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David Trainer

 
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  • Footnotes Diligence Drives Cisco Pick [View article]
    mwright713:
    New Constructs does not do target prices (imply more precision that I think is possible in this business.

    I would say that at its current level of ROIC, the stock has to get over $40/share to start looking expensive.
    May 17 03:39 PM | 2 Likes Like |Link to Comment
  • Danger Zone For This Week: Apple [View article]
    Honestly, the author of that Fortune article reveals a lack of sophistication when he says he has to look up ROIC and cannot understand my model, which is 100% transparent.

    You will find "ROIC" in nearly every respected book on finance. Wiley gave me a chapter on the topic (and a bit more) in The Valuation Handbook: http://bit.ly/101DwfV
    May 15 05:33 PM | 2 Likes Like |Link to Comment
  • Danger Zone For This Week: Apple [View article]
    gammamale,
    Thank you for your comment.

    Sorry to hear about your droid experience. I had a bad one too. It is not the old droids that compete with AAPL, it is the current ones and the future one.

    IN increasing number of Galaxy 4 owners think it is better than the iPhone. In fact, the guy at the Verizon store advised me to buy the latest Galaxy over the iPhone last winter when I went to purchase a new phone.
    May 15 11:52 AM | 2 Likes Like |Link to Comment
  • Danger Zone For This Week: Apple [View article]
    Cash per share for AAPL is $126.36.
    The link below shows my calculations and data values behind $283 share price implied by he 70% ROIC and behind the $240 share price implied by 50% ROIC.
    The link is to a file showing my model, which I think is the most transparent way to explain my calculations.
    http://bit.ly/16fOohY
    This link takes you to the “Investing 101″ section of my site, which provides definitions for ROIC, NOPAT and Economic Book Value.

    Once you see how my model works, you can perform your own scenarios on valuation based on whatever margins, ROIC, or revenues levels you want.
    Specifically, a 20% ROIC implies a 3% NOPAT margin, which would yield $5.1bn in NOPAT on $170bn in rev. That level of NOPAT implies a share price of about $192/share.

    Thanks for the great question.

    http://bit.ly/101egq1
    May 15 11:45 AM | 2 Likes Like |Link to Comment
  • Danger Zone For This Week: Apple [View article]
    Thanks Mike.
    I want to be transparent about my thought process. Plus, if I did not mention the prior call, I would be vilified for it.
    May 15 11:33 AM | 2 Likes Like |Link to Comment
  • Danger Zone 4/23/2013: Sears Holdings [View article]
    How is your valuation of the real estate different from what the company discloses under the $7.9 billion?

    As for the brands, if they were so valuable, don't you think they'd generate more revenue?

    How does issuing bonds affect the value of the debt in this situation?
    True, someone with a beter balance sheet could refi -but who would want to do that and why - esp considering my analysis?
    Apr 23 05:07 PM | 2 Likes Like |Link to Comment
  • Express Scripts: Strong EPS And Cash Flow, But Some Questions Too [View article]
    Ray:
    Thanks for the link to my article.

    I agree with your comment on ROE and ROA. They are low b/c of a bloated balance sheet owing to acquisition-driven growth strategies. The issue there is more about the denominator than the numerator.
    Apr 5 10:45 AM | 2 Likes Like |Link to Comment
  • Danger Zone 4/2/13: Express Scripts, Inc. [View article]
    Ray:

    I tend to be somewhat skeptical of earnings forecasts, especially when they're dealing with synergies coming out of acquisitions. The large number of Medco employees that ESRX has already laid off suggests that there might not be as much synergy between the two companies as initially planned.

    My bigger issue, though, is that the market seems to be exclusively paying attention to the positives that you mention without factoring in the negatives on the balance sheet. There is upside and downside to this company, but all the upside is already reflected in the market price, leaving only the downside for investors.
    Apr 2 03:14 PM | 2 Likes Like |Link to Comment
  • Low-Cost Funds Dupe Investors [View article]
    Buyandhold 2012:
    Great point. That is my recommendation for many sectors and styles as there simply are no good options for ETFs or mutual funds in those categories.
    Mar 13 11:35 AM | 2 Likes Like |Link to Comment
  • How To Find The Best Sector ETFs [View article]
    Randywatson:
    Thanks for you comment. You are correct: investors should put money in funds with >$100m in AUM - and I say that above in paragraph 12. The main point of this article is to emphasize the importance of analyzing ETF holdings. It is a bit of a shame that many of the best ETFs, according to the quality of their holdings, have so little in assets.

