Tag Archives: Fool Sean Williams

Business, Finance, Occupation & Industry

What Makes Starbucks Stand Out?

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By Alex Planes, The Motley Fool

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Starbucks has a lot going for it as an investment: sector leadership, loyal fan base, expanding global footprint, and strong financial fundamentals. Is that enough to justify its addition to your portfolio today? After all, we don’t invest based on where a company has been but where it’s going. The past offers a useful guide to the shape of a company’s future, but it can’t paint in too many details. We’ve got to do that ourselves.

Let’s take a closer look at Starbucks’ fundamentals to see if it really is the top-notch investment it’s held up to be.

Under the lid
My fellow Fool Sean Williams has already given a bullish take on Starbucks, focused on the company’s ability to handle new challenges and find new sources of growth. I’d like to look at the numbers behind that growth. Let’s start with some fundamentals — revenue, earnings per share, and free cash flow:

Source: SBUX Total Return Price data by YCharts.

This is a pretty empathic vote in Starbucks’ favor. Not only has EPS grown far in advance of revenue, but Starbucks’ free cash flow has consistently grown even faster. It’s great to see a company consistently pushing its profitability higher, even though 33% growth in revenue isn’t too shabby, either. However, there’s one potential red flag here — since the start of 2012, Starbucks’ share price has grown beyond its earnings per share, leading to higher valuations than usual:

Source: SBUX P/E Ratio TTM data by YCharts.

The P/E 10 ratio is the company’s current share price divided by the average of its last decade’s worth of earnings per share. Starbucks isn’t that old, but it’s grown so quickly in the past decade that the relevant numbers of even four years ago have been left in the dust. On the other hand, it is worth noting that Starbucks’ standard P/E ratio has actually grown faster than its P/E 10 ratio — it’s up nearly 30% since the start of 2010, compared to a 17% increase in the P/E 10. Is that really significant? Not particularly — Starbucks’ average P/E over the last two years is 27.4, fewer than three points below its current valuation. The company was more highly valued in mid-2012. I wouldn’t worry too much about it, as Starbucks has consistently shown that it can outperform on the fundamentals.

There is one simple economic trend that’s worked in Starbucks’ favor: coffee prices. After a big run-up from 2009 to 2011, the price of coffee has gone back to levels last touched five years ago:

Source: Coffee Arabica Price data by YCharts.

Compare this to the first graph, particularly to Starbucks’ free cash flow. Both coffee prices and free cash flow crept higher at roughly the same rate. When the price of coffee declined, Starbucks kept the cash flowing just as

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Is Bristol-Myers Squibb Destined for Greatness?

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By Alex Planes, The Motley Fool

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Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Bristol-Myers Squibb fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell Bristol’s story, and we’ll be grading the quality of that story in several ways:

  • Growth: are profits, margins, and free cash flow all increasing?
  • Valuation: is share price growing in line with earnings per share?
  • Opportunities: is return on equity increasing while debt to equity declines?
  • Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Bristol’s key statistics:

BMY Total Return Price data by YCharts.

Passing Criteria

3-Year* Change 

Grade

Revenue growth > 30%

(6.3%)

Fail

Improving profit margin

42.8%

Pass

Free cash flow growth > Net income growth

64.3% vs. (81.5%)

Pass

Improving EPS

(78.3%)

Fail

Stock growth (+ 15%) < EPS growth

83.7% vs. (78.3%)

Fail

Source: YCharts. * Period begins at end of Q4 2009.

BMY Return on Equity data by YCharts.

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(83.2%)

Fail

Declining debt to equity

26%

Fail

Dividend growth > 25%

9.4%

Fail

Free cash flow payout ratio < 50%

35.8% 

Pass

Source: YCharts. * Period begins at end of Q4 2009.

How we got here and where we’re going
A mere three out of nine passing grades isn’t particularly compelling for a well-established pharmaceutical leader. What looms over the horizon for Bristol? Are there drugs in the pipeline ready to bridge the inevitable patent cliff, or will investors be taken over the edge by a company with some wildly divergent financial fundamentals?

My fellow Fool Sean Williams pointed out valid reasons for optimism earlier this year, despite the big drop in net income of late. Most notably, the approval of stroke-prevention drug Eliquis, which was developed in tandem with Pfizer , is big news. The current stroke-prevention treatments don’t seem to hold a candle to Eliquis, which points to multibillion-dollar sales down the line. The oral SGLT-2 inhibitor drug Forxiga, developed with AstraZeneca , could also be a big step forward in diabetes treatments.

Bristol also appears to have a diverse enough pipeline to avoid a total patent cliff swan dive. Fool contributor Keith Speights notes that only Sanofi earns more of its revenue from its “other” drugs, the non-blockbusters that can still add up to big money over the course of a fiscal year. Until last year, Bristol actually initiated more clinical trials than Sanofi. It may need to pick up the pace in this regard, as it’s already lost a big chunk of revenue from the Plavix patent expiration, and only Eli Lilly …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

These 5 Stocks Are Off to a Great Start in 2013

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By Anders Bylund, The Motley Fool

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As we ease our way into April, the first quarter of 2013 is in the books. Here are some of the market‘s best performers so far, and why I think they will or won’t keep soaring the whole year long.

