Disney & Starbucks: 2 Stocks You Can't Ignore

Disney: The Happiest Stock On Earth

Summary

• Shanghai Disneyland should add incremental earnings in the near-term.
• The stock is off almost 8%, which to me is a buying opportunity.
• ESPN doesn’t appear to be the problem some expected.
• Monetizing the brand is the key to long-term growth.

By Tony Termini

I bought The Walt Disney Company (NYSE:DIS) on July 3, 1997 and have held it to this day. Here's why I think you want to buy it now.

The newest DIS theme park will open in Shanghai in a couple weeks extending the Happiest Place on Earth brand further into China. Given the price movement of the stock in the last few weeks, I think that right now would be a good time to add DIS to long-term portfolios (I will be buying the October 100 calls after this article is published). I also think you definitely want to own DIS before they report 3 rd quarter 2016 earnings on August 9 th. Before I discuss the fundamentals and what, in my opinion, will drive earnings higher through 2017, let's look at what's going on right now.

When DIS reported 2nd quarter 2016 earnings on May 10 th, they missed analysts' expectations by $0.04. The result is that the stock is off by more than 7% since then... CONTINUE READING



Starbucks: Can't Stop, Won't Stop

Summary

• SBUX had a terrific Q2 fiscal 2016.
• China’s growing middle class is most likely to patronize SBUX’s brand.
• SBUX has decided to jump into the RTD tea market at an opportune time.
• This is as good a time as any to buy SBUX.
• Shares possess an upside potential of at least 10%.

By S. Hasan Abid

Few can disagree that Starbucks (NASDAQ:SBUX) under Howard Schultz is one of the most successful businesses in the world today. Currently SBUX operates a whopping 25,000 stores in 70 countries around the globe and despite the company's vast scale of operations, it is showing no signs of slowing down.

SBUX's latest earnings transcript was literally 'as bullish as it gets'. Global comps and U.S. comps were up by a staggering 6% and 7% respectively. Compared to last year, GAAP EPS increased by 18% in Q2 fiscal 2016, while non-GAAP operating income and margin expanded by 11% and 0.3% respectively. In particular, I was impressed to see considerable improvement in profitability of SBUX's China store portfolio that was accompanied by 5% transaction growth.

All this is well and good. There can be no doubts about the underlying strength of SBUX's business. But choosing healthy businesses is just one aspect of investing. Intelligent investors, as per Benjamin Graham's philosophy, ought to invest in solid growth but not 'overpay' for it. Hence, I wonder: If I buy SBUX now, will I be overpaying for it... CONTINUE READING

Can Both Costco & Wal-Mart Be Good Investments?

Is Costco Finally Running Out Of Steam?

Summary

• Weakening foreign currencies and lower oil prices have been dragging down Costco’s comps but I remain confident about the underlying strength of Costco’s business.
• Costco has boundless opportunities to grow outside North America.
• Still, Costco has not reached a ‘full’ penetration level in the U.S.

By S. Hasan Abid

Costco's (NASDAQ:COST) top-line growth in Q3 fiscal 2016 did not exactly knock investors' socks off but the company's growth story remains intact. In the last 5 years, Costco has expanded its retail footprint immensely and after adding 7 new warehouses in Q3, Costco now operates 705 warehouses globally. Bears, still, are quick to point out that Costco, despite having a robust business model, is a mature business whose growth opportunities in the U.S., its main market, are bound to dwindle drastically sooner rather than later. The goal of this article is to assess the validity of claims like these and discuss Costco's growth prospects... CONTINUE READING



Wal-Mart: A Dividend Aristocrat That Won't Die

Summary

• Wal-Mart has a solid dividend history. In the last 25 years, it has consistently increased dividends.
• The company can easily support a 10-15% annual dividend growth rate for at least a decade.
• Wal-Mart's dividend is still far from entering into unsustainable territory.

By S. Hasan Abid

Last time, we discussed the merits of investing in the world's largest retailer, Wal-Mart (NYSE:WMT). We also talked about how WMT is evolving with time to compete effectively in a future world where online shopping is likely to be a norm rather than an exception. According to Statista, by 2019 there will be 224 million online shoppers in the U.S. As discussed previously, this isn't something that should worry WMT's shareholders excessively, because the company is quickly developing a stronger omnichannel presence and has a fantastic distribution and logistics network, which can help it expand its competitive advantage in the retail space.

