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XPO Logistics Inc. (XPO)

In today’s content analysis, we discuss XPO Logistics Inc. (NYSE: XPO), one of the 10 largest global logistics companies based in the US. Even though XPO is considerably smaller than some of the leaders in the industry such as FedEx or UPS, they have been in full growth mode in the past couple of years, increasing their revenues from $150M in 2011 to an expected revenue of $15.5B for the full year 2016. This represents an annualized growth rate of 192% per year over the past 5 years.  Download

Continuing with the economic performance, XPO’s performance spread and EPI have constantly increased in the last 3 years. Even though they’re not that high (0.8% and 1.11 respectively), the improving trend is definitely positive. The EVA went from negative to positive in 2014 and hasn’t stopped increasing since then.

This overall performance improvement positively affected the intrinsic value, which now sits above the stock price for the first time. With the stock trading around $34.00 and the intrinsic value sitting around $65.00, the potential upside is of more than 90%. The future growth value sends the same message; for the first time, the market price doesn’t reflect the full company’s value.

While issuing more shares and generating negative free cash-flows is usually seen as bad, it is not the case for XPO. The company has been growing tremendously over the past years and still has major growth plans in the books; the best way to reward investors is to invest all the cash they have available to fuel their growth.

XPO Logistics has been named the fastest-growing company in Fortune 500. Here is an overview of their recent growth activities. XPO made the acquisition of Con-way Inc. on 2015, which made them the second largest provider of less-than-truckload (LTL) services in North America, and helped them expand their global contract logistics platform. Other acquisitions by XPO include the ones of Norbert Dentressangle SA, Bridge Terminal Transport Services, Inc., and UX Specialized Logistics.

XPO Logistics Inc. (NYSE: XPO) is 1 of the 8 stocks featured in the article “How major U.S. delivery companies stack up for investors” that we wrote for The Globe and Mail.

This blog post has been written by Sebastian Carrillo, intern, under Jean-Didier Lapointe’s supervision.

Wells Fargo (WFC)

Dans l’analyse de contenu d’aujourd’hui, nous discutons d’un sujet plutôt délicat : le scandale entourant Wells Fargo & Co (WFC), une des plus grandes banques des États-Unis. Wells Fargo a été accusé de pratiques de ventes illégales, incluant l’ouverture de 2 millions de comptes fictifs. Certains employés auraient également créé des fausses adresses courriel pour enrôler des clients à leur insu, ou bien pour créer des clients fictifs, pour atteindre leurs quotas. Wells Fargo n’a pas admis ni réfuté les allégations mais a accepté de payer une amende de 185M$USD et de rendre une ordonnance de consentement. 5,300 employés ont par le fait même été congédiés. 

Depuis l’ouverture des marchés du lundi 20 septembre, moment où le scandale a atteint un sommet médiatique, les actions de WFC ont perdu environ 2.1%, alors que l’indice Dow Jones US Financials n’a presque pas bougé. Lorsqu’une compagnie est confrontée à un scandale de la sorte, il est important pour les investisseurs d’être en mesure d’évaluer le ratio rendement-risque pour prendre la meilleure décision. Malgré que plusieurs facteurs externes et imprévisibles puissent affecter positivement ou négativement l’action de WFC dans les prochains jours, voici quelques observations purement basées sur l’analyse des données historiques.

Puisqu’aucune donnée fondamentale n’a changé depuis le dernier rapport trimestriel, le SPscore reste élevé, à 69%. Notons qu’uniquement basé sur les informations publiques disponibles aujourd’hui, le fondamental de WFC ne devrait pas être significativement affecté. La valeur intrinsèque a une belle tendance haussière à long terme, et suite à la chute du prix de l’action depuis le début septembre, elle se retrouve perchée au-dessus de l’action, aux alentours de 54$. L’écart entre la valeur intrinsèque et le prix s’est accentué, et il indique aujourd’hui un escompte d’environ 20%. Cet écart est d’autant plus intéressant puisque le ratio P/VI moyen 5 ans s’élève à 1.02, soit une surévaluation de 2%. La valeur de croissance future (FGV) expose la même anomalie par rapport aux multiples passés : elle est de -1.7% (escompte), alors que la moyenne 5 ans s’élève à 14% (prime). 

