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  • Evaluating Tyson Foods' Intrinsic Value [View article]
    elvislevel,

    Just wanted to follow up on Brian's comment. When you buy shares of a company, you have a claim on the future free cash flows of the operating assets of the business as well as the net balance sheet (total cash less total debt) and other adjustments (think overfunded pension).

    Goodwill is not necessarily a factor in valuation. First, the key value-driving equation is RONIC (return on new invested capital) = (EBI growth)/(Net new investment) in the latter stages of any valuation model. In valuation, RONIC, EBI growth and net new investment are interdependent variables.

    In the valuation context, the return on the operating assets of the business going forward should not necessarily reflect goodwill, unless the analyst believes that acquisitions may continue to dilute/enhance returns. But generally speaking, the future new investment will correspond to the operating assets of the firm and will not consider that particular investment accounted for as goodwill in the future return calculation. For clarification (and said differently), goodwill is not replaced via any maintenance spending unlike the capital of a company (think PP&E), so future returns, but definition should be better. Still, if one holds the belief that management will continue to be acquisitive going forward, then considering goodwill in the value-driving calculation may be appropriate. If management does not expect to pursue future acquisitions, RONIC should exclude goodwill. This paragraph above is completely related to the valuation context.

    Said differently...

    RONIC = an analyst can consider using a measure excluding goodwill if he or she believes that the management team will not engage in future acquisitions. An analyst should consider using a measure including goodwill if he or she believes that the management team will engage in future acquisitions with the same return dynamics as those traditionally pursued. RONIC is a driver (forecast) that drives the calculation behind intrinsic value.

    Now...

    The following is related to the presentation of ROIC w and w/out goodwill: these are outputs of the model. When evaluating the operating assets or the attractiveness of a company going forward, evaluating it excluding goodwill makes the most sense. If an analyst wants to evaluate how previous management teams have allocated capital, including goodwill in the ROIC calculation is valuable. Remember, goodwill can only be written down and reflects decisions by previous management teams (if there has been turnover).

    The important takeaway is understanding the question one is asking and what the answer means. There are a variety of measures of ROIC and each one tells something different about the company. One is not better than the other. Each one has value in understanding the firm.

    Thank you for reading.

    The Valuentum Team
    Aug 31 06:51 PM | 1 Like Like |Link to Comment
  • Evaluating Tyson Foods' Intrinsic Value [View article]
    Paul,

    Great question, as always. I'm assuming you are referring to the ROIC calculation in the analysis.

    Though we look at ROIC with goodwill and ROIC without goodwill (and each one is informative depending on a company’s acquisition program), we view return on new invested capital (RONIC) as the best measure of whether a company can continue to generate economic value for shareholders.

    To your point though, if we're assessing the entity's total return on invested capital, then including goodwill is certainly appropriate. However, in assessing the future operating performance of the operating assets (or the future economic substance of the company), goodwill can be excluded in the calculation, as this would provide a "purer" measure of the economic-value generating capacity of the operating assets. Goodwill is intangible.

    That said, a look at ROIC with goodwill, ROIC without goodwill, and RONIC (return on new invested capital) is worth doing to get the best feel for a company's ability to generate economic value.

    Thanks for the comment Paul.

    Brian
    Aug 30 11:21 PM | 1 Like Like |Link to Comment
  • Don't Be Fooled: IBM Still Reporting Low-Quality Earnings [View article]
    Hi all,

    We've reported the insulting comments and derogatory name calling. For those that found the article informative, thanks for reading.

    The Valuentum Team
    Aug 12 11:49 PM | Likes Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    Rich,

    If you would like to read about the Valuentum principal's qualifications, you can access them at the following link:

    http://bit.ly/TZX0Tn


    Valuentum's fair value estimate for D is $64 per share. We noticed that many other research firms have been behind us raising their fair values.

    The Dividend Cushion is a dividend safety and ranking mechanism. It does not make assumptions about financing activities by management. It is a comprehensive measure of dividend safety and growth potential considering the firm's balance sheet. It is not a liquidity measure in the sense that it is not pinpointing potential default -- the measure focuses on dividend health, not the likelihood for debt repayment.

    If we may, here is the response we were hoping to get from this article. We plan to write more of our takeaways in the article so it is easier to understand:

    "I had not known that a utility's debt load had an influence on its ability to pay dividends. That's interesting. I see how First Energy and Exelon were forced to cut their dividends. Fascinating point. I also noticed that Valuentum's fair value estimate is $64 per share -- they're not anticipating a material decline in the stock price (in fact, they've been ahead of the curve versus other research firms). Also, it's really interesting how they can break down dividend growth in the near term and in the long term. It helps convey that dividends are independent of equity valuation, too. There is a lot in this article that I can learn from, even if I still really, really like Dominion. In fact, Valuentum thinks Dominion will raise its dividend for the foreseeable future, even though it is highlighting important risks to make me a better investor. That's just a great point about the debt -- they're the only ones talking about it. Excellent."

