Wax Ink

Carnal Kathy Comes to Cleveland

2019-02-21T03:58:00.002-06:00

I could waste a lot of your time with graphs, charts, and other assorted worthless information all intended to show you that I know something about something when it comes to this company. But the truth is, I don't know squat about this company. My intent is to provide you with a brief overview of the company's various valuations so you can determine if you personally have any investment interest.

What They Do
Cooper Tire and Rubber specializes in the design, manufacture, marketing and sales of passenger car and light truck tires. The company also designs, manufactures, and sells medium truck, motorcycle and racing tires. Listed competitors are Bridgestone Corporation, Goodyear Tire and Rubber, and Cie Gen Des Ets Michelin.

Short-Term Target
My short-term target for the stock is $34.60, with an initial trailing stop set at $33.81. With a current price of $34.32, upward price movement will find no resistance while downward price movement will find support at $33.55 and again at $32.53, with final support found at $31.21.

Momentum Target
My momentum target for the stock is $39. Momentum targets are determined by overlaying a company's most recent annual EPS, its year-over-year earnings growth, and the current yield of a 10-year treasury. Momentum investing often requires investors to trade in stocks that have already enjoyed significant gains while making no allowances for overall market corrections or the sustainability of a company's earnings.

Growth Target
My growth target for the stock is $36. Growth targets are determined using a company's year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Fair Value Investing
Fair value investing, more commonly known as value investing, requires investors to consider a company's overall financial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. For many fair value investors, the minimum required hold is five (5) years. My fair value estimate for the stock is $51.

Prior Average Valuations
My average valuation for the prior five year period of FY 2013 through FY 2017 was $52.91. Earnings during that time period averaged $3.09 per year.

Five Year Growth of $10K
If you had invested $10K in the stock five years ago, you would have received 415.97 shares of stock and carried a cost basis of $24.04 per share. Had you held the stock for five years and then sold it, you would have sold for $32.33 per share. You would have also collected $179.05 in dividends. Your initial $10K investment would have returned to you $13,627 or 7% per year.

There you are, as promised, short and to the point.

Wax
Posted on 02/21/19

Between the Sheets With Powell Industries

2018-12-19T08:34:00.000-06:00

What They Do
Powell Industries develops, designs, manufactures and services custom-engineered equipment and systems for the distribution, control and monitoring of electrical energy for the oil and gas refining, offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, pulp and paper industries and other heavy industrial markets.

Short-Term Target
My short-term target for the stock is $34.37, with an initial trailing stop set at $25.19. With a current price of $25.57, upward price movement will find resistance at $27.62 and again at $29.63 with final resistance found at $31.59. Downward price movement will find no support.

Momentum Target
My momentum target for the stock is $(7). Momentum targets are determined by overlaying a company's most recent annual EPS, its year-over-year earnings growth, and the current yield of a 10-year treasury. As a value investor, the central issue that I have using momentum targets is that they require investors to trade in stocks that have already enjoyed significant gains while making no allowances for the sustainability of a company's earnings.

Growth Target
My growth target for the stock is $25. Growth targets are determined using a company's year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Fair Value Investing
Fair value investing requires investors to consider a company's overall finincial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. For many fair value investors the minimum required hold is five (5) years. What follows are some of the metrics I use to determine my fair value estimates. They are presented only to assist investors considering an investment in Powell Industries.

Average Volume
The average volume number is simply an average of the number of shares traded over a specific period of time, in this case the prior 50 days. The lower the number the greater the volatility the markets can impact on the stock price. For Powell Industries the most recent ADV number is 0.038 million shares.

Days to Cover
The most recent days to cover number is 6. The days to cover number is a measure of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is updated twice per month and is sometimes used along with the beta ratio as a volatility precursor for a stock.

Beta Ratio
The beta ratio is a measure of the systemic risk of ownership of a particular stock as compared to the systemic risk of ownership of the market as a whole. The higher the beta ratio, the more volatile the stock. For Powell Industries the current beta ratio is 1.19.

Unrelated Income
Income unrelated to a company's day to day operation, such as income tax benefits or income from other sources can significantly distort a company's earnings and consequently its fair value. Investors should always explore the sources of a company's earnings to better understand potential valuation impacts. For Powell Industries 0% of the company's net income came from income tax benefits and 0% of net income came from "other" sources.

Insider Transactions
The SEC classifies insiders as the "management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their "insider" knowledge. In the past 12 months, the company has reported 26 insider trades involving 52,712 shares of stock. Of those 26 insider trades, 20 were Buys involving 36,000 shares of stock, and 6 were Sells involving 16,712 shares of stock, creating an insider buy to sell ratio of 2.2:1.

Year-Over-Year Metrics
Several year-over-year metrics that are of interest to many investors are revenue growth, earnings growth, free cash flow growth, debt growth, price growth, and price growth. For Powell Industries, revenue increased by 0.13%, earnings decreased by 1.6%, free cash flow decreased by 142%, debt decreased by 2.3%, and the stock price decreased by 2.3%. Year to date the stock price is down 2.4% and the S&P 500 is down 2.8%.

Minimum Rate of Return
I calculate the minimum rate of return for any equity investment by multiplying the a company's stock specific beta by the yield for a 10-year treasury and then adding my equity risk premium to that result. The equity risk premium is the excess return I want to receive for investing in an equity as opposed to a risk free investment such as a treasury. My calculated rate of return for Powell Industries is 6.5%.

Other Value Considerations
Other value considerations that many investors like to consider include the PE Ratio, the PEG Ratio, Return on Assets, Return on Equity, Return on Capital Employed, Return on Invested Capital, Cash Flow From Invested Capital, Debt to Capital Ratio, Book Value, and Tangible Book Value. For Powell Industries, the PE Ratio is (43), the PEG Ratio is (20), Return on Assets is (1.6)%, Return on Equity is (2.3)%, Return on Capital Employed is (2.3)%, Return on Invested Capital is (2.4)%, Cash Flow From Invested Capital is 1.7%, Book Value is $26, and Tangible Book Value is $26.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $6. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $(7). The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Future Value
My future (5 year hold) target price for the stock is $28, which is an average annual return of 2%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of (8)% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Risk/Reward Ratio
The risk/reward ratio measures how much your potential reward is, for every dollar you put at risk. I determine my risk/reward ratio by subtracting the current stock price from my termination target (sell price) and then dividing that result by my initiate (buy) target. For Powell Industries my risk/reward ratio is (4.4), which means that for every dollar invested in this stock, I have the potential to loose $4.40.

My Investment Summary
My investment summary was determined utilizing that the financial information taken directly from the company's latest SEC 10-K filing and is based on a value investing philosophy which considers that price determines return.

Powell Industries, Inc. (Nasdaq: POWL) - FYE 09/2018 - OVER VALUED The stock is currently trading at levels above my most recent $10 terminate target. Please See Linked PDF Worksheet

Disclosure
I am not a licensed or registered investment professional, nor am I qualified to provide investment advice. I also hold no shares of the stock mentioned in this post.
Posted on 12/18/18

Between the Sheets With Post Holdings, Inc.

2018-12-02T09:51:00.003-06:00

What They Do
Post Holdings is manufacturer, marketer and distributor of branded ready-to-eat cereals in the United States and Canada, marketing products under the brand names, Honey Bunches of Oats®, Pebbles™, Post Selects®, Great Grains®, Spoon Size® Shredded Wheat, Post® Raisin Bran, Grape-Nuts®, Good Mornings® and Honeycomb®. Industry peers include General Mills, Inc, Kellogg Company, and Pepsico, Inc..

Short-Term Target
My short-term target for the stock is $98.19, with an initial trailing stop set at $95.30. With a current price of $96.75, upward price movement will find resistance at $98.06 with final resistance at $100.36. Downward price movement will find support at $95.41 and again at $93.00, with final support found at $88.36.

Momentum Target
My momentum target for the stock is $160. Momentum targets are determined by overlaying a company's most recent annual EPS, its year-over-year earnings growth, and the current yield of a 10-year treasury. As a value investor, the central issue that I have using momentum targets is that they require investors to trade in stocks that have already enjoyed significant gains and make no allowances for the sustainability of a company's earnings.