As an investment proposition, one of the crucial things that sets WMT apart from many other retailers, including the likes of Costco (NASDAQ:COST), is its status as a "Dividend Aristocrat". We've seen the company raise dividends in each of the last 25 years - an amazing feat. But as a shareholder, should you expect this to continue? How sustainable are WMT's dividends... CONTINUE READING

PayPal Looks Undervalued But Best Buy Needs A Catalyst

PayPal's Stock Is Undervalued

Summary

• In this article I look at PayPal from a valuation perspective.
• PayPal doesn’t look cheap on a relative basis.
• I forecast PayPal’s consolidated net revenue in a slightly unconventional way.
• My DCF model yields a fair value close to $41 for PayPal’s stock.

By S. Hasan Abid

The payment landscape is evolving rapidly as more people are adopting mobile devices, owing to which digitization of money is on the rise. Individuals, above all, are looking for trusted payment solutions and PayPal (NASDAQ:PYPL) in this regard stands out. In my last article (read it here) on PayPal, I discussed numerous factors behind the success of this ever-growing payments platform and why so many merchants and consumers globally are drawn to PayPal. These factors include ease of access, reliability and higher conversion rates. Keeping those qualitative considerations in mind, this time I look at PayPal from a valuation perspective.

Sporting a rich forward P/E multiple of 21.3x vs. the average P/E of 16.8x for the credit services industry, PayPal doesn't look cheap on a relative basis. Some would argue that the shares are almost priced for perfection considering the company's TTM P/E of 33.9x, which implies that, assuming price remains unchanged, the market is expecting a ~59% increase in earnings. These are high expectations, even though PayPal has a history of beating analysts' EPS estimates... CONTINUE READING



Best Buy: Without A Catalyst, Cheap Isn't Enough

Summary

• The departure of Sharon McCollam shouldn’t be taken too negatively.
• Mobile phone market is quickly reaching an inevitable saturation point which is why I'm worried about BBY.
• Revenue contribution from the TV category is unlikely to offset the weakness in computing and mobile phones.
• My one-year target price for BBY is $33.41.

By S. Hasan Abid

There isn't much excitement surrounding Best Buy (NYSE:BBY) right now. The company reported Q1 fiscal 2017 results a couple of days ago and although the quarterly report wasn't too bad, Mr. Market didn't look too impressed. The decline in the stock price post earnings had a lot to do with the departure of CFO Sharon McCollam. She played a key role in improving BBY's profitability and online operations since being brought on board three years ago by CEO Hubert Joly. Sharon undoubtedly is one of the best retail executives out there. But in my opinion, her departure alone isn't something that should cause investors to adjust their existing perspectives on BBY's future.

Corie Barry, who is set to become the new CFO, has been with BBY for 16 years and has loads of experience of working with Sharon herself. Still, Barry is unlikely to have the same influence as Sharon because the efficiencies that BBY's management drove under Sharon are getting to the final stages. But Barry will, nevertheless, fit in seamlessly and is more than capable of doing a reasonably good job for the company... CONTINUE READING

Cracker Barrel vs. McDonald's: Which One Should You Go With?

Take A Trip Down Memory Lane With Cracker Barrel

Summary

• Earnings continue to surprise on the upside while revenues miss expectations.
• Cost cutting has improved operating efficiencies and margins.
• This has been a tremendous “total return” stock for decades and I expect that to continue.
• Short-term economic risks that could create market volatility shouldn't be a problem.
• Buy CBRL now and tuck it away!

By Tony Termini

Cracker Barrel Old Country Store (NASDAQ:CBRL) reports its fiscal 2016 3rd quarter earnings in a couple of weeks, and thinking about that took me down memory lane to when we hopped into the family car and drove across country to visit relatives on the east coast. At just about every "pit stop" we made along the journey, our random destinations seemed inevitably to be a CBRL store/restaurant.

I'm not waxing nostalgic here. There's a point. But I'll get to that later. First, I want to go over some of the pros and cons of buying CBRL before it reports on June 1st. And make no mistake, I think CBRL is a buy. That's the takeaway I want to leave you with from this article. I think CBRL is a buy. And I think you want to own it before the next earnings announcement. But I want to clarify a few of the issues that pose some risk in the short term... CONTINUE READING



McDonald's Is Overvalued And Risky

Summary

• The recent rise in MCD’s ROE can be primarily attributed to the company’s increasing leverage.
• MCD has been trading equity for debt. This is a risky game.
• MCD doesn’t have much room to increase its dividend.
• MCD has a fair value of $110.

