Stocks

Sears Holdings (SHLD) – Flawed Strategic Experiment Results in Retailing Train Wreck – AutoZone and Sears Comparison

December 28, 2011
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Sears Holdings (SHLD) – Flawed Strategic Experiment Results in Retailing Train Wreck – AutoZone and Sears Comparison

Sears Holdings pre-reported Q4 results which showed a rapid deterioration yesterday. The most alarming item in the press release was the rapid deterioration in sales trends at both Sears and Kmart. Sears comparable store sales trends ran -3.3% in the YTD period (which is a month away from the full year) while the trends through the first two months of the 4th quarter came in at -6.0%. Kmart sales slowed from -1.8% to -4.4% in the YTD to QTD period. Retailing is tough and you can’t run a retailer without regard for the shopping experience. Eddie Lampert attempted to replicate the magic formula he applied to AutoZone (AZO) with Sears Holdings. The experiment has failed in spectacular fashion. In order to understand what went wrong with Sears it is...

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Facebook Considers a Spring 2012 IPO at a $100 Billion Valuation

November 29, 2011
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Facebook Considers a Spring 2012 IPO at a $100 Billion Valuation

We all knew it was coming, a spectacular IPO at a high valuation, for one of the world’s most innovative and intriguing companies. After many years of capturing young people’s internet time around the world, Facebook is moving closer to an IPO, reportedly valued at a $100 billion. The company may potentially file before year-end and go public between April and June according to Bloomberg. Facebook would likely raise $10B, effectively listing 10% of the company. Facebook is a company and brand that investors are intimately familiar with. Many investors have uploaded wide expanses of personal data to the company’s servers and have also been regular members for a number of years. We even have feelings about the corporate history through the venture capital phase due to the success...

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Walt Disney (DIS) Results Strong – Outside of Europe the Global Economy is Solid

November 11, 2011
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Walt Disney (DIS) Results Strong – Outside of Europe the Global Economy is Solid

Long live Mickey Mouse! Walt Disney reported strong results last night which reflected broad strength across the economy. Disney has diversified exposure to discretionary spending with its parks, media properties, and international businesses. A consistent theme through earnings season has been broadly solid corporate earnings and DIS is another example of this from a large capitalization blue-chip multinational. Walt Disney produced the enviable combination of results demonstrating solid top line sales growth, margin expansion, and tremendous EPS growth as cash flow was used to repurchase shares. Disney’s revenues grew 7% this quarter with strength from the parks division, media properties, and product royalties. Developing markets such as Russia, China, and India were all called out as strong on the earnings conference call. Disney’s cable and media properties are expanding...

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Lyondell Bassell – Diversified Manufacturing Exposure with 25% Upside

October 21, 2011
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Lyondell Bassell – Diversified Manufacturing Exposure with 25% Upside

Lyondell Bassell Industries is a manufacturing company which produced chemicals, fuels, and polymers used for clean fuel, construction materials, automotive parts and medical equipment. LyondellBasell announced a shareholder-friendly $2.6B special dividend ($4.50/share). I believe this reflects management’s confidence in the company’s financial condition and substantial free cash flow in the medium and long term. Management indicated in its filing its intent to seek an investment grade rating over time. These actions demonstrate why the shares deserve to trade at a higher valuation. At present there is extreme value with the shares trading at sub-4x EBITDA. The company has substantially deleveraged and the risks are nowhere near the same as during the financial crisis. The cash tender offer is for $2.8B of secured notes which are due out in 2017....

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McRally – McDonald’s Posts Excellent Results with no Slowing in Europe

October 21, 2011
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McRally – McDonald’s Posts Excellent Results with no Slowing in Europe

McDonald’s posted an excellent set of results this morning and the quality of the reported earnings was very high because it came at an abnormally high tax rate. McDonald’s global same store sales came in at 5.0%. The results continue to confound many analysts and investors who fear that McDonald’s growth is not sustainable – in short it is sustainable. McDonald’s posted 4.9% same store sales in Europe and also indicated that September comp sales in Europe were up 6.9%. This strength of McDonald’s business is in Europe is rather stunning given all that is going on in the world. Perhaps the French are trading down from the brasserie and the German’s from the schnitzel and sausage houses (but I believe there is more to it than this). McDonald’s...

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Intel (INTC) – Strong Results Driven By Emerging Market PC Adoption

October 19, 2011
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Intel (INTC) – Strong Results Driven By Emerging Market PC Adoption

Intel has turned into a polarizing stock that most technology investors have a strongly positive or strongly negative opinion on. Taking a step back, Intel was clearly a premier growth stock of the 1980’s and 1990’s. An investment in Intel in 1986 at a price of $0.40 (not a typo) appreciated 100x by the end of 1999. Intel experienced a fleeting rally from $40 to $75 during the technology craze in 2000 and subsequently crashed during “tech wreck” down to about $20. The shares have remained around $20 for the next 11 years. For perspective on the de-rating Intel has experienced, shares earned $0.46 in 2002 while estimates are now around $2.50 for next year. While the Street has gravitated towards the bearish case that nothing at Intel is...