Growth Target
My growth target for the stock is $205. Growth targets are determined by using a company's year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Fair Value Investing
Fair value investing requires investors to consider a company's overall finincial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. For many fair value investor the minimum required hold is five (5) years. What follow are some of the metrics I use to determine a fair value estimate. They are presented only to assist investors considering an investment in Post Holdings.

Average Volume
The average volume number is simply an average of the number of shares traded over a specific period of time, in this case the prior 50 days. The lower the number the greater the volatility the markets can impact on the stock price. For Post Holdings the most recent ADV number is 0.735 million shares.

Days to Cover
The most recent days to cover number is 6. The days to cover number is a measure of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is updated twice per month and is sometimes used along with the beta ratio as a volatility precursor for a stock.

Beta Ratio
The beta ratio is a measure of the systemic risk of ownership of a particular stock as compared to the systemic risk of ownership of the market as a whole. The higher the beta ratio, the more volatile the stock. For Post Holdings the current beta ratio is 1.0.

Unrelated Income
Income unrelated to a company's day to day operation, such as income tax benefits or income from other sources can signifcantly distort a company's earnings and consequently its fair value. Investors should always explore the sources of a company's earnings to better understand potential valuation impacts. For Post Holdings 29% of the company's net income came from income tax benefits and 8% of net income came from "other" sources.

Insider Transactions
The SEC classifies insiders as the "management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their "insider" knowledge. In the past 12 months, the company has reported 40 insider trades involving 368,460 shares of stock. Of those 40 insider trades, 20 were Buys involving 236,051 shares of stock, and 20 were Sells involving 132,409 shares of stock, creating an insider buy to sell ratio of 1.8:1.

Year-Over-Year Metrics
Several year-over-year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and price growth. For Post Holdings, revenue increased by 20%, earnings increased by 96%, free cash flow increased by 55%, debt increased by 1%, and the stock price increased by 10%. Year to date the stock price is down 1% and the S&P 500 is up 3.24%.

Anticipated Rate of Return
I calculate the anticipated rate of return for any equity investment by multiplying the a company's stock specific beta by the yield for a 10-year treasury and then adding my equity risk premium to that result. The equity risk premium is the excess return I want to receive for investing in an equity as opposed to a risk free investment such as a treasury. My calculated rate of return for Post Holdings is 6.0%.

Other Value Considerations
Other value considerations that many investors like to consider include the PE Ratio, the PEG Ratio, Return on Assets, Return on Equity, Return on Capital Employed, Return on Invested Capital, Cash Flow From Invested Capital, and Tangible Book Value. For Post Holdings, the PE Ratio is 9, the PEG Ratio is 0.4, Return on Assets is 5.3%, Return on Equity is 22.7%, Return on Capital Employed is 6.7%, Cash Flow From Invested Capital is 14.5%, Book Value is $45.97, and Tangible Book Value is $(74.78).

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $68. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $143. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Future Value
My future (5 year hold) target price for the stock is $215, which is an average annual return of 24%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 29% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

My Investment Summary
My investment summary was determined utilizing that the financial information taken directly from the company's latest SEC 10-K filing and is based on a value investing philosophy which considers that price determines return.
Post Holdings, Inc. (NYSE: POST) - FAIRLY VALUED - The stock is currently trading at levels in line with my most recent $143 fair value estimate. Please See Linked PDF Worksheet
Posted on 12/02/18

Disclosure
I am not a licensed or registered investment professional, nor am I qualified to provide investment advice. I also hold no shares in the stock mentioned in this post.

Sally Beauty - Not Quite So Pretty

2018-11-22T08:14:00.000-06:00

Sally Beauty Holdings, Inc.
Sally Beauty Holdings is a retailer and distributor of professional beauty supplies operating through two business units, Sally Beauty Supply (SBS) and Beauty Systems Group (BSG). Sally Beauty Supply targets retail consumers and salon professionals, while Beauty Systems Group exclusively targets salons and salon professionals. Industry peers include Wal-Mart Stores, CVS Health Corporation, and ULTA Salon.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $19.68, with an initial trailing stop set at $19.37. With a current price of $19.67, upward price movement will find resistance at $20.67, with final resistance found at $21.72. Downward price movement will find support at $18.31 and $17.37, with final support found at $16.35.

Average Volume
The average volume number is simply an average of the number of shares traded over a specific period of time, in this case the prior 50 days. The lower the number the greater the volatility the markets can impact on the stock price. For Sally Beauty Holdings the most recent ADV number is 2.294 million shares.

Days to Cover
The most recent days to cover number is 13. The days to cover number is a measure of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is updated twice per month and is sometimes used as a volatility precursor for a stock.

Beta Ratio
The beta ratio is a measure of the systemic risk of ownership of a particular stock as compared to the systemic risk of ownership of the market as a whole as measured against the S&P 500 Index Fund. The higher the beta ratio, the more volatile the stock. For Sally Beauty Holdings the current beta ratio is 1.26.

The Tax Act
It is import that investors understand the potential impacts of the Tax Act since changes mandated by The Act can distort earnings and consequently fair value.

The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

In the case of Sally Beauty Holdings, the company has reported the revaluation of deferred income taxes and the impact of the deemed repatriation on its consolidated financial statements based on provisional amounts. Specifically, in the fiscal year ended September 30, 2018, the company recognized a provisional income tax benefit of $37.7 million in connection with the revaluation of its deferred income tax assets and liabilities, including $2.7 million of benefit related to the adoption of income tax method changes, and a provisional income tax charge of $11.7 million for federal and state income taxes, including $10.6 million payable beyond one year, related to accumulated but undistributed earnings of its foreign operations.

Unrelated Income
Income unrelated to a company's day to day operation, such as income tax benefits or income from other sources will distort a company's earnings and consequently its fair value. Investors should always explore the sources of a company's earnings to better understand potential valuation impacts. For Sally Beauty Holdings none of the company's operating income came from income tax benefits or from other sources.

Insider Transactions
The SEC classifies insiders as the "management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their "insider" knowledge.

In the past 12 months, the company has reported 32 insider trades involving 255,383 shares of stock. Of those 32 insider trades, 14 were Buys involving 236,031 shares of stock, and 15 were Sells involving 19,352 shares of stock, creating an insider buy to sell ratio of 12.2 to 1.

Mergers/Acquisitions
In the fiscal year ended September 30, 2018, the company acquired certain assets and business operations of H. Chalut a distributor of beauty products with 21 stores operating in the province of Quebec, Canada, for approximately $8.8 million. In addition, the company completed one immaterial acquisition during the fiscal year 2018 for approximately $0.4 million.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Subsequent Events
There were no company subsequent events after the company's fiscal year ended but prior to filing its most recent 10-K.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Sally Beauty Holdings, revenue decreased by 0.15%, earnings increased by 31%, free cash flow increased by 12%, debt decreased by 5%, and the stock price decreased by 6%. Year to date the stock price is up 7%.

Anticipated Rate of Return
I calculate the anticipated rated of return for any equity investment by adding the yield of a 10-year treasury to the stock specific beta and then multiplying the result by my equity risk premium. The equity risk premium is the excess return I want to receive for investing in an equity as opposed to a risk free investment such as a treasury. The higher the number, the better. My anticipated rate of return for Sally Beauty Holdings is 3.87%.

Future Value
My future (5 year hold) target price for the stock is $17, which is an average annual return of (2)%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of (30)% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $19. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $29. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Return on Assets, Return on Equity, Return on Capital Employed, Return on Invested Capital, Cash Flow From Invested Capital, and Tangible Book Value. For Sally Beauty Holdings, the PE Ratio is 8, the PEG Ratio is (3.6), the Return on Assets is 13.9%, the Return on Equity is (109)%, the Return on Capital Employed is 19.4%, the Cash Flow From Invested Capital is 33.1%, and the Tangible Book Value is $(7.30).

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Sally Beauty Holdings, Inc. (NYSE: SBH) - FYE 09/2018 - UNDER VALUED The stock is currently trading at levels below my $29 initiate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 11/14/2018 at 16:02:39 HRS.