By S. Hasan Abid

In 2013, when sales of McDonald's (NYSE:MCD) in the U.S. began stagnating, many analysts thought that MCD would fail to compete effectively in a ruthlessly competitive fast food industry. However, in around 2 years, MCD turned things around by offering a more streamlined menu and investing in value enhancing initiatives like All Day Breakfast and McPick 2. In Q1 fiscal 2016, MCD posted a solid 5.4% increase in U.S. comp store sales which clearly is a demonstration of the success of the company's investments in its value platform. Despite the positive developments, I don't find MCD particularly attractive from an investment point of view right now.

First, let's inspect MCD's profitability closely by decomposing the firm's Return on Equity ("ROE") for the period 2013-15 using DuPont Analysis. All figures have been taken from Morningstar... CONTINUE READING

Wal-Mart Is Back & L Brands, Home of Victoria's Secret, Looks Appealing

Wal-Mart Is Back And Looking Cheap

Summary

• This first quarter made Wall Street look foolish.
• A stronger dollar could be a boon for WMT’s international expansion.
• The “Henry Ford effect” could come into play with increasing wages.
• A P/E of 15 and a yield of 3% - what’s not to like?

Wal-Mart Stores (NYSE:WMT) put some worries to rest with its most recent earnings report, showing that this retail Goliath will not be slain easily by Amazon (NASDAQ:AMZN) or any of the relative retail Davids like Target (NYSE:TGT) that compete against it. In fact, most of those Davids are not reporting great results and have been hammered in the recent weeks on the back of slowing sales and not meeting expectations. WMT, however, blew away estimates and saw its stock pop 9% following the revenue and earnings beat. Amazingly, WMT did not only beat Wall Street's consensus estimates, it crushed them. Revenue was expected to come in at $113.2 billion; WMT booked another $2.7 billion on top of that reporting $115.9 billion in revenue - not a bad start to the new fiscal year. On the earnings front, WMT made Wall Street look foolish by generating $0.98 in EPS compared to the Street's consensus estimate of $0.88 - not a penny beat, a dime beat. Not bad... CONTINUE READING



L Brands: Ready, Set, Higher!

Summary

• Technicals make the stock look terrible.
• But solid fundamentals and a reasonable valuation make L Brands a buy.
• I would not bet against Les Wexner.
• Great long-term track record and great long-term prospects.

By Tony Termini

I think you should buy L Brands, Inc. (NYSE:LB) despite the short-term risk. That's because I think the risks have nothing to do with the company. They're all about the stock.

Here's the difference: In his book Point and Figure Charting, Tom Dorsey points out that the mechanism that drives stock prices higher or lower is the same one that moves the price of commodities, namely supply and demand. When demand is in control of price movement, Dorsey writes, you want to be in. When supply is in control, you want to be out... CONTINUE READING

Deutsche Bank: Struggling To Outrun Its Past

Part 1

Summary

• Share price depreciation has persisted along with mounting losses.
• Comparing DB to its peers on a P/B basis may make it seem cheap, but don't be fooled.
• DB has spent €12.7 bn in litigation cost since 2012 but there are still many skeletons in the closet.

Deutsche Bank's (NYSE:DB) shares have been down nearly 50% over the past year. It reported a record loss of €6.8 bn ($7.7 bn) in 2015, the second year of loss after the 2008 crisis. It has a market cap of $22.8 bn which is half that of HDFC Bank (NYSE:HDB), a local player in the Indian market. It has a P/B of 0.3, which roughly implies you would get more value after liquidating its assets than selling the entire company.

As you can see in Exhibit 1 below, DB's peers like JP Morgan (NYSE:JPM) with P/B of 1, HSBC (NYSE:HSBC) and Citigroup (NYSE:C) both with P/B of 0.6 have higher P/B ratios. In fact, all European banks, with the exception of UBS, are lagging behind their American counterparts. This is due to a worsening macroeconomic environment in Europe, including low GDP growth rate, negative interest rates and weakening of the Euro as compared to the dollar. But leaving aside these macro issues, DB suffers from deep structural issues of its own. And this is reflected in its low market valuation, which should not be construed as a no-brainer to buy... CONTINUE READING



Part 2

Summary

• DB is highly bloated as compared to its peers with an average cost-to-income ratio of 90%.
• DB has antiquated and incoherent IT systems which increase its maintenance cost thereby reducing operating leverage.
• The company's culture is broken.

