CapitalCube Blog

Icahn Enterprises L.P. (NASDAQ:IEP) adopts new dividend policy, continues activism

CapitalCube — Tue, 07 May 2013 07:03:45 PDT

Daniel A. Ninivaggi, Chief Executive Officer of Icahn Enterprises said in the latest earnings call last Friday May 3rd that: “At the holding company level, we completed a public equity offering of IEP units in the first quarter. We also adopted a $4 annual dividend policy, resulting in a very attractive yield to our unitholders. Providing additional liquidity in IEP units and our new dividend policy are part of our strategy to broaden and strengthen our shareholder base. We also believe creating more liquidity in IEP units will provide us more financial flexibility to pursue our activist strategy and make it even more effective.” Carl C. Icahn, Chairman of the Board for Icahn Enterprises is well known for his activist stance. NASDAQ:IEP shares yesterday were up by over 4% and are again up today.

IEP Share Price Performance Relative to Peers

It should be noted that our Corporate Actions Report on Icahn Enterprises suggested that the fundamentals did not support an increase in dividends. Our preliminary analysis indicates that the new dividend policy is supported primarily by financing activities i.e. issuance of new equity. An updated Dividend Quality Report in which we assess whether dividends are being paid from operating, investing or issuance cash flows and whether the beginning cash balance is needed to make this payment will be out shortly for Capitalcube subscribers.

Looking for more analysis? Get the FULL report for Icahn Enterprises (NASDAQ:IEP) here.

Earnings Analysis

We analyzed the first quarter earnings for Icahn Enterprises L.P. (NASDAQ:IEP) using our proprietary peer-based methodology. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com. We also examine the Accounting Quality of NASDAQ:IEP and conclude that the company’s financials suggest possible sandbagging of net income.

IEP Accounting Quality Relative to Peers

We used the following peer-set for analyzing Icahn Enterprises: C.P. Pokphand Co. Ltd. ADS (CPKPY), Mitsubishi Corp. ADS (MSBHY), Mitsui & Co. Ltd. ADS (MITSY), Itochu Corp. (8001-JP), Sega Sammy Holdings Inc. ADS (SGAMY), Vesuvius PLC (VSVS), Alfa S.A.B. de C.V. (ALFAA), AutoZone Inc. (NYSE:AZO), O’Reilly Automotive Inc. (NASDAQ:ORLY) and Advance Auto Parts Inc. (NYSE:AAP). Capitalcube users can customize this peer set and instantly generate a new report relative to the new peers.

The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)	2013-03-31	2012-12-31	2012-09-30	2012-06-30	2012-03-31
Revenues	4,763.0	4,278.0	4,674.0	4,206.0	2,676.0
Revenue Growth %	11.3	(8.5)	11.1	57.2	(16.4)
Net Income	271.0	18.0	78.0	235.0	48.0
Net Income Growth %	1,405.6	(76.9)	(66.8)	389.6	(81.2)
Net Margin %	5.7	0.4	1.7	5.6	1.8
ROE % (Annualized)	21.2	1.5	6.4	19.9	4.4
ROA % (Annualized)	4.3	0.3	1.3	4.2	0.8

IEP Revenues Trend

IEP Net Margin Trend

Valuation Drivers

Icahn Enterprises L.P. trades at a lower Price/Book multiple (1.5) than its peer median (3.7). The market expects IEP-US to grow at about the same rate as its chosen peers (PE of 13.4 compared to peer median of 14.8) and to maintain the peer median return (ROE of 12.1%) it currently generates.

The company’s profit margins are below peer median (currently 3.4% vs. peer median of 6.2%) while its asset efficiency is about median (asset turns of 0.8x compared to peer median of 0.8x). IEP-US’s net margin is greater than (but within one standard deviation of) its four-year average net margin of 1.2%.

Economic Moat

The company has achieved better revenues growth than its chosen peers (year-on-year change in revenues of 32.8%) but its earnings growth performance has been below the median (change in annual reported earnings of -48.4% compared to the peer median of 9.6%). This suggests that, compared to its peers, the company is focused more on top-line revenues. IEP-US is currently converting every 1% of change in revenue into -1.5% change in annual reported earnings.

IEP-US’s return on assets is less than its peer median currently (2.5% vs. peer median 4.4%). It has also had less than peer median returns on assets over the past five years (0.7% vs. peer median 3.5%). This performance suggests that the company has persistent operating challenges relative to peers.

The company’s gross margin of 20.2% is around peer median suggesting that IEP-US’s operations do not benefit from any differentiating pricing advantage. However, IEP-US’s pre-tax margin is more than the peer median (7.8% compared to 6.3%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While IEP-US’s revenues have grown faster than the peer median (26.9% vs. 7.7% respectively for the past three years), the market gives the stock an about peer median PE ratio of 13.4. This suggests that the market has some questions about the company’s long-term strategy.

IEP-US’s annualized rate of change in capital of 23.0% over the past three years is greater than the peer median of 10.4%. This relatively high investment has generated a less than peer median return on capital of 4.2% averaged over the same three years. The relatively high investment and low current returns lead us to believe that the company is betting heavily on the future.

Earnings Quality

IEP-US reported relatively weak net income margins for the last twelve months (3.4% vs. peer median of 6.2%). This weak margin performance and relatively conservative accrual policy (5.0% vs. peer median of 4.1%) suggest the company might likely be understating its net income, possibly to the extent that there might even be some sandbagging of the reported net income numbers.

IEP-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Looking for more analysis? Get the FULL report for Icahn Enterprises (NASDAQ:IEP) here.