Pour ceux capables de tolérer la volatilité et les risques à court terme tout en étant assuré que le scandale n’aura pas d’impact significatif sur les résultats et la réputation de la banque à long terme, il apparaît mathématiquement logique de commencer à bâtir une position sur le titre. Par contre, pour ceux voulant minimiser les risques de pertes à court terme, il serait plus prudent d’attendre un dénouement définitif et d’acheter le titre seulement lorsqu’il reprendra une tendance haussière, même si cela implique probablement de manquer la hausse initiale. 

Cette lettre d’information a été écrite par Sebastian Carrillo, stagiaire McGill, sous la supervision de Jean-Didier Lapointe

Brinker International (EAT)

In today’s content analysis, we discuss about Brinker International (EAT), a Dallas based company which owns the Chili’s and Maggiano’s restaurants located across 31 different countries. Brinker shows many bullish EVA indicators, and with a 77% SPscore, this company might be eventually added to our US-Large model.  Download

Brinker’s intrinsic value curve is growing very steadily since 2012. For the first time in 5 years, the stock traders below its intrinsic value, at a 0.79 P/IV ratio, showing a potential upside of 26%. The intrinsic value growth is explained by the economic performance which hasn’t stop improving over the last 5 years : the return on capital increased every single year, going from 11% in 2011 to 15.7% as of today. In 2011, it took an invested capital of $1.76B to generate a NOPAT of $193M. In 2016, Brinker generated a NOPAT of $269M, an increase of 40% over 2011, with an invested capital of “only” $1.71B !

The future growth value (FGV) of -12.9% is also very attractive. This means the company is trading at a discount versus its current operating value (COV), but the fact that it’s the first time in 5 years that this opportunity presents itself makes the discount even more interesting. The current operating value has also increased steadily, and the COV growth has accelerated since the beginning of 2015. Having the opportunity to buy a growth company at a discount is what we consider an “ideal scenario”.

As for the EVA, its growth is remarkable and very linear. The company has in fact been able to generate more and more wealth for its shareholders very effectively.

Brinker’s accounting performance is also impressive. Revenues, operating profits and earnings per share have increased every single year over the past 5 years. Thanks to its constantly positive free cash flows, the company has been able to increase the dividends at an average growth rate of 19% per year and to buy back 27% of its outstanding shares in just 5 years. Only drawback : the company is highly leveraged with its total liabilities being worth more than its total assets.

Kroger (KR)

In today’s content analysis, we talk about Kroger (KR), one of the world’s largest grocery retailers, with TTM sales of more than $110 billion. Kroger’s Q1 results were updated last Thursday in StockPointer.  Download

For the first time since July ’14, the intrinsic value is higher than the stock’s price, a very bullish signal when considering that this was caused by the intrinsic value jump. This IV growth can be explained by the remarkable NOPAT growth over the last 12 months. The NOPAT did grow by about 12% every single year over the past 5 years, but the growth rate of 17% was much higher in the last 12 months. The return on capital of 10.4% is the highest observed over the last 5 years.

As for valuation, the current P/IV ratio indicates a 10% potential upside, but since the stock always traded above its intrinsic value over the past 2 years, it could very well happen again if the stock can get back the momentum it had in late 2015. Given the 17% NOPAT growth in the last 12 months, the 13.7% premium for future growth (FGV) is seems reasonable.

Kroger’s EVA also jumped in the last quarter, and is now at a 5 year high. Also note that the P/E ratio of 15.8 is very reasonable compared to the S&P500 average P/E of 24 and to the Groceries average P/E of 22.6.

Kroger has been able to increase its revenues at an average growth rate of 5% per year over the past 5 years. The dividend growth has been much higher, at 17% per year. Even with this aggressive growth rate, the payout ratio is very conservative at 19%. Kroger also constantly generates positive free cash flows, and they’re also at a 5 year high. The company should thus be able to sustain a high dividend growth rate as well as the share buybacks it’s been doing over the past 5 years.

RyanAir Holdings (RYAAY)

In today’s content analysis, we discuss about RyanAir Holdings – ADR (RYAAY), a low-cost airline company based in Ireland. RyanAir operates mainly in Europe, this explains why we’re not so familiar with the name here in North America. As a reference, the company offers round-trips such as London – Madrid at a cost of around $75 USD.  Download

In less than a year, RyanAir’s intrinsic value went from $30 to $80, a 165% increase thanks to the NOPAT which doubled since March 2014. Over the same period, the return on capital jumped from 8.7% to 17.0%, by far the highest number observed in the past 5 years. The stock still trades at a slight premium; the P/IV ratio is at 1.12 as of May 26th.