In Part 1, we explored Deutsche Bank's (NYSE:DB) superficial appearance of being undervalued as well as its history and likely continuance of litigation troubles and regulatory crackdown. In addition to these headwinds, DB has a bloated cost structure that just seems to not come down. In addition to a fat pay structure, DB will face additional costs in trying to bring its technological infrastructure up to par with its competitors across Europe and America including J.P. Morgan (NYSE:JPM), Citigroup (NYSE:C), UBS (NYSE:UBS), and Goldman Sachs (NYSE:GS).

Cryan has been beating with an iron bush to cut down the bloated costs at DB. At a recent social gathering in Frankfurt, he grumbled to investors about the bank's wasteful culture and the fact that he can only do so much. Cryan has eliminated many perks ranging from chauffeured cars to company jets and airport VIP services. He supported the elimination of bonus for the bank's executive board in 2015. Bonuses have even been reduced for all employees across the company to 'share the pain'... CONTINUE READING

Don't Sour on J.C. Penney & Enjoy Texas Instruments Dividends

Don't Change Your Mind On J.C. Penney

Summary

• I don't believe that brick-and-mortar retail has no future.
• One of the highlights of the earnings call last week for me was J.C.Penney's decision to add appliance showrooms in more than 500 of its locations.
• I believe this is a good time for the company to penetrate the home appliance market. Institutional investors are taking interest in J. C. Penney.

By S. Hasan Abid

These are heavy times for mall-based retailers as they continue to see weak consumer spending in apparel and core categories like handbags. For Q1 fiscal 2016, comp sales at Kohl's (NYSE:KSS), Nordstrom (JWM), J.C. Penney (NYSE:JCP) and Macy's (NYSE:M) fell ominously by 3.9%, 1.7%, 0.4% and 5.6%, respectively. Investors are worried this might be a sign of things to come and brick-and-mortar retailers might be put out of business by the e-commerce giant Amazon (NASDAQ:AMZN). Unsurprisingly, the stock market reflects all these sentiments. In the last 12 months, Amazon stock has gone up by a whopping 66.76%, while shares of all major companies in the department stores industry have fallen by more than 10%... CONTINUE READING



Expect Texas Instruments' Dividend To Keep Growing And Growing

Summary

• TXN is very attractive from a dividend yield perspective.
• I believe a year-over-year dividend growth rate of at least 20% can be sustained for many years.
• TXN's payout ratio is currently below 50%, so there is ample room for further dividend growth.
• TXN's outlook makes me reasonably confident about the company’s dividend capabilities.

By S. Hasan Abid

Ever since reaching a relative bottom in January this year, shares of Texas Instruments (TXN) have climbed up by ~19%. Currently, the stock price is sitting slightly above its 50-day EMA and 200-day EMA. Note that the 200-day EMA is languishing below both TXN's current price and the 50-day EMA, confirming that the stock is in an uptrend... CONTINUE READING

PayPal Keeps Chugging Along & AmerisourceBergen Looks Cheap

PayPal Is Here To Stay

Summary

• PayPal has not only managed to expand its customer base, but has also successfully deepened customer engagement.
• PayPal's One Touch, in addition to the company’s credit services, has helped reduce cart abandonment rate. This, in turn, has attracted more merchants to PayPal.
• Mobile payments will drive PayPal's earnings in the long run.

PayPal (NASDAQ:PYPL) is one of the biggest players in the credit services industry. In the last three years, the company has expanded its payment solution capabilities immensely, offering PayPal Credit, Braintree, Venmo and Xoom products, owing to which it has successfully attracted an increasing number of merchants and consumers. Today PayPal stands out as the leading global payments platform.

PayPal's total revenues are composed of transaction revenues and revenues derived from other value-added services. The latter accounts for only~12% of PayPal's consolidated net revenue, so the overwhelming emphasis is on growing transaction revenues... CONTINUE READING



Pick Up AmerisourceBergen On The Cheap

Summary

• Generic drug price deflation weakens results.
• ABC offers reasonable value to take new positions.
• US demographics bolster the case.
• Enjoy a little income in the process.

By Tony Termini

I like AmerisourceBergen Corporation (NYSE:ABC) and think it's a buy in this new low-to-mid $70's range. To give you a better sense of what I like, let's look at what has transpired since the stock hit its most recent 52-week high back in July of 2015.

ABC reported its 3 rd quarter 2015 earnings on July 23, 2015 (fiscal year end is September 30). And, there was tons of good news. They had recently ramped up a new generic drug program with Walgreens Boots Alliance (NYSE: WBA). Sales increased almost 13%, earnings were up better than 18%, and they announced that they were on course for EPS to be up over 20% for the second year in a row (all of which was announced in their earnings press release). Yeah, this is the stuff that new highs are made of... CONTINUE READING

Is Kate Spade More Fashionable than Texas Instruments?