Disclosure
I hold no shares of Sally Beauty Holdings

Disclaimer
I am not a licensed or registered investment professional, nor am I qualified to provide investment advice. As such, always consult a licensed and registered professional investment advisor before investing any money.
Copyright © 2018 Wax Ink
Posted on 11/21/18

Parker-Hannifin - Equity Report

2018-08-25T09:53:00.000-05:00

Parker-Hannifin Corporation
Parker-Hannifin is a manufacturer of motion and control technologies and systems for the mobile, industrial and aerospace markets.
Industry peers include Emerson Electric, Eaton Corporation, and Honeywell International.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $180.65, with an initial trailing stop set at $168.96. With a current price of $171.53, upward price movement will find resistance at $174 and $177.20, with final resistance found at $180.30. Downward price movement will find support at $167.10 and $163.90, with final support found at $158.40.

Days to Cover
The most recent days to cover number is 2. The days to cover number is a measurement of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Parker-Hannifin, based on the information available as of June 30, 2018, the Company recorded a net provisional discrete income tax cost of $233 million as a result of the TCJ Act being enacted.

The reduction in the corporate tax rate under the TCJ Act required a one-time revaluation of certain tax-related assets and liabilities to reflect their value at the reduced corporate tax rate of 21 percent, which resulted in a decrease in income tax expense of approximately $80 million. The one-time transition tax on undistributed foreign earnings and profits resulted in an increase in income tax expense of $297 million. The company intends to make the election to pay the one-time transition tax over eight years.

The company also recorded deferred tax assets of $679.880 million resulting from $2,633.218 million in loss carryforwards. A valuation allowance of $675.045 million related to the loss carryforwards has been established due to the uncertainty of their realization. Of this valuation allowance, $640.239 million relates to non-operating entities whose loss carryforward utilization is considered to be remote. Some of the loss carryforwards can be carried forward indefinitely; others can be carried forward from three to 20 years. In addition, a valuation allowance of $19.812 million related to future deductible items has been established due to the uncertainty of their realization.

Historically, all foreign undistributed earnings were permanently reinvested in international operations. No tax was provided on such earnings as it was not practicable to estimate the additional tax that might be payable on the eventual distribution. The enactment of the TCJ Act created a territorial tax system significantly reducing the U.S. federal tax cost of future distributions. Although future distributions of foreign earnings to the U.S. should not be subject to U.S. federal income taxes, other U.S. or foreign taxes may be imposed on such earnings. The company has analyzed existing factors and determined it will no longer permanently reinvest certain foreign earnings. On these undistributed foreign earnings of approximately $274 million that are no longer permanently reinvested outside of the U.S., the company has recorded a deferred tax liability of $12 million. The remaining undistributed foreign earnings of approximately $2,700 million remain permanently reinvested outside the U.S. at June 30, 2018.

Of these undistributed earnings, we have recorded a deferred tax liability of $4 million where certain foreign holding companies are not permanently reinvested in their subsidiaries. It is not practicable to estimate the additional taxes, including applicable foreign withholding taxes, that might be payable on the potential distribution of such permanently reinvested foreign earnings.

Operating Income
Income unrelated to a company's day to day operation, such as income tax benefits or income from other sources will distort a company's earnings and consequently its fair value. Investors should always explore the sources of a company's earnings to better understand potential valuation impacts. For Parker-Hannifin 0% of the company's operating income came from income tax benefits, and 3% came from other sources.

Insider Transactions
In the past 12 months, the company has reported 123 insider trades involving 644,775 shares of stock. Of those 123 insider trades, 52 were Buys involving 391,976 shares of stock, and 70 were Sells involving 252,799 shares of stock, creating an insider buy to sell ratio of 1.6 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2018.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Parker-Hannifin, revenue increased by 19%, earnings increased by 18%, free cash flow increased by 19%, debt decreased by 16%, and the stock price decreased by 3%. Year to date the stock price is up 10%.

Future Value
My future (5 year hold) target price for the stock is $306, which is an average annual return of 16%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 13% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $69. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $97. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Parker-Hannifin, the PE Ratio is 22, the PEG Ratio is 1.4, the Price to Book Ratio is 4, and the Price to Tangible Book Ratio is (14).

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Parker-Hannifin Corporation (NYSE: PH) - FYE 06/2018 - OVER VALUED The stock is currently trading at levels above my most recent $155 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 08/24/2018 at 14:00:26 HRS.

Disclosure
I hold no shares of Parker-Hannifin Corporation
Posted on 08/25/18

Carpenter Technology Corporation - Equity Report

2018-08-19T08:14:00.001-05:00

Carpenter Technology Corporation
Carpenter Technology develops, manufactures and distributes cast/wrought and powder metal stainless steels and special alloys including high temperature (iron-nickel-cobalt base), stainless, superior corrosion resistant, controlled expansion alloys, ultra-high strength and implantable alloys, tool and die steels and other specialty metals, as well as cast/wrought titanium alloys. Carpenter also manufactures and rents down-hole drilling tools and components used in the oil and gas industry. Listed competitors include Eramet, Allegheny Technologies, and United States Steel.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $58.80, with an initial trailing stop set at $55.89. With a current price of $56.74, upward price movement will find resistance at $58.55, with final resistance found at $59.97. Downward price movement will find support at $53.38 and $52.07, with final support found at $50.98.

Days to Cover
The most recent days to cover number is 7. The days to cover number is a measurement of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Carpenter Technology, the company had $99.1 million of indefinitely reinvested foreign earnings for which it had not provided deferred income taxes. Due to a change in foreign cash requirements for one of its foreign subsidiaries, the company changed its intent with regard to indefinite reinvestment of foreign earnings of this subsidiary. As a result of this change, the company repatriated $11.5 million of foreign earnings during fiscal year 2017 and recognized associated tax benefits of $0.9 million. The remaining balance of unremitted foreign earnings continues to be indefinitely reinvested.

Deferred taxes are recorded for temporary differences between the carrying amounts of assets and liabilities and their tax bases. In connection with the Act, during fiscal year 2018 the company recorded a provisional net benefit of $78.9 million for the re-measurement of deferred tax assets and liabilities at the lower U.S. federal tax rate. Although the company believes the net benefit recorded is a reasonable estimate of the deferred tax impact of the Act, the re-measurement of deferred tax assets and liabilities at the lower federal corporate income tax rate is provisional until such time that the underlying temporary differences are known rather than estimated.

A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The company had state net operating loss carryforwards of $339.9 million expiring between 2019 and 2038. A significant portion of the state net operating loss carryforwards are subject to an annual limitation that under current law is likely to limit future tax benefits to approximately $3 million. Valuation allowances increased by $5.4 million during fiscal year 2018 primarily due to the re-measurement of deferred tax assets and corresponding valuation allowances due to the Act as well as the impact of a state tax law change that will limit the company's ability to utilize the state net operating loss carryforwards in future years.

Prior to the Act, undistributed earnings of foreign subsidiaries, totaling $93.8 million were considered permanently reinvested. Upon enactment of the provisions of the Act, the company recorded a $5.0 million accrual for the anticipated one-time mandatory tax on previously deferred foreign earnings (i.e. transition tax). The company is still in the process of evaluating its assertion for indefinite reinvestment.

Operating Income
Income unrelated to a company's day to day operation, such as income tax benefits or income from other sources will distort a company's earnings and consequently its fair value. Investors should always explore the sources of a company's earnings to better understand potential valuation impacts.

For Carpenter Technology 15% of the company's operating income came from income tax benefits, and 1% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 61 insider trades involving 414,437 shares of stock. Of those 61 insider trades, 32 were Buys involving 248,117 shares of stock, and 29 were Sells involving 166,320 shares of stock, creating an insider buy to sell ratio of 1.5 to 1.

Mergers/Acquisitions
During FY18, the company acquired all of the outstanding membership interests of MB CalRAM LLC (“CalRAM”), for a cash purchase price of $13.3 million. The acquisition provides the company entry into the part production segment of the additive manufacturing value chain.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Carpenter Technology, revenue increased by 20%, earnings increased by 291%, free cash flow increased by 102%, debt decreased by 10%, and the stock price increased by 29%. Year to date the stock price is up 8%.

