Valuentum Exclusive Analysis for the Discerning Investor

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Dec 14, 2022

Union Pacific Outperforming North American Rail Traffic Trends But Facing Inefficiencies and Inflation Hurdles
Image Source: Union Pacific. The rail industry may have avoided a labor strike, but North American rail traffic remains under pressure, while many operators are struggling with inflationary pressures and operational inefficiencies. Union Pacific remains our favorite way to play the rails, but 2022 has been a difficult year for the firm, with free cash flow coming under pressure as capital investments have soared so far in 2022. Union Pacific garners an ‘A’ rating by Moody’s, Fitch and S&P, so we’re not too worried about its large net debt position. Shares yield ~2.4% at the time of this writing, but we’re not pulling the trigger.

Dec 12, 2022

American Tower Ups Dividend Payout 6%+ But Shares Not Immune to REIT Sector Weakness
Image Source: American Tower. Cell tower operator American Tower raised its dividend more than 6% from its last payout in October, and while we like the payout growth momentum, we’re taking note of weakening AFFO and free cash flow trends. The REIT’s net debt position takes on greater prominence in the current rising interest rate environment, too, and its forward estimated dividend yield stands at just ~2.9%, about in line with traditional near-term rates on certificates of deposits. We’re watching deteriorating REIT economics closely.

Nov 22, 2022

Dick’s Sporting Goods Defies Skeptics, Puts Up Strong Comp Performance in Fiscal Third Quarter
Image: Dick’s Sporting Goods is the premiere sporting goods retailer, and the firm’s performance during its recently reported fiscal third quarter showed a key inflection point in same-store-sales growth. Image Source: Dick’s Sporting Goods. On November 22, Dick’s Sporting Goods reported fiscal third quarter results for the period ending October 29 that beat expectations on both the top and bottom line, but the real story was the sporting good retailer’s same-store sales performance, which far exceeded the consensus expectation for the period. With a forward estimated dividend yield of ~1.8% and a solid Dividend Cushion ratio of 3.3, Dick’s Sporting Goods remains one of our favorite ideas within the Dividend Growth Newsletter portfolio.

Oct 27, 2022

VBI Ratings Not as Impressive As We Would Have Liked in 2022
Image: How the VBI rating system has ranked equities so far this year. At Valuentum, we use the Valuentum Buying Index (VBI) to source ideas into diversified simulated newsletter portfolios, and the VBI may be most applicable to the simulated Best Ideas Newsletter portfolio, where we generally like to include ideas when they register a high VBI rating and remove them when they register a low VBI rating. We always use the VBI in a portfolio setting and never by itself. Let's talk more about the VBI rating system in this work.

Oct 20, 2022

AT&T’s Free Cash Flow Coverage of Its Dividend Is Looking Better But Economic Malaise Awaits
Image: AT&T’s dividend obligations have been substantially reduced, aiding in its coverage of the payout with free cash flow. Image Source: AT&T. AT&T’s free cash flow generation in the third-quarter 2022 was good enough to significantly cover the cash dividends paid in the period, generating a free cash flow dividend payout ratio of 52.3% versus 98.1% in the same period a year-ago. Though its massive net debt position will continue to weigh on its Dividend Cushion ratio, AT&T’s free cash flow coverage of the dividend is looking much better these days. Still, AT&T has a lot to prove, and CEO John Stankey has said as much. The WarnerMedia acquisition and spin-off has left a sour taste in many an AT&T investor’s mouth, and while we liked the improvement shown in AT&T’s third-quarter 2022 results, we’re not looking to add the shares to any of the newsletter portfolios at this time. Our fair value estimate stands at $16 per share, and its Dividend Cushion ratio is decidedly negative. Shares yield ~7.1%.

Oct 8, 2022

Microsoft Hinted at Trouble in Calendar Q2 But AMD’s Massive $1 Billion Quarterly Q3 Revenue Miss Spells Big Problems for PC Market; Search and News Advertising Revenue Also Likely Weakening Substantially
Image Source: Fritzchens Fritz. Economic conditions have deteriorated rapidly since Microsoft warned about deteriorating PC market demand in July of this year. AMD’s preliminary third-quarter report announced October 6 showed a massive $1 billion miss relative to prior expectations, and we think this is the beginning of a vicious cyclical downturn in the semiconductor industry, with few immune to the troubles, particularly in light of Apple’s warning about iPhone 14 demand. Further, we think search and news advertising has likely deteriorated since the calendar second-quarter reporting season, too, and this doesn’t bode well for the likes of Alphabet and Meta Platforms. Recent news about the strength of Tiktok and the lack of enthusiasm by Meta Platforms’ insiders that are building the metaverse have us thinking that Meta has turned into a value trap. We won’t hesitate to drop shares if the company’s outlook in its third-quarter report comes up short.