The positive Future Growth Value (FGV) of 25% indicates that the total market value of the company is higher than its Current Operating Value (COV), which is common for growth companies. The market’s enthusiasm towards the bright future for low-cost airlines translates into a premium we have to pay for positive expected growth.

The economic value added (EVA) has also quickly increased since March 2014, and the growth rate is particularly impressive since June 2015.

RyanAir is not a very reliable dividend payer. The company does pay dividends sometimes, but very irregularly from both a frequency and dollar amount perspective. However, the company does not hesitate to buy back shares; RyanAir bought back about 16.5% of its outstanding shares over the past 5 years.

Here is attached Download  a performance summary table in which you will find key metrics for RyanAir but also for the other main airline companies, both traditional and low-cost. You will quickly see that growth has been way better in the low-cost segment.

Lockheed Martin (LMT)

In today’s content analysis, we take a look at Lockheed Martin’s (LMT) Q1 results that were updated in StockPointer last Wednesday. Lockheed Martin has been part of our US-Large model portfolio since March 2nd 2015 and has returned about 20%, including dividends, since that date.  Download

Lockheed’s intrinsic value jumped from $190 to $280 this quarter thanks to an increasing NOPAT and a high capital growth rate of 34% over the last 12 months. The P/IV ratio indicates a 19% potential upside, one of the highest observed since 2012. The return on capital did decrease a little bit from 16.4% to 14.4%, but this is mainly due to the invested capital growing at a slightly faster pace than the NOPAT, which is typical when a company increases its invested capital by such a large margin in a short period of time.

Considering the fact that the current operating value (COV) increased by 22% in 12 months, the current future growth value (FGV) premium of 16.7% seems reasonable.

As for LMT’s economic performance, the total EVA generated is now at an all-time high and the growth rate has been very stable since late 2013. The NOPAT has been increasing every single year over the last 5 years, which is definitely what we’re looking for.

The accounting performance of Lockheed is also enviable. Since 2012, the dividends increased at an average rate of 16% per year, and the company also bought back shares every year. The free cash-flows are also at a 5-year high, indicating the company could be in a good position to continue to increase its dividends, buyback shares, pay back debt faster, or increase the invested capital growth rate.

AutoZone (AZO)

In today’s content analysis, we take a closer look at the Q2 results for Autozone (AZO), which we have held in our US-Large model portfolio for 2 years now. Autozone represents one of the most important positions in that portfolio at 5.1%.  Download

Autozone is definitely one of the strongest US companies as it offers the best combination of high economic performance and a steady growth rate. Over the last five years, the return on capital has remained high at a value between 30% and 31.5%, the cost of capital between 6% and 6.2%, and this while the invested capital has increased by around 8% per year. As of today, the NOPAT is at its highest historical value at around $1.5B USD.

The intrinsic value for Autozone has continued to grow and has now reached $955.71. This represents a potential appreciation of 25% in relation to the closing price of March 9th. Given the excellent historical performance of the company and the historical growth of the operating value of 7.6% per year, the 21.7% premium illustrated by the future growth value is reasonable.

The EVA curve is exactly what we are looking for: positive, growing on the long term, and predictable.

Autozone’s accounting performance is also enviable. It offers a constant growth in terms of sales, earnings, and positive free cash flows. The company equally engages in several buybacks, on average 6% of the outstanding shares per year, to reward shareholders.

Discover Financial Services (DFS)

In this week’s content analysis, we take a look at the Q3 results of Discover Financial Services (DFS), which were updated in our database today. We hold DFS in our US-Large model portfolio since May 2012, and the company has always had one of the highest SP scores in its sector. As of October 21st, DFS has a score of 77%, which is the 2nd best SP score in our portfolio and the 4th best score for US-large cap stocks.  Download

Despite a slight decrease, return on capital remains fairly high at 21.2% in respect to cost of capital at 9.9%. The intrinsic value has been increasing for the past 3 quarters, which makes the spread price-intrinsic value increasingly interesting. The P/IV is 0.75 since the 21st of October, reflecting a potential upside of 33%. The future growth value (FGV) at -3.7% also tells us that the company’s total market value is slightly discounted relative to its current operating value.