Future Value
My future (5 year hold) target price for the stock is $58, which is an average annual return of 0.4%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 4% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $50. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $80. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Carpenter Technology, the PE Ratio is 14, the PEG Ratio is 40, the Price to Book Ratio is 2, and the Price to Tangible Book Ratio is 2.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Carpenter Technology Corporation (NYSE: CRS) - FYE 06/2018 - FAIRLY VALUED The stock is currently trading at levels in line with my most recent $80 fair value estimate. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 08/14/2018 at 16:03:45 HRS.

Disclosure
I hold no shares of Carpenter Technology Corporation
Posted on 08/19/18

Kennametal, Inc. - Equity Report

2018-08-12T09:22:00.001-05:00

Kennametal, Inc.
Kennametal is engaged in the development and manufacturing of metalworking tools and wear-resistant engineered components and coatings using a specialized type of powder metallurgy. The company also develops, manufactures and markets engineered components and surface technology solutions with proprietary metal cladding capabilities, as well as process technology and materials that focus on component deburring, polishing and effecting controlled radii. Listed competitors include Atlas Copco AB, Sandvik AB, and DMG Mori Aktiengesellschaft.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $41.52, with an initial trailing stop set at $38.25. With a current price of $38.83, upward price movement will find resistance at $39.30 and $40.87, with final resistance found at $42.69. Downward price movement will find support at $37.34, with final support found at $35.72.

Days to Cover
The most recent days to cover number is 4. The days to cover number is a measurement of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Kennametal, Inc., the company estimated the toll tax charge to be $80.9 million after available foreign tax credits. The toll tax charge consumed its entire U.S. federal net operating loss carryforward and other credit carryforwards, which represent a significant portion of its previously available deferred tax assets, and was offset by the release of the valuation allowance associated with these assets. The company estimates a cash payment of $3.5 million associated with the toll charge which will be paid over eight years, of which $3.2 million is classified as long-term accrued income taxes.

Operating Income
Income unrelated to a company's day to day operation, such as income tax benefits or income from other sources will distort a company's earnings and consequently its fair value. Investors should always explore the sources of a company's earnings to better understand potential valuation impacts.

For Kennametal, Inc. 0% of the company's operating income came from income tax benefits, and 0% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 155 insider trades involving 506,502 shares of stock. Of those 155 insider trades, 58 were Buys involving 357,222 shares of stock, and 97 were Sells involving 149,280 shares of stock, creating an insider buy to sell ratio of 2.4 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2018.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Kennametal, Inc., revenue increased by 15%, earnings increased by 70%, free cash flow increased by 34%, debt increased by 43%, and the stock price decreased by 4%. Year to date the stock price is up 8%.

Future Value
My future (5 year hold) target price for the stock is $54, which is an average annual return of 8%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of (1)% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $35. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $39. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Kennametal, Inc., the PE Ratio is 14, the PEG Ratio is 1.8, the Price to Book Ratio is 3, and the Price to Tangible Book Ratio is 4.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Kennametal, Inc. (NYSE: KMT) - FYE 06/2018 - FAIRLY VALUED The stock is currently trading at levels in line with my most recent $39 fair value estimate. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 08/10/2018 at 14:14:26.

Disclosure
I hold no shares of Kennametal, Inc.
Posted on 08/12/18

AAR Corporation - Equity Report

2018-08-12T07:02:00.000-05:00

AAR Corporation
AAR Corporation is a provider of services and products to commercial aviation and to the government and defense markets. Services and products include: aviation supply chain and parts support programs; maintenance, repair and overhaul of airframes, landing gear, and certain other airframe components; design and manufacture of pallets, shelters, and containers; expeditionary airlift services; aircraft modifications and aircraft and engine sales and leasing. Industry peers include Curtiss-Wright Corporation, Rockwell Collins, Inc., Spirit Aerosystems Holdings, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $49.01, with an initial trailing stop set at $45.35. With a current price of $46.04, upward price movement will find resistance at $47.02, with final resistance found at $48.28. Downward price movement will find support at $45.32 and $44.21, with final support found at $43.35.

Days to Cover
The most recent days to cover number is 4. The days to cover number is a measurement of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of AAR Corporation, the company re-measured its deferred tax assets and liabilities based on the tax rate at which they are expected to reverse in the future, which is either at a federal rate of 29.2% for reversals in fiscal 2018 or 21% for reversals in fiscal 2019 and subsequent years, and recognized an income tax benefit of $14.1 million for the re-measurement impact on a provisional basis as permitted under Staff Accounting Bulletin No. 118, which allows the use of a measurement period, similar to that used in business combinations, to account for the impacts of the Tax Reform Act.

Operating Income
Income unrelated to a company's day to day operation, such as income tax benefits or income from other sources will distort a company's earnings and consequently its fair value. Investors should always explore the sources of a company's earnings to better understand potential valuation impacts.

For AAR Corporation 0% of the company's operating income came from income tax benefits, and 0% of operating income came from other sources. It is also important to note that discontinued operations impacted earnings by $1.67 per share.

Insider Transactions
In the past 12 months, the company has reported 54 insider trades involving 1,458,276 shares of stock. Of those 54 insider trades, 28 were Buys involving 684,576 shares of stock, and 26 were Sells involving 773,700 shares of stock, creating an insider buy to sell ratio of 0.9 to 1.

Mergers/Acquisitions
During FY18 the company acquired the outstanding shares of two MRO facilities in Canada owned by Premier Aviation for approximately $24.8 million.

Divestitures/Dispositions
During FY18 the company sold interests in two aircraft joint ventures receiving cash proceeds of $7.3 million and recognizing a gain on the sale of $0.4 million.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For AAR Corporation, revenue increased by 10%, earnings decreased by 71%, free cash flow decreased by 15%, debt increased by 15%, and the stock price increased by 22%. Year to date the stock price is up 3%.

Future Value
My future (5 year hold) target price for the stock is $104, which is an average annual return of 25%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 25% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $37. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $5. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For AAR Corporation, the PE Ratio is 97, the PEG Ratio is 3.8, the Price to Book Ratio is 2, and the Price to Tangible Book Ratio is 2.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. AAR Corporation (NYSE: AIR) - FYE 05/2018 - OVER VALUED The stock is currently trading at levels above my most recent $7 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 07/11/2018 at 16:59:41.

Disclosure
I hold no shares of AAR Corporation
Posted on 08/12/18

Worthington Industries, Inc. - Equity Report

2018-08-12T07:00:00.002-05:00

Worthington Industries, Inc.
Worthington Industries is a metals manufacturing company producing pressure cylinders for liquefied petroleum gas (“LPG”), compressed natural gas (“CNG”), oxygen, refrigerant and other industrial gas storage; hand torches and filled hand torch cylinders; propane-filled camping cylinders; helium-filled balloon kits; steel and fiberglass tanks and processing equipment primarily for the oil and gas industry; cryogenic pressure vessels for liquefied natural gas (“LNG”) and other gas storage applications; engineered cabs and operator stations and cab components; steel pallets and racks; suspension grid systems for concealed and lay-in panel ceilings; laser welded blanks; light gauge steel framing for commercial and residential construction; and model automotive service stampings.

Listed competitors include AK Steel Holding, Steel Technologies, and Gibraltar Industries.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $49.15, with an initial trailing stop set at $44.34. With a current price of $45.02, upward price movement will find resistance at $45.62 and $46.65, with final resistance found at $47.87. Downward price movement will find support at $44.38 and $43.08, with final support found at $40.39.

Days to Cover
The most recent days to cover number is 6. The days to cover number is a measurement of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Worthington Industries, the company has elected to account for the tax on GILTI as a period cost and thus has not adjusted any of the deferred tax assets and liabilities of its foreign subsidiaries for the new tax. The two material items that impacted the company were the reduction in the tax rate and a one-time mandatory deemed repatriation tax imposed on the company’s unremitted foreign earnings.

Consistent with applicable Securities and Exchange Commission guidance , the company has made a reasonable estimate of the one-time mandatory deemed repatriation and as such, the company recognized a provisional income tax expense of $6.9 million for the one-time mandatory deemed repatriation tax. for fiscal 2018.

