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Ackman Has a Point About United Technologies Corporation Stock

Here we go again. Activist investor Bill Ackman is calling for another company breakup as a means of “unlocking value.” The target this time? Government contractor United Technologies Corporation (NYSE:UTX). Owners of UTX stock have a right to be worried, not so much because Ackman is wrong (he may well be right), but because the activist investor and hedge fund manager can cause more than a little chaos when he gets involved.

The 2010 split-up of Fortune Brands is one example. Though it eventually paid off, creating Fortune Brands Home & Security Inc (NYSE:FBHS) among other stand-alone companies, like Jim Beam and Titleist, it was a rough road to traverse. In the meantime, his involvement with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) took a disastrous turn in 2015. The company is still digging itself out of a hole Ackman helped dig.

Point being, current and prospective owners of UTX stock have no idea what they’re going to get with Ackman’s involvement.

If you can look past the Bill Ackman reputation, though, and judge the idea solely on its merits, you may find an idea that wouldn’t have mattered just a few years ago is spot-on today.

United Technologies Does That?

If the premise rings a bell, it may be because Daniel Loeb, chief of hedge fund Third Point, has been singing a similar song for several days now. Loeb’s fund took on a sizeable stake in UTX stock several weeks ago and, earlier this month, in a letter (mostly) to Third Point investors, he explained United Technologies would be better served by splitting up.

Loeb’s call echoed something Ackman has intimated for weeks, but explicitly said during a conference call on Tuesday: “The management here has put together three outstanding businesses and built them to significant scale. We think each business would trade at a very attractive valuation and, more importantly, operate more effectively as independent companies.”

United Technologies currently operates three distinct and oddly disparate divisions. Most investors are familiar with its government contracting work. Most investors may not realize, however, that the company is also the name behind Otis elevators and the maker of climate control equipment. The impending deal to purchase Rockwell Collins, Inc. (NYSE:COL) will fold in nicely with United Technologies’ aerospace and defense division, but it’s a complicated melding nonetheless.

More important, it’s now clear what Ackman’s got in mind for the 1.9 million shares of UTX stock his fund, Pershing Square, acquired during the first quarter.

He’s Got a Point

It was a self-serving comment to be sure, but Ackman’s observation that “other than Berkshire Hathaway, conglomerates have not had a great track record” wasn’t an incorrect one. It only takes a quick glance at General Electric Company (NYSE:GE) to see how this is true, and only a slightly longer thought to realize why this is true.

There was a point in time when size and scale meant different kinds of business under the same umbrella could share expenses and cross-market products to one division’s customers. The old PepsiCo, Inc. (NASDAQ:PEP), when it still owned the three restaurant chains that became Yum! Brands, Inc. (NYSE:YUM), comes to mind. They were largely aiming at the same set of consumers in the same way.

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There’s a reason PepsiCo and Yum! Brands decided to split, though, just like there’s a reason General Electric is at least mulling the sale of some of its divisions.

That reason? Those different divisions can now use the speed of the internet and the power of real-time information to achieve maximum efficiency. The presence of unrelated business within and outside of the boardroom really is a distraction.

Bottom Line on UTX Stock

So, is an impending split-up a reason to buy into UTX stock? No, and the growing interest of Bill Ackman isn’t a reason to sell it either. A break-up is inevitable sooner or later — and likely sooner rather than later. If not pressed by Ackman and Loeb, someone else would have. There’s just not a good enough reason to be under the same umbrella anymore — in a world without information or time constraints and in a world without any significant geographical constraints.

Rather, the time to make any buy/sell decisions on United Technologies is if-and-when it splits into three parts. It’ll be much easier to judge the merits of each arm then when we can at least see their books. Until then, it’s all just speculation.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter

L Brands: So Much More Than Victoria’s Secret

Things are looking good if you are a fan of the Victoria’s Secret brand. While the world’s most renowned women’s lingerie brand usually sells its good at a hefty price tag, consumers now get the opportunity to buy these articles at a large discount as new promotions and limited time offerings are being featured in the stores and on the website on a daily basis. While this is great news for the Victoria’s Secret consumer, it is a thorn in the eye of the investors who have placed their money in L Brands, the mother company behind Victoria’s Secret. L Brands shares are down 46% YTD, and some sell-side analysts are convinced that L Brands shares still face more downside.

The question one has to ask however is, whether or not Victoria’s Secret is really the most important entity within the L Brands consortium. Surely, it is undeniable that Victoria’s Secret is the most famous brand within the group, and in terms of revenues, it towers over the other brands. When shifting the focus to operating income, however, it becomes clear that there are other brands in the portfolio that are contributing more to the bottom line than Victoria’s Secret. While most bullish pitches about L brands argue that the problems at Victoria’s Secret are short-term related and that it is a strong brand that is set to make a turnaround, I look at L Brands in a different way. I do not deny the potential of a Victoria’s Secret turnaround, nor do I question the strong brand. The numbers however prove that Victoria’s Secret is in a severely troubled state, and I am of the opinion that actions chosen by management are insufficient. I however believe the case can be made that the Bath & Body Works brand is severely undervalued within the L Brands group and that the market does not fully appreciate the optionality that L Brands has in creating value by spinning off or discontinuing certain parts within the group.

An introduction

L Brands was founded in 1963 when founder and current CEO Les Wexner opened his first “The Limited” store. In 1969, Wexner took the company public and in 1982 Wexner acquired the Victoria’s Secret brand for USD 1 million. After acquiring and spinning of several brands such as Abercrombie & Fitch (ANF) and the sale of its oldest brand “The Limited”, the current L Brands group looks as follows:

Victoria’s Secret: L Brands’ flagship brand and world renowned lingerie brand. Pink: Separate store concept from Victoria’s Secret but grouped under the latter, Pink is a women’s lingerie retailer focused on teenagers, college students and young professionals. Bath & Body Works: Market leading speciality retailer in home fragrances, candles, soaps, La Senza: Women Lingerie retailer, focusing on a younger target audience than Victoria’s Secret. Henri Bendel: Upscale retailer of handbags, accessories, women clothing and fragrances.

I will go in more detail on these segments, but first, let us have a look at the revenue and operating profit contribution of these segments.

As stated in the prologue of this analysis, the Victoria’s Secret brand takes the largest part of the revenue contribution for its account. While revenue contribution declined from 63% of total sales in FY15 to 58% in FY17, the brand still contributes significantly more than the second largest contributor Bath & Body Works. La Senza & Henri Bendel are grouped under the “Other” segment.


L Brands revenue distribution – Source: Author calculations/L Brands financial statements

While Victoria’s Secret is the main revenue contributor, it is not the main contributor towards the operating income line. While it historically generated more operating income than Bath & Body Works, the latter has overtaken Victoria’s Secret as main source of operating income. Interesting to note is the negative contribution of the other segment.

operating profit
L Brands operating profit distribution – Source: Author calculations/L Brands financial statements

Let’s take a closer look at the different segments.

Victoria’s Secret

Victoria’s Secret is the iconic women’s underwear brand that is sold globally. It is known for its yearly fashion show that is watched by millions of people in more than 200 countries and for its lingerie models, the “Victoria’s Secret Angels”.

Within L Brands, Victoria’s Secret represents three subgroups: Victoria’s Secret Lingerie, Victoria’s Secret Beauty, and Pink. One could easily assume that Victoria’s Secret Lingerie overshadows the other two in value, but it is important to understand that Victoria’s Secret Beauty features 4 of the top 20 fragrances in the US and that Pink represents a USD 3bn+ sales base with a sales/square feet ratio above the Victoria’s Secret’s shops.

