Sysco: Building A Case For A Return To Growth [View article]
Hi Chuck:
As I wrote in my recent Sysco article, which I will not shill by providing a link:
1) The recent "growth investments" can just as easily be viewed as catch-up CapEx, since Sysco drastically reduced CapEx during the Great Recession/Financial crisis;
2) It is just not undervalued, still, from a free cash flow perspective, no matter how you slice it.
I'd add the following: your FastGraph confirms, actually, that it is not undervalued. To truly be Grahamian, you need a 20% margin of safety. There is no way you have that with Sysco at these prices. Respectfully, I think you are motivated by emotion here, though you think you are not. This company, like Coke and a few others, is an emotional obsession with dividend investors. (Coke is overvalued now, btw.) I think you have admired the company for many years, and you have gotten excited, and you have dipped in too soon. I see a lot of talk about what your opinion is after years of experience, but nowhere in this admittedly excellent article do I see an actual valuation analysis, except for a FastGraph that shows it is merely, at best, fairly valued.
Sysco is a nice anchor stock, and will outperform in any downmarkets and, indeed, provide nice dividends and decent dividend growth for decades more. But in Lynchian terms, it is is no longer a Stalwart, it is emphatically a Slow Grower -- just one with an excellent dividend record.
Transocean Has A Major Accounting Problem (And Many Others) [View article]
Thanks for not actually reading the article, or for your lack of reading comprehension, tgc. I'll use short sentences so you can understand. The accounting problem is the suspicious change in how they determine whether to calculate future goodwill impairments and thus ADMIT business problems in the future. It would seem all prior commenters were able to grasp this.
I Think Microsoft Is A Steal In Free Cash Flow Terms [View article]
I appreciate your comments, but I fear you are missing the point.
The 'black hole' you are looking for is actually an explicit line on the cash flow statement publicly filed yearly by the company. I have tried to point to it. It says exactly what amounts the company has spent each year on the stock-based compensation you are worried about, and I have tried but apparently failed to explain the math. There is no additional missing component to look at.
Microsoft has repurchased at least $84 billion in shares in the last decade, and while, yes, it has also diluted via stock options, the net ("net" means after taking into account the dilution you are worried about) reduction is hundreds and hundreds of millions of shares. Nobody is trying to say Microsoft does not done dilution. But it is simply inarguable, and not at all hard to see, on the income and cash flow statements published by the company, that the repurchases vastly, vastly outweigh that dilution. Anyway, have a nice weekend.
I Think Microsoft Is A Steal In Free Cash Flow Terms [View article]
That is a very long comment. Allow me to digest.
The goal is, obviously, to make money. I am well aware of the challenges, and I continue to let the quarterly reports guide me. There will be a time to declare MSFT a dead man walking, if we must. It was clear to me with RIMM last summer (at a much higher share price), when MSFT Exchange allowed all companies to have the same security with Android and Apple that they had previously only had with a Blackberry. It will be fairly clear with Microsoft, I think. We're not there yet. Undoubtedly, Microsoft is playing from a position of defensive weakness, which is bad. But it is rather diversified, and it is fighting back. Bill Gates may mainly be interested in malaria at this point, but he still does not want to be a dinosaur, and he's still chairman. If I were merely interested in a stock with a low valuation ratio, I'd buy RIMM. And they can't all go the way of Koday, which is sort of my thesis (everyone thinks they all will).
Also, all economic models can be disrupted. Even Coke can be disrupted by a general movement against soda in general.... Anyway, there's certainly a lot to think about.
Finally, lux et veritas. Trumps mere veritas every time!
Microsoft: Steve Ballmer Deserves The Ron Johnson Treatment [View article]
Micheal,
With respect, you are responding to an argument the author wasn't making. Your comment is a re-hash of Einhorn's thesis on Microsoft from three or four years ago, before he, too, decided Ballmer needed to go.
