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David Trainer

 
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  • 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
  • Best And Worst ETFs, Mutual Funds, And Key Holdings: Large Cap Growth Style [View article]
    Hardog: Thanks for reading and commenting. Glad you find my research helpful.
    Aug 3, 2014. 03:54 PM | Likes Like |Link to Comment
  • Danger Zone: NCR Corporation [View article]
    lorddarley:

    -I didn't say people will stop shopping in stores. The growing trend is less shopping in stores and more shopping online though. I don't think anyone would really debate that point.

    -Like retail, banking is moving more online and less on-site.

    -Debt is not inherently bad. If the businesses that NCR was buying were higher yielding, as you say, it would be a good move to take on low interest debt to buy them. However, these businesses are not higher yielding, as evidenced by NCR's declining ROIC. The amount of future cash flows that the debt will consume is greater than the present value of the cash flows those acquisitions will generate.

    -Both the market penetration and operating cash flow growth are due to these acquisitions. Free cash flow is negative and organic growth is in the low single digits.

    -Accounting earnings are not an accurate depiction of a company's operating performance, and estimates are often wrong.

    -Past price performance is not a guarantee of future returns.
    Jul 31, 2014. 01:03 PM | 1 Like Like |Link to Comment
  • Danger Zone: NCR Corporation [View article]
    Jeremy Blum:

    The P/E ratio is misleading for two big reasons. Earnings are overstated in that ratio due to the big non-operating pension gains last year, and it doesn't account for the company's high level of debt, which reduces future cash flows available to shareholders. You can see all my calculations for 11% in the DCF model I linked to in the article.
    Jul 31, 2014. 12:56 PM | 1 Like Like |Link to Comment
  • Danger Zone: NCR Corporation [View article]
    MHFive: The vast majority of that growth comes from the acquisition of Digital Insight. Organic growth was just 4%. That just goes along with what I highlighted in the article. NCR's acquisition driven strategy has allowed it to keep buying short-term revenue growth, but it's destroying long-term profitability.
    Jul 30, 2014. 09:35 AM | 2 Likes Like |Link to Comment
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