Operating Income
Income unrelated to a company's day to day operation, such as income tax benefits or income from other sources will distort a company's earnings and consequently its fair value. Investors should always explore the sources of a company's earnings to better understand potential valuation impacts. For Worthington Industries 0% of the company's operating income came from income tax benefits, and 80% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 98 insider trades involving 740,132 shares of stock. Of those 98 insider trades, 47 were Buys involving 336,295 shares of stock, and 51 were Sells involving 403,837 shares of stock, creating an insider buy to sell ratio of 0.8 to 1.

Mergers/Acquisitions
During FY18 the company acquired AMTROL, a manufacturer of pressure cylinders and water system tanks with operations in the U.S. and Europe for a total purchase price of $291.921 million.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Worthington Industries, revenue increased by 19%, earnings increased by 55%, free cash flow increased by 43%, debt increased by 30%, and the stock price increased by 12%. Year to date the stock price is down 6%.

Future Value
My future (5 year hold) target price for the stock is $111, which is an average annual return of 29%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 8% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $34. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $32. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Worthington Industries, the PE Ratio is 19, the PEG Ratio is 0.6, the Price to Book Ratio is 3, and the Price to Tangible Book Ratio is 6.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Worthington Industries, Inc. (NYSE: WOR) - FYE 05/2018 - SELL HALF The stock is currently trading at levels above my most recent $32 fair value estimate, but below my most recent $52 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 07/30/2018 at 16:19:26.

Disclosure
I hold no shares of Worthington Industries, Inc.
Posted on 08/11/18

Adams Resources and Energy, Inc. - Cocktail Fodder

2018-07-30T04:34:00.003-05:00

This is one of those stocks that investors buy so they can talk trash to their co-workers or attempt to dazel the next door hottie with their investing acumen at the neighborhood cocktail party.

For myself, I looked at the stock and spend some time reading the SEC filings. In the end I decided that it would feel better to just leave my hand in my pants and my mind in Arkansas rather than owning this stock.

But hey! Strokes is strokes whether on the golf course or in Arkansas.

Wax

Adams Resources and Energy, Inc.
Adams Resources and Energy is engaged in the business of crude oil marketing, tank truck transportation of liquid chemicals, and oil and gas exploration and production. Industry peers include Abraxas Petroleum Corporation, The Dana Companies, and Wynne Transport Services.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $45.97, with an initial trailing stop set at $38.98. With a current price of $39.57, upward price movement will find resistance at $41.77 and $42.70, with final resistance found at $43.97. Downward price movement will find no support.

Days to Cover
The most recent days to cover number is 1. The days to cover number is a measurement of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Adams Resources and Energy, the company had a deferred tax liability of approximately $3.3 million and recorded a $2.0 million tax benefit, which relates entirely to the remeasurement of deferred tax liabilities to the 21 percent tax rate.

Operating Income
Income unrelated to a company's day to day operation, such as income tax benefits or income from other sources will distort a company's earnings and consequently its fair value. Investors need to take the time to explore the quality of a company's earnings to understand its source. For Adams Resources and Energy 15% of the company's operating income came from income tax benefits and 0% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 15 insider trades involving 4,539 shares of stock. Of those 15 insider trades, 13 were Buys involving 3,978 shares of stock, and 2 were Sells involving 561 shares of stock, creating an insider buy to sell ratio of 7.1 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2017.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2017.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Adams Resources and Energy, revenue increased by 20%, earnings decreased by 12%, free cash flow decreased by 12%, total debt increased by $1.69 million, and the stock price increased by 9%. Year to date the stock price is down 9%.

Future Value
My future (5 year hold) target price for the stock is $62, which is an average annual return of 12%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 5% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $58. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $52. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Adams Resources and Energy, the PE Ratio is 9, the PEG Ratio is 0.8, the Price to Book Ratio is 1.13, and the Price to Tangible Book Ratio is 1.13.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Adams Resources and Energy, Inc. (NYSE: AE) - FYE 12/2017 - FAIRLY VALUED The stock is currently trading at levels in line with my most recent $52 fair value estimate. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 03/12/2018 at 17:28:54.

Disclosure
I hold no shares of Adams Resources and Energy, Inc.
Posted on 07/30/18

Marathon Petroleum Corporation - Joint Venturing to Profits?

2018-06-18T04:27:00.002-05:00

Marathon Petroleum Corporation
Marathon Petroleum Corporation is an independent petroleum product refining, marketing, retail and transportation businesses that refines crude oil and other feedstocks, purchases refined products and ethanol for resale and distributes refined products through various means, including barges, terminals and trucks that they own or operate. The company also sells transportation fuels and convenience products in the retail market, and operates a Master Limited Partnership that gathers, processes and transports natural gas, gathers, transports, fractionates, stores and markets natural gas liquids, and transports and stores crude oil and refined products. Industry peers include Exxon Mobil Corporation, Chevron Corporation, and Valero Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $80.22, with an initial trailing stop at $72.46. Upward price movement will find resistance at $74.81 and $77.31, with final resistance at $79.35. Downward price movement will find support at $72.63 and $71.07, with final support at $69.18.

Days to Cover
The most recent days to cover number is 4. The days to cover number is a measurement of the company's outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Marathon Petroleum Corporation, provision for income taxes decreased $1.07 billion in FY2017. The company was required to calculate the effect of the Act on its deferred tax balances as of the enactment date. The effect of the federal corporate income tax rate change reduced net deferred tax liabilities by $1.5 billion. This benefit was partially offset by an increase in income before income taxes, which increased $1.52 billion. The Act impacted the company's effective tax rate by 45 percentage points, decreasing the effective tax rate from 31 percent to (-14) percent.

Note that for fiscal 2017, 8% of net income came from taxes.

Insider Transactions
In the past 12 months, the company reported 135 insider trades involving 790,000 shares of stock. Of those 135 insider trades, 78 were Buys involving 432,337 shares of stock, and 57 were Sells involving 357,663 shares of stock, creating an insider buy to sell ratio of 1.2 to 1.

Acquisitions
In March 2017, the MLP acquired the Ozark pipeline for approximately $219 million.

In February 2017, the MLP acquired a partial, indirect equity interest in the Dakota Access Pipeline (“DAPL”) and Energy Transfer Crude Oil Company Pipeline (“ETCOP”) projects, collectively referred to as the Bakken Pipeline system, through a joint venture, MarEn Bakken Company LLC (“MarEn Bakken”), with Enbridge Energy Partners L.P. (“Enbridge Energy Partners”). The MLP holds, through a subsidiary, a 25 percent interest in MarEn Bakken, which equates to an approximate 9.2 percent indirect equity interest in the Bakken Pipeline system. The MLP contributed $500 million of the $2 billion purchase price paid by the joint venture.

Effective in January 2017, the MLP and Antero Midstream formed a joint venture, Sherwood Midstream LLC (“Sherwood Midstream”), to support the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. MarkWest has a 50 percent ownership interest in Sherwood Midstream. In connection with this transaction, MarkWest contributed certain gas processing plants that were under construction at the Sherwood Complex with a fair value of approximately $134 million, cash of approximately $20 million and sold Class A Interests in MarkWest Ohio Fractionation to Sherwood Midstream for $126 million in cash. Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), a joint venture with MarkWest and Sherwood Midstream, was also formed to own, operate and maintain certain assets owned by Sherwood Midstream and MarkWest. MarkWest contributed certain real property, equipment and facilities with a fair value of approximately $209 million to Sherwood Midstream Holdings in exchange for a 79 percent initial ownership interest.

Divestitures and Dispositions
The company recorded no divestitures or dispositions during fiscal 2017.

Year-Over-Year
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Marathon Petroleum Corporation, revenue grew by 19%, earnings grew by 86%, free cash flow grew by 118%, total debt increased by 22%, and the stock price increased by 24%. Year to date the stock price is up 11%.

Future Value
My future (5 year hold) target price for the stock is $181, which is an average annual return of 29%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 23% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $85. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $170. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, and Tangible Book Value. For Marathon Petroleum Corporation the current twelve month trailing PE Ratio is 6, the PEG Ratio is 0.6, Book Value is $46, and Tangible Book Value is $38.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Marathon Petroleum Corporation (NYSE: MPC) - FYE 12/2017 - UNDER VALUED The stock is currently trading below my most recent $102 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Marathon Petroleum Corporation
Posted on 06/15/18

Triumph Group, Inc. - Value or Value Trap?