Company Profile

Icahn Enterprises LP is a holding company, which through its subsidiaries, engaged in nine primary business segments: Investment, Automotive, Energy, Gaming, Railcar, Food Packaging, Metals, Real Estate and Home Fashion. The Investment segment is comprised of various private investment funds, including Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP and Icahn Partners Master Fund III LP. The Automotive segment holds ownership in Federal-Mogul Corp., which is a supplier to the automotive, aerospace, energy, heavy duty truck, industrial, marine, power generation and railway industries. The Energy segment holds ownership in CVR Energy, Inc., which owns majority interests in two separate operating subsidiaries, CVR Refining, LP (“”CVRR”") and CVR Partners, LP (“”CVRP”"). The CVRR is an independent petroleum refiner and marketer of high-value transportation fuels in the mid-continent of the U.S. The CVRP is a nitrogen fertilizer producer in the heart of the Corn Belt. The Gaming segment holds ownership in Tropicana Entertainment Inc., which owns and operates a diversified, multi-jurisdictional collection of casino gaming properties. The Railcar segment holds ownership in American Railcar Industries Inc., which is a manufacturer of hopper and tank railcars. It provides fleet management, maintenance, engineering and field services. The American Railcar Industries services include maintenance planning, project management, tracking and tracing, regulatory compliance, mileage audit, rolling stock taxes and online service access. The Food Packaging segment holds ownership in Viskase Cos., Inc., which is engaged in production and sale of cellulosic, fibrous and plastic casings for the processed meat and poultry industry. The Metals segment operates through company indirect wholly owned subsidiary, PSC Metals, Inc., which is a one of the independent metal recycling companies in the U.S. and collects industrial and obsolete scrap metal, processes it into reusable forms and supplies the recycled metals to its customers including electric-arc furnace mills, integrated steel mills, foundries, secondary smelters and metals brokers. The Real Estate segment consists of rental real estate, property development and resort activities. The Home Fashion segment operates through company indirect wholly owned subsidiary WestPoint Home LLC, which a manufacturer and distributor of home fashion consumer products. The WestPoint Home is engaged in the business of manufacturing, sourcing, designing, marketing, distributing and selling home fashion consumer products. It markets a broad range of manufactured and sourced bed, bath and basic bedding products, including, sheets, pillowcases, bedspreads, quilts, comforters and duvet covers, feather beds, bath and beach towels, bath accessories, bed skirts, bed pillows, flocked blankets, woven blankets and throws, and mattress pads. The company was founded on February 17, 1987 and is headquartered in New York, NY.

Disclaimer

Earnings Quality Report: Chesapeake Energy Corp. (NYSE: CHK)

abha.dawesar — Thu, 27 Dec 2012 22:00:34 PST

We wrap up our week’s analysis on Chesapeake Energy Corp. (NYSE: CHK) with an assessment of its Earnings Quality. Our previous posts on the company covered Fundamental Analysis, Corporate Actions, and Dividend Quality. CapitalCube’s analysis are peer-based. The peer-set used for Chesapeake is: Anadarko Petroleum Corp.(APC), EOG Resources Inc.(EOG), Apache Corp.(APA), Devon Energy Corp.(DVN), Williams Companies Inc.(WMB), Noble Energy Inc.(NBL), Hess Corp.(HES) and EQT Corp.(EQT).

Overview

CHK-US’s relatively weak net income margins for the last twelve months combined with a level of accruals that is around peer median suggest that its reported net income is supported by a reasonable level of accruals.

The company’s accrual levels over the last twelve months are positive but around the peer median suggesting the company is recording a proper level of reserves relative to its peers.

Excluding the effects of change in revenue, the accounting categories causing the most impact on the movement of net income from the prior period to the current period are PP&E, Accounts Payable and Accounts Receivable.

Company numbers are TTM (trailing twelve months) or latest available. Share price data is previous day’s close unless otherwise stated.

Earnings: From Accounting or Cash Flow?

Net Income = Net Operating Cash Flow – “Accruals”

Accruals are estimates by company management of non-cash expenses, assets and liabilities that are recognized before they are paid. They are calculated as net operating cash flow less net income.

The analysis of accruals can help signal possible earnings management of reported net income and EPS results. For example, ‘Over-Accrued’ can signal under reported net income and/or the building of balance sheet reserve accounts, while ‘Under-Accrued’ can signal inflated Net Income results and/or release of balance sheet reserves to aid reported earnings.

Recent trend for CHK-US’s accruals

The annual trend suggests that CHK-US’s accruals to revenue ratio has increased 4.0 percentage points from last year’s low but is still below its four-year average accruals to revenue ratio of 66.6%. While its accruals to revenue ratio increased to 39.7% from 35.7% (in 2010), its peer median decreased during this period to 37.9% from 40.2%. Relative to peers, accruals to revenue ratio rose 6.3 percentage points (and ended higher than its peer median).

On a quarterly basis, CHK-US’s accruals to revenue ratio is its highest over the last five quarters and compares to a low of -11.8% in 2012-06-30. The increase in its accruals to revenue ratio to 95.7% from -11.8% was also accompanied by an increase in its peer median during this period to 65.2% from 18.4%. Relative to peers, accruals to revenue ratio rose 60.7 percentage points (and ended higher than its peer median).

Accounting Quality

Net income is supported by a reasonable level of accruals.

CHK-US reported relatively weak net income margins for the last twelve months (-4.5% vs. peer median of 10.4%). However, the company booked a level of accruals that is around peer median (44.3% vs. peer median of 40.6%) for the same period, suggesting that its reported net income is supported by a reasonable level of accruals.

Management of Reserves

CHK-US’s accounting suggests a proper level of reserves.

CHK-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Key Items Impacting Cash Flow

PP&E, Accounts Payable and Accounts Receivable have the most material impact on the movement of net income.

We assess the impact of various categories on the cash flow of the company by performing a variance analysis. For each category, this variance analysis measures the movement between the current and previous periods, normalized for the size of the company (e.g. days outstanding or percentage of revenues). This normalization eliminates any movement attributable to period-by-period growth and helps isolate the impact of any accounting policy changes the company might have made in recording the values in each category.

The chart on the right shows the impact of the top accounting categories on Chesapeake Energy Corp.’s cash flow for the current quarter. We consider both positive and negative impacts on the cash flow since the categories could have either decreased or increased the reported net income.

The table below details the impact of the major accounting categories on Chesapeake Energy Corp.’s net operating cash flow for the current quarter. While we have identified the major accrual categories, and conduct several tests on this standardized set, it should be noted that companies can sometimes have a non-standard accrual item that has a higher impact on the difference between net operating cash flow and net income.

Item	Latest Quarter	Previous Quarter	Impact On Cash Flow (mn)	Impact On Cash Flow (%)
Accounts Receivable DSO	65.8	90.1	812.6	85.6
Inventory DSO	0.0	0.0	0.0	0.0
Accounts Payable DSO	73.2	103.2	(1,004.8)	(105.9)
PPE DSO	1,162.7	1,513.2	11,751.0	1,238.2
Intangible Assets DSO	0.0	0.0	0.0	0.0
R&D DSO	0.0	0.0	0.0	0.0
SG&A DSO	4.4	6.0	51.6	5.4
Tax Rate (%)	N/A	39.0	N/A	N/A
Restructuring Expense (% Revenue)	N/A	N/A	N/A	N/A
Other Income (% Revenue)	(6.2)	(7.6)	(43.6)	(4.6)

Supporting Tests and Analytics

For further reference, we provide an extended analysis of the quality of accounting for each accrual category and the company’s results. We judge these results by comparing (i) against the company’s previous accounting policy — to ascertain if the policy has changed or (ii) against the peer group — to check if the company is being more aggressive or conservative than the peers or (iii) the appropriateness of the change and its implication. Log-in for this portion of our report.

