Seeking Alpha
View as an RSS Feed

David Trainer  

View David Trainer's Comments BY TICKER:
Latest  |  Highest rated
  • Do Microsoft Bulls Have A Convincing Case? [View article]
    stratti: EBV refers to the perpetuity value of current cash flows, and if ROIC declines then cash flows will likely decline. Some of that can be balanced out by growth, but MSFT as a mature company is unlikely to experience very rapid growth.

    If MSF's ROIC keeps declining slowly over the next 10-20 years while revenues grow moderately, the stock does have limited upside, but if ROIC were to decline as low as cost of capital that would not be the case.
    Aug 7, 2014. 02:26 PM | Likes Like |Link to Comment
  • Do Microsoft Bulls Have A Convincing Case? [View article]
    Praveen Chawla:

    Since Morningstar doesn't show their calculation for ROIC, I can't comment on the difference between my numbers or theirs. Perhaps they use a higher number for required cash or don't exclude certain expenses from NOPAT as I do. Either way, you can see how I adjust the reported data to get NOPAT and Invested Capital for MSFT here:

    http://bit.ly/V1npCT

    I disagree with the idea that total capital is a historical artifact. The purchase of that capital may have occurred in the past, but the capital itself is still being used in the present to earn a return, and that's what ROIC measures.

    FCF as a % of EV is a useful metric, but it's more of a valuation measure than one of operating profitability. MSFT's enterprise value is significantly higher than its invested capital, largely due to the fact that it earns such a high return on capital.
    Aug 7, 2014. 02:16 PM | Likes Like |Link to Comment
  • The Long Overdue Crash In Whole Foods [View article]
    rashly007:

    I take the present value of all future operating lease commitments as my value for invested capital (which is ~$5 billion) and add back the implied interest expense % of the lease, which was a pre-tax value of ~$230 million. After adding a tax adjustment as well, I get a NOPAT of $690 million and average IC of $8.4 billion.

    You can see how I adjust net income and total assets to get NOPAT and IC at this link:

    http://bit.ly/1AXGE15
    Aug 7, 2014. 11:57 AM | Likes Like |Link to Comment
  • Do Microsoft Bulls Have A Convincing Case? [View article]
    Intrepid Investor:

    Other tech megacaps, such as Oracle and Qualcom, have sustained ROIC's significantly above IBM's 15% for many years, but it's true that 56% is nowhere near the mean. I should have said reversion towards the mean. Microsoft's existing advantages in terms of scale, customer relationships, and brand awareness should give it the ability to still earn an ROIC significantly above the average.
    Aug 7, 2014. 09:26 AM | 1 Like Like |Link to Comment
  • Do Microsoft Bulls Have A Convincing Case? [View article]
    Transcripts&10-K's:

    You're welcome. Thanks for reading and commenting.
    Aug 6, 2014. 11:00 AM | Likes Like |Link to Comment
  • Do Microsoft Bulls Have A Convincing Case? [View article]
    JMajoris:

    What Microsoft's history shows is that it's extremely difficult for any company to continually earn a return on capital as high as Microsoft and Apple. My conviction on Apple is not just based on Microsoft's experience either. Apple's ROIC has already declined in each of the past two years.
    Aug 6, 2014. 10:59 AM | 2 Likes Like |Link to Comment
  • Do Microsoft Bulls Have A Convincing Case? [View article]
    Transcripst&10-K's:

    Companies require a certain amount of cash to carry out day to day operations, and that cash is included in IC. For a highly profitable company such as MSFT, I calculate required cash to be 2% of revenue. Any cash--which includes cash and equivalents as well as short and long term marketable securities--above that 2% of revenue is considered excess and not included in invested capital.

    I calculate that MSFT currently holds $98.6 billion in excess cash. This cash is not included in invested capital and is added to economic book value. You can see more detail on my treatment of excess cash here:

    http://seekingalpha.co...
    Aug 6, 2014. 10:50 AM | 1 Like Like |Link to Comment
  • Danger Zone: First Trust Utilities AlphaDEX Fund ETF [View article]
    Hardog:

    SO is one of the few Utilities that currently earns my Neutral rating. Still don't like its low ROIC, but it has a much more reasonable valuation than most Utes.
    Aug 6, 2014. 10:36 AM | Likes Like |Link to Comment
  • The Long Overdue Crash In Whole Foods [View article]
    Praveen Chawla:

    GAAP rules do not require companies to account for operating leases on the balance sheet, but there have been discussions for many years as to whether this should change.

    FASB, which sets GAAP rules, has been considering requiring companies to put leases on their balance sheet for some time. However, no firm rule changes have been put in place.

    As a member of the Investor Advisory Committee (IAC) to FASB, I have been involved with many discussions concerning operating leases recently, and you can see some of my thoughts on the issue here:

    http://bit.ly/1pB6oKu
    Aug 5, 2014. 03:26 PM | 2 Likes Like |Link to Comment
  • The Long Overdue Crash In Whole Foods [View article]
    Praveen Chawla:

    In order to make two companies that use different financing methods comparable, operating leases must be accounted for as debt. A company that takes on debt to buy an asset accounts for the debt and the asset on the balance sheet, and records regular expense in the form of depreciation and interest.

    A company that leases its assets, such as WFM, is keeping both its long-term contractual liabilities and the revenue-generating assets off its balance sheet. If an investor doesn't include WFM's $5 billion in off-balance sheet debt in invested capital, they'd give WFM credit for a much better return than it is actually earning.
    Aug 5, 2014. 02:37 PM | 1 Like Like |Link to Comment
  • The Long Overdue Crash In Whole Foods [View article]
    Transcripts&10-K's:

    First of all, I like your username.

    You can see the methodology I use for my DCF model here: http://bit.ly/15SYT4M

    I'm assuming growth for 18 years and then zero-growth into perpetuity after that. My formula for that is NOPAT in the next year divided by WACC.

    Here's my model for WFM:
    http://bit.ly/1pARzrp

    As you can see, the entirety of the valuation comes from that terminal value. The model assumes WFM will mostly have negative free cash flow as it grows, which is in keeping with its past track record.
    Aug 5, 2014. 12:24 PM | Likes Like |Link to Comment
  • The Long Overdue Crash In Whole Foods [View article]
    Praveen Chawla and Religious Wacko:

    See my comment below to seeking betta. Off-balance sheet debt is from operating leases, mostly on their stores.
    Aug 5, 2014. 12:11 PM | Likes Like |Link to Comment
  • The Long Overdue Crash In Whole Foods [View article]
    MarketPassenger:

    I'm not writing to brag about my past call, and I acknowledge that WFM has still outperformed the S&P 500 since that call. The purpose of this article is to point out that you might make money on overvalued momentum stocks for a while, but eventually the crash will come.
    Aug 5, 2014. 12:05 PM | 1 Like Like |Link to Comment
  • The Long Overdue Crash In Whole Foods [View article]
    It consists of operating leases, primarily on the company's stores. Those leases can be found in their 10-K:

    http://bit.ly/1pAJovf

    Their total future value is $7.4 billion, but discounted to present value they are worth roughly $5 billion.
    Aug 5, 2014. 11:03 AM | Likes Like |Link to Comment
  • The Long Overdue Crash In Whole Foods [View article]
    Buyandhold 2012: WFM is definitely still expensive. The PE ratio actually understated how expensive it is because it ignores the $5 billion in liabilities the company has in the form of off-balance sheet debt.

    Surprised to hear the news today that Icahn might be considering involvement.
    Aug 5, 2014. 10:48 AM | Likes Like |Link to Comment
COMMENTS STATS
997 Comments
361 Likes