This has nothing to do with where the share price has gone. This is about a CEO who is a utility-style 'company steward' in an industry that changes more in a year than the utility industry has changed in twenty. He is a dinosaur. He is also a boob. This is about the idiotic offer to buy Yahoo, and the $6.2 billion write-down of aQuantive, and the surely-to-come-one-day $5 billion or so write-down of Skype, and Vista, and the over-pricing of the Surface in an idiotic attempt to preserve short-term margin at the expense of long-term strategy, and the blue screen of death, and the constant software patches.
I own GOOG and AAPL and MSFT, and have owned MSFT for four years, love the dividends and recognize its positive aspects. I don't give a toot about the share price in and of itself. We all know about the income, and the free cash flow. I think MSFT is quite undervalued, notwithstanding its issues and today's IDC report. But that is like step one of the analysis, the easy step, that involves a mere spreadsheet and five minutes on morningstar.com.
Ever read The Innovator's Dilemna? Those wire-operated shovel operators and legacy steel makers had great earnings growth, too, and even increasing margins, even while the John Deere's and Nucors of the world were pioneering lower-cost, better alternatives in the downstream, at lower margins, that ultimately allowed them to move upstream and take the higher margin business, too, with a better cost structure. Ballmer is the kind of guy who looks at what his profit margin is every year and thinks he's doing a good job, instead of thinking about how the piss-ants taking over the lower-margin business (here, smart phones and tablets, and free software, and browsers) are eventually going to grow and wipe out the higher margin stuff as well if Microsoft does not change its ways. He is a CEO for a monopolist (which he inherited, but did not build), not a CEO for a vibrant company.
Transocean Has A Major Accounting Problem (And Many Others) [View article]
"Did RIG make a mistake because they had to take a writedown?"
Dude, they did an $18 billion deal and have $6 billion in impaired goodwill resulting from that deal! :-) Sure, Macondo both directly and indirectly impaired future cash flow, which resulted in goodwill being overstated. But when you write down 1/3 of the value of a titanic deal in goodwill impairment, that's a problem, no matter the proximate cause.
Abbott Is Cheap, But AbbVie Will Likely Be Cheaper [View article]
I'm not sure anyone would say you are wrong. In my opinion, if all you are trying to do is substitute for bonds, you should just be aware you are takiing on added risk. It might be a decent idea for you to skip stocks entirely and just invest in Vanguard's dividend appreciation ETF, ticker VIG. That will save you a lot of company-specific risk, while still giving you a decent yield. Obviously it can decline, too. You might also talk to a financial adviser - I belive some are recommending bond funds that carry high quality corporate debt, not junk bonds. Best of fortune with whatever you do. I work similarly to you, but I prefer to compare a "low point in the cycle" of a stock price with a fundamental evalation as well. That is why I bought more ABT shares in January 2011 at $47ish/share.
McDonald's Has Powerful Hidden Free Cash Flow [View article]
No, I get you, I just think it's a diversion, a sideshow. I don't mean that in a bad way, or with any disrespect.
First, even if you assume the real estate is worth five billion, McDonalds generated more than twice that in FCF in the last year alone. The total value of MCD cash flow I calculate at $182 billion after all discounting.
Second, I don't see any windfall here anyway: Think as a businessman. You can't sell the real estate without either removing some of that ability to generate FCF (no restaurant, no McCafe sales) or else incurring offsetting leasing liabilities. This is not a windfall. Any sale will in McDonalds' case be accompanied by a major leasing obligation, incurring a liability, or by increased operational risk from a franchisee taking on more debt risk. There is no free lunch. These are productive assets being used to generate the FCF.
Third, for EV purposes, actually you also add in minority interests and preferred shares, and also subtract out cash equivalents. I think real estate would just be incorporated in the market cap calculation, actually or, it would for EV purposes actually just be subtracted, not added, the same as existing cash is, and for the same reason. But I haven't gamed it out or researched it.
Fourth, I don't pay attention to book value outside of real industrial companies, banks, and insurance companies. It's just not relevant to a company like Google, for example. (I assume you are talking about tangible book value.) Neither is it relevant to valuing Coke, with the huge intangible-asset value of the Coke brand. With some notable exceptiosn, we no longer live in Ben Graham's world of wondering how far above tangible book value a railroad was trading.