    Thought we might help out a bit. :)

    Kind regards,

    The Valuentum Team
    Aug 2 05:43 PM | Likes Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    Rich,

    Thank you for reading our piece. Here's what to expect from D in the near-term:

    Dominion's dividend should expand roughly in-line with earnings growth (over the near term), as management is targeting paying out 65%-70% of operating earnings per share each year.

    Thanks for participating!

    The Valuentum Team
    Aug 2 04:28 PM | Likes Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    rlp2451,

    Thank you for bringing up our ideas.

    Our best ideas are included in the Best Ideas portfolio and the best dividend growth ideas are included in the Dividend Growth portfolio. These can only be found on our website.

    The articles are NOT ideas. They are articles and research.

    Thanks for bringing up this point.

    Kind regards,

    The Valuentum Team
    Aug 2 04:23 PM | Likes Like |Link to Comment
  • Leggett & Platt: Evaluating Its Dividend [View article]
    Uain53,

    Thanks for your comment!

    Kind regards,

    The Valuentum Team
    Aug 2 01:11 PM | Likes Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    minor,

    We have two reports on Dominion -- a stock report and a dividend report. What you have read in this article is financial analysis of Dominion's dividend. We understand that a dividend is not everything to some investors, it is the only thing -- which is why we devote so much time to it.

    However, here's our research suite on Dominion:

    http://bit.ly/Xthp7g

    It may be difficult to understand but we don't have a horse in this race. We're completely objective, providing financial analysis to readers. We're not trying to 'move' you, per se, we're trying to establish a frame of reference to understand key risks that are not well-known. Here's how we think about forecasts and the company's prospects:

    http://bit.ly/1i9DIlD

    Thanks for reading!

    The Valuentum Team
    Aug 2 01:02 PM | Likes Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    rosenose,

    The capacity to pay back debt is a different measure that the capacity to pay dividends. Debt is higher on the capital structure than equity and dividends are paid to equity. That's not a conversation for Dominion, however. We like to stick to the tangible facts, including providing objective analysis regarding the financial statements.

    Also, did you know that there is an implicit compliment in your statement? Brian, Valuentum's President, built a large portion of Morningstar's credit rating methodology. Pretty interesting, no? Here's his profile:

    http://bit.ly/TZX0Tn

    Thanks for reading!

    The Valuentum Team
    Aug 2 12:57 PM | Likes Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    YCantIRetire,

    Most established research firms usually rely on a relationship with the customer before handing over modeling forecasts and/or architecture. Could we interest you in something like this? We're an independent research firm -- so we depend on support from our members.

    Thanks for reading!

    The Valuentum Team
    Aug 2 11:20 AM | Likes Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    txwoodworker,

    We sure do a lot of work for this to be a commercial broadcast. If we wanted to have a commercial broadcast, we'd go on TV. Brian does quite frequently. Here's a recent clip:

    http://cnb.cx/1zHwCzw

    Thanks for reading!

    The Valuentum Team
    Aug 2 11:19 AM | 1 Like Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    rosenose,

    Debt matters more than you 'nose'. For one, think about cash-rich firms with no debt -- and what their payouts might be (the cash returned to shareholders) if they decided to lever up. Debt matters very, very much.

    Thanks for reading!

    The Valuentum Team
    Aug 2 11:15 AM | 1 Like Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    rlp2451,

    The credit ratings of utilities are of utmost importance -- and take priority of dividend payments. This is the primary risk we were hoping to bring to light in the piece. The balance sheet is very important -- that's why we used EXC and FE as tangible, real-life examples.

    Thanks for reading!

    The Valuentum Team
    Aug 2 11:14 AM | Likes Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    devlau20,

    Thanks for the comment. We appreciate your insights, and we hope you continue to participate on Seeking Alpha! And most of all, we hope you come visit us.

    Kind regards,

    The Valuentum Team
    Aug 2 11:13 AM | Likes Like |Link to Comment
  • Will Dominion Resources Cut Its Dividend? [View article]
    Hi,

    Criteria for very poor safety and growth over the long haul:

    Dominion Resources scores a 0.5 on our Dividend Cushion™, which is VERY POOR. Why? Because the utility has more than $20 billion (yes, billion) in long-term debt (and an addition ~$4 billion in short-term debt) and only ~$400 million (that's million, not billion) in cash. The firm is leveraged to the hilt as it relates to net debt, and while its credit rating considers a variety of other factors, the capacity to keep paying a dividend (as it relates to the balance sheet) emanates from cash (net cash, to be more specific).

    Criteria for near-term growth expectations:

    Dominion's dividend should expand roughly in-line with earnings growth (over the near term), as management is targeting paying out 65%-70% of operating earnings per share each year.

    Thanks for the question!

    The Valuentum Team
    Aug 1 11:45 PM | 2 Likes Like |Link to Comment
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