Seeking Alpha

im58585888's  Instablog

Send Message
Jason is a value investor who searches undervalued stocks and invests them. He is currently pursuing CFA designation.
My company:
JC33&Partners Capital
My blog:
Gold Rabbit Capital
View im58585888's Instablogs on:
  • Darden Restaurant Analysis (DRI)

    Darden Restaurant Analysis


    Most equity income investors are hoping good quality companies to distribute part of their earnings to the shareholders. There are 4 most common questions that are constantly on individual and institutional investors' minds. Here, I will answer them one by one and make a recommendation about this stock.

    Is the dividend sustainable?

    In our analysis, we believe the dividends to the shareholders will be sustainable in the future mainly because its quality earnings and management's dedication to the shareholders. That being said, we don't see dividend growth will be reaching to double-digit like it used to. The main reason behind that is the 10 years average net income growth is substantially less than the 10 years average dividend growth. This will definitely impact the growth of the dividends.

    What is the quality of the dividends?

    The current dividend payout ratio is 49% which is slightly higher than the average 46.73% percent for the restaurant industry. ( We think with the possible decreasing profit margin in the future, the net income and CF will not increase by a whole lot; this will also limit the Darden's ability to pay out quality dividends unless it raises more debts to pay out dividends.

    Potential earning growth comes from?

    We think the earnings growth will come from more US stores expansion and brand acquisitions. According to the Annual Report 2012, Darden management planned to keep up the pace as in 2011, opening up 100 restaurants per year. With strong execution, good cost control, diversified subsidiary restaurants. there are good chances for the next few years, Darden's earnings growth will poise upward.

    But the most important earning growth I would like to see and currently missing from Darden expansion plan is international expansion in emerging market such as China, Brazil and others. We believe international expansion would fully leverage its comparative advantages.

    Is the company well-managed?

    Darden Restaurants is extremely well-managed. From the profitability ratios we can see that net income growth mainly comes from well-managed COGS and expenses to keep the operating margin, net profit margin relatively stable during tough times. Not only that, efficiency ratios tell us that Darden executives' ability to utilize the company resources is well above other competitors such as Brinker International and Dine Equity.

    What is the target price?

    The target price we set for this stock is around $53. This number is calculated from utilizing Gordon Growth Model and taking 20% off of the intrinsic value as the safety margin. When we use Gordon Growth Model, we make a few assumptions. 1. Darden Restaurant earnings will grow indefinitely at 12% per year; 2. Required rate of return will be 15% for us; 3. Dividends will grow at 10% pace indefinitely.

    Recommendation and Conclusion

    This year is definitely not a good year for full-service restaurant segment, especially with recent news about economic headwind, decreasing same-store sales, and decreasing prices in its menus. As the result, we believe the profit margin will further getting squeezed. That being said, with the upcoming holiday seasons and recent encouraging unemployment rate data, revenue could increase in a single digit level and net income and operating cash flow will remain the same level as now. Therefore, we believe dividends payout ratio will remain about the same level and dividend growth will increase gradually in a single digit level. We would recommend investors buy this stock in small percentages relatively to their portfolio as satellite holdings.

    12/15/2012 by Jason Chao

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DRI over the next 72 hours.

    Dec 19 1:19 AM | Link | 1 Comment
  • A Notorious China



    China has been taged for selling fake premium goods for a long time. It is a paradise for people who cant afford the tag price of premium goods such as Tiffany rings, LV bags, and Rolex watches. But now it seems like China is transforming herself to the biggest authentic market place. And I believe this is just the beginning and this is driven by profits.


    Money can make people do anything and this also includes protecting the trade marks and patents. From the article, Taobao is cooperating with premium brands such as Swiss Army knife, LV, Prada to protect their own profits. And Taobao loves to cooperating with them. There are two reasons behind this. Firstly, from the recent data by CNNIC (China Internet Network Information Center), online shoppers value TRUST(Positive Feedback) and Quality of the goods as primary concern to do businesses with the sellers. The demands for fake low quality of goods are starting to go downhill. Secondly, most of the Chinese companies want to be traded on the stock exchanges. In order to do that, the companies will need to pass the examinations from government's officials. If they want to be listed on foreign stock exchanges, they must undergo strict examinations by foreign government officials such as SEC. To monetize the services they are providing and starting to make some dough, becoming legalized is the most important process they have to go through.


    This phnonemnon can be seen across industries. Chinese online video websites such as Youku, Qiyi and Tudo are the three biggest players in the market. There are various VCs (Venture Capitalist) who invest millions of US dollars into the project. Eventually they want to turn this investing capital into profits and selling their holding shares. So, becoming legalized and protects patent rights becomes their priority if they want to be listed on foreign stock exchanges. Now, you can only watch some videos on Youku if you are outside of China, because those videos are not authorized to stream outside of China. You have to pay some dimes to watch Hollywood movies. They are not free, but they are cheap. They are cheap enough to attract the customers to pay a little and enjoy high quality movies. I believe this is a successful example of profit sharing. Youku acts as a portal to provide online video services in China. Lionsgate, CNBC, Colombia movie makes are the content providers. As long as the market remain prosperous and profitable, this legalized process will not go extinct. Both sides of the companies have the incentive to maintain the clean market and order.

    Aug 27 4:06 PM | Link | Comment!
  • My Baidu Experience (Baidu Bookstore tour)

    Today I took the time to tour around Baidu. To be honest, I was really impressed by its functionalities, services, and stock price growth. As matter of fact, I am a big fan of Google Serive for years. However I've found that Baidu has outperformed Google in many ways, in terms of services, stock prices, and products. Other competitors, such as Sina and Sohu, don't have quite the same comparative advantages as Baidu. To sum it up for the services they provide independently, I would have to say that they are not on the same level.  

    As I was spending time browsing through Baidu services, one thing caught my attention right away and that thing is Baidu bookstore. Baidu recently lauched its online bookstore, even though, the volume of book selections are still less than what Google offers, but the good thing is, books in Baidu bookstore are very affordable. Average price on each book costs around $1 to $2 dollars. (Yea, I am talking about USD, what a bargain!) After I put one book in the shopping cart and ready to check out, I was asked to type in my username and password. Then, I found out that I need to download a privacy, anti-virus software that is made by Baidu. WOW, I mean WOW. After the tour, I realized that Baidu is taking problems, such as book piracy and online security, very seriously and postively. This really shows its determination to be there for its users and customers.Therefore, I think Baidu is a company that actually listen to its customers and users. 


    Unlike Baidu, on the Google conference call for Q1, soon after breifing about Google's financial status, Larry Page, the new CEO and co-founder of Google, took off and went home without taking any the questions from the analysts. Some analysts blamed this incident on his shyness. This incident really makes me a lot, if he is really, what analysts called it, too shy, how is he going to manage a company with many senior VPs, directors that are much older and far more experienced than him?  


    Right now, we are making research report on Baidu. Contact us if you are interested 

    This article is brought to you by JC33&Partners lfacebook:

    Disclosure: I am long BIDU.
    Tags: BIDU, GOOG
    Apr 29 10:49 AM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments

Most Commented
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.