As stated above, Victoria’s Secret is not doing too well at the moment due to a number of factors. The problems started when previous VS CEO Sharen Turney decided to leave the company in February 2016. Founder Lex Wesner took over the CEO role again and decided to restructure the business. The business was split up in the three aforementioned segments and each received its own leader. Denise Landman who has over 15 years of tenure at Pink would resume leading the Pink segment. Jan Singer, who worked for more than a decade at Nike (NKE) was hired to lead the lingerie segment and Greg Unis came over from Coach (TPR) to lead the beauty segment.

A more radical decision was the choice to exit the swimwear industry and other product categories, thereby giving up 1bn USD in sales in order to be able to focus on the core products, bras and panties. VS management was convinced that they could offset the operational deleveraging from the swimwear exit by accelerating the growth in underwear sales. Unfortunately, for the management, the restructuring coincided with the surge of new fashion trends. Bralettes, a more fashion inspired type of bra which offers less support than a structured bra quickly gained popularity. The lack of differentiating power within bralettes and the significantly lower average selling price created the additional problem of negative same store sales.

Some of the promotions on a random day – Source: Victoria’s Secret website

This brought Victoria’s Secret in the position where it is being forced to offer discounts after discount in order to keep its topline up. These promotions include lower prices, free items such as panties and totes, large discounts on combinations, reduced basket size to qualify for free shipping or a combination of those things. While this allows Victoria’s Secret to grow its revenues lines, it is putting significant pressure on the margins and the profitability of the brand.

Just have a look at the operating profit contribution of Victoria’s Secret over the past years

Victoria Secret Operating Profit

Victoria’s Secret operating profit – Source: Author calculations/L Brands financial statements

Furthermore the market seems to be worried about increased competition, the high exposure to B- and C-class malls and the promotional environment.

There is no denying that we are in a promotional environment and Victoria’s Secret is not the only one offering large discounts. In a way, this is related to the aforementioned surge in popularity of bralettes. While constructed bras require some sort of design expertise in order to design bras that are both fashionable and offer the necessary support, bralettes target women with an A- or B-cup size and thus require less support. This handicaps Victoria’s Secret as they cannot really leverage their manufacturing expertise within this segment and are left to compete on the fashion aspect. Needless to say, the amount of players that can compete on fashion is far larger than those that can compete on design. This has allowed players such as American Eagle Outfitters’ Aerie (NYSE:AEO) to enter the market. With no clear differentiating aspects other than brand and fashion, it is impossible for Victoria’s Secret to warrant the same premium pricing that it has for constructed bras. The lack of product differentiation has turned the bralettes market in a market that competes on price and promotions. Whether or not bralettes are here to stay is a topic on which I will not comment. If it turns out that bralettes are more fad than fashion then Victoria’s Secret will be a prime benefactor of the return to constructed bras.

As to the exposure to the B- & C-class malls, I think the market may be overreacting a bit. I think the problems that Victoria’s Secret is facing have much more to do with the promotional environment and current fashion trends than with their mall exposure. Obviously, the fall in mall foot traffic is negatively impacting Victoria’s Secret sales but L Brands has repeatedly stated that their B- and C-class malls are actually the most profitable stores that they have. While the performance between these A-malls and C-malls is almost similar, the rent expense of the latter category is far below the level of the A-malls making these stores more profitable. With 99% of the store base cash flow positive, there is no immediate issue. On the long term, it will be interesting to see how the company will position itself. In recent years, Les Wexner has voiced his belief that the mall environment will remain viable several times. According to him, this is just a phase in which the out of favour chains get replaced by more attractive brands. He stated that he would be indifferent or even happy to see the Nordstrom (NYSE:JWN) and Macy’s (NYSE:M) stores get replaced by Tesla (NASDAQ:TSLA) dealerships, restaurants and other places that attract people (source: 2017 Investor Conference). The company has therefore increased investments in its employees in order to maintain the best associates (which have a tenure of more than 10 years on average) . I have found L Brands’ focus on the digital channels to be insufficient in the recent past but I am pleased to hear that the company is now investing more in the e-commerce segment. Especially since management confirmed that online sales are more profitable than in-store sales.

Performance comparison A-malls vs C-malls – Source: Investor Handout L Brands

Some bears also claim that Victoria’s Secret fails to inspire the younger generation shoppers but a recent study by Goldman Sachs actually reveals Victoria’s Secret as one of the most loved brands for Generation Z members and Millennials.

Bath & Body Works

Bath & Body Works is the leading U.S. speciality retailer for home fragrances, candles, hand sanitzers, soaps and moisturizers. While the total revenue number generated within this segment is much smaller than that of the Victoria’s Secret segment, the B&BW operating margin that is nearly twice as high as the one of VS has resulted in Bath & Body works becoming the main contributor to the operating income line.

B&BW Operating profit
Bath & Body Works operating profit – Source: Author calculations/L Brands financial statements

The thing that attracted my attention within this segment is the continuous strong growth in topline. In the first quarter of 2017, B&BW reported $678m in revenue. Now that the total first quarter sales of 2018 are revealed, we can see that the B&BW segment generated $760m in sales, a 12% increase compared to the previous year. I checked the monthly sales calls for all three months included in this quarter and noticed that unlike the Victoria’s Secret segment, the merchandise margin remained flat compared to the previous year in all three months. The increase in revenue is thus fuelled by market share gains and increased demand instead of additional discounting.

It is clear that the recent store remodels with a White Barn integrated in the Bath & Body Works store is paying off its dividends.

When looking at the high price paid by Natura cosmetics (OTC:OTC:NUACF) for the much lower margin struggling Bodyshop, one could start to wonder how much a high margin, fast growing market leader within this segment could be worth. This is something that will be discussed in the valuation section further down in this analysis.

One could argue that B&BW brand name is less valuable than that of Victoria’s Secret and that this segment has less of a moat than the lingerie division but it is also the case that this segment is higher margin and that it is less fashion-dependable. In all cases, it is clear that Bath & Body Works is a very valuable business.

The international segment

The international segment covers those Victoria’s Secret and Bath & Body Works stores outside North America.

The division can be split up in three sub-segments: the wholly owned stores, the franchise partners and the travel retail stores.

L Brands has chosen to own and operate its own stores in the same way as it does in North America in only two foreign markets, the United Kingdom and China. The margins and other financial metrics for these stores are similar to those in the United States. The wholly owned stores represent 20% of the revenues generated in the international segment.

Travel retail represents 20-25% of the international segment’s revenues. The stores within this sub-segment are those that you can find in the various airports all over the world. The stores operate on a wholesale model that generates above company average margins of around 30%. Management believes that revenues within travel retail can increase by factor 2.5 in 5 years’ time (Source: L Brands Investor Meeting 2016).

The majority of the revenue originates from the franchise partners that operate on a royalty basis. L Brands wishes to cooperate with a limited number of partners that can each manage a large geographical area. Currently 33% of the royalties received are used to support the international sales team while 66% ends up in the operating profit line. The interesting aspect here is that there is significant operating leverage potential as you have a certain fixed cost base within the international sales team expense base.

A lot of the international market is still untapped for L Brands. The company stated that Western Europe has the same potential as the United States, yet is it is mainly untapped. As a European, I would agree with this statement. A quick check with my female colleagues confirmed that which I already discovered on my credit card after my partner takes the liberty to use it: women love the Victoria’s Secret brand and its products. Belgians who wish to order Victoria’s Secret goods however have to order it online, pay international shipping fees if they order for less than $120 and then wait for 10-14days before it arrives. It is also impossible to return goods to a store, which creates additional costs if one wishes to return the goods. Therefore I can’t grasp why L Brands hasn’t looked more aggressively for a partner that can serve these high income Western European markets. One can only imagine how much more Europeans would purchase if they actually had the opportunity to visit a store or to order it from a local distribution centre that provides free one-day shipping and returns.