Should You Sell Kate Spade?

Summary

• Kate Spade posted 1st quarter FY2016 results for period ended 31 March 2016 that exceeded analyst expectations, but upcoming retail sales gloom looms.
• The company’s business fundamentals are under tremendous pressure, with intense competition in its product segment in order to capture customer loyalty.
• The company has experienced stagnant to mild revenue growth for 5 straight years, with no solid revenue growth visibility in the coming quarters.
• The stock is trading at expensive valuation levels considering its weak financials.

Kate Spade & Co (NYSE:KATE) is a fashion retail company that sells a wide range of women's and men's wear designed in-house via its own retail boutiques strategically located at high end shopping streets. Its apparel, accessories and fragrance products are marketed under its flagship Kate Spade New York labels. The share price has been trending upwards since 2012 from $9.61 to an all-time high of $39.69 at the end of July 2014. The share price began trending downwards and hit a recent low of $16 per share in February 2016 before recovering. Currently, it is trading at around $23.70 per share. Weak business fundamentals in the coming quarters could spell trouble for its share price and limited upside is foreseen for Kate Spade... CONTINUE READING ON SA



Texas Instruments: A Cash Cow You Can't Ignore

Summary

• Performance of the analog segment in Q1 fiscal 2016 was disappointing.
• In the long-run, TXN has the potential to strengthen its top-line.
• TXN’s capital-light business model allows it to generate loads of free cash.
• None of TXN’s direct competitors can match the company’s cash-generating potential.

Texas Instruments (NASDAQ:TXN) sells semiconductors to electronics designers worldwide. In the last decade, TXN has become a highly capital-light business owing to the ever-increasing focus on analog and embedding processing technologies. This is one of the biggest reasons why the company stands out in the semiconductor industry. Analog and processing technologies are omnipresent as they are an integral part of virtually every electronics device. Little wonder then, that the market for these technologies is huge. The size of the analog market alone is $45 billion and TXN, with a roughly 15% share, shines as the biggest player in this space.

With a justifiable and pragmatic strategic focus, TXN certainly has the potential to achieve sustainable growth. In addition to this, the company's cash-generating potential and an unwavering commitment to returning value to its shareholders also add to its risk-reward profile... CONTINUE READING ON SA

The Battle of the Financials: Goldman Sachs vs. BlackRock

These are our articles posted on Seeking Alpha. Click "READ MORE" if you would like to read the rest of the articles.

Don't Bet Against Goldman Sachs

Summary

• Goldman Sachs is at a do or die technical level.
• The company is significantly undervalued.
• Even by taking higher risk into account, valuation models still suggest Goldman Sachs is a bargain.

The Goldman Sachs Group (NYSE:GS) has improved its fundamentals in recent years, and it is logical to expect even by conservative calculations that the stock is about to make a move higher. Analysts are divided or they are at least partially positive on this stock, which is expected since each analyst uses a different valuation model and different criteria. This difference of opinion hints that analysts do perform a good reality check on this stock. What would be worrisome is if they all had very similar views on modeling and evaluating risk. Despite its proven resiliency, history has shown that no financial firm is ever 100% immune to either internal corruption or to the mishandling of outside market risks... READ MORE



The Going Gets Tough For BlackRock

Summary

• BlackRock posted weak 1st quarter FY2016 results for period ended 31 March 2016, and had announced plans for job cuts in the coming quarters in order to reduce costs.
• The company’s business fundamentals are under tremendous pressure, with intense competition in its ETF product segment where investors are increasingly demanding lower fees.
• Selling this stock is the right strategy, as the company has experienced slowing AUM growth in its most recent quarter, which will adversely impact revenue.
• The stock is slightly overvalued and weak global markets, a looming China slowdown, and weak Japanese and EU economic outlook call for a sell in the medium term.

BlackRock (NYSE:BLK) is the world's largest money manager with about $4.5 trillion in AUM as of 31 March 2016. It is well known among investing circles for its iShares branded ETF products, which commanded a total of $1.2 trillion in AUM. The share price has been trending upwards since 2012 from $178 to an all-time high of $378 at the end of March 2015. The share price has suffered a pullback somewhat since end-March 2015. The stock price hit a recent low of $294 per share in September 2015 before recovering. Currently, it is trading at around $355 per share, not far from its all-time high. Weak business fundamentals in the coming quarters could spell trouble for its share price and limited upside is foreseen for BlackRock... READ MORE