2018-05-29T04:40:00.000-05:00

Triumph Group, Inc.
Triumph Group designs, engineers, manufactures, repairs, overhauls and distributes a broad portfolio of aerostructures, aircraft components, accessories, sub-assemblies and systems for the aviation industry, including original equipment manufacturers, or OEMs, of commercial, regional, business and military aircraft and aircraft components, as well as commercial and regional airlines and air cargo carriers. Industry peers include Lockheed Martin Corporation, Northrop Grumman Corporation, and Spirit AeroSystems Holdings.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $27.53, with an initial trailing stop at $22.21. Upward price movement will find resistance at $24.29 and $25.05, with final resistance at $26.55. There is no downward price support.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Triumph Group, Inc., the company has not completed its accounting for the tax effects of enactment of the Act; however, the company has made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. For the items for which the company was able to determine a reasonable estimate, the company recognized a provisional tax benefit of $23,398, which is included as a component of income tax expense from continuing operations.

Additionally, the company has recorded a provisional tax benefit of $24,573 related to the impact of the Act’s reduction in the statutory tax rate on its net deferred tax liability, as well as a provisional tax liability of $2,175 imposed on unremitted foreign earnings under the Act’s mandatory repatriation provisions.

Insider Transactions
In the past 12 months, the company recorded 34 insider trades involving 171,584 shares of stock. Of those 34 insider trades, 16 were Buys involving 45,342 shares of stock, and 18 were Sells involving 126,242 shares of stock, creating an insider buy to sell ratio of 0.4 to 1.

Acquisitions
In October 2015, the company acquired all of the outstanding shares of Fairchild Controls Corporation. Fairchild is a provider of proprietary thermal management systems, auxiliary power generation systems, and related aftermarket spares and repairs. The purchase price was $57,130, including a working capital adjustment.

Growth and Not
There are several year over year growth metrics of interest; revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and finally year to date price growth. For Triumph Group, Inc., revenue fell by 9%, free cash flow declined by 21%, earnings decline by 32%, debt increased by 20%, and the stock price decreased by 2%. Year to date the stock price has decreased 11%.

Future Value
My future (5 year hold) target price for the stock is $15, which is an average annual return of (-6%). A prior five year hold of the stock (FY2014- FY2018) would have returned an average of (-13%) per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
My baseline valuation as an ongoing concern is $25. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $72. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5 year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value. Please note that 12% of net income was generated through taxes returns.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Triumph Group, Inc. (NYSE: TGI) - FYE 12/2017 - The stock is UNDER VALUED and currently trading below my most recent $43 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Triumph Group, Inc.
Posted on 05/29/18

The Mosaic Company - Adam Buys a Kite

2018-05-25T04:25:00.001-05:00

The Mosaic Company
The Mosaic Company is a single source supplier of phosphate and potash based crop nutrients and animal feed ingredients, mining phosphate rock in Florida and processing minded rock into finished phosphate products at facilities in Florida and Louisiana. The company also mines potash in Saskatchewan and New Mexico. Industry peers include Intrepid Potash, Potash Corporation of Saskatchewan, and CF Industries.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $27.98, with an initial trailing stop at $27.44. Upward price movement will find no resistance, while downward price movement will find support at $27.20 and $26.54, with final support at $25.65.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of The Mosaic Company, the company recorded a provisional estimates of the impact of The Tax Act of $457.5 million, with repatriation accounting for $107.7 million, offset by a $202.6 million, non-cash reduction in the deferred tax liability, $2.3 million non-cash, deferred tax benefit related to the reduction of the U.S. federal rate from 35 percent to 21 percent, and valuation allowances against foreign tax credits and anticipatory foreign tax credits of $105.8 million and $440.3 million, respectively.

The Act also repeals the corporate alternative minimum tax, or AMT, system and allows for the cash refund of excess AMT credits. The refundable AMT amounts are subject to a set of federal budgeting rules. The company estimated it will receive a cash refund of $121.5 million net of an $8.6 million charge related to the sequestration rules.

Insider Transactions
In the past 12 months, the company recorded 32 insider trades involving 83,612 shares of stock. Of those 32 insider trades, 24 were Buys involving 69,689 shares of stock, and 8 were Sells involving 13,923 shares of stock, creating an insider buy to sell ratio of 5 to 1.

Acquisitions
The company had not acquisition activity during FY2017.

Growth and Not
There are several year over year growth metrics of interest; revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and finally year to date price growth. For The Mosaic Company, revenue grew by 3%, free cash flow declined by 164%, earnings declined by 152%, debt grew by 37%, and the stock price declined by 14%. Year to date the stock price has increased 9%.

Future Value
My future (5 year hold) target price for the stock is $23, which is an average annual return of (-3%). A prior five year hold of the stock (FY2013- FY2017) would have returned an average of (-11%) per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
My baseline valuation for the stock is $6. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is (-$5). The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5 year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. The Mosaic Company (NYSE: MOS) - FYE 12/2017 - The stock is OVER VALUED, currently trading above my most recent (-$8) close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of The Mosaic Company
Posted on 05/24/18

GameStop Corporation - Getting Funky

2018-05-14T04:29:00.004-05:00

GameStop Corporation
GameStop Corporation is a video game retailer, selling new and pre-owned video game hardware, physical and digital video game software, video game accessories, and pre-owned and new mobile consumer electronics products and other merchandise. Industry peers include Amazon.com, Best Buy Company, and Wal-Mart Stores.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $15.94, with an initial trailing stop at $12.52. Upward price movement will find resistance at $13.94, and at $15.48 with final resistance at $16.08. Downward price movement will find no support.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of GameStop Corporation, accounting for certain elements of the Tax Act is incomplete. However, the company was able to make reasonable estimates of the effects and, therefore, recorded provisional estimates for these items. In connection with its initial analysis of the impact of the Tax Act, they have recorded a provisional net tax expense of $42.0 million in the period ended February 3, 2018.

This provisional estimate consists of a net expense of $10.2 million for the one-time transition tax resulting from the recognition of approximately $333.4 million of foreign earnings and profits, and a net expense of $31.8 million related to revaluation of deferred tax assets and liabilities, caused by the new lower corporate tax rate.

To determine the transition tax, management must determine the amount of post-1986 accumulated earnings and profits of the company's relevant subsidiaries as of certain prescribed measurement dates, as well as the amount of non-U.S. income taxes paid on such earnings. While management is able to make a reasonable estimate of the transition tax based on the guidance issued as of the date of these financial statements, they continue to gather additional information, and expect additional guidance from the Treasury and IRS, to be able to more precisely compute the final amount.

As of February 3, 2018, the company had approximately $25.3 million of net operating loss ("NOL") carryforwards in various foreign jurisdictions that expire in years 2018 through 2035, as well as $246.1 million of foreign NOL carryforwards that have no expiration date. In addition, the company has approximately $0.9 million of foreign tax credit carryforwards that expire in years 2022 through 2026. The company also has approximately $74.2 million of Federal NOL carryovers acquired through the ThinkGeek acquisition that will expire in years 2020 through 2035.

Insider Transactions
In the past 12 months, the company recorded 32 insider trades involving 602,039 shares of stock. Of those 32 insider trades, 17 were Buys involving 517,722 shares of stock, and 15 were Sells involving 84,317 shares of stock, creating an insider buy to sell ratio of 6.1 to 1.

Future Value
My future (5 year hold) target price for the stock is $16, which is an average annual return of 6%. A prior five year hold of the stock (2013-2018) would have returned an average of (-4%) per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
My baseline valuation for the stock is $44. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $69. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5 year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For GameStop Corporation (NYSE: GME) - FYE 01/2018 UNDER VALUED The stock is currently trading at levels below with my most recent $41 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of GameStop Corporation
Posted on 05/14/18

Lowe's Companies, Inc. - Looking for New Markets

2018-05-13T07:42:00.004-05:00

Lowe's Companies, Inc.
Lowe’s Companies, Inc. is a home improvement retailer. Industry peers include Builders FirstSource, Inc., Home Depot, Inc., and Huttig Building Products, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $93.54, with an initial trailing stop at $86.14. Upward price movement will find resistance at $91.80, and at $93.52 with final resistance at $96.57. Downward price movement will find support at $86.13 and at $83.44, with final support at $80.23.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Lowe's Companies, Inc., the company utilized a blended statutory tax rate of 33.7% for 2017 in accordance with Section 15 of the Internal Revenue Code. This blended rate resulted in a tax benefit of $58 million for the year. The company recorded a $56 million provisional tax expense for the measurement of its U.S. net deferred tax assets at the newly enacted corporate rate and a $22 million provisional tax expense for the one-time transition tax on unrepatriated earnings of foreign subsidiaries.