    Also, I point out exactly where readers can find alternatives to the low-asset ETFs.
    Dec 1 04:32 PM | 2 Likes Like |Link to Comment
  • Why Delta's Purchase Of An Oil Refinery Makes Sense [View article]
    I think the acquisition of the Trainer (no relation) refinery is nothing more than a diversion from DAL’s underlying financial troubles. Here are my reasons:

    1. Delta’s management did not get a crown jewel in the refinery business. They bought a cast off. Oil refiners have been selling off their east coast refineries because of the higher costs of running them compared to refineries closer to crude oil sources. East coast refineries are less profitable because of the higher costs related to importing oil.
    2. The potential costs savings do not go far toward solving Delta’s financial problems. If Delta achieves the $300 million in annual cost savings for which it is aiming, that translates, in present value terms, into about $3.4 billion or just 13% of the $26 billion in pensions and debt liabilities that the company currently faces. Note the $3.4 billion value is pure cost savings and does not account for any of the costs ($100mm+) DAL must invest in the refinery to get it producing jet fuel.
    3. Vertical integration went out of style in the 1980’s for a reason. Outsourcing has been the driver of improved efficiency and cash flow growth for most of the last quarter century because it allows those with the pertinent expertise to focus on what they do best. I find it difficult to believe that running an airline equips Delta’s management to run a refinery better than a refining company.

    More details are here: http://seekingalpha.co...
    May 30 10:06 AM | 2 Likes Like |Link to Comment
  • The Fed's Bazooka: Break Up The Banks [View article]
    Thank you for your comments.
    I agree that the political will to break up the banks may be low.
    The purpose of this article is to increase the awareness of this solution and raise the American will to break up the banks.

    Politicians' primary goal is to be (re) elected. If politicians think voters want to break up the TBTF banks, then the political will increases...hopefully enough to provoke action.
    Aug 24 01:24 PM | 2 Likes Like |Link to Comment
  • Lowest Consumer Sentiment Reading in 30 Years Could Point to Rally [View article]
    Good theory if you believe the latest reading is a bottom. If it is not the bottom, then look out below?
    Aug 15 11:15 AM | 2 Likes Like |Link to Comment
  • Zumiez: Fishy Accounting, Dangerous Valuation [View article]
    Clumsy Rick:
    Excellent comment. We were not aware someone had already done comparable detective work on ZUMZ's chg in depreciation estimates. It is nice to know someone else cares to dig thru the fine print as we do. Nevertheless, I believe the issues we highlighted deserve more coverage than a rather short article and blog that do not analyze the impact of the change on true profits and valuation. Plus, those writings are nearly 9mos old - and the impact on earnings remains rather large since then. I like how the blog points out "the accounting methodology change was a ‘lever’ that ZUMZ management had been waiting to pull when needed. Last week, they needed it."

    In response to your questions:
    1) yes, the $310 million in off-balance sheet debt equals the PV of the future required minimum operating leases on page 63 of the 10-K. Here is a picture from our model, which highlights the source data behind the calculations. blog.newconstructs.com...

    2) Valuation - we ran the scenario you suggested: 25% revenue growth for 5 years then 10% growth for the next 5. As shown in the picture from the DCF analysis in our model below, those growth expectations do not help much... to justify the current price of $23.79, the company has to grow revenues compounded annually at 18% for 9 years. While generating that kind of growth, the company would also, simultaneously, have to increase it ROIC from 7% to 10% - not an easy task for any retailer even when they are not growing. Those look like some serious expectations. I can run any scenario you want. The picture from our DCF model (below) shows all details and assumptions driving our DCF analysis, which is consistent across all 3000+ companies we cover.
    blog.newconstructs.com...
    Mar 30 10:00 AM | 2 Likes Like |Link to Comment
  • Intel: Too Cheap to Pass Up Again [View article]
    Acquiring technology is often cheaper than developing in-house. With $26bn in cash, INTC has the luxury of buying or building. Both are "fast follower" strategies.
    Mar 17 10:54 PM | 2 Likes Like |Link to Comment
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