Will these rocket rides blast even higher in 2013 — or run out of fuel?
Image source: NASA.

The safest bet
Movie distribution expert Netflix jumped 104% in the first three months. The stock came into 2013 with rock-bottom performance expectations but blew skeptics away with a fantastic first-quarter report.

Subscribers have largely forgotten about the brand-damaging Qwikster debacle, and the international expansion program is building up a head of steam. Moreover, the House of Cards original-content experiment bowed to fine reviews and appears to set Netflix apart from other online film services, much like the premium cable networks jockey for position with Emmy-winning dramas.

The original content project continues with horror series Hemlock Grove in April, starring Famke Janssen and Bill Skarsgard under the guiding hand of genre master Eli Roth. Then there’s low-budget comedy Bad Samaritans and high-concept prison dramedy Orange Is the New Black, not to mention the reboot of cult series Arrested Development. These titles should help Netflix attract fresh subscribers, and the overseas expansion will keep Netflix growing for years to come.

Netflix shares may seem expensive right now, given the earnings-sapping costs of rapid expansion. But make no mistake: Netflix is cheap even at $200. If nothing else, the stock will pop again next January, with another holiday season under the bridge. This January bounce was no accident.

The housing experts
The housing market is suddenly booming again, at least in comparison with the miserable years between 2008 and 2012. This rebound has created a number of strong gainers on the market.

Online house-hunting service Zillow has gained 97% so far. The site enjoyed a 47% year-over-year increase in unique users, and management set expectations even higher for the next quarter.

Private mortgage insurer MGIC Investment soared to the tune of 86%, and rival Radian Group jumped 75%. Both companies crushed earnings estimates in March, and Barclays upgraded them to a “buy” rating. Bad loans from the subprime bonanza are fading away just as the market for new housing stabilizes. Owning these stocks seems less risky these days.

That being said, fellow Fool Sean Williams worries that MGIC‘s recapitalization plan will destroy shareholder value while its debts pile up sky-high. It’ll take a dramatically stronger housing market to make these issues go away, not the gradual return to health we’ve seen so far. It makes sense to lump Radian and Zillow into the same booming-but-risky category until further notice. Don’t invest money in these tickers that you can’t afford to lose, in case the rosy projections don’t pan out.

The bigger they are …
Here’s a shocker. There are 3,077 stocks on the U.S. markets …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Is Leap Wireless Destined for Greatness?

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By Alex Planes, The Motley Fool

LEAP Total Return Price Chart

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Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Leap Wireless fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell Leap’s story, and we’ll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Leap’s key statistics:

LEAP Total Return Price data by YCharts.

Criteria

3-Year* Change 

Grade

Revenue growth > 30%

26.6%

Fail

Improving profit margin

(10.8%)

Fail

Free cash flow growth > Net income growth

38% vs. 21%

Pass

Improving EPS

25.8%

Pass

Stock growth (+ 15%) < EPS growth

(68%) vs. 25.8%

Pass

Source: YCharts. *Period begins at end of Q4 2009.

LEAP Return on Equity data by YCharts.

Criteria

3-Year* Change

Grade

Improving return on equity

(156.7%)

Fail

Declining debt to equity

369.8%

Fail

Source: YCharts. *Period begins at end of Q4 2009.

How we got here and where we’re going
It hasn’t been a particularly good three years for Leap, which has all but leapt (pardon the pun) off a cliff with its share price. Free cash flow and net income have both been moving in the right direction, but only from a deep hole to a slightly shallower hole. What will it take to get this second-string telecom into the market‘s starting lineup?

My fellow Fool Sean Williams just doesn’t see that happening. A de facto duopoly in AT&T and Verizon crowds out smaller competition, especially when you consider that both Sprint and T-Mobile have recently enhanced themselves — the former with a sale to SoftBank and the latter with a purchase of MetroPCS.

Leap picked up Apple‘s iPhone for its prepaid plans, and a $900 million minimum purchase commitment at first seemed easily reachable, as the company figured only about 10% of its subscribers will need to pick up the iPhone to make this deal work. That might be less likely that originally thought, as the company’s only on track to move half as many iPhones as it expected through the first half of 2013. Between this shortfall and a smallish subsidy, Leap is in a difficult position should it be unable to move Apple’s phones at a faster pace.

One backup option is Samsung’s Bada operating system, which seems poised to become the would-be Symbian of the smartphone era — a low-cost option for commodity phones. Since prepaid plans tend to attract value-seekers, this might be enough …read more
Source: FULL ARTICLE at DailyFinance