Company Profile

Chesapeake Energy Corp. explores, develops and produces oil and natural gas properties. Its principal activities include discovering and developing unconventional natural gas and oil fields onshore in the U.S. The company has also vertically integrated its operations and owns substantial marketing, midstream and oilfield services businesses directly and indirectly through its subsidiaries Chesapeake Energy Marketing, Inc., Chesapeake Midstream Development LP, Chesapeake Oilfield Services LLC, and Chesapeake Midstream Partners LP. Chesapeake Energy operates its business though the following segments: Exploration and Production; Natural Gas and Oil Marketing; Gathering and Compression; and Oilfield Services. The Exploration and Production segment is responsible for finding and producing natural gas and oil. The Marketing, Gathering and Compression segment is responsible for marketing, gathering and compression of natural gas and oil primarily from Chesapeake-operated wells. The Oilfield Services segment is responsible for contract drilling, oilfield trucking, oilfield rental, pressure pumping and other oilfield services operations for both Chesapeake-operated wells and wells operated by third parties. The company was founded by Aubrey K. McClendon and Tom L. Ward on May 18, 1989 and is headquartered in Oklahoma City, OK.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any of our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.

Dividend Quality Analysis on Chesapeake Energy Corp. (NYSE:CHK)

abha.dawesar — Thu, 27 Dec 2012 08:03:57 PST

This week we’re taking a close look at Chesapeake Energy Corp.’s (NYSE:CHK) stock. Earlier this week we published our Fundamental Analysis and Corporate Actions assessment of the company. Today we assess its Dividend Quality. Chesapeake gets two stars from us for its Medium Dividend Quality and one star for its Dividend Quality trend; our overall score for its Dividend Quality is 25. For more on how we compute our Dividend Quality score read here.

The following peer set has been used in our analysis: Anadarko Petroleum Corp.(APC), EOG Resources Inc.(EOG), Apache Corp.(APA), Devon Energy Corp.(DVN), Williams Companies Inc(WMB), Noble Energy Inc.(NBL), Hess Corp.(HES) and EQT Corp.(EQT).

Overview

Over the last twelve months (prior to 2012-09-30), CHK-US paid a medium quality dividend, which represents a yield of 2.1% at the current price.

Dividend quality trend has not been consistent over the last five years. Dividends were paid during each of these years — of these 3 were medium quality and 2 were low quality.

The ending cash balance is less than the last full year dividend payment and cannot be relied on to cushion any significant reduction of cash flows in the future.

Company numbers are TTM (trailing twelve months) or latest available. Share price data is previous day’s close unless otherwise stated.

Dividend Yield and Payout

Cash flow coverage of the dividend paid is more relevant than dividend payout.

While traditional dividend analysis focuses on dividend payout from net income, we focus on the cash flow coverage of dividends (paid to the common stock) in order to determine their quality and sustainability. We assess whether dividends are being paid from operating, investing and issuance cash flows or whether the beginning cash balance is needed to make this payment. We make the assumption that cash dividends are paid only after net debt repayments. We consider the cash outflow from share buybacks to be discretionary and thus ignore its impact on cash required to support the dividend policy.

Dividends that are fully covered from operating and investing cash flow net of any cash outflow from debt repayments and net of a decrease in deposits (for banks) are considered to be “high quality”. Those that require an additional net cash inflow from issuance are categorized as “medium quality”. If operating, investing and issuance cash flows are not sufficient to fund the dividend and the beginning cash balance is used, the dividend is referred to as “low quality”.

This last category is most at risk of a dividend cut though we recognize that companies that have a large cash balance could continue to pay dividends even with a “low quality” dividend profile. For all these definitions, we assume the cash outlay for share buybacks is discretionary and can instead be used to support dividends.

CHK-US’s dividend payout is below its peer median.

Over the last twelve months (prior to 2012-09-30), CHK-US’s dividend payout of -24.3% and the corresponding dividend yield of 2.1% (relative to the current price) compare to a peer median level of 15.1% and 0.9% respectively. Relative to its peers, the firm is generating a high dividend yield. However, its dividend payout is negative which suggests a likely downward pressure on the dividend based on this traditional analysis.

Dividend Coverage

Over the last twelve months (prior to 2012-09-30), CHK-US paid a medium quality dividend.

The source of the company’s cash to support the dividend paid over the last twelve months is operating cash flow (coverage of 10.4x), investing cash flow (coverage of -25.8x), issuance cash flow (coverage of 16.4x) and twelve-month prior cash (coverage of 0.3x), for a total dividend coverage of 1.8x.

These coverage ratio factors imply that the firm’s net cash inflow from issuance was required (in addition to operating and investment cash) to pay the dividend, which suggests a medium dividend quality. CHK-US’s dividend quality is not in line with the majority of its peers, which comprise 1 high quality, 3 medium quality and 4 low quality.

Dividend quality varied between medium and low over the last five years.

CHK-US has paid a dividend in each of its last five years. The distribution of dividend quality over this period consists of 3 medium and 2 low. In particular, the dividends paid in the two most recent years were of medium quality. During this period, the medium quality dividend coverage has remained more or less stable at 2.2x relative to the prior year.

CHK-US’s dividend has a weak cushion from the ending cash balance.

Though the dividend yield is high relative to peers, it is of medium quality in this period. Assuming the cash dividend paid remains constant, the medium quality coverage would need to deteriorate by 7% before the company dips into its beginning cash balance to fund the dividend payment.

This level of deterioration overall cash flows is possible in the course of business suggesting a current dividend quality that is less robust. The ending cash balance is less than the last full year dividend payment and cannot be relied on to cushion any significant reduction of cash flows in the future.

Company Profile

Disclaimer

Chesapeake Energy Corp. (NYSE:CHK): Possible merger target?

abha.dawesar — Wed, 26 Dec 2012 09:49:36 PST

Today we assess if Chesapeake Energy Corp. (NYSE:CHK) could be a likely merger target or an acquirer within its peer group. The peer set we use for our analysis comprises: Anadarko Petroleum Corp.(APC), EOG Resources Inc.(EOG), Apache Corp.(APA), Devon Energy Corp.(DVN), Williams Companies Inc(WMB), Noble Energy Inc.(NBL), Hess Corp.(HES) and EQT Corp.(EQT).

If you missed our Fundamental Analysis on the company published earlier this week click here.

Overview

CHK-US’s relative size and current valuation make it a possible merger target within this peer group.

CHK-US could achieve growth through acquisitions as it is big enough (by book value) and has only a modest level of goodwill on its balance sheet, but its valuation is not high enough to make acquisitions within this peer group easy.

Downward pressure on CHK-US’s dividends due to relatively weak operating results, low interest coverage and a weak cash cushion (for the dividend) is offset by the medium dividend quality, which does not indicate the need to change dividend policy in the short-term.