Fifth, more deeply, as far as an individual investor is concerned, the value of a company is the value of its present cash flows and its future cash flows, discounted to present value, less if the company has a history of waste and poor capital allocation. Now if you're Wilbur Ross or Carl Icahn maybe you're looking to buy a struggling coal company based on asset values or liquidation or asset values. Peter Lynch called those "asset plays" or "turnarounds." McDonalds is neither. It's a high-growth stalwart, to continue the use Peter Lynch terms. As such, its assets really only have value to you to the extent they can create free cash flow. They are a cherry on top of a vastly larger sundae.
That's not to say there can't be hidden real estate opportunities. In the 1980s Pebble Beach was part of a publicly-traded company that also owned a huge gravel quarry, famously. At one point the market treated the gravel quarry as if it was worth nothing. This was a mistake!
If you want to try to value MCD real estate, be my guest. But returning to my first point, I will be pretty severely shocked on top of everything else if it remotely moves the needle in comparison with my $182 billion in present and future FCF that I calculate. Put it this way, if you assume ever single one of McDonalds' 33,000 locations are owned by it (which I believe they mostly are, even the 80% that are franchised -- though I'm pretty sure many in expensive city locations are leased by McDonalds on long-term leases), at $200K apiece, that still only gets you to $6.6 billion. And that's before any lease payments McD would then have to enter into. And that's also before impairments because the McDonalds building would need tons of renovation. And if you knock that down by 50% it's only $3.3 billion. But to be bullish say it's $5 billion. It's just not something to write home about.
To put it another way, if McDonalds ever gets to the point where the asset value of its restaurant locations remotely matters, either the entire world will be in a real estate bubble of epic 2007-dwarfing proportions, or some serious, serious problems will already have happened to all parts of the busienss that really matter to you.
Ha Rookie, don't get me started. I'm 32 and I haven't shaved with razor blades since I was 18. You can buy a cheap electric razor for about the cost of a Gillette Mach 3 and three packs of blades, and it will last for two years before you even have to replace the rotors, and then you can replace the rotors for the cost of another couple of packs of Mach 3 blades, and that will last for two more years. And you never have to buy shaving cream and shaving with an electric razor is faster. (Also, it's not like I'm some guy with peach fuzz.) Since I was eighteen I have owned three electric razors and maybe replaced the blades two or three times cumulative. That's about how much most men spend on shaving in a year or at most two.
But then again, I am a "cheap f*ck," as my father in law used to say. Thanks for commenting.
After all, as you state, "...If management doesn't, then the audit firm will certainly [verify]..." So I hope you had this one in your "accountants catch everything and the lawyer is a fool to say otherwise" portfolio!
I'm guessing you are an accountant. To be fair, one profession that is more of a joke than yours is the ratings agencies, though of course they employ many accountants. (They do an excellent job of telling us all what anyone with common sense and/or a calculator knew six months before they said it.)
Allow me also to suggest Diamond Foods (DMND) for your "accountants catch all shenanigans and the lawyer is a fool to suggest otherwise" portfolio, too? Or how about GMCR? That's a GREAT one for your portfolio as well. Boy, their accountants sure did a bang-up job looking at inventories, there!
I'll be sure to keep updating you on more stocks for your personal "accoutants catch all shenanigans and the lawyer is a fool to suggest otherwise" portfolio. Since every year sees some relatively well-known company or another rocked by an accounting scandal, we should have regular additions for you and you can lose money almost at will.
Transocean Has A Major Accounting Problem (And Many Others) [View article]
You seem primarily interested in an oil price analysis. I do not think RIG is in any sense the best play on capturing profits from increases in price,. As blogged by me in another article, I think XOM is a phenomenal long-term hold, and a buy under $80. But RIG is an asset-intensive services company. It neither makes the rigs (which also increase in price for new ones during a boom) nor sells the oil. Obviously I get the interaction with dayrates though.