While the profitability of the international segment is currently depressed due to a rapid store build-out in China and due to Brexit-related problems, it must be noted that the operating margin of this segment was in the low twenties before the China expansion. While it may take 2-3 years before start-up costs fade off and the new stores reach maturity, it should be expected that the international segment will be a large contributor to L Brands operating profit growth.

The ‘Other’-segment

This segment features all of L Brands other ventures, which mainly consist of intimates brand La Senza and high end handbag maker Henri Bendel.

These ventures have a combined revenue base of nearly $600m but sadly for L Brands, have a negative operating income of over $160m. This operating loss is not a one off result due to a one time restructuring or anything like that. The past four years, this segment has posted an operating loss with negative mid twenty operating margins.

Other segment Operating Profit
‘Other Segment’ operating profit – Source: Author calculations/L Brands financial statements

While Les Wexner, who has build out the Victoria’s Secret and Bath & Body Works segments almost from scratch, probably believes that he can also turn these brands in billion dollar ventures, the question remains if Victoria’s Secret can afford to continue to invest in these brands. Not only in terms of time and attention but also in terms of financial resources.

While it is probably impossible to eliminate the entire operating loss as the other divisions would have to take over certain overhead costs, let’s assume that the company can reduce the operating loss by $130m by shutting down Henri Bendel and La Senza. This would have lifted FY2017 operating income from $1,728m to $1,858m, thereby raising the operating margin to 14.7% from the actual 13.7%.

Moreover, shutting down these brands is a very unlikely scenario. While these brands are loss making, they do have value for private equity players. Assuming just a 0.25 EV/sales ratio would bring in $150m for L Brands if one assumes that all debt stays with L brands. A sale would also prevent the company from having to take on any restructuring costs.

Afbeeldingsresultaat voor taylor swift henri bendel

Henri Bendel add – Source: Henri Bendel Twitter Page

The question remains whether or not, CEO Wexner will be open to divesting these brands. Without the pressure of an activist investor, I would not count on an early departure from these brands.


Let us have a closer look at management. As stated earlier, the founder Les Wexner currently serves as CEO and he has a 16% stake in the company. This should align his interest with that of the long term shareholders. It could however also be the case that this large stake is preventing activist investors from coming in and pushing for value creation. Elliott Management Corp’s recent win over Vivendi (OTC:OTCPK:VIVEF) in the Telecom Italia (BIT:TIT) case however shows that a large stake from an opposing shareholder does not have to prevent shareholder activism.

I believe there are both good things and bad things to say about Wexner’s management. It is clear that Les Wexner has delivered outstanding results in the past decades and that he has build one of the most renowned apparel brands in the world. Wexner has bought and sold brands at exactly the right time and he has always been on top in regarding to changes in the retail environment. It can be argued however that ever since he took back the reigns in 2016, he made some questionable decisions. Discontinuing the swimwear division to reignite growth in the lingerie division would probably have awarded Wexner with a lot of credit if it had worked out but things turned out quite differently. Victoria’s Secret discontinued its profitable swimwear line but actually saw lingerie sales declining and the company had to resort to aggressive promotions in order to maintain the top line. I am by no means a retail expert but even I know that continued promotions are very harmful for a premium brand on the long term. Let’s face it, when have you seen significant discounting on top luxury brands such as Hermes (OTC:OTCPK:HESAY)?

It is also quite clear that the almost 81-year old Wexner is not the greatest fan of e-commerce and that he has not awarded enough attention to the digital channel. His view on the mall environment may very well be correct but it does bear some risk.

An important question to ask is how long the almost 81-year old Wexner seeks to continue leading the company. His children are in their late teens and early twenties and it is well possible that Wexner wishes to spend more time with his family now that he has reached a more advanced age. Does this mean that he would be more open to a restructuring of the company, including the divestment of La Senza and Henri Bendel as well as a spinoff of Bath & Body Works? Would he be open to a sale of either Victoria’s Secret or B&BW to a private equity player? Given Wexner’s age, these may become very relevant questions in the coming years.

CFO Stuart Burgdoerfer has an excellent reputation as CFO and he has held leadership roles at some of the world’s top companies such as The home Depot (NYSE:HD), PepsiCo (NASDAQ:PEP) and Pizza Hut (NYSE:QSR).

Interesting to note is that Burgdoerfer recently sold a large amount of shares in an open market sale. He sold his shares at around $39 and $42 per share. While insider selling does not necessarily mean that the management is expecting more bad results, we should certainly assume that this is a possibility. The big question however is whether or not we should expect more bad news in the coming months. Was his open market sale triggered by his knowledge of quarterly results coming in at the lower end of the guidance or does he have knowledge of something more severe, such as a dividend cut coming up? I personally expect no large dividend cuts and I would actually prefer if the dividend was lowered in exchange for more share buybacks.

Insider Open Market Activity- Source Bloomberg Portal

Then there are also the CEOs of the various divisions:

Denise Landman: Pink

While Pink has comped negative comparable sales in the last two months, it is undeniable that she has build out a strong brand with many loyal followers. I am confident that she can continue to grow the brand in the coming years.

Greg Unis: Victoria’s Secret Beauty

Victoria’s Secret Beauty has been one of the strongest performing sections within VS ever since the restructuring. Unis has significantly reduced the number of SKUs within the beauty segment and he is well underway to growing the beauty business.

Jan Singer: Victoria’s Secret Lingerie

If I was Les Wexner, I would be starting to doubt Ms. Singer’s management of the brand. While the swimwear division was cut in order to reignite growth in the lingerie division, the performance of the latter division has been lacklustre with no clear sign of improvement. As an investor, I am particularly annoyed by Ms. Singer’s evasion of any and all questions regarding the turnaround. Regardless on whether the question is about average selling prices, margins, volumes, bralette penetration or any other subject, the answer is nearly always the same. According to Jan Singer, it is all a matter of having that customer connection, having the goods that the client needs in every part of her life, having goods that inspire her. Either Singer does not have any answers on these various questions and she herself is struggling to find solutions or she knows the answers but doesn’t wish to reveal them as they don’t paint a pretty picture about Victoria’s Secret’s future. In both cases, her evasive answers are not exactly inspiring any investors to start buying L Brands stock.

Nick Coe: Bath & Body Works

By now, it should be clear that I consider Bath & Body Works to be the gem within the L Brands group. Coe is doing a wonderful job on expanding the business and the recent results have been better than I expected.

Martin Waters: International division

Good old Martin, the chap with the fancy British accent for those who listen to the calls, is the person in charge of the international division of Victoria’s Secret and Bath & Body Works. While I would like to see a more rapid roll-out of the brands in areas such as Europe, I find Waters to be more knowledgeable and open on all investor calls than Ms. Singer. I would give Martin Waters the benefit of the doubt.

Positive to note is that all the management members are very aligned with the long term shareholders as all executives need to hold three time times their base salary in L Brands stock and the compensation committee has shown to significantly reduce compensation when the results are disappointing.

The financial picture

One of the main questions that investors have at this point is whether or not the dividend is safe. It will be hard to answer before we get more financial details when the Q1 results come out.

Free Cash Flow Overview – Source; L Brands Investor Presentation

As you can see in the table above, the dividend is covered but it was only barely covered in 2017. For 2018, L brands guided slightly higher capex spending of around $750m but it also guided towards $900 million in free cash flow (L_Brands_Q4_2017.pdf) which is more than enough to cover the $686m in dividends. One could start to wonder on whether the Q1 results coming in towards the lower end of the guidance will have any impact on the free cash flow guidance. In any case, it would require a major adjustment for the free cash flow to fall to a level that would require a large dividend cut.