While the company’s share price is sufficiently below its 52-week high (currently about 35% below) it does not have a positive free cash flow, which suggests that a share buyback at this time may not be prudent.

Company numbers are TTM (trailing twelve months) or latest available. Share price data is previous day’s close unless otherwise stated.This report does not predict dividend or equity actions but highlights corporate actions that are supported by fundamental company performance and corporate finance principles.

M&A Action

Why merge or acquire?

Companies typically acquire to realize economies of scale, scope, gain customers, bundle complementary products, or gain vertical integration. From an investor’s perspective, these business reasons fall into natural screening categories that include: (a) buying companies to boost growth expectations; (b) buying to realize cost synergies; and (c) buying earnings through acquisitions that increase EPS.

Potential targets would typically be smaller than their peers though sometimes targets can be marginally larger than the acquirer. As a result, when identifying a company as a target, we check for a book value that is up to 80% more than the peer median. In addition, we also filter for a cheap valuation relative to peers (i.e. price to book is less than the peer median) and a share price that is trading sufficiently (i.e. at least 20%) below its 52-week high.

M&A Target Conditions			CHK-US	Comparable	Pass/Fail
Book value	<=	1.8 x Peer median	12,265.0	23,452.6	Pass
% below 52-week high share price	>=	20%	34.8	20	Pass
Price to book (P/B)	<=	1.2 x Peer median*	0.9	2.2	Pass
* We use a 20% tolerance (0.8-1.2x) around the median.

Typically, acquirers are larger than their peers though, as mentioned above, targets can sometimes be marginally larger than the acquirer. To identify a company as an acquirer, we look for a book value that is around or more than the peer median and for growth expectations (measured by its price to earnings or P/E) that are lower than peer median. In addition, we consider whether the company has the capacity to add intangible assets (like goodwill) and whether its valuation (measured by its price to book or P/B) is attractive relative to its peers.

M&A Acquirer Conditions			CHK-US	Comparable	Pass/Fail
Book value	>=	0.8 x Peer median	12,265.0	10,423.4	Pass
Price to earnings (P/E)	<=	1.2 x Peer median*	N/A	41.7	N/A
Net tangible assets to equity	>=	25%	99.8	25	Pass
Price to book (P/B)	>=	0.8 x Peer median*	0.9	1.5	Fail
* We use a 20% tolerance (0.8-1.2x) around the median.

Relative size and current market value make CHK-US a possible merger target within this peer group.

With a book value of USD12,265 million, CHK-US could be acquired by others within this peer group. It may also be a possible target now because its share price is reasonably off its 52-week high and not so high in relation to book (P/B is lower than peers) that it would deter an acquirer.

CHK-US’s relative valuation (P/B) is not high enough to suggest acquisitions in this peer group.

CHK-US could achieve growth through acquisitions as it is big enough (by book value) and has room for more goodwill on its balance sheet. Acquisitions in this peer group would be more likely if its relative valuation (P/B) was higher.

Dividend Action

Dividend cut, increase or initiate?

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Share Buyback

Is the company likely to buy back shares?

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Company Profile

Disclaimer

Fundamental Analysis: Chesapeake Energy Corp. (NYSE:CHK)

abha.dawesar — Mon, 24 Dec 2012 09:18:00 PST

This week we take a look at Chesapeake Energy Corp. (NYSE:CHK) starting today with an analysis of the company’s fundamentals. Our analysis later this week will cover our assessment of its likely Corporate Actions, Dividend Quality, and Earnings Quality.

For details on how CapitalCube computes the Fundamental Analysis Score of a company read here. Our analysis is peer-based; we used the following peer set for analyzing Chesapeake: Anadarko Petroleum Corp.(APC), EOG Resources Inc.(EOG), Apache Corp.(APA), Devon Energy Corp.(DVN), Williams Companies Inc(WMB), Noble Energy Inc.(NBL), Hess Corp.(HES) and EQT Corp.(EQT).

If you are logged-in then you can change the default peer set (shown on the right) by either adding a new peer in the circled box or deleting any peers you don’t want by simply removing the checked peers. When you re-run the analysis Chesapeake will be scored and analyzed with your new custom peer set.

Fundamental Analysis

Chesapeake Energy Corp. trades at a lower Price/Book multiple (0.9) than its peer median (1.8).

CHK-US looks challenged given its below median EBITDA-based returns and the market’s low expectations of its growth.

CHK-US has relatively low profit margins and median asset efficiency.

Compared with its chosen peers, the company’s annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success.

CHK-US’s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.

The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.

While CHK-US’s revenue growth in recent years has been above the peer median, the stock’s Price/EBITDA ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.

The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.

CHK-US’s operating performance may not allow it to raise additional debt.

Company numbers are TTM (trailing twelve months) or latest available. Share price data is previous day’s close unless otherwise stated.

Share Price Performance

Relative underperformance over the last year and the last month suggest a lagging position.

CHK-US’s share price performance of -24.7% for the last 12 months is below its peer median. The 30-day trend in its share price performance of -1.5% is also below the peer median implying that the company’s stock performance is lagging its peers.

Drivers of Valuation: Operations or Expectations?

Valuation (P/B) = Operating Advantage (ROE) * Growth Expectations (P/E)

Price/Book or P/B valuation is a function of the observed operating performance of the company as measured by ROE multiplied by the market’s current implied growth expectation as measured by the P/E. We define Valuation Premium as the difference between the Market Capitalization and Book Value of Equity, and as a proxy for the NPV of cash-flow associated to the Book Equity investment.

Based on the analysis of the relative contribution to the P/B valuation of “Operations ROE” vs. “Expectations P/E”, we quickly garner insight into peers comparative performance and the market’s assessment of their strategies – are they just “Harvesting” the current business pipeline or are investors betting on a strategic “Turnaround”?

CHK-US has a challenged profile relative to peers.

CHK-US’s PE multiple is negative now so EBITDA ratios provide better peer comparisons. CHK-US’s performance looks relatively challenged because of its below median returns (EBITDA return on equity of 22.8% compared to the peer median of 33.5%) and the market’s relatively low expectations of its growth (Price to Ebitda multiple of 3.7 compared to peer median of 5.3). The company trades at a lower Price/Book multiple of 0.9 compared to its peer median of 1.8.

Operations Diagnostic

CHK-US has relatively low profit margins and median asset efficiency.

The company’s profit margins are below peer median (currently -5.7% vs. peer median of 9.9%) while its asset efficiency is about median (asset turns of 0.2x compared to peer median of 0.2x).

CHK-US has moved to a relatively low net margin from a relatively high net margin profile at the recent year-end.