As I wrote in my article, from an asset standpoint, I think it's much more undervalued. than from a FCF standpoint. I view it as an asset play or a turnaround. For a true long-term holding viewpoint, I think it is not nearly as attractive as the oil companies themselves. Keep in mind that in making its goodwill impairment, RIG itself is telling you that it does not expect its free cash flow to match the assumptions in place at the time of the 2007 GlobalSantaFe deal. And it said so again when it diluted shares at $40/share offering price.
I don't think my analysis in my comment at all implies that the market is not pricing in China, India, etc. A lot of that probably is priced in. As is a lot of uncertainty.
Keep in mind I'm still long. I think it's also getting hammered because it trades as if it is a Euro stock, since it is legally based in Switzerland.
When commodity prices simply eat the profits of consumer companies, when consumer companies cannot pass on higher prices into finished consumer goods, that is not inflation. When it affects one company, that's just a loss of brand power for that company. When this affects all, as it is now, that is simply not a sign of actual inflation. Per both CPI, and the independent, MIT-run "Billion Prices Project," inflation remains rather tame. Shadow-Stats is a crock, if you are hinting at something relating to that site.. (And incidentally the guy who runs Shadow-Stats has not raised his subcription prices in like five years, ironically). Recent gas-price gains were largely related to fears about a strike on Iran, and have already abated somewhat at least in my neck of the woods, which is unusual because gas prices usually rise continuously into the summer in Southern California.
Sysco: Building A Case For A Return To Growth [View article]
As I wrote in my recent Sysco article, which I will not shill by providing a link:
1) The recent "growth investments" can just as easily be viewed as catch-up CapEx, since Sysco drastically reduced CapEx during the Great Recession/Financial crisis;
2) It is just not undervalued, still, from a free cash flow perspective, no matter how you slice it.
I'd add the following: your FastGraph confirms, actually, that it is not undervalued. To truly be Grahamian, you need a 20% margin of safety. There is no way you have that with Sysco at these prices. Respectfully, I think you are motivated by emotion here, though you think you are not. This company, like Coke and a few others, is an emotional obsession with dividend investors. (Coke is overvalued now, btw.) I think you have admired the company for many years, and you have gotten excited, and you have dipped in too soon. I see a lot of talk about what your opinion is after years of experience, but nowhere in this admittedly excellent article do I see an actual valuation analysis, except for a FastGraph that shows it is merely, at best, fairly valued.
Sysco is a nice anchor stock, and will outperform in any downmarkets and, indeed, provide nice dividends and decent dividend growth for decades more. But in Lynchian terms, it is is no longer a Stalwart, it is emphatically a Slow Grower -- just one with an excellent dividend record.
But time will tell.
Best wishes,
Mr. Dumb E. Money
Transocean Has A Major Accounting Problem (And Many Others) [View article]
Transocean Has A Major Accounting Problem (And Many Others) [View article]
I Think Microsoft Is A Steal In Free Cash Flow Terms [View article]
The 'black hole' you are looking for is actually an explicit line on the cash flow statement publicly filed yearly by the company. I have tried to point to it. It says exactly what amounts the company has spent each year on the stock-based compensation you are worried about, and I have tried but apparently failed to explain the math. There is no additional missing component to look at.
Microsoft has repurchased at least $84 billion in shares in the last decade, and while, yes, it has also diluted via stock options, the net ("net" means after taking into account the dilution you are worried about) reduction is hundreds and hundreds of millions of shares. Nobody is trying to say Microsoft does not done dilution. But it is simply inarguable, and not at all hard to see, on the income and cash flow statements published by the company, that the repurchases vastly, vastly outweigh that dilution. Anyway, have a nice weekend.
I Think Microsoft Is A Steal In Free Cash Flow Terms [View article]
The goal is, obviously, to make money. I am well aware of the challenges, and I continue to let the quarterly reports guide me. There will be a time to declare MSFT a dead man walking, if we must. It was clear to me with RIMM last summer (at a much higher share price), when MSFT Exchange allowed all companies to have the same security with Android and Apple that they had previously only had with a Blackberry. It will be fairly clear with Microsoft, I think. We're not there yet. Undoubtedly, Microsoft is playing from a position of defensive weakness, which is bad. But it is rather diversified, and it is fighting back. Bill Gates may mainly be interested in malaria at this point, but he still does not want to be a dinosaur, and he's still chairman. If I were merely interested in a stock with a low valuation ratio, I'd buy RIMM. And they can't all go the way of Koday, which is sort of my thesis (everyone thinks they all will).