It should also be taken into account that free cash flow will rapidly rise again once the international segment stops its aggressive China expansion.

Let us also have a quick look at the financial leverage

Debt Leverage Overview – Source; L Brands Investor Presentation

When looking at the pure financial net debt, you can calculate that it will come in at around 2.05 times net debt/EBITDA assuming net debt of $4,280m and a 2018E consensus EBITDA of $2,085m.

At the beginning of 2018 lease adjusted net debt/EBITDAR was 3.44x or 4.0x if you use adjusted debt/EBITDAR.


Now it’s time to try and put a price on the stock.

In my model I have opted to assume that Victoria’s Secret only makes a minor recovery. I am sure that L Brands bulls will consider my growth numbers far too conservative but if I can prove that L Brands is undervalued using very conservative estimates, then readers should be able to imagine where the stock price could go on a larger recovery.

I assume Victoria’s Secret store sales decline by 4% each year while direct sales grow by 20% in FY18, 15% in FY19, 12.5% in FY20 and then 10% in the outer years. L Brands guides for mid- to high teens direct sales growth in their multi-year plan and VS direct sales grew by 23.4% in Q1 2018.

I expect that operating margins for the segment take a nosedive to a multi-year low of 9.5%. and then steadily recover to 12.5% in FY22. This would assume that VS operating margins never reach the 12.6% operating margin that VS had in its horrible FY17 year, let alone the 18% realized in FY15. I thus consider my estimates to be very conservative.

For B&BW I assume that stores basically grow sales by 3% each year while online sales grow at around 10%. I model slight operating margin pressure to incorporate the possibility of more discounts in this segment. In reality the operating leverage on the higher sales number could easily offset this.

Management guides the international segment to grow low- to mid-twenties percent but I choose to be a bit more conservative in the outer years. I take operating margins of 13.5% in the outer years regardless of the fact that this segment had low twenties operating margins before the China expansion. This should more than offset any bear argument that VS margins have significantly declined since then.

In my model I assume that the other segment does not get divested and that it remains loss making over the entire forecasted period.

I forecast less stock buybacks than guided by the company and less than historically bought by the company as I assume that the company will not want to raise the financial leverage and that there may not be as much cash available after maintaining the dividend.

Then comes the tricky part, what multiple should a company like L Brands be trading at? Looking at trading levels in the past years a 18x-20x multiple should be warranted. Retailers with less known brands and lower margins such as American Eagle Outfitters (NYSE:AEO) trade at 17.8 times the actual earnings. Therefore I believe that a 15x multiple for L Brands is a conservative pick.

Applying that 15x earnings multiple on the $4.37 earnings expected in FY22 brings us to a $65 in 5 years time (I assume that L Brands bulls would actually be very disappointed if L brands only reaches $65 in 5 years time). Together with the assumption that the dividend remains stable at $2.4/share, this would result in a 20% IRR based on Friday’s closing price of $32.33.

L Brands Valution – Source: Author’s Own Calculations

Another way to look at the valuation is by looking at the value of Bath & Body Works within L Brands.

Natura Cosmetics bought The Body Shop for 18 times EBIT (Bloomberg displays The Body Shop’s EBIT at 54.8m as last reported result) . Applying that same multiple on B&BW’s FY18E EBIT would value it at an enterprise value greater than the entire L Brands enterprise value.

Valuation 2
Bath & Body Works Valution – Source: Author’s Own Calculations

Using a more conservative EV/EBIT multiple of 10x, in line with American Eagle Outfitters’ 10.64x, followed by subtracting half of L Brands net debt results in an implied share price of $26.63. One could make the case that B&BW should trade at a higher multiple than AEO as B&BW is growing faster, has much higher margins and is the clear leader in its segment, but once again I prefer to use the necessary level of conservatism.

Now that we have the conservative value of Bath & Body Works, let us see what that implies about the value of Victoria’s Secret.

L Brands Equity Value


B&BW Equity Value


Implied VS Equity Value


Remaining Net Debt


Implied VS Enterprise Value


Victoria’s Secret FY18E EBIT


Implied VS EV/EBIT multiple


Implied Victoria’s Secret EV/EBIT multiple – Source: Author’s Own Calculations

Even when using my very bearish Victoria’s Secret FY18E operating profit forecast, it becomes clear that given the value of B&BW, Victoria’s Secret would be trading at a mere 5.16x EV/EBIT multiple. Additionally, it assumes that the La Senza and Henri Bendel brands are worth nothing as otherwise you would still have to subtract their value from this already insanely low valuation. I also did not include the operating profit of the international division for both VS and B&BW as this is currently near break-even level but in 1-2 years this will be an asset that is significantly contributing to L brand’s bottom line.

Applying a very conservative 8x EV/EBIT multiple on my very depressed VS EBIT forecast, would still indicate a share price of $12.46 when excluding the international sales.

Valuation 3
Implied Victoria’s Secret Share Price – Source: Author’s Own Calculations

Combining the derived share prices of B&BW and VS results in a $39.09 combined share price, more than 20% above Friday’s close. This is also neglecting any value in the La Senza and Henri Bendel brands as well assuming no recovery in the VS brand and excluding the entire international division for both Victoria’s Secret and Bath & Body Works.

So why would anyone invest in L Brands? The true value of Bath & Body Works is not reflected within L brands market cap. A spin-off or sale could realise this value. L Brands has the optionality to divest its La Senza and Henri Bendel brands, thereby bringing in extra cash in addition to boosting its operating profit. The company currently pays a covered 7.42% dividend. A performance turnaround in the Victoria’s Secret brand due to either a shift back to constructed bras or due to a reduction in discounting by competitors could result in a major upswing for the L Brands stock (just see American Eagle Outfitters price graph). The International segment has significant growth prospects. Victoria’s Secret may opt to re-enter the swimwear market. What are the main risks to this investment case? Margin pressure at Victoria’s Secret may get worse, resulting from additional discounting. Continued promotions may dilute the Victoria’s Secret brand name and the company may never be able to return to the position of the undisputed leader in intimate’s apparel. The case stands and falls with the performance of Bath & Body Works. If performance at B&BW worsens significantly then the dividend may no longer be sustainable. The company may maintain its mall exposure, increasing its vulnerability to decreasing mall foot traffic. Catalysts

On the 24th of May, L Brands will reports its Q1 number. It will be interesting to see the operating margins of the different segments. In the April sales report, L Brands stated that earnings per share would come in towards the lower end of the previous guidance. It will be important to see if management gives any further details. Was it due to lower share repurchases or higher start up costs in China or was it due decreasing profitability within the Victoria’s Secrets segment? The most important question that the investment community will have is whether or not L Brands will change its full year guidance. The stock price is bound to show strong movement, whether it be increasing or decreasing. Therefore it may be optimal for real bargain hunters or for those who want to play it safe, to wait till the earnings release before starting a position.


L Brands is often considered as a synonym of Victoria’s Secret and things aren’t going that well for Victoria’s Secret. Therefore, the L Brands stock has taken a dive of nearly 50% this year. While a recovery of the Victoria’s Secret segment would be the fastest way back up from this point, I don’t feel comfortable predicting such a recovery any time soon. I am convinced that the potential is there but in a world where retailers are struggling, it is impossible to say when exactly the promotional environment will ease. I however believe that L Brands has multiple other levers to value creation. First of all, the value of Bath & Body Works, a fast growing higher margin segment is not reflected in the stock price. Then there is the possibility to divest the loss making La Senza and Henri Bendel brands which could help strengthen the balance sheet and significantly raise the group’s operating income. Another long term contributor will be the International division that is currently not contributing much to the bottom line due to large expenses made in the build-out of the China division. As soon as these new stores start generating revenues, the company will get a large boost from the international division. While a lot of these initiatives are 2-3 years away from being delivered or may not be realised at all depending on the choices that management makes, I believe that we are currently at a price level that doesn’t take any of the aforementioned catalysts into account. L Brands is owner operated with all executives owning a large amount of stock in comparison to their base salary and compensation schemes are focused on long term results. Nevertheless, I would welcome an activist investor that could encourage more value creation at L Brands. In the meantime, Investors can collect a 7.4% dividend yield and wait till the situation plays out. There is a small chance that the dividend gets a small cut but I do not expect a large slash in the dividend.