CHK-US’s net margin continues to trend downward and is below (but within one standard deviation of) its five-year average net margin of -2.8%. The decrease in its net margin to -5.7% from 16.6% (in 2011) was also accompanied by a decrease in its peer median during this period to 9.9% from 12.4%. Net margin fell 19.7 percentage points relative to peers (and is now also lower than its peer median).

CHK-US’s asset turnover is downward trending and is now similar to its five-year average asset turnover of 0.3. Though its asset turnover has remained relatively stable at 0.2 compared to 2011, its peer median has decreased to 0.2 from 0.3 during this period. Overall, asset turnover and net margin trends suggest that CHK-US’s ROA at -1.4% has maintained its downward trend and is below (but within one standard deviation of) its five-year average ROA of -0.1%.

Earnings Leverage

Lagging revenues and earnings imply a lack of strategic focus and/or ability to execute.

Changes in the company’s annual top line and earnings (12.0% and -1.8% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

Sustainability of Returns

CHK-US’s relative returns suggest that the company has operating challenges.

CHK-US’s return on assets is less than its peer median currently (-1.4% vs. peer median 2.6%). It has also had less than peer median returns on assets over the past five years (-0.06% vs. peer median 3.5%). This performance suggests that the company has persistent operating challenges relative to peers.

Drivers of Margin

Relatively low margins suggest a non-differentiated product portfolio and not much control on operating costs.

The company’s comparatively low gross margin of 36.9% versus peer median of 66.0% suggests that it has a non-differentiated strategy or is in a pricing constrained position. In addition, CHK-US’s bottom-line operating performance is below peer median (pre-tax margins of -7.6% compared to peer median 16.6%) suggesting relatively high operating costs.

CHK-US has moved to a Commodity/High Cost from a Commodity/Low Cost profile at the recent year-end.

CHK-US’s gross margin is its lowest relative to the last five years and compares to a high of 61.2% in 2007. The decrease in its gross margin to 36.9% from 38.6% (in 2011) was also accompanied by a decrease in its peer median during this period to 66.0% from 73.9%. Gross margin rose 6.2 percentage points relative to peers.

CHK-US’s pre-tax margin is downward trending and is below (but within one standard deviation of) its five-year average pre-tax margin of -4.2%. Like the gross margin trend, the decrease in its pre-tax margin (to -7.6% from 26.0%) was also accompanied by a decrease in its peer median during this period (to 16.6% from 19.3%). Relative to peers, pre-tax margin fell 30.9 percentage points (and is now also lower than its peer median).

Growth Expectations

The company’s earnings may be peaking.

While CHK-US’s revenues growth has been above the peer median (-1.1% vs. -1.6% respectively for the past three years), the stock’s Price/EBITDA ratio of 3.7 is less than the peer median (Note: We use Price/EBITDA instead of PE due to negative earnings). This implies that the company’s earnings are peaking and the market expects a decline in its growth expectations.

Capital Investment Strategy

CHK-US seems to be in maintenance mode.

CHK-US’s annualized rate of change in capital of -3.5% over the past three years is less than its peer median of 10.9%. This below median investment level has also generated a less than peer median return on capital of -2.7% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.

Leverage & Liquidity

CHK-US would seem to have a hard time raising additional debt.

With debt at 27.5% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 17.7%), and relatively tight interest coverage level of 0.5x, CHK-US would have a hard time raising much additional debt. All 9 peers for the company have an outstanding debt balance.

CHK-US has maintained its relatively low liquidity profile from the recent year-end.

CHK-US’s interest coverage is its lowest relative to the last five years and compares to a high of 141.5x in 2010. The decrease in its interest coverage to 0.5x from 1.8x (in 2011) was also accompanied by a decrease in its peer median during this period to 3.4x from 5.5x. Interest coverage rose 0.8 points relative to peers. It is also below the 2.5x coverage benchmark unlike the peer median.

CHK-US’s debt-EV has increased 6.8 percentage points from last year’s low and is now above its five-year average debt-EV of 25.0. While its debt-EV increased to 27.5% from 20.7% (in 2011), its peer median decreased during this period to 17.7% from 18.4%. Relative to peers, debt-EV rose 7.5 percentage points. Unlike the peer median, it is also above the 25% leverage benchmark.

For Key Valuation Items, Revenues & Margins, Key Assets (% of Revenues), Key Working Capital Items, Cash Management Indicators, Key Liquidity Items, Key Cash Flow Items (% of Revenues) please log-in.

Company Profile

Chesapeake Energy Corp. (NYSE:CHK) explores, develops and produces oil and natural gas properties. Its principal activities include discovering and developing unconventional natural gas and oil fields onshore in the U.S. The company has also vertically integrated its operations and owns substantial marketing, midstream and oilfield services businesses directly and indirectly through its subsidiaries Chesapeake Energy Marketing, Inc., Chesapeake Midstream Development LP, Chesapeake Oilfield Services LLC, and Chesapeake Midstream Partners LP. Chesapeake Energy operates its business though the following segments: Exploration and Production; Natural Gas and Oil Marketing; Gathering and Compression; and Oilfield Services. The Exploration and Production segment is responsible for finding and producing natural gas and oil. The Marketing, Gathering and Compression segment is responsible for marketing, gathering and compression of natural gas and oil primarily from Chesapeake-operated wells. The Oilfield Services segment is responsible for contract drilling, oilfield trucking, oilfield rental, pressure pumping and other oilfield services operations for both Chesapeake-operated wells and wells operated by third parties. The company was founded by Aubrey K. McClendon and Tom L. Ward on May 18, 1989 and is headquartered in Oklahoma City, OK.

Disclaimer

Earnings Analysis: Synopsys Inc. (NASDAQ:SNPS)

abha.dawesar — Thu, 13 Dec 2012 07:48:34 PST

Synopsys Inc. (NASDAQ:SNPS) reports preliminary financial results for the year ended 2012-10-31.

" src="http://upload.wikimedia.org/wikipedia/commons/f/f5/Electronic_circuit.jpg" alt="By Nicola Asuni Nicolaasuni (www.circuitsarchive.org Nicola Asuni) [GFDL (http://www.gnu.org/copyleft/fdl.html), CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/) or FAL], via Wikimedia Commons" width="400" height="264" />Synopsys Inc. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Synopsys Inc.’s analysis versus peers uses the following peer-set: ARM Holdings PLC ADS (ARMH), Autodesk Inc. (ADSK), Ansys Inc. (ANSS), Cadence Design Systems Inc. (CDNS), National Instruments Corp. (NATI) and Mentor Graphics Corp. (MENT). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million)	2012-10-31	2011-10-31	2010-10-31	2009-10-31	2008-10-31
Revenues	1,756.0	1,535.6	1,380.7	1,354.7	1,337.0
Revenue Growth %	14.4	11.2	1.9	1.3	10.3
Net Income	182.4	221.4	237.1	167.7	190.0
Net Income Growth %	(17.6)	(6.6)	41.4	(11.7)	45.6
Net Margin %	10.4	14.4	17.2	12.4	14.2
ROE %	7.9	10.5	12.0	9.9	12.8
ROA %	4.9	6.7	7.6	5.9	7.1

Valuation Drivers

Synopsys Inc.’s current Price/Book of 1.9 is about median in its peer group. The market expects SNPS-US to grow earnings about as fast as the median of its chosen peers (PE of 26.5 compared to peer median of 32.3) but not to expect much improvement in its below peer median rates of return (ROE of 7.9% compared to the peer median ROE of 12.7%).