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Big Blue (IBM) Posts Solid Q3 Results – Adamant That Macro Isn’t Slowing Meaningfully

October 18, 2011
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Big Blue (IBM) Posts Solid Q3 Results – Adamant That Macro Isn’t Slowing Meaningfully

IBM posted a solid third quarter result that exhibited 16% earnings per share growth and enabled the company to slightly raise full year guidance (from $13.25 to $13.35). IBM has been beating quarterly consensus results by some 2-4% in consistent fashion. The 1.8% beat for the third quarter is likely causing most of the sell-off in the after-market (shares down 4.5% from yesterday’s close). I watch IBM closely because their tentacles stretch deeply into the global economy and the stock is one of the largest weights in the Dow Jones which is a price weighted index. IBM’s quarter saw solid constant currency sales growth in both major markets (developed) and growth markets (emerging). The developed markets grew 1% in constant currency but emerging markets grew 13% at constant FX....

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Google Q3 Earnings Surge – Demonstrates The Power of Innovation and Focused Investment

October 14, 2011
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Google Q3 Earnings Surge – Demonstrates The Power of Innovation and Focused Investment

Q3 earnings were reported after the close of market as earnings seasons kicks off. Google’s stock price has been volatile based on market fluctuations, Department of Justice concerns, fears about losing focus after the announced deal to acquire Motorola, and fear that a recession would slow search and display revenues. The above fears have failed to materialize and Google has continued to excel in terms of internet related innovation and vision. Wall Street estimates were much too low for the current quarter and Google beat pro-forma EPS by about $1 or 10%. The Q3 earnings conference call is worth a listen for all investors. The shares closed at $559 but quickly traded up to $595 in after-hours trading. Starting with the top line revenues, Google reported the strongest revenue...

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Ruby Tuesday – Highlights Value in the Restaurant Space

October 12, 2011
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Ruby Tuesday – Highlights Value in the Restaurant Space

Ruby Tuesday (RT) is one of the largest players in the US bar and grill segment. The restaurant chain consists of 841 restaurants with the vast majority of the restaurants company operated and 95 franchised. The secular trends have been working against the bar and grill segment based on healthy lifestyle trends and consumers moving away from burgers and fries towards lower fat options. Moreover the bar and grill space boomed in the 1990s and became over stored. Some bar and grill chains went bankrupt during the financial crisis and some chains have converted to other concepts. Despite the negative headwinds, Ruby Tuesday remains standing with decent operating metrics but with limited ability to grow from here. The result has been a company run largely for cash flow. The...

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Yum! Brands – Results Indicate Strong China Consumption Growth Continues

October 5, 2011
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Yum! Brands – Results Indicate Strong China Consumption Growth Continues

Yum! Brands (YUM) released results after the close of market yesterday. Yum is the world’s second largest quick service (fast food) restaurant after McDonald’s and operates the KFC, Taco Bell, Pizza Hut, Long John Silver, and A&W Restaurant franchises. Yum is an important company I follow because of the exceptionally strong gearing to China that the company has in place. This year, over 45% of the company operating profits will come from China. The positioning that Yum has in China is the result of decades of investment, brand building, and restaurant openings. There are 4,187 company-owned restaurant units in China which is over half of the company owned store base. Yum chooses to own the restaurants units, as opposed to franchise, because the restaurant profitability is so high. Yum...

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Nike’s Strong Results Indicative of Solid Global Consumption

September 23, 2011
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Nike’s Strong Results Indicative of Solid Global Consumption

Nike (NKE) reported an excellent set of results after the close last night. Headline earnings were $1.36 vs a street consensus of $1.21 (12.4% beat). I listened to the Nike earnings conference call and was really impressed with the strong business trends relative to the obvious dislocations we are seeing in the market and talk of global recession. Nike is one of the world’s strongest global brands and has a diversified business across both developed and emerging markets, across product categories such as footwear, apparel, and equipment, and across income demographics. If there was a global slowdown taking place right now it would be something that should impact Nike’s business. Basketball and running sneakers are mature categories in most countries. Nike’s earnings were driven by strong sales trends around...

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Target – Missoni is a Home Run!

September 16, 2011
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Target – Missoni is a Home Run!

A number of news reports have been out regarding the new exclusive apparel and home line designed by Missoni for Target (TGT). The Italian designer is very well regarded in the fashion world and Target getting an exclusive launch of this magnitude speaks to the credibility of the merchandising team and the power of the Target brand. Target experienced a website crash while the product line launched due to high demand (perhaps the site was intentionally crashed?). This has created enormous buzz and an air of exclusivity. There have been reports of lines at the door before stores open across the country. When you invest in Target you get one of retail’s best merchandising and branding teams in the nation. The success of the Missoni line has the potential...

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