While this is not the usual type of investment that I make, I have decided to start a small position in L Brands after last Thursday’s correction. I will eagerly wait on the quarterly results and earnings call in order to decide on whether I want to build this up to a full position.

Disclosure: I am/we are long LB.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

YorkBridge Wealth Partners LLC Grows Stake in PepsiCo (PEP)

YorkBridge Wealth Partners LLC lifted its stake in shares of PepsiCo (NASDAQ:PEP) by 8.9% in the 4th quarter, according to the company in its most recent 13F filing with the Securities & Exchange Commission. The institutional investor owned 13,463 shares of the company’s stock after acquiring an additional 1,096 shares during the quarter. YorkBridge Wealth Partners LLC’s holdings in PepsiCo were worth $1,541,000 at the end of the most recent reporting period.

Several other institutional investors and hedge funds also recently added to or reduced their stakes in PEP. Rational Advisors LLC purchased a new stake in shares of PepsiCo in the fourth quarter valued at $168,000. Harel Insurance Investments & Financial Services Ltd. lifted its holdings in shares of PepsiCo by 233.3% in the fourth quarter. Harel Insurance Investments & Financial Services Ltd. now owns 1,500 shares of the company’s stock valued at $180,000 after purchasing an additional 1,050 shares in the last quarter. C M Bidwell & Associates Ltd. purchased a new stake in shares of PepsiCo in the fourth quarter valued at $197,000. First National Bank of Mount Dora Trust Investment Services purchased a new stake in shares of PepsiCo in the fourth quarter valued at $201,000. Finally, Round Table Services LLC purchased a new stake in shares of PepsiCo in the fourth quarter valued at $201,000. 70.94% of the stock is owned by institutional investors and hedge funds.

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Shares of NASDAQ:PEP opened at $97.27 on Friday. The company has a current ratio of 1.28, a quick ratio of 1.15 and a debt-to-equity ratio of 2.91. The stock has a market capitalization of $137.23 billion, a price-to-earnings ratio of 18.60, a P/E/G ratio of 2.23 and a beta of 0.67.

PepsiCo (NASDAQ:PEP) last posted its earnings results on Tuesday, February 13th. The company reported $1.31 EPS for the quarter, topping the Thomson Reuters’ consensus estimate of $1.30 by $0.01. The firm had revenue of $19.53 billion for the quarter, compared to the consensus estimate of $19.40 billion. PepsiCo had a net margin of 7.62% and a return on equity of 62.43%. The business’s quarterly revenue was up .1% on a year-over-year basis. During the same period in the prior year, the business posted $1.20 earnings per share. analysts predict that PepsiCo will post 5.7 EPS for the current year.

The firm also recently announced a quarterly dividend, which will be paid on Friday, June 29th. Shareholders of record on Friday, June 1st will be given a dividend of $0.9275 per share. This represents a $3.71 annualized dividend and a yield of 3.81%. This is an increase from PepsiCo’s previous quarterly dividend of $0.81. The ex-dividend date of this dividend is Thursday, May 31st. PepsiCo’s dividend payout ratio is presently 61.57%.

PepsiCo declared that its board has approved a stock buyback program on Tuesday, February 13th that allows the company to buyback $15.00 billion in outstanding shares. This buyback authorization allows the company to repurchase shares of its stock through open market purchases. Shares buyback programs are typically a sign that the company’s board of directors believes its stock is undervalued.

PEP has been the subject of a number of research analyst reports. Goldman Sachs restated a “sell” rating on shares of PepsiCo in a report on Tuesday, April 17th. Susquehanna Bancshares increased their target price on PepsiCo from $137.00 to $140.00 and gave the company a “positive” rating in a report on Monday, February 12th. Stifel Nicolaus reduced their target price on PepsiCo from $120.00 to $110.00 and set a “hold” rating for the company in a report on Friday, April 27th. TheStreet lowered PepsiCo from a “b-” rating to a “c+” rating in a report on Thursday, March 1st. Finally, SunTrust Banks assumed coverage on PepsiCo in a report on Monday, January 29th. They set a “hold” rating and a $125.00 price objective for the company. Four investment analysts have rated the stock with a sell rating, eight have given a hold rating and five have given a buy rating to the company. The stock has an average rating of “Hold” and an average target price of $120.36.

About PepsiCo

PepsiCo, Inc operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay's and Ruffles potato chips; Doritos, Tostitos, and Santitas tortilla chips; and Cheetos snacks, branded dips, and Fritos corn chips. The company's Quaker Foods North America segment provides cereals, rice, pasta, mixes and syrups, granola bars, grits, oat squares, oatmeal, rice cakes, simply granola, and side dishes under the brands Quaker, Aunt Jemima, Cap'n crunch, life, Quaker Chewy, and Rice-A-Roni.

Want to see what other hedge funds are holding PEP? Visit HoldingsChannel.com to get the latest 13F filings and insider trades for PepsiCo (NASDAQ:PEP).

Institutional Ownership by Quarter for PepsiCo (NASDAQ:PEP)

3 Hated Dividend Stocks to Buy Now

There are times when having an intensely negative outlook on a company’s future is more than justified. However, scooping up stocks that have fallen out of favor can also create huge upside over the long term — provided you’re picking the right ones. Read on to see why AT&T (NYSE:T), PepsiCo (NASDAQ:PEP), and General Motors (NYSE:GM)are beaten-down dividend stocks that are worth adding to your portfolio.

Two bar graphs stacked against each other next to a pie chart, a ruler, paper clips, and two pens.

Image source: Getty Images.

1. AT&T

Telecom giant AT&T reported first-quarter earnings on April 26, and the market was none too pleased with the results. Sales for the period dipped 3.6% year over year to come in at $38.04 billion, missing the average analyst estimate of $39.37 billion. Earnings per share of $0.85 also fell short of the estimate target of $0.87, and the top- and bottom-line misses prompted the company’s biggest intraday share price decline in nearly a decade. By market close, the stock had dipped roughly 7%.

AT&T also reported that it lost 187,000 pay-television subscribers despite growth for its DirecTV Now skinny-bundle service. The company faces pressure amid changes in the television and mobile industries, but opportunities like the expansion of 5G networks and thepending merger with Time Warnergive it avenues via which to growth that I expect will come to fruition. I purchased AT&T shares following the post-earnings sell-off and plan to hold the stock for the long term.

The company now trades at just 10 times this year’s expected earnings and packs a roughly 6% dividend yield. Shareholders can look for AT&T’s payout to continue growing. The telecom leader has a 33-year history of delivering annual dividend raises, and the business’s strong cash flow puts it in good position to deliver slow, but steady payout growth down the line. Even though the company distributed roughly $13 billion in dividend payouts over the last year, its $18 billion in free cash flow over that stretch had it in a good position to keep that streak alive.

With a great yield backed by a solid business and enticing earnings multiples, AT&T is an underappreciated dividend stock that deserves your attention.