The company employs relatively high amounts of assets (with a turnover of 0.5x compared to peer median of 0.7x) while generating profit margins of 10.4% that are only about median among its chosen peers. SNPS-US’s net margin is its lowest relative to the last five years and compares to a high of 17.2% in 2010.

Economic Moat

SNPS-US’s revenues have changed in-line with its peers (year-on-year change in revenues is 14.4%) but its earnings have lagged (annual reported earnings have changed by -17.6% compared to the peer median of 18.0%), implying that the company has less control over its costs relative to its peers. SNPS-US is currently converting every 1% of change in revenue into -1.2% change in annual reported earnings.

SNPS-US’s return on assets is now less than its peer median (4.9% vs. peer median 7.9%) in contrast to its returns over the past five years which were around the peer median (6.4% vs. peer median 7.0%). Recent performance suggests that the company’s historical competitive advantage is slipping away.

The company’s gross margin of 85.6% is around peer median suggesting that SNPS-US’s operations do not benefit from any differentiating pricing advantage. In addition, SNPS-US’s pre-tax margin of 11.5% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

SNPS-US’s revenues have grown at about the same rate as its peers (9.0% vs. 8.7% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 26.5. The historical performance and long-term growth expectations for the company are largely in sync.

SNPS-US’s annualized rate of change in capital of 12.7% over the past three years is around its peer median of 11.4%. This median investment has likewise generated a peer median return on capital of 10.1% averaged over the same three years. This median return on investment implies that company is investing appropriately.

Earnings Quality

SNPS-US’s net income margin for the last twelve months is around the peer median (10.4% vs. peer median of 10.8%). This average margin and relatively conservative accrual policy (17.3% vs. peer median of 11.3%) suggests possible understatement of its reported net income.

SNPS-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Company Profile

Synopsys, Inc. provides technology solutions used to develop electronics and electronic systems. The company supplies the electronic design automation software that engineers use to design, create prototypes for and test integrated circuits, also known as chips. It also supplies software and hardware used to develop the systems that incorporate integrated circuits and the software that runs on those integrated circuits. The company’s products and services are organized into four groups: Core EDA, Intellectual Property and System-Level Solutions, Manufacturing Solutions and Professional Services. The Core EDA products generally fall into the following suites: the Galaxy Design Platform, which includes tools to design an integrated circuit; the Discovery Verification Platform, which includes tools to verify that an integrated circuit behaves as intended and the FPGA design products, which includes complex chips that can be customized or programmed to perform a specific function after they are manufactured. The company’s Intellectual Property products are pre-designed circuits that engineers use as components of larger chip designs rather than redesigning those circuits themselves, which includes broad DesignWare IP portfolio, such as USB, PCI Express, DDR, Ethernet, SATA and HDMI. The System-Level Solutions include Platform Architect for architectural optimization; SPW and System Studio for algorithm design; Processor Designer for custom processor design and Synphony Model and C Compiler for High Level Synthesis. The Manufacturing Solutions include the Technology-CAD device modeling products; Proteus OPC optical proximity correction products; CATS mask data preparation product and Yield Management solutions, including Odyssey and Recipe Manager and Editor and Yield Explorer. The Professional Services and Training includes consulting and design services that address all phases of the SoC development process, such as assist Synopsys customers with new tool and methodology adoption, chip architecture and specification development, functional and low power design and verification, and physical implementation and signoff. Synopsys was founded by Aart J. de Geus on December 1, 1986 and is headquartered in Mountain View, CA.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.

Earnings Analysis: Dollar General Corp. (NYSE:DG)

abha.dawesar — Wed, 12 Dec 2012 10:51:15 PST

Dollar General Corp. (NYSE:DG) reports preliminary financial results for the quarter ended 2012-10-31.

Dollar General Corp. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Dollar General Corp.’s analysis versus peers uses the following peer-set: Wal-Mart Stores Inc. (WMT*), Costco Wholesale Corp. (COST), Target Corp. (TGT), Dollar Tree Inc. (DLTR), Family Dollar Stores Inc. (FDO*) and Big Lots Inc. (BIG*). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

*CapitalCube recently analyzed earnings for other companies in the Discount Stores sector; here are links: Earnings Analysis: Big Lots Inc. (NYSE:BIG), Earnings Analysis: Wal-Mart Stores Inc. (NYSE:WMT), Earnings Analysis: Family Dollar Stores Inc. (NYSE:FDO).

Quarterly (USD million)	2012-10-31	2012-07-31	2012-04-30	2012-01-31	2011-10-31
Revenues	3,964.6	3,948.7	3,901.2	4,185.1	3,595.2
Revenue Growth %	0.4	1.2	(6.8)	16.4	0.6
Net Income	207.7	214.1	213.4	292.5	171.2
Net Income Growth %	(3.0)	0.3	(27.0)	70.9	17.2
Net Margin %	5.2	5.4	5.5	7.0	4.8
ROE % (Annualized)	17.4	18.2	18.4	25.4	15.3
ROA % (Annualized)	8.2	8.6	8.7	12.0	7.1

Valuation Drivers

Dollar General Corp.’s current Price/Book of 3.0 is about median in its peer group. The market expects DG-US to grow at about the same rate as its chosen peers (PE of 15.7 compared to peer median of 15.4) and to maintain the peer median return (ROE of 20.0%) it currently generates.

The company’s relatively high profit margins (currently 5.8% vs. peer median of 4.2%) are burdened by asset inefficiency with asset turns of 1.6x compared to the peer median of 2.6x. Overall, this suggests a margin driven operating model relative to its peers. DG-US’s net margin is its highest relative to the last five years and compares to a low of -0.1% in 2008.

Economic Moat

The company enjoys both better than peer median annual revenue growth of 13.6% and better than peer median earnings growth performance 22.1%. DG-US currently converts every 1% of change in annual revenue into 1.6% of change in annual reported earnings. We view this company as a leader among its peers.

DG-US’s current return on assets is around the same as its peer median (9.3% vs. peer median 8.5%). This recent performance contrasts with its less than peer median return on assets over the past five years (3.9% vs. peer median 8.4%) suggesting that the company’s relative operating performance is improving.

