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Wednesday, May 7, 2014

Southwest's Charm Not Enough to Lure Investors?

Southwest Airlines Co (LUV) has been a darling for airline stock pickers. But is it anymore? I do not know. Is it overvalued or undervalued? Please see the below link to find it out.

Southwest Airlines Co (LUV)- Valuation Report as of May 5, 2014

The most conservative fundamental value I can derive is $21.52.
The most aggressive fundamental value I can derive is $26.59.

Please email me at should you have any other questions.

Tuesday, December 31, 2013

Darden still fights...

Darden Restaurant Inc (DRI) still has potential to outperform market, but I, for me at least, do not know the timing.

Please see the below link to check out my valuation report for Darden. I recommend to HOLD.
Darden Restaurants Inc- Brief Valuation

Friday, October 18, 2013

Boom Burrito Boom...

Another mind-boggling earnings release. One of the top growing restaurant chains lately, Chipotle (CMG: NYSE), likes to beat analysts' estimates. They have been doing that more consistently than their contemporaries because of their ability to control economy of scale and to keep attracting larger and larger customer base. While I am writing this, CMG has been up for 13.76% since yesterday's close.

Many investors really think it is inflated or overpriced. I am not in clear state to defend CMG's current price or price trend, but I would consider that as emotional bias of investors. Except Berkshire Hathway, all companies trading above $300 face the same problem. Why? These price range belongs to a tiny set of companies from a set of thousands of companies currently being traded. Isn't this bias obvious? I think it is. But let's keep behavioral finance aside and focus on fundamentals. Based on my valuation model (based on $439.07 closing price of 10/17/2013), CMG is still undervalued! Below are the few points which may help make my case:

  • Consistently decreasing debt/ equity ratio considering the fact that they have been pretty much at the same place in terms of raising capital through equity.
  • Skyrocketing growth in revenues and net income (Needless to write!!)
  • Impressive ROE year over year
  • Robust growth in operating cash flow
  • Free cash flow per share and EPS forecasts are way higher beyond the peers 
  • Based on all above, company financials, consensus estimates and other relevant market data, I am getting a fundamental stock price range of $612 to $701.
All I believe is that CMG may not be magnificently undervalued, but it is not overvalued for sure considering all numbers and forecasts.

Friday, October 11, 2013

No need to get panic about Darden...

Oh, there is too much competition. Why do we see so called red indicators in company's financials? Activist investor is demanding spinning off company's restaurants to better access share performance. All of these cause some discomfort to investors who like value investing. Restaurants like those from Darden Restaurants Inc (NYSE: DRI) who have been at the corner of our streets for longer time, are not certainly the growth candidates like Buffalo Wild Wings, Chipotle etc. Therefore, if they are growing slowly or there is no growth, it should not raise investors' eyes.

Restaurants industry faces one of the most fierce competition among other industries. It is significantly driven by consumer confidence, overall economy, weather, cost of raw food materials and diversification. Recently, NRN has released that months of September and October or overall Q4 of 2013 will be testing time for the industry because of US Government Shutdown and debt ceiling issues. Clearly, consumers are not ready to spend as much as they used to do when economy was in so called clear shape 2 months ago.

I have gone through DRI's financials, forecasts and ratios. I have created brief valuation model based on its dividends and free cash flow forecasts. And surprisingly, I have not found anything which makes me join the herd who is cautious about investing in DRI. Despite of 7% growth in revenues from 2012, operating margin squeezed by 12%. The most straight forward reasons behind this are increasing inflation in cost of raw goods and in labor rates. And that led to decrease in net income by 12% as well. ROE stands at 6.4% as compared to 8.3% in 2012.

But as I always believe, cash is the king. DRI has been able to generate $949m cash from operating activities in 2013 as compared to $762m in 2012 and $264m free cash flow to equity holders in 2013 as compared to $122m in 2012. Moreover, DRI has consistently increased distributing their earnings as dividends. It provides good source of income as part of total return. According to my model, at the end of trading day 10/11/2013, DRI's fundamental value based on dividend forecast should be $52.04-$54.89 and based on free cash flow to equity forecast should be $51.73-$56.30. In either case, it is above the closing price of 10/11/2013 which is $50.50.

Looking at my limited "working" experience in equity valuation, I may not provide insightful analysis. But since I use sensitivity analysis to derive fundamental price range, I can surely give my opinion for DRI as "Neutral-- Hold it" looking at the numbers.

Tuesday, August 13, 2013

$80 bil to $5bil... Painful (ouch!)

Chart forBlackBerry Limited (BBRY)
Source: Yahoo Finance

They pioneered the smartphone market. They made it ubiquitous. They nearly ruled it for a decade. They made people addicted to the phones. They sustained the barriers to entry for competitors for years... And as per ECON 101, barriers were supposed to be broken. Players were supposed to enter... They felt possible long-term threat. But they didn't innovate. They saw their market share shrinking slowly. But they didn't innovate. They saw continuous decline in market share and customer base. They thought about innovation. They considered their R&D lightly. They suffered. They launched something exceptional. And they realized it was too late. They, the pioneer of the booming smartphone market, started considering strategic alternatives yesterday. Who are they? They are Research in Motion, Waterloo, ON, Canada based company, who pioneered BlackBerry, aka Crackberry (This name has nothing to do with their demise, but it was given when BlackBerry was the only smartphone option).

When I was young, I always wanted to own BlackBerry. And that's why I had BlackBerry as my first smartphone in mid 2009. Since then, I have had BlackBerry only. Currently, I am using BlackBerry Z10, runs on BB's new OS, BB10. I neither own any BBRY stock nor sit on their Board. I just want to writ what I feel. These should be enough disclosures for any conflict of interests!

BB 10, is by far the best RIMM has developed. I will not use word "innovate", because it may attract some critics. Apple's iPhones and Google's Android devices have become so "generic" these days, which is the prime factor for BBRY's dwindling customer base. The way BB 10 works, consider fast & smooth, if it was launched 2 years ago, the results could have been different. Only, the only, problem it has, is lack of apps. They have lost developers' interests as well along with customers. Recently, they announced to offer BBM, their premier messaging service, to other platforms. I am not really sure how useful it can be. But one thing I am absolutely sure about is BB 10 is all they can offer. There is nothing beyond that.

I have no vision for their future. They may be out of the business in 2015 when I will be hunting for a new phone. There is a huge possibility that I will not be able to get BBRY phone in the market in 2015. But I strongly believe that I will have good solid time with current Z 10 I have until 2015.

From one corner of my heart, I thank Apple and Google for bringing smartphone market to this level in such a short span. And that is the premier reason why BlackBerry developed their best product. And I could get a chance to use that!

Friday, August 9, 2013

Novo Nordisk Roars Again...

Novo Nordisk A/S, NYSE: NVO, a Denmark based global pharma giant, has been one of my top healthcare picks since long time. Why? Simple reasons:

  • Impressive & deep pipeline
  • Pipeline primarily focused on Diabetes, a chronic disease which has been delivering global burden to healthcare. According to International Diabetes Federation, approximately 552 million people in world will have diabetes. 
  • Sustainable equity and cash flow growth

Chart forNovo Nordisk A/S (NVO)
Source: Yahoo Finance

At the end of Q2 2013, NVO announced better outlook for the rest of 2013 as compared to their announcement of outlook on May 1. Booming sales of Victoza, Modern Insulins and their other long standing diabetes products have given them a great position in this disease sector. And they will continue to do that as per analysts' expectations.