While the company made reasonable estimates of the impact of the reduction in the corporate rate and the deemed repatriation transition tax, the final impact may differ due to subsequent legislative action changes in interpretations and assumptions as well as the issuance of additional guidance from the Internal Revenue Service and state taxing authorities. The company will continue to gather additional information to determine the concluding impact.

As of February 2, 2018, the company reported a deferred tax asset of $225 million, for the capital loss realized in 2017 for U.S. federal income tax purposes related to the exit from the company’s joint venture investment in Australia. Since no present or future capital gains have been identified through which the asset can be realized, the company has a full valuation allowance against the deferred tax asset. For U.S. federal tax purposes, this loss has a five-year carryforward period expiring at the end of fiscal 2022. As of February 3, 2017, the company reported a deferred tax asset and full valuation allowance of $381 million related to its intention to exit the company’s joint venture investment in Australia.

In December 2016, the U.S. Treasury Department and the U.S. Internal Revenue Service issued final and temporary regulations under Internal Revenue Code Section 987 (the Regulations). The Regulations provide guidance on the taxation of foreign currency gains and losses arising from qualified business units that operate in a currency other than the currency of their owner. As a result of the newly enacted guidance, net deferred tax assets were reduced by $11 million in 2017 and $33 million in 2016.

The company operates as a branch in various foreign jurisdictions and cumulatively has incurred net operating losses of $720 million and $640 million as of February 2, 2018, and February 3, 2017, respectively. These net operating losses are subject to expiration in 2018 through 2037. Deferred tax assets have been established for these foreign net operating losses in the accompanying consolidated balance sheets. Given the uncertainty regarding the realization of the foreign net deferred tax assets, the company recorded cumulative valuation allowances of $234 million and $197 million as of February 2, 2018, and February 3, 2017, respectively.

The amounts of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate were $5 million as of February 3, 2017, and $2 million as of January 29, 2016. The company recognized $3 million of interest income, $2 million of interest expense, and $1 million of interest income related to uncertain tax positions during 2017, 2016, and 2015, respectively. The company had no accrued interest related to uncertain tax positions as of February 2, 2018 and $3 million as of February 3, 2017.

Insider Transactions
In the past 12 months, the company recorded 46 insider trades involving 279,930 shares of stock. Of those 46 insider trades, 20 were Buys involving 161,041 shares of stock, and 26 were Sells involving 118,889 shares of stock, creating an insider buy to sell ratio of 1.4 to 1.

Future Value
My future (5 year hold) target price for the stock is $182, which is an average annual return of 22%. A prior five year hold of the stock (2013-2018) would have returned an average of 35% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
My baseline valuation for the stock is $47. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $82. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5 year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Lowe's Companies, Inc. (NYSE: LOW) - FYE 01/2018 FAIRLY VALUED The stock is currently trading at levels in line with my most recent $82 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Lowe's Companies, Inc.
Posted on 05/13/18

The Home Depot - Time to Short?

2018-05-13T07:40:00.001-05:00

The Home Depot, Inc.
The Home Depot, Inc. is engaged as a home improvement retailer, selling an assortment of building materials, home improvement products and lawn and garden products as well as providing a number of services. Industry peers include True Value Company, Lowe's Companies, and Menard, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $189.67, with an initial trailing stop at $187.46. Upward price movement will find resistance at $192.80, and again at $206.10. Downward price movement will find support at $187.00 and at $182.70, with final support at $178.10.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of The Home Depot, Inc., for fiscal 2017, the impacts of the Tax Act resulted in a provisional charge in the fourth quarter of approximately $400 million, comprising U.S. repatriation taxes, foreign withholding taxes, and state taxes.

The lower corporate income tax rate of 21% is effective January 1, 2018, resulting in a U.S. statutory federal tax rate of approximately 34% for fiscal 2017, and 21% for subsequent fiscal years, which provided a benefit to the fiscal 2017 tax provision of approximately $126 million. The reduction of the U.S. corporate tax rate requires a remeasurement of U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. This resulted in a provisional benefit of $147 million for fiscal 2017.

Expected additional regulatory guidance and technical clarifications from the U.S. Department of the Treasury and IRS within the next 12 months. Any subsequent adjustment to these amounts will be recorded to income tax expense from continuing operations in the quarter of fiscal year 2018 in which the analysis is complete.

Insider Transactions
In the past 12 months, the company recorded 96 insider trades involving 1,271,356 shares of stock. Of those 96 insider trades, 48 were Buys involving 659,914 shares of stock, and 48 were Sells involving 611,442 shares of stock, creating an insider buy to sell ratio of 1.1 to 1.

Future Value
My future (5 year hold) target price for the stock is $432, which is an average annual return of 25%. A prior five year hold of the stock (2013-2018) would have returned an average of 41% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
My baseline valuation for the stock is $68. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $111. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5 year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For The Home Depot, Inc. (NYSE: HD) - FYE 01/2018 OVER VALUED The stock is currently trading at levels above my most recent $178 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of The Home Depot, Inc.
Posted on 05/12/18

Ulta Beauty, Inc. - Simply Pretty

2018-05-11T03:37:00.002-05:00

Ulta Beauty, Inc.
Ulta Beauty is a beauty retailer that provides one-stop shopping for prestige, mass and salon products and salon services. The company focuses on providing affordable indulgence to customers by combining unmatched product breadth, value and convenience with the distinctive environment and experience of a specialty retailer. Industry peers include Regis Corporation, Macy's, Inc., and Sephora Usa, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $237.25, with an initial trailing stop at $245.17. Upward price movement will find no resistance. Downward price movement will find support at $242.90 and at $235.00, with final support at $227.10.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Ulta Beauty, Inc., recorded a provisional estimated after-tax benefit of $38,287 during the fourth quarter of fiscal 2017 based on the re-measurement of net deferred tax liabilities and $9,778 due to the lower tax rate in January 2018. Given the significant complexity of the Tax Reform, the company will continue to evaluate and analyze the impact of this legislation.

The $38,287 estimate is provisional and based on the company’s initial analysis of the Tax Reform, and may be adjusted in future periods due to, among other things, additional analysis and additional guidance that may be issued by the U.S. Department of Treasury, the Securities and Exchange Commission, and/or the Financial Accounting Standards Board.

Insider Transactions
In the past 12 months, the company recorded 48 insider trades involving 385,359 shares of stock. Of those 48 insider trades, 31 were Buys involving 264,794 shares of stock, and 17 were Sells involving 120,565 shares of stock, creating an insider buy to sell ratio of 2.2 to 1.

Future Value
My future (5 year hold) target price for the stock is $614, which is an average annual return of 29%. A prior five year hold of the stock (2013-2018) would have returned an average of 25% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
My baseline valuation for the stock is $81. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $119. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5 year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Ulta Beauty, Inc. (Nasdaq: ULTA) - FYE 01/2018 OVER VALUED The stock is currently trading at levels above my most recent $191close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Ulta Beauty, Inc.
Posted on 05/11/18

Occidental Petroleum Corporation - Rock Steady Value

2018-04-27T04:21:00.004-05:00

Occidental Petroleum Corporation's businesses consist of three principal segments, Oil and Gas, Chemicals, and Midstream and Marketing. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGLs) and natural gas. The chemical segment (OxyChem) mainly manufactures and markets basic chemicals and vinyls. The midstream, marketing and other segment (midstream and marketing) gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide (CO2) and power. Industry peers include E. I. du Pont de Nemours, Exxon Mobil, and BPplc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $74.41, with an initial trailing stop at $76.44. There is no resistance to upward price movement. Downward price movement will find support at $75.26 and again at $73.76, with final support at $70.56.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Occidental Petroleum Corporation, total deferred tax assets, after valuation allowances, were $1.8 billion as of December 31, 2017. The company expects to realize the recorded deferred tax assets, net of any allowances, through future operating income and reversal of temporary differences. The reduction in the net deferred tax liabilities is primarily related to the reduction in the federal corporate income tax rate from 35 percent to 21 percent and the addition of $221 million of general business credits to the credit carryforward balance.