In terms of EVA, we can firmly state that DFS offers an exemplary stability for its shareholders. Although the total EVA generated is stable since late 2011, the EVA per share is on the rise given that the company has made several buybacks. In the short term, total EVA has been increasing at a constant rate since December 2014.

Concluding with the accounting performance, Discover will appeal to those who of you who appreciate dividend growth; with an average annual growth rate of 65% over 5 years, and 44% over 3 years. Since 2011, DFS has also bought back an average of 5.6% of its outstanding shares each year. Discover generates very high positive free cash flows each year, which is one of the factors that allow it to sustain high dividend growth and its share buybacks. You will note that certain fields in the “Accounting Performance” section are missing for the moment. They will be updated shortly.

Amtrust Financial Services (AFSI)

In this week’s content analysis, we take a look at Amtrust Financial Services (AFSI); a company that has consistently topped our US-Large model portfolio with an SP score of 84%.  Amtrust Financial Services is a multinational property and casualty insurance company headquartered in New York City that operates within three main segments: small commercial business, speciality risk and extended warranty, and specialty program.

The two main indicators that StockPointer uses to calculate the SP Score are SP Performance Score and SP Risk Score. If we take a look at the company’s SP Performance Score, we can see that with a score of 84% it is one of the highest (#6) on StockPointer. The performance spread, derived from return on capital minus cost of capital, is positive and increasing. From a valuation perspective, since September 2010 the company’s intrinsic value has always been above the current market price. However, the gap between the intrinsic value and current market price exponentially increased after September 2013 as the intrinsic value jumped from $45.97 in September 2013 to $121.50 in June 2015, while current market price increased as well but at a slower rate. As of September 21st, the P/IV ratio is at 0.5, reflecting an upside potential of 100%. The current FGV reflects a 23.1% discount relative to current operating value (COV).   Download

Amtrust Financial Services’ economic performance has been growing for the last three years, with the NOPAT (net operating profit after tax) increasing from $229.7M in June 2013 to $532.8M in June 2015 (+59%), and the EVA also consistently increasing and reaching $389.7M in June 2015.

To conclude with the accounting performance, we can see that Amtrust Financial Services has been able to constantly grow its dividends in the past five years, at an average rate of 39% per year. The company has recently announced a quarterly dividend of $0.30, which will be paid on October 15th, 2015. The record date being October 1st, the stock will trade ex-dividend on September 29th. Amtrust Financial Services’ Free Cash Flow decreased from $984.5M in June 2014 to $488.2M in June 2015, but that still represents 3.8% of the total invested capital, which is a satisfying ratio.

Gilead Sciences (GILD)

This week we take a look at Gilead Sciences (GILD), arguably one of the strongest stocks in the biotech industry today from an EVA perspective. Gilead is specialized in the development and commercialization of human therapeutics for the treatment of life threatening diseases, and currently controls the market for HCV (Hepatitis-C).  According to Street Insider (link), Gilead has consistently produced earnings above analyst expectations, and following the stock market crash on Monday, has already completely recovered from two-day losses.  Download

With regards to economic performance, Gilead Sciences has reached its highest point in the last five years, with a performance spread (ROC-COC) of 41.5%.

From a valuation perspective, since September 2014 Gilead Sciences’ intrinsic value lies above the current market price. The intrinsic value has increased from $133.95 to $359.34 in the last two quarters, a 168% increase, leaving a P/IV of 0.30, which is fairly attractive. Between June 2013 and June 2014, the NOPAT almost tripled and sales jumped from 10.3B to 17.4B due to the FDA’s approval of drugs Harvoni and Sovaldi, intended to treat Hepatitis-C . The FGV, at -26.3%, also shows an interesting discount as the current operating value (COV) of the company continues to increase steadily.

Gilead Science’s EVA has been positive for the last five years and has been accelerating at a very rapid pace since December 2013. Over the last 12 months the company has augmented its invested capital by 51.8%, equivalent to an increase from 23.4B to 35.5B. During the same period of time the NOPAT (Net Operating Profit After Tax) has increased by 91.4%. It can therefore be said that the company’s investments have improved its economic profitability.

Concluding with the company’s accounting performance, Gilead has consistently generated high levels of Free Cash Flow and during the last twelve months, this Free Cash Flow has increased by a staggering 150%, indicating the company’s strength in the marketplace. In terms of dividends, the first one ever paid was in Q2 of 2015 and the expected yield is of 1.59%.