2. PepsiCo

PepsiCo has long been a go-to for income-focused investors, so it’s notable that the stock has recently been falling out of favor. Calling it a “hated” stock might seem a bit strange, but a roughly 16% year-to-date decline for the company’s share price suggests it’s not currently held in high esteem.

The shift in sentiment isn’t without cause. Volume for the company’s North American beverages segment fell 3% year over year, and operating income for the unit dipped 22%. It looks like that softness will continue in the near term.While waning domestic soda demand is hurting growth and dampening investor enthusiasm, I think some of the company’s recent struggles have also resulted in the chance to purchase a rock-solid dividend stock at a good price.

The stock trades at roughly 18 times forward earnings estimates and offers a best-in-class dividend pedigree.Shares yield 3.2% at current prices, and the company has a 45-year history of consecutive annual payout growth. With the cost of distributing its payout coming in at a reasonable 64% of trailing free cash flow and dividend growth seemingly baked into the stock’s DNA, shareholders can reasonably expect that next year’s payout will be bigger than the one before.

The company also isn’t standing still in light of recent challenges. To combat its declining soda sales, Pepsi is preparing a sustained advertising push and weighing the possibility of spinning off its bottling operations. Increased advertising may or may not end up being the answer to the soda question, but Pepsi is actually pretty well diversified, and it’s still tinkering to find the right balance across its product lines.

Growth for the company’s Frito Lay division and momentum in emerging markets actually pushed the company to a 2.2% year-over-year organic sales increase in the March-ended quarter despite weakness in domestic beverages. Pepsi appears to be under leadership that understands the issues, and the business is backed by infrastructure advantages and a history of innovation and execution that make me bullish on the long-term outlook.

3. General Motors

Concerns that the North American automobile industry is at the early stages of a downturn and threats of long-term disruption posed by emerging technologies are weighing on General Motors. Shares are down 10% year to date compared to a 1% dip for the S&P 500 index.

Electric vehicles, ride-sharing services, and self-driving cars all present variables for the business, but it seems like General Motors’ innovation initiatives and manufacturing advantages aren’t getting their due. While the market seems to be taking a more cautious outlook onTesla, that reappraisal doesn’t appear to have resulted in increased confidence in GM’s future.

The auto giant has made a lot of smart moves to prepare for new trends in its industry and improve the business since the disastrous impact of the last recession. The company is currently the leader in electric car production and expects to launch 20 new electric vehicles through 2023. It’s also an early leader in the self-driving-technology space and has a significant stake in the ride-sharing market thanks to its roughly 9% ownership stake in Lyft and partnership with Uber.

The cyclical nature of the automotive industry means GM’s profits will see a significant declines if the broader auto market continues to move through a down cycle, but shares look attractively price even with that possibility in mind. The stocktrades at less than six times forward earnings estimates andpacks a roughly 4.1% dividend yield. With the cost of distributing its current payout representing just 24% of trailing earnings, GM looks to be in a good position to continue returning cash to shareholders.

Top 10 Promising Stocks To Watch Right Now

Wells Fargo’s Bonnie Herzog and team argue that Starbucks’ (SBUX) partnership withAnheuser-Busch InBev (BUD) to bottle and sell tea will “transform the tea market much like Starbucks did with coffee.” They explain:

Zuma Press

StarbucksTo Enter Fast Growing, Premium Ready-to-Drink (RTD) Category withAnheuser Busch Inbev Partnership Starbucks announced late yesterday that it expects to finalize a definitive agreement with Anheuser-Busch by 2H16 to jointly produce, bottle, distribute and market the first RTD version of Teavana in the U.S. with an initial launch expected in the 1H17. We view this as a significant opportunity forStarbucks to extend its reach into one of the fastest growing RTD segments, the premium RTD tea category, which while a small part of the $125B global tea industry, is growing in the mid-teens with annual sales at $1.1B. GivenStarbucks’ expertise in teas and the sheer reach of Anheuser-Buschs distribution network, we estimateStarbucks could take ~25-30% share of the RTD premium tea segment within the first full year (FY18E), driving an incremental $200-250M in revenue and approximately $0.03-0.04 of EPS, or ~1-2% of incremental growth. Bottom line We believeAnheuser-Busch will make an exceptional DSD partner that will expand a valuable route-to-market forStarbucks and transform the tea market much likeStarbucks did with coffee.

Top 10 Promising Stocks To Watch Right Now: Transcananda Pipelines Ltd.(TRP)

Transcanada Corporation operates as an energy infrastructure company in North America. The company operates in three segments: Natural Gas Pipelines, Oil Pipelines, and Energy. The Natural Gas Pipelines segment develops and operates energy infrastructure, including natural gas pipelines and regulated gas storage facilities. Its network of natural gas pipelines extends approximately 60,000 km tapping into gas supply basins in North America. The Oil Pipelines segment operates Keystone crude oil pipeline system, which includes completed 3,467 km Wood River/Patoka and Cushing Extension phases, and the proposed 2,673 km U.S. Gulf Coast Expansion. The Energy segment engages in the acquisition, development, construction, ownership, and operation of electrical power generation plants; the purchase and marketing of electricity; the provision of electricity account services to energy and industrial customers; and the development, construction, ownership, and operation of non-regulat ed natural gas storage in Alberta. The company was founded in 1951 and is headquartered in Calgary, Canada.

Advisors’ Opinion:

  • [By Chad Tracy]

    The most obvious is TransCanada (NYSE: TRP), the company that has submitted the proposal for the expansion. 

    TransCanada's cash flow is derived from natural gas (62%), oil/liquids (16%), and energy (22%), which includes natural gas storage.

Top 10 Promising Stocks To Watch Right Now: Newfield Exploration Company(NFX)


Newfield Exploration Company, an independent energy company, engages in the exploration, development, and production of crude oil, natural gas, and natural gas liquids in the United States. Its principal areas of operation include the Anadarko and Arkoma basins of Oklahoma, the Williston Basin of North Dakota, the Uinta Basin of Utah, and the Maverick and Gulf Coast basins of Texas. The company also holds offshore oil developments in China. As of December 31, 2015, it had proved reserves of approximately 509 million barrels of oil equivalent. The company was founded in 1988 and is headquartered in The Woodlands, Texas.

Advisors’ Opinion:

  • [By Ben Levisohn]

    The large cap E&Ps we cover raised ~ $6.5 billion of equity in 2015 and are likely to consider additional issuance in 2016. Pioneer Natural Resources (PXD) raised $1.3 billion on January 5th and Hess Corp. (HES) raised $1.5 billion of equity/equity-linked earlier this month. We think highly leveraged companies such as Devon Energy,Encana andRange Resources (RRC) and companies with a large deficit (before asset sales), such asAnadarko Petroleum and Devon Energy, are most likely to consider raising equity. Additionally, we believe companies such as WPX Energy (WPX), Southwestern Energy (SWN), Marathon Oil, Continental Resources (CLR),Noble Energy and Newfield Exploration (NFX) could issue equity while several levered companies may be unwilling or unable to access equity markets. We do not think Apache, Canadian Natural Resource, EOG Resources (EOG), Occidental Petroleum orPioneer Natural Resources are likely to issue equity this year.

  • [By Ben Levisohn]

    Lear also sees strong “upside potential” forConcho Resources (CXO), Pioneer Natural Resources (PXD) and Newfield Exploration (NFX) as well performance improves in the Permian/STACK, and also writes positively on Devon Energy (DVN).

Top Paper Stocks To Buy For 2016: American Tower Corporation (REIT)(AMT)


American Tower Corporation is a real estate investment trust. It invests in the real estate markets across the globe. The firm engages in leasing of space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. American Tower Corporation was founded in 1995 and is headquartered in Boston, Massachusetts.