Sep 9, 2022

Dividend Increases/Decreases for the Week of September 9
Let's take a look at firms raising/lowering their dividends this week.

Apr 19, 2022

AT&T and Warner Bros. Discovery Go Their Separate Ways
Image Shown: AT&T Inc is spending heavily to grow its 5G wireless network while expanding the reach of its broadband footprint. Image Source: AT&T Inc – March 2022 Analyst & Investor Day Event Presentation. On April 8, AT&T Inc closed the merger of the WarnerMedia business with Discovery to create a powerhouse in the media and entertainment industry after then-Discovery shareholders voted to approve the deal on March 11. The new entity, Warner Bros. Discovery Inc, is home to various streaming services (HBO Max, discovery+, CNN+) along with linear and premium TV channels (Discovery Channel, HBO, TNT, HGTV, CNN, Animal Planet, Adult Swim, Cartoon Network). Warner Bros. Discovery began trading on the NASDAQ stock exchange on April 11 with shareholders of AT&T receiving 0.241917 shares of WBD for each share of T they held at closing. Part of this process involved Discovery, now Warner Bros. Discovery, consolidating its share class structure. In return for spinning off its WarnerMedia unit, AT&T received $40.4 billion in cash and the retention of certain WarnerMedia debt. Let's dig more into this separation in this note.

Mar 17, 2022

Berkshire Hathaway Is Firing on All Cylinders; Shares Surging
Image Shown: Shares of best idea Berkshire Hathaway Class B (ticker: BRK.B) have surged higher over the past year with room to run. Those of you that have been long-time members of Valuentum (thank you by the way!) know that we are huge fans of Warren Buffett. We include Berkshire Hathaway Inc (BRK.A) (BRK.B), specifically its Class B shares (ticker: BRK.B), as an idea in the Best Ideas Newsletter portfolio. Recently, Buffett (CEO and Chairman of Berkshire) released his latest annual letter to shareholders, which included plenty of important information regarding the conglomerate’s financial performance and investing practices at-large. One of the things that stuck out in Buffett’s latest annual letter to shareholders, a topic that he has brought up often in the past, is his belief in betting on America. In the letter, Buffett notes that “our country would have done splendidly in the years since 1965 without Berkshire. Absent our American home, however, Berkshire would never have come close to becoming what it is today.” For reference, Buffett took control of Berkshire back in 1965. We are also big believers that the number one place for investors to be invested is in U.S. equities. Specifically, large cap U.S. tech stocks with “moaty” business models, fortress-like balance sheets, incredible free cash flow generating abilities, and growth outlooks underpinned by secular tailwinds represent some of our favorite ideas alongside U.S. energy giants (a shorter term tactical play in the face of the ongoing inflationary environment) and high-quality U.S.-focused firms like Berkshire. We appreciate Buffett’s longstanding commitment to utilizing discounted free cash flow analysis to locate and invest in undervalued enterprises based in the U.S.

Mar 10, 2022

AT&T’s WarnerMedia Unit and Discovery Are Close to Finalizing Their Blockbuster Merger
Image Shown: Announced back in May 2021, the blockbuster merger of AT&T Inc’s WarnerMedia unit with Discovery Inc is expected to close in the second quarter of 2022. Image Source: AT&T Inc & Discovery Inc – May 2021 IR Presentation. The blockbuster merger of WarnerMedia, currently a part of AT&T Inc, with Discovery Inc. is getting closer to completion. On March 11, Discovery shareholders voted on whether to proceed with the transaction. AT&T does not need to secure shareholder approval through a vote to close the transaction. AT&T intends to reduce its annualized dividend to $1.11 per share ($0.2775 per share on a quarterly basis) down from $2.08 per share currently ($0.52 per share on a quarterly basis) after the merger closes. This pending payout cut has stung investors, as has AT&T’s deal making over the past decade. If everything goes as planned, WarnerMedia and Discovery are set to close their merger during the second quarter of 2022. Let's dig more into the details of this deal.