The company’s gross margin of 33.5% is around peer median suggesting that DG-US’s operations do not benefit from any differentiating pricing advantage. However, DG-US’s pre-tax margin is more than the peer median (9.2% compared to 6.3%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While DG-US’s revenues have grown faster than the peer median (12.3% vs. 8.0% respectively for the past three years), the market gives the stock an about peer median PE ratio of 15.7. This suggests that the market has some questions about the company’s long-term strategy.

DG-US’s annualized rate of change in capital of 1.4% over the past three years is less than its peer median of 2.0%. This below median investment level has also generated a less than peer median return on capital of 8.1% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.

Earnings Quality

DG-US has reported relatively strong net income margin for the last twelve months (5.8% vs. peer median of 4.2%). This strong margin performance was accompanied by a level of accruals that was around peer median (1.3% vs. peer median of 1.4%) suggesting that the reported net income is supported by a reasonable level of accruals.

DG-US’s accruals over the last twelve months are around zero. This level is also around the peer median suggesting a proper level of reserves.

Trend Charts

Company Profile

Dollar General Corp. operates as a discount retailer in the United States. It offers merchandise items, including consumables, seasonal, home products, private and national branded items that are used and replenished, such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, house wares and seasonal items in convenient neighborhood stores. The company was founded by J. L. Turner and Hurley Calister Turner in 1939 and is headquartered in Goodlettsville, TN.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.

Earnings Analysis: Gildan Activewear Inc. (NYSE:GIL)

abha.dawesar — Mon, 10 Dec 2012 12:45:47 PST

Gildan Activewear Inc. (NYSE:GIL) reports preliminary financial results for the year ended 2012-09-30.

Gildan Activewear Inc. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Gildan Activewear Inc.’s analysis versus peers uses the following peer-set: VF Corp. (VFC), Michael Kors Holdings Ltd. (KORS), Under Armour Inc. Cl A (UA), Abercrombie & Fitch Co. Cl A (ANF), Hanesbrands Inc.(HBI) and Warnaco Group Inc. (WRC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million)	2012-09-30	2011-09-30	2010-09-30	2009-09-30	2008-09-30
Revenues	1,948.3	1,726.0	1,311.5	1,038.3	1,249.7
Revenue Growth %	12.9	31.6	26.3	(16.9)	29.6
Net Income	148.5	239.9	198.2	95.3	144.6
Net Income Growth %	(38.1)	21.0	108.0	(34.1)	11.2
Net Margin %	7.6	13.9	15.1	9.2	11.6
ROE %	10.8	19.7	19.6	11.1	19.6
ROA %	7.8	14.9	16.5	8.7	14.6

Valuation Drivers

Gildan Activewear Inc.’s current Price/Book of 3.0 is about median in its peer group. The market expects GIL-US to grow earnings about as fast as the median of its chosen peers (PE of 29.3 compared to peer median of 35.4) but not to expect much improvement in its below peer median rates of return (ROE of 10.8% compared to the peer median ROE of 16.2%).

The company’s asset efficiency (asset turns of 1.0x) and net profit margins of 7.6% are both median for its peer group. GIL-US’s net margin is its lowest relative to the last five years and compares to a high of 15.1% in 2010.

Economic Moat

Changes in the company’s annual top line and earnings (12.9% and -38.1% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

GIL-US’s current return on assets is around peer median (7.8% vs. peer median 7.8%). This contrasts with its higher than peer median return on assets over the past five years (12.5% vs. peer median 8.9%), suggesting that the company’s relative operating performance has declined.

The company’s comparatively low gross margins of 25.2% versus peer median of 48.0% suggests that it has a non-differentiated strategy or is in a pricing constrained position. However, GIL-US’s pre-tax margin of 7.3% is around the peer median which, when combined with the gross margin, suggests lower operating costs relative to peers.

Growth & Investment Strategy

While GIL-US’s revenues have grown faster than the peer median (23.3% vs. 7.4% respectively for the past three years), the market gives the stock an about peer median PE ratio of 29.3. This suggests that the market has some questions about the company’s long-term strategy.

GIL-US’s annualized rate of change in capital of 20.6% over the past three years is higher than its peer median of 7.8%. This investment has generated an above peer median return on capital of 15.7% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

GIL-US’s net income margin for the last twelve months is around the peer median (7.6% vs. peer median of 6.4%). This average margin combined with a level of accruals that is around peer median (3.7% vs. peer median of 3.7%) suggests there possibly isn’t too much accrual movement flowing into the company’s reported earnings.

GIL-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Company Profile

Gildan Activewear, Inc. is a vertically integrated marketer and manufacturer of quality branded basic apparel and also produces hosiery for the retail market. It sells T-shirts, sport shirts and fleece in large quantities to wholesale distributors as undecorated blanks which are subsequently decorated by screen printers with designs and logos. Gildan’s Wholesale division is the leading supplier of activewear for the screen-print market in the United States, Canada, and Europe. Its products are also utilized for work uniforms and other end-uses to convey individual, group and team identity. It Retail division supplies private label and Gildan branded socks primarily sold to mass-market retailers. The company was founded Glenn J. Chamandy & H. Greg Chamandy on May 8, 1984 and is headquartered in Montreal, Canada.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.

Earnings Analysis: Avago Technologies Ltd. (NASDAQ:AVGO)

abha.dawesar — Mon, 10 Dec 2012 10:42:07 PST

Avago Technologies Ltd. (NASDAQ:AVGO) reports preliminary financial results for the year ended 2012-10-31.

Avago Technologies Ltd. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Avago Technologies Ltd.’s analysis versus peers uses the following peer-set: Texas Instruments Incorporated (TXN), Analog Devices Inc. (ADI), Infineon Technologies AG ADS (IFNNY), STMicroelectronics N.V.(STM), Skyworks Solutions Inc. (SWKS), LSI Corp. (LSI), Hittite Microwave Corp.(HITT), Vishay Intertechnology Inc. (VSH), RF Micro Devices Inc.(RFMD) and TriQuint Semiconductor Inc.(TQNT). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million)	2012-10-31	2011-10-31	2010-10-31	2009-10-31	2008-10-31
Revenues	2,364.0	2,336.0	2,093.0	1,484.0	1,699.0
Revenue Growth %	1.2	11.6	41.0	(12.7)	11.3
Net Income	563.0	552.0	415.0	(44.0)	57.0
Net Income Growth %	2.0	33.0	N/A	(177.2)	N/A
Net Margin %	23.8	23.6	19.8	(3.0)	3.4
ROE %	25.4	31.4	32.6	(4.8)	7.7
ROA %	21.2	24.0	20.1	(2.3)	3.0

Valuation Drivers

Avago Technologies Ltd.’s current Price/Book of 3.5 is about median in its peer group. We classify AVGO-US as Harvesting because of the market’s low expectations of growth (PE of 15.2 compared to peer median of 19.7) despite its relatively high returns (ROE of 25.4% compared to the peer median ROE of 12.4%).