As of December 31, 2017, the company had foreign tax credit carryforwards of $2.8 billion, which expire in varying amounts through 2027, $35 million of state operating loss carryforwards, which have varying carryforward periods through 2037, $402 million of federal operating loss carryforwards that expire in 2037, and $407 million of general business credit carryforwards that expire between 2033 and 2037. The company also had corporate AMT carryforwards of $221 million, that have been classified as non-current receivables due to Tax Reform.

At December 31, 2017, the company reversed its indefinite re-investment assertion with regards to its investments in foreign subsidiaries and, as a result, a deferred foreign tax liability of $99 million was recorded. The company's valuation allowance provides for substantially all of the foreign tax credit carryforwards and approximately $4 million of the state net operating loss carryforwards. As of December 31, 2017, the company had liabilities for unrecognized tax benefits of approximately $22 million included in deferred credits and other liabilities, all of which, if subsequently recognized, would favorably affect the company's effective tax rate.

Insider Transactions
In the past 12 months, the company recorded 68 insider trades involving 495,531 shares of stock. Of those 68 insider trades, 38 were Buys involving 432,394 shares of stock, and 30 were Sells involving 63,137 shares of stock, creating an insider buy to sell ratio of 6.8 to 1.

Future Value
My future (5 year hold) target price for the stock is $78, which is an average annual return of less than 0.1%. A prior five year hold of the stock (2012-2017) would have returned an average of 1% per year. Please be aware that past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Occidental Petroleum Corporation (NYSE: OXY) - FYE 12/2017 FAIRLY VALUED The stock is currently trading at levels in line with my most recent $98 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Occidental Petroleum Corporation
Posted on 04/27/18

General Electric - Not Exactly Stellar

2018-04-23T04:19:00.002-05:00

General Electric Company
General Electric is a digital industrial company working with industry to create purposeful software-defined machines and solutions that are connected, responsive and predictive. The company produces products that serve the aircraft industry, the power industry, the oil and gas industry, the medical industry, and the financing and industrial products industries. Industry peers include Citigroup, Koninklijke Philips NV, and Siemens Aktiengesellschaft.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $16.59, with an initial trailing stop at $14.32. Upward price movement will encounter resistance at $15.16 and again at $16.20 with final resistance at $17.65, while downward price movement will find support at $13.98 and again at $13.04.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of General Electric Company, included in the total charge associated with U.S. tax reform for 2017 is a tax charge of $1.2 billion for the provisional estimate of the tax charge associated with the transition tax on historic foreign earnings under tax reform. The company expects to finalize this amount as well as the impact of U.S. tax reform on deferred taxes during 2018.

The provisional transition tax is computed on earnings as measured for U.S. tax purposes, that were reduced by netting of historic tax losses and by partial U.S. tax credit for foreign taxes paid on the historic earnings. The provisional tax charge is also reduced by $2.6 billion of U.S. tax accrued in prior years on foreign earnings. Management expects the transition tax liability to be offset by accelerated use of deductions and tax credits.

Insider Transactions
In the past 12 months, the company recorded 80 insider trades involving 4,378,289 shares of stock. Of those 80 insider trades, 53 were Buys involving 4,067,042 shares of stock, and 27 were Sells involving 311,247 shares of stock, creating an insider buy to sell ratio of 13.1 to 1.

Future Value
My future (5 year hold) target price for the stock is $24, which is an average annual return of 13%. A prior five year hold of the stock (2012-2017) would have returned an average of (-2%) per year. Please be aware that past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. For General Electric Company (NYSE: GE) - FYE 12/2017 OVER VALUED The stock is currently trading at levels above my most recent $12 close target. Please See Linked PDF Worksheet

Disclosure
I hold shares of General Electric Company
Posted on 04/23/18

Forward Air - Touch and Go

2018-04-22T08:40:00.004-05:00

Forward Air Corporation
Forward Air Corporation is a high-service level truckload carrier and contractor to the air cargo industry providing scheduled trucking services to air freight forwarders, fully integrated air cargo carriers and domestic and international airlines. The company also provides short- to medium-haul delivery.

Industry peers include International Cargo Marketing Consultants, New Penn Motor Express, and Old Dominion Freight Line.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $59.43, with an initial trailing stop at $52.40. Upward price movement will encounter resistance at $55.00 and $55.91 with final resistance at $57.71, while downward price movement will find support at $51.62.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Forward Air Corporation, at December 31, 2017, the company had state net operating loss carryforwards of $18.1 million for certain legal entities that will expire between 2017 and 2030. The use of these state net operating losses is limited to the future taxable income of separate legal entities. Based on expectations of future taxable income, management believes that it is more likely than not that the results of operations for the certain legal entities will not generate sufficient taxable income to realize the net operating loss benefits for these state loss carryforwards. As a result, a valuation allowance has been provided for these specific state loss carryforwards. The valuation allowance on these certain state loss carryforwards was approximately $0.4 million at December 31, 2017.

The revaluation of the company's U.S. deferred tax assets and liabilities to the 21% corporate tax rate reduced net U.S. deferred income tax liability by approximately $15.9 million which is reflected as a reduction in the company's income tax expense for the year ended December 31, 2017. The ultimate impact of the U.S. Tax Act on reported results in 2018 may differ from the estimates provided due to changes in interpretations and assumptions the company has made, guidance that may be issued, and other actions taken as a result of the U.S. Tax Act different from that presently contemplated.

Insider Transactions
In the past 12 months, the company recorded 95 insider trades involving 369,851 shares of stock. Of those 95 insider trades, 43 were Buys involving 156,877 shares of stock, and 52 were Sells involving 212,974 shares of stock, creating an insider buy to sell ratio of 0.7 to 1.

Future Value
My future (5 year hold) target price for the stock is $72, which is an average annual return of 7%. A prior five year hold of the stock (2012-2017) would have returned an average of 13% per year. Please be aware that past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. For Forward Air Corporation (Nasdaq: FWRD) - FYE 12/2017 FAIRLY VALUED The stock is currently trading at levels in line with my most recent $55 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Forward Air Corporation
Posted on 04/22/18

Apache Corporation - Making Holes

2018-04-17T04:25:00.002-05:00

Apache Corporation
Apache Corporation is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids. Industry peers include Anadarko Petroleum Corporation, BP plc, and Exxon Mobil Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $41.89, with an initial trailing stop at $40.18. Upward price movement will encounter resistance at $41.47 and $42.68, with final resistance at $45.16, while downward price movement will find support at $39.55 and $37.62 with final support at $35.96.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Apache Corporation, the company recorded a provisional net deferred tax benefit of $822 million to reverse a previously recorded deferred tax liability for unrepatriated earnings and to account for the transition rule under the new law. In addition and as a result of the decrease in the corporate income tax rate, the company recorded a provisional $516 million deferred tax expense in 2017 related to the remeasurement of the company’s December 31, 2017 deferred tax asset..

The company continues to assess other provisions of the Act including, among other items, the interaction between the deemed repatriation of foreign earnings and 2017 net operating losses as well as the applicability of new taxes on certain future foreign earnings. Provisional amounts for the income tax effects of the Act have been recorded as of December 31, 2017 and are subject to change during 2018.

Insider Transactions
In the past 12 months, the company recorded 180 insider trades involving 609,541 shares of stock. Of the 180 insider trades, 96 were Buys involving 446,094 shares of stock, and 84 were Sells involving 163,447 shares of stock, creating an insider buy to sell ratio of 2.7 to 1.

Future Value
My future (5 year hold) target price for the stock is $38, which is an average annual return of (-1%). A prior five year hold of the stock would have returned an average of (-9%) per year. Please be aware that past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. For Apache Corporation (NYSE: APA) - FYE 12/2017 the stock is OVER VALUED and trading at levels above my most recent ($3) close target. Please See Linked PDF Worksheet

Disclosure
I no hold shares of Apache Corporation in