Advisors’ Opinion:

  • [By Matthew Smith]

    The two names which come to mind as potential buyers are American Tower (AMT) and Crown Castle International (CCI) as the assets would be natural for them to purchase. It would be a large transaction though which would be about 1/6th the current market cap of American Tower and 1/4th the size of Crown Castle’s market cap. Another possible buyer could be a hedge fund, and although there are few names out there specializing in this industry, at the end of the day it is a real estate game and all about the leverage and cash flows. Readers should watch this story because if AT&T does in fact sell its towers, it might be set to make a move on the chess board.

  • [By Michael Flannelly]

    Before the bell on Monday, analysts at Nomura Securities upgraded telecommunication tower site operator American Tower Corp (AMT) due to an industry wide upgrade of telecom tower operators, including the non-dividend paying companies SAB Comm (SBAC) and Crown Castle (CCI).

    The analysts upgraded AMT from “Neutral” to “Buy” and now see shares reaching $90, up from the previous price target of $85. This new price target suggests a 22% upside to the stock’s Friday closing price of $73.71.

    “Tower industry revenue grew over 20% in 1H13, helped by strong carrier network spending and tower acquisitions,” Nomura analyst Adam Ilkowitz noted. “On an organic basis, we believe site rental revenue growth of ~11% for the tower operators is a sign of the health of the U.S. wireless industry and elevated capital spending. After 30% portfolio growth in 2012 across the three tower operators, profitability is recovering from diluted levels. Despite a still-tepid global economy, carriers are investing in their networks to respond to consumer demands and traffic growth. With our positive outlook and upwardly revised estimates, we are increasing our target prices for AMT and SBAC both from $85 to $90 and raising AMT to a Buy. We are raising our 2014 AFFO estimates for all three operators given strong activity levels and announced acquisitions.”

    Furthermore, the analysts at Nomura lowered AMT’s fiscal 2013 adjusted funds from operations (AFFO) estimates from $3.69 to $3.65, but raised its fiscal 2014 AFFO estimates from $4.25 to $4.50.

    American Tower Corp shares were inactive during pre-market trading on Monday. The stock is up 22.83% year-to-date.

Top 10 Promising Stocks To Watch Right Now: Nuance Communications Inc.(NUAN)

Nuance Communications, Inc. provides voice and language solutions for businesses and consumers worldwide. It offers dictation and transcription solutions and services, which automate the input and management of medical information; and speech recognition solutions for radiology, cardiology, pathology, and related specialties that help healthcare providers dictate, edit, and sign reports without manual transcription. The company also offers mobile and consumer solutions and services comprising an integrated suite of voice control and text-to-speech solutions, desktop and portable computer dictation applications, predictive text technologies, mobile messaging services, and emerging services, such as dictation, Web search, and voicemail-to-text for manufacturers and suppliers of mobile phones, automotive products, personal navigation devices, computers, and other consumer electronics. In addition, it provides customer service business intelligence and authentication solutions for enterprises in the telecommunications, financial services, travel, entertainment, and government sectors to support, understand, and communicate with their customers. Further, the company offers document imaging, print management, and PDF solutions to multifunction printer manufacturers, home offices, small businesses, and enterprise customers; software development toolkits for independent software vendors; and licenses its software to multifunction printer manufacturers. Nuance Communications, Inc. markets and sells its products through direct sales force; its e-commerce Web site; and a network of resellers, including system integrators, independent software vendors, value-added resellers, hardware vendors, telecommunications carriers, and distributors. The company was formerly known as ScanSoft, Inc. and changed its name to Nuance Communications, Inc. in November 2005. Nuance Communications, Inc. was founded in 1992 and is headquartered in Burlington, Massachusetts. Advisors’ Opinion:

  • [By Lee Jackson]

    Nuance Communications Inc. (NASDAQ: NUAN) is the company that brought you the Siri application that you can talk to on your iPhone. The stock also got crushed after an earnings miss this year. Mega-investor Carl Icahn has accumulated a 16.9% share of the company and may be looking for more. The consensus target for the stock sits at $22.

  • [By Monica Gerson]

    Nuance Communications Inc. (NASDAQ: NUAN) is projected to post its quarterly earnings at $0.35 per share on revenue of $491.14 million.

    Zebra Technologies Corp. (NASDAQ: ZBRA) is estimated to report its quarterly earnings at $1.22 per share on revenue of $878.67 million.

Top 10 Promising Stocks To Watch Right Now: Mastercard Incorporated(MA)

MasterCard Incorporated, together with its subsidiaries, provides transaction processing and related services to customers principally in support of their credit, deposit access, electronic cash and automated teller machine payment card programs, and travelers? cheque programs. Its payment solutions include payment programs, marketing, product development, technology, processing, and consulting and information services. The company provides transaction processing services comprising transaction switching, which include authorization, clearing, and settlement; connectivity services, such as network access, equipment, and the transmission of authorization and settlement messages; and other payment-related services consisting of products used to prevent or detect fraudulent transactions, cardholder services, professional consulting and research services, compliance and penalty, account and transaction enhancement services, holograms, and publication services. MasterCard Incor porated manages and licenses payment card brands, including MasterCard, MasterCard Electronic, Maestro, and Cirrus. The company?s payment programs, which are facilitated through its brands, include consumer credit, debit and prepaid programs, commercial payment solutions, and contactless payment solutions. It serves approximately 22,000 financial institutions. The company was founded in 1966 and is headquartered in Purchase, New York.

Advisors’ Opinion:

  • [By Alex Planes]

    It was from these humble beginnings that Visa (NYSE: V  ) was born. BankAmericard became an independent corporation in 1970 and later changed its name to Visa in 1976 as a way to broaden its appeal internationally. By this point the Master Charge had been established as a competing credit card network, and it had actually grown larger than the former BankAmericard: In the first quarter of 1976, BankAmericard/Visa claimed 31.8 million cardholders and $2.3 billion in sales volume, while the Master Charge had 37.4 million cardholders and processed $2.9 billion in sales. Master Charge, of course, is the forerunner to MasterCard (NYSE: MA  ) , but it hasn’t maintained its early lead over Visa. In 2012, Visa’s total U.S. purchase volume clocked in at $981 billion compared to $534 billion for MasterCard, and Visa’s 278 million American cardholders far outweigh MasterCard’s 180 million American cardholders.

Top 10 Promising Stocks To Watch Right Now: Nabors Industries Ltd.(NBR)


Nabors Industries Ltd., together with its subsidiaries, provides drilling and rig services. It offers equipment manufacturing, rig instrumentation, optimization software, and directional drilling services; and patented steering systems and rig instrumentation software systems, including ROCKIT directional drilling system that provides data collection services to oil and gas exploration and service companies, and RIGWATCH software, which monitors a rigs real-time performance and daily reporting for drilling operations. The company also manufactures and sells top drives, catwalks, wrenches, draw works, and other drilling related equipment; and offers well-site services, such as engineering, transportation and disposal, construction, maintenance, well logging, directional drilling, data collection, and other support services. As of December 31, 2015, it marketed approximately 430 rigs for land-based drilling operations in the U nited States, Canada, and approximately 20 other countries worldwide; and 42 rigs for offshore drilling operations in the United States and internationally; and 6 jackup units. The company was founded in 1968 and is headquartered in Hamilton, Bermuda.

Advisors’ Opinion:

  • [By Monica Gerson]

    Nabors Industries Ltd. (NYSE: NBR) is expected to post a quarterly loss at $0.33 per share on revenue of $630.85 million.

    Sohu.com Inc (NASDAQ: SOHU) is projected to report a quarterly loss at $0.57 per share on revenue of $406.50 million.