The company has a successful operating strategy with above median net profit margins of 23.8% (vs. peer median of 11.1%) and relatively high asset turns of 0.9x (vs. peer median of 0.7x). This suggests that the company has a dominant operating model relative to its peers. AVGO-US’s net margin is its highest relative to the last five years and compares to a low of -14.4% in 2007.

Economic Moat

The company enjoys both better than peer median annual revenue growth of 1.2% and better than peer median earnings growth performance 2.0%. AVGO-US currently converts every 1% of change in annual revenue into 1.7% of change in annual reported earnings. We view this company as a leader among its peers.

AVGO-US’s return on assets is above its peer median both in the current period (21.2% vs. peer median 8.1%) and also over the past five years (13.2% vs. peer median 6.3%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s gross margin of 54.0% is around peer median suggesting that AVGO-US’s operations do not benefit from any differentiating pricing advantage. However, AVGO-US’s pre-tax margin is more than the peer median (24.7% compared to 11.1%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While AVGO-US’s revenues growth has been above the peer median (16.8% vs. 7.4% respectively for the past three years), the stock’s PE ratio of 15.2 is less than the peer median. This implies that the company’s earnings are peaking and the market expects a decline in its growth expectations.

AVGO-US’s annualized rate of change in capital of 13.9% over the past three years is around the same as its peer median of 13.9%. This investment has generated a better than peer median return on capital of 26.5% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.

Earnings Quality

AVGO-US has reported relatively strong net income margin for the last twelve months (23.8% vs. peer median of 11.1%). This strong margin performance was accompanied by a level of accruals that was around peer median (5.5% vs. peer median of 6.2%) suggesting that the reported net income is supported by a reasonable level of accruals.

AVGO-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Company Profile

Avago Technologies Ltd. designs, develops and supplies broad range of analog semiconductor devices with a focus on III-V based products. The company’s product portfolio is extensive and includes 6,500 products in four primary target markets: wireless communications, wired infrastructure, industrial and automotive electronics, and consumer and computing peripherals. Its applications for products in these target markets include cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, power generation and renewable energy systems, factory automation, displays, optical mice and printers. The company was founded in 1961 and is headquartered in Singapore.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.

Earnings Analysis: Big Lots Inc. (NYSE:BIG)

abha.dawesar — Thu, 06 Dec 2012 14:31:41 PST

Big Lots Inc. (NYSE:BIG) reports preliminary financial results for the quarter ended 2012-10-31.

Big Lots Inc. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Big Lots Inc.’s analysis versus peers uses the following peer-set: Costco Wholesale Corp. (COST), Target Corp. (TGT), Dollar General Corp. (DG), Dollar Tree Inc. (DLTR), Family Dollar Stores Inc. (FDO) and Fred’s Inc.(FRED). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)	2012-10-31	2012-07-31	2012-04-30	2012-01-31	2011-10-31
Revenues	1,134.2	1,218.0	1,294.5	1,669.6	1,138.3
Revenue Growth %	(6.9)	(5.9)	(22.5)	46.7	(2.5)
Net Income	(6.0)	22.1	40.8	114.7	4.2
Net Income Growth %	(127.1)	(45.8)	(64.5)	2,605.7	(88.1)
Net Margin %	(0.5)	1.8	3.2	6.9	0.4
ROE % (Annualized)	(3.6)	11.8	20.0	58.3	2.2
ROA % (Annualized)	(1.3)	5.2	9.5	24.7	1.0

Valuation Drivers

Big Lots Inc. currently trades at a higher Price/Book ratio (2.8) than its peer median (2.0). We classify BIG-US as Harvesting because of the market’s low expectations of growth (PE of 11.8 compared to peer median of 16.5) despite its relatively high returns (ROE of 24.8% compared to the peer median ROE of 19.4%).

The company’s profit margins are below peer median (currently 3.2% vs. peer median of 4.2%) while its asset efficiency is about median (asset turns of 2.6x compared to peer median of 2.8x). BIG-US’s net margin is its lowest relative to the last five years and compares to a high of 4.5% in 2011.

Economic Moat

Changes in the company’s annual top line and earnings (5.0% and -6.9% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

BIG-US’s current return on assets is around peer median (8.5% vs. peer median 8.5%). This contrasts with its higher than peer median return on assets over the past five years (11.4% vs. peer median 6.1%), suggesting that the company’s relative operating performance has declined.

The company’s gross margin of 39.4% is around peer median suggesting that BIG-US’s operations do not benefit from any differentiating pricing advantage. In addition, BIG-US’s pre-tax margin of 5.4% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

BIG-US’s revenues have grown more slowly than the peer median over the last few years (3.8% vs. 8.0% respectively for the past three years) and the stock price’s relatively low PE ratio of 11.8 implies relatively low future growth as well. Overall, we view the company’s growth expectations as substandard relative to its peers.

BIG-US’s annualized rate of change in capital of 2.0% over the past three years is around the same as its peer median of 2.0%. This investment has generated a better than peer median return on capital of 22.3% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.

Earnings Quality

BIG-US reported relatively weak net income margins for the last twelve months (3.2% vs. peer median of 4.2%). However, the company booked a level of accruals that is around peer median (1.7% vs. peer median of 1.4%) for the same period, suggesting that its reported net income is supported by a reasonable level of accruals.

BIG-US’s accruals over the last twelve months are around zero. This level is also around the peer median suggesting a proper level of reserves.

Trend Charts

Company Profile

Big Lots, Inc. operates broadline closeout retail stores. It operates its business in the United States and Canada. It operates six merchandise categories: Consumables, Furniture, Home, Seasonal, Play n’ Wear, and Hardlines & Other. The Consumables category includes the food, health and beauty, plastics, paper, chemical, and pet departments. The Furniture category includes the upholstery, mattresses, ready-to-assemble, and case goods departments. Case goods consist of bedroom, dining room, fireplaces, and other occasional furniture. The Home category includes the domestics, stationery, and home decorative departments. The Seasonal category includes the lawn & garden, Christmas, summer, and other holiday departments. The Play n’ Wear category includes the electronics, toy, jewelry, infant accessories, and apparel departments. The Hardlines & Other category includes the appliances, tools, paint, and home maintenance departments, as well as the results of certain large closeout deals that are typically acquired through the company’s alternate product sourcing operations. It was founded by Sol A. Shenk in 1967 and is headquartered in Columbus, OH.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.