Also, all economic models can be disrupted. Even Coke can be disrupted by a general movement against soda in general.... Anyway, there's certainly a lot to think about.
Finally, lux et veritas. Trumps mere veritas every time!
Microsoft: Steve Ballmer Deserves The Ron Johnson Treatment [View article]
With respect, you are responding to an argument the author wasn't making. Your comment is a re-hash of Einhorn's thesis on Microsoft from three or four years ago, before he, too, decided Ballmer needed to go.
This has nothing to do with where the share price has gone. This is about a CEO who is a utility-style 'company steward' in an industry that changes more in a year than the utility industry has changed in twenty. He is a dinosaur. He is also a boob. This is about the idiotic offer to buy Yahoo, and the $6.2 billion write-down of aQuantive, and the surely-to-come-one-day $5 billion or so write-down of Skype, and Vista, and the over-pricing of the Surface in an idiotic attempt to preserve short-term margin at the expense of long-term strategy, and the blue screen of death, and the constant software patches.
I own GOOG and AAPL and MSFT, and have owned MSFT for four years, love the dividends and recognize its positive aspects. I don't give a toot about the share price in and of itself. We all know about the income, and the free cash flow. I think MSFT is quite undervalued, notwithstanding its issues and today's IDC report. But that is like step one of the analysis, the easy step, that involves a mere spreadsheet and five minutes on morningstar.com.
Ever read The Innovator's Dilemna? Those wire-operated shovel operators and legacy steel makers had great earnings growth, too, and even increasing margins, even while the John Deere's and Nucors of the world were pioneering lower-cost, better alternatives in the downstream, at lower margins, that ultimately allowed them to move upstream and take the higher margin business, too, with a better cost structure. Ballmer is the kind of guy who looks at what his profit margin is every year and thinks he's doing a good job, instead of thinking about how the piss-ants taking over the lower-margin business (here, smart phones and tablets, and free software, and browsers) are eventually going to grow and wipe out the higher margin stuff as well if Microsoft does not change its ways. He is a CEO for a monopolist (which he inherited, but did not build), not a CEO for a vibrant company.
Transocean Has A Major Accounting Problem (And Many Others) [View article]
Transocean Has A Major Accounting Problem (And Many Others) [View article]
Dude, they did an $18 billion deal and have $6 billion in impaired goodwill resulting from that deal! :-) Sure, Macondo both directly and indirectly impaired future cash flow, which resulted in goodwill being overstated. But when you write down 1/3 of the value of a titanic deal in goodwill impairment, that's a problem, no matter the proximate cause.
Abbott Is Cheap, But AbbVie Will Likely Be Cheaper [View article]
McDonald's Has Powerful Hidden Free Cash Flow [View article]
First, even if you assume the real estate is worth five billion, McDonalds generated more than twice that in FCF in the last year alone. The total value of MCD cash flow I calculate at $182 billion after all discounting.
Second, I don't see any windfall here anyway: Think as a businessman. You can't sell the real estate without either removing some of that ability to generate FCF (no restaurant, no McCafe sales) or else incurring offsetting leasing liabilities. This is not a windfall. Any sale will in McDonalds' case be accompanied by a major leasing obligation, incurring a liability, or by increased operational risk from a franchisee taking on more debt risk. There is no free lunch. These are productive assets being used to generate the FCF.
Third, for EV purposes, actually you also add in minority interests and preferred shares, and also subtract out cash equivalents. I think real estate would just be incorporated in the market cap calculation, actually or, it would for EV purposes actually just be subtracted, not added, the same as existing cash is, and for the same reason. But I haven't gamed it out or researched it.
Fourth, I don't pay attention to book value outside of real industrial companies, banks, and insurance companies. It's just not relevant to a company like Google, for example. (I assume you are talking about tangible book value.) Neither is it relevant to valuing Coke, with the huge intangible-asset value of the Coke brand. With some notable exceptiosn, we no longer live in Ben Graham's world of wondering how far above tangible book value a railroad was trading.
Fifth, more deeply, as far as an individual investor is concerned, the value of a company is the value of its present cash flows and its future cash flows, discounted to present value, less if the company has a history of waste and poor capital allocation. Now if you're Wilbur Ross or Carl Icahn maybe you're looking to buy a struggling coal company based on asset values or liquidation or asset values. Peter Lynch called those "asset plays" or "turnarounds." McDonalds is neither. It's a high-growth stalwart, to continue the use Peter Lynch terms. As such, its assets really only have value to you to the extent they can create free cash flow. They are a cherry on top of a vastly larger sundae.
That's not to say there can't be hidden real estate opportunities. In the 1980s Pebble Beach was part of a publicly-traded company that also owned a huge gravel quarry, famously. At one point the market treated the gravel quarry as if it was worth nothing. This was a mistake!
If you want to try to value MCD real estate, be my guest. But returning to my first point, I will be pretty severely shocked on top of everything else if it remotely moves the needle in comparison with my $182 billion in present and future FCF that I calculate. Put it this way, if you assume ever single one of McDonalds' 33,000 locations are owned by it (which I believe they mostly are, even the 80% that are franchised -- though I'm pretty sure many in expensive city locations are leased by McDonalds on long-term leases), at $200K apiece, that still only gets you to $6.6 billion. And that's before any lease payments McD would then have to enter into. And that's also before impairments because the McDonalds building would need tons of renovation. And if you knock that down by 50% it's only $3.3 billion. But to be bullish say it's $5 billion. It's just not something to write home about.
To put it another way, if McDonalds ever gets to the point where the asset value of its restaurant locations remotely matters, either the entire world will be in a real estate bubble of epic 2007-dwarfing proportions, or some serious, serious problems will already have happened to all parts of the busienss that really matter to you.
Good points though.
Procter & Gamble Is In Trouble [View article]
But then again, I am a "cheap f*ck," as my father in law used to say. Thanks for commenting.
Transocean Has A Major Accounting Problem (And Many Others) [View article]
See here:
http://read.bi/KyDMwa
After all, as you state, "...If management doesn't, then the audit firm will certainly [verify]..." So I hope you had this one in your "accountants catch everything and the lawyer is a fool to say otherwise" portfolio!
I'm guessing you are an accountant. To be fair, one profession that is more of a joke than yours is the ratings agencies, though of course they employ many accountants. (They do an excellent job of telling us all what anyone with common sense and/or a calculator knew six months before they said it.)
Allow me also to suggest Diamond Foods (DMND) for your "accountants catch all shenanigans and the lawyer is a fool to suggest otherwise" portfolio, too? Or how about GMCR? That's a GREAT one for your portfolio as well. Boy, their accountants sure did a bang-up job looking at inventories, there!
I'll be sure to keep updating you on more stocks for your personal "accoutants catch all shenanigans and the lawyer is a fool to suggest otherwise" portfolio. Since every year sees some relatively well-known company or another rocked by an accounting scandal, we should have regular additions for you and you can lose money almost at will.
Transocean Has A Major Accounting Problem (And Many Others) [View article]
Transocean Has A Major Accounting Problem (And Many Others) [View article]
As I wrote in my article, from an asset standpoint, I think it's much more undervalued. than from a FCF standpoint. I view it as an asset play or a turnaround. For a true long-term holding viewpoint, I think it is not nearly as attractive as the oil companies themselves. Keep in mind that in making its goodwill impairment, RIG itself is telling you that it does not expect its free cash flow to match the assumptions in place at the time of the 2007 GlobalSantaFe deal. And it said so again when it diluted shares at $40/share offering price.
I don't think my analysis in my comment at all implies that the market is not pricing in China, India, etc. A lot of that probably is priced in. As is a lot of uncertainty.
Keep in mind I'm still long. I think it's also getting hammered because it trades as if it is a Euro stock, since it is legally based in Switzerland.
Procter & Gamble Is In Trouble [View article]