Top 10 Promising Stocks To Watch Right Now: TSR Inc.(TSRI)

TSR, Inc., together with its subsidiaries, provides contract computer programming services to commercial customers, and state and local government agencies in the metropolitan New York area, New England, and the mid-Atlantic region. It offers technical computer personnel to supplement in-house information technology capabilities. The company provides its staffing services in the areas of mainframe and mid-range computer operations, personal computers and client-server support, Internet and e-commerce operations, voice and data communications, and help desk support capabilities. TSR, Inc. was founded in 1969 and is based in Hauppauge, New York.

Advisors’ Opinion:

  • [By Lisa Levin]

    TSR Inc (NASDAQ: TSRI) shares shot up 35 percent to $5.15 following Q4 results. TSR reported Q4 earnings of $0.09 per share on revenue of $15.5 million.

Top 10 Promising Stocks To Watch Right Now: Safeway Inc.(SWY)

Safeway Inc., together with its subsidiaries, operates as a food and drug retailer in North America. The company operates stores that provide an array of grocery items, food, and general merchandise, as well as features specialty departments, such as bakery, delicatessen, floral, and pharmacy, as well as coffee shops and fuel centers. It also offers SELECT line of products that include baked goods, sparkling ciders and lemonades, salsas, whole bean coffees, frozen pizzas and entrees, and fresh and dry pastas and sauces, as well as an array of ice creams, hors d’oeuvres, and desserts; O ORGANICS line, which comprises milk, chicken, salads, juices, and entrees; Lucerne line of dairy products; Eating Right line of better-for-you products; Bright Green line of home care products; Total Pet Care line of pet foods and pet care products; and Value Red line of value-priced paper goods. As of December 31, 2009, Safeway operated approximately 1,725 stores in California, Oregon, Wash ington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area, and the Mid-Atlantic region, as well as British Columbia, Alberta and Manitoba/Saskatchewan. In addition, the company owns and operates GroceryWorks.com Operating Company, LLC, an online grocery channel, doing business under the names Safeway.com, Vons.com, and Genuardis.com; and Blackhawk Network Holdings, Inc., which provides third-party gift cards, prepaid cards, telecom cards, and sports and entertainment cards to North American retailers for sale to retail customers. Additionally, it engages in gift card businesses in the United Kingdom, France, Mexico, and Australia. Further, the company, through a 49% ownership interest in Casa Ley, S.A. de C.V. operates 156 food and general merchandise stores in Western Mexico. The company was formerly known as Safeway Stores, Incorporated and changed its name to Safeway Inc. in February 1990. Safeway was founded in 1915 and is based in Pleasanton, California. Advisors’ Opinion:

  • [By Shauna O’Brien]

    On Friday, Credit Suisse announced that it has upgraded food and drug retailer Safeway Inc. (SWY).

    The firm has raised its rating on SWY from “Underperform” to “Outperform” due a a valuation call. Analysts currently have a $34 price target on SWY, which suggests a 17% increase from the stock’s current price of $28.20.

    Safeway shares were up $1.65, or 6.21%, during Friday morning trading. The stock is up 56% YTD.

  • [By Lu Wang]

    Safeway Inc. (SWY) advanced 6.1 percent after Credit Suisse Group AG raised its recommendation for the shares. Intel Corp. gained 3.6 percent after Jefferies Group LLC upgraded the stock. GameStop Corp. surged 6.1 percent as U.S. video-game sales saw the first monthly rise 2011, a research group said. Peabody Energy Corp. dropped 3.2 percent as the Environmental Protection Agency revises proposed rules for new power plants.

  • [By Paul Ausick]

    Stocks on the move: Galena Biopharma Inc. (NASDAQ: GALE) is down 15.4% at $1.93 after pricing a secondary offering of 17.5 million units at $2.00. Safeway Inc. (NYSE: SWY) is up 6.1% at $28.21, after an analysts upgrade which sent shares to a new 52-week high of $28.88 earlier. Avanir Pharmaceuticals Inc. (NASDAQ: AVNR) is down 18.2% at $4.08.

  • [By Vanina Egea]

    Low customer confidence due to an adverse economic environment has affected supermarket operators, and tighter market competition over pricing has further eroded margins. However, as the economy slowly recovers, grocery stores are presented with an opportunity to improve performance and deliver profits. Let us look at the Safeway (SWY) and Kroger (KR), two supermarket operators, in order to discern which one offers better investment prospects.

Top 10 Promising Stocks To Watch Right Now: Markel Corporation(MKL)


Markel Corporation markets and underwrites specialty insurance products in the United States and internationally. It operates through three segments: U.S. Insurance, International Insurance, and Reinsurance. The U.S. Insurance segment writes general liability, professional liability, property, personal line, program, workers’ compensation, and other insurance product lines. The International Insurance segment provides professional liability, marine and energy, general liability, property, and other insurance product lines, such as accident and health coverage insurance. The Reinsurance segment offers various treaty reinsurance products, such as property, casualty, auto, and others. Markel Corporation was founded in 1930 and is headquartered in Glen Allen, Virginia.

Advisors’ Opinion:

  • [By Michael Hooper]

    When compared with similar companies, Berkshire Hathaway carries a premium over Markel (NYSE: MKL  ) , valued at 1.15 times book value and a 20 forward P/E ratio; and Leucadia National (NYSE: LUK  ) , valued at 1.10 times book value and a 7.16 trailing P/E.

Top 10 Promising Stocks To Watch Right Now: Time Warner Inc.(TWX)


Time Warner Inc. operates as a media and entertainment company in the United States and internationally. It operates through three segments: Turner, Home Box Office, and Warner Bros. The Turner segment owns and operates a portfolio of cable television networks and related properties that offer entertainment, sports, kids, and news programming on television and digital platforms for consumers. It operates approximately 165 channels in 200 countries. The Turner networks and related properties include TNT, TBS, Adult Swim, truTV, Turner Classic Movies, Turner Sports, Cartoon Network, Boomerang, CNN, and HLN. This segment also manages and operates various digital media properties primarily consisting of bleacherreport.com, cartoonnetwork.com, CNN Go, CNN.com, CNNMoney.com, NBA.com, NBA Digital, and NCAA.com; and licenses original programming to subscription-video-on-demand (SVOD) services, and its brands and characters for consume r products. This segment serves cable system operators, satellite service distributors, telephone companies, and other distributors. The Home Box Office segment provides premium pay and basic tier television services comprising HBO and Cinemax; and sells its original programming through DVDs, Blu-ray discs, and electronic sell-through, as well as licenses home entertainment and content to international television networks and SVOD services. As of December 31, 2014, this segment had approximately 46 million subscribers worldwide. The Warner Bros. segment produces, distributes, and licenses television programming and feature films; distributes digital and physical home entertainment products; and produces and distributes videogames, as well as licenses consumer products and brands. The company was formerly known as AOL Time Warner, Inc. and changed its name to Time Warner Inc. in 2003. Time Warner Inc. was founded in 1985 and is headquartered in New York, New York.

Advisors’ Opinion:

  • [By Ben Levisohn]

    Drexel Hamilton’sTony Wible contends that Walt Disney (DIS) and Time Warner (TWX) are oversold on fears of cord cutting. They explain why:

    We believe cord cutting is more probable in single occupant home as the diversity of viewing needs in larger homes favors the economies of scale seen in larger traditional MVPD bundles. By exploring the affiliate fees and ratings across eight diverse MVPD and VMVPD packages, we conclude that 3% to 15% of pre-tax earnings is exposed. However, a gradual loss of subs and recapture of revenue on VMVPDs may allow TV networks to offset headwinds and minimize a vicious cycle. Disney and Time Warner(both Buy rated) have the least exposure and appear to be oversold on the fears.