Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

May 4, 2020

Visa Reports That Global Spending Levels May Have Started to Stabilize in April
Image Source: DeclanTM. One of our favorite companies and a top-weighted holding in our Best Ideas Newsletter portfolio, Visa, reported second-quarter earnings for fiscal 2020 (period ended March 31, 2020) which beat both consensus top- and bottom-line estimates. Going forward, while Visa’s very lucrative travel-related businesses (which includes payment processing and foreign currency transaction solutions) will take a hit from reduced travel worldwide due to the ongoing coronavirus (‘COVID-19’) pandemic, management is focused on controlling expenses to offset exogenous headwinds. Specifically, management noted that Visa would pull back on “discretionary spending especially related to personnel, travel, professional services, and marketing” which we appreciate.

Apr 28, 2020

Good News for Facebook Ahead of Earnings Report
Image Shown: Facebook Inc’s top-line has experienced meaningful growth in recent years. Image Source: Facebook Inc – Fourth Quarter and Full-Year 2019 Earnings IR Presentation. One of our favorite Best Ideas Newsletter portfolio holdings is Facebook, and we appreciate its pristine balance sheet (plenty of cash on hand and no debt on the books as of the end of 2019), promising growth trajectory (short-term headwinds aside, digital advertising is a secular growth market and likely to bounce back strongly once the pandemic subsides), and we would like to highlight that shares of FB trade at a meaningful discount to our fair value estimate (which sits at $234 per share) as of this writing. Recently, several things have happened that supports our thesis as to why Facebook is a stellar company which will cover in this note. The ongoing coronavirus (‘COVID-19’) pandemic will depress Facebook’s near-term performance, but the firm’s medium- and long-term outlook remains very promising.

Apr 21, 2020

Macy’s Will Find It Difficult to Unlock the (Fair) Value of Its Real Estate
Image Source: Valuentum. The embattled department store Macy’s suspended its dividend and drew down its revolving credit line on March 20 in order to shore up its financial position in the face of the ongoing coronavirus (‘COVID-19’) pandemic. All of Macy’s physical stores were temporarily closed on March 18, though some might shut down for good given the company’s financial woes. The fair value estimate of Macy’s is heavily dependent on factors well outside the control of management, and considering the US economy and global economy at-large are sliding toward a pandemic/leverage induced recession/depression, we aren’t optimistic on Macy’s ability to unlock the (fair) value of its real estate. Any real estate sales done in the foreseeable future will likely be at a discount to their fair value. As the firm continues to burn through cash--there’s a very high probability Macy’s will continue to generate negative free cash flows until the “cocooning” of households ends--the clock is working against Macy’s. We are staying away from the name.

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 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 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 6, 2020

Wayfair’s Sales Rise as US Households Stay In
Image Shown: Shares of Wayfair Inc shot up on April 6 after publishing a very favorable business update. E-commerce firm Wayfair sells furniture and home décor online and operates several websites including Wayfair, Joss & Main, AllModern, Birch Lane, and Perigold. Shares of W surged upwards on April 6 after the e-commerce company put out a very promising business update that stated Wayfair’s sales were skyrocketing upwards. While most of the US economy (and others) is shutting down to contain and ride out the pandemic, Wayfair’s business model appears more resilient than the market was previously giving it credit for. That being said, the company remains very free cash flow negative and carries a net debt position. Its recent convertible debt issuance will provide Wayfair with much needed liquidity, but it remains to be seen if the company’s success of late will translate into positive free cash flows in the medium-term.

Apr 3, 2020

US Beer Sales Reportedly Surge During the Pandemic, Dollar General Well-Positioned to Meet Rising Demand
Image Source: Valuentum. According to some reports, US beer and alcohol sales are surging during the ongoing coronavirus (‘COVID-19’) pandemic. As of early Wednesday April 1, Johns Hopkins University reported there are now over 850,000 confirmed cases of COVID-19 around the world and that includes over 42,000 fatalities. We are still months away from human trials commencing on a potential vaccine, and it likely won’t be until 2021 at the very earliest that a vaccine could enter commercial production. As we wait out this pandemic, we hope everyone and their loved ones stay safe. We continue to like Dollar General in our Best Ideas Newsletter portfolio and view the firm as well-positioned to ride out the storm and emerge on the other side as a stronger enterprise. Back on March 17, we published a piece on our website, ‘Dollar General Holding Up Relatively Well in the Face of COVID-19’, that we encourage our members to take a look if they haven’t done so already (link here).

Mar 27, 2020

Grocery Outlet Is Firing on All Cylinders
Image Shown: Discount grocer Grocery Outlet Holdings Corporation has stores in six states; Washington, Oregon, California, Idaho, Nevada, and Pennsylvania. Image Source: Grocery Outlet – December 2019 IR Presentation. On March 24, discount grocer Grocery Outlet Holdings Corp reported fourth-quarter and full fiscal year earnings for fiscal 2019 (period ended December 28, 2019), and the firm beat both consensus top- and bottom-line estimates (albeit only marginally on the top-line). In the fiscal fourth quarter, the grocer’s GAAP net sales were up 12% year-over-year while Grocery Outlet went from a GAAP net loss of $5 million in the same quarter last fiscal year to a GAAP net profit of $10 million in the fourth quarter of fiscal 2019. That was partially due to Grocery Outlet utilizing the proceeds from its IPO in June 2019 to pay down its relatively large debt load, which in turn cut its quarterly interest expenses down by more than half year-over-year. From the end of fiscal 2018 to the end of fiscal 2019, Grocery Outlet’s total debt load (inclusive of short-term debt) fell from over $857 million to just below $448 million.

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.