bill that would have changed the nature of the “beefed up” unemployment benefits (that amendment failed 48-48, and would have needed 60 votes to pass). As of this writing, there are over 65,000 confirmed cases of COVID-19 in the US according to Johns Hopkins University, and we sincerely hope everyone, their families, and their loved ones stay safe during this pandemic. A vote in the US House of Representatives is expected this upcoming Friday morning on March 27. The House is expected to convene at 9AM EST and the goal of each party’s leadership is to secure passage of the bill via a voice vote (please note that this differs from unanimous consent, which requires every member of the House to agree to such a legislative process in order to pass a bill without having the majority of lawmakers return to Washington DC, but this is easier/faster to achieve than a recorded roll call vote that would force every member of the House to return). Assuming the House swiftly passes the bill that was approved in the Senate, President Trump has clearly communicated he would sign the bill into law right away. Please note this bill is formally known as the Coronavirus Aid, Relief, and Economic Security (‘CARES’) Act.

Mar 26, 2020

Jobless Claims Spike; Restaurants, REITs In Trouble
Image: DOL. “The advance number of actual initial claims under state programs, unadjusted, totaled 2,898,450 in the week ending March 21, an increase of 2,647,034 (or 1,052.9 percent) from the previous week.” On March 26, the Department of Labor reported a surge in jobless claims for the week ending March 21 to 3.28 million, a number that “shatters the Great Recession peak of 665,000 in March 2009 and the all-time mark of 695,000 in October 1982,” according to CNBC. The economic situation remains dire as the White House struggles to contain COVID-19 amid what could become one of the worst economic periods since the Great Depression, or one that can turn into the next Great Depression. We also address a couple questions from members regarding Cracker Barrel and the REITs, more generally. Our team is monitoring the stimulus bill in Congress, which just passed the Senate last night. We’ll have more to say about restaurants and REITs as our team pours over the bill and assesses long-run implications. We think this bear-market rally may be short-lived, as we don’t think we’ll see stabilization in the markets until about 6-9 months before a vaccine is widely available, and that may imply a market bottom that may still be 3-6 months ahead. Moral hazard continues to run rampant. The market is bouncing back on what looks to be expectations of an unlimited Fed/Treasury/Congress put, as well as new expectations for hyperinflationary pressures in the longer run in the midst of runaway government spending. Stocks are therefore in demand. We remain skeptical of the sustainability of this bounce, however.

Mar 23, 2020

US Fiscal Stimulus Update
Image Source: frankieleon. The US Congress is debating and working on a massive multi-trillion dollar fiscal stimulus package to mitigate the negative impact the ongoing novel coronavirus (‘COVID-19’) pandemic is having on the domestic economy and to provide for additional healthcare funds to cash-strapped entities to combat the virus.

Mar 19, 2020

Extreme Volatility and Crisis Economics
Image: The Dow Jones has now registered 8 consecutive trading days with a 4% move in either direction, from March 9 through March 18. This is the most volatile time in history, a streak that is longer than the 5 consecutive days registered in November 1929 (Great Depression), 4 consecutive days in 1987 (Crash of 1987), and 4 consecutive days in 2008 (Great Financial Crisis). The worst of the declines may still be ahead of us. The S&P 500 still is trading within our fair value estimate range of 2,350-2,750, and we wouldn’t be surprised to see panic/forced selling all the way down to 2,000 on the S&P. Expect more volatility, and please stay safe out there as the world declares all out war on COVID-19. Our best ideas remain in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio, and Exclusive publication.

Feb 7, 2020

Update on Wuhan 2019 Novel Coronavirus Outbreak: 31,000+ Infections, 630+ Deaths
Image Source: 2019-nCoV, Centers for Disease Control and Prevention. The number of infections and deaths related to the Wuhan 2019 Novel Coronavirus has surged since our last update, but we maintain our view that investors should keep a level head. We continue to wait to add protection to the newsletter portfolios as the market absorbs a massive liquidity injection from the PBOC.

Jan 31, 2020

Coronavirus May Trigger Long-Anticipated Global Recession
Image: Wuhan New Coronavirus. This was the catalyst that nobody was expecting, a novel coronavirus that nobody had in their economic models. We think global economic activity is slowing as we speak, and the spread of the virus may only accelerate in mainland China and elsewhere. Investors should keep a level head and perhaps think about adding protection to their portfolios before it becomes too expensive.

Jan 29, 2020

Starbucks Reports Earnings, Coronavirus to Hurt China Sales
Image Shown: How Starbucks Corporation views its competitive strengths. Image Source: Starbucks – December 2019 IR Presentation. Starbucks is trading at the upper end of our fair value range estimate, and given the headwinds facing the company in China (in terms of the competitive pressures from Luckin and the ongoing coronavirus overbreak) we see shares as fully valued as of this writing with room for meaningful downside. Its large net debt load is another concern. Shares of SBUX are priced for perfection, but exogenous headwinds could end up derailing its near-term growth trajectory.

Jan 9, 2020

Yum! Brands Buys Habit Restaurants
Image Shown: An overview of Yum! Brands Inc’s operations. Image Source: Yum! Brands Inc - Investor Fact Sheet. On January 6, quick-service restaurant chain Yum! Brands (which owns the KFC, Pizza Hut, and Taco Bell brands) announced that it was acquiring fast causal burger joint Habit Restaurants for $14 per share in cash for a total cash consideration of $375 million. Habit Burger’s footprint includes ~265 restaurants in total across more than a dozen US states and China under its namesake brand, Habit Burger Grill, and please note roughly 90% of those locations are company-owned. Having the benefit of Yum! Brands global marketing and advertising wing will support future growth endeavors at the Habit Burger Grill brand. We still aren’t interested in shares of YUM here as the top end of our fair value range estimate sits at $106, or just a few dollars ahead of where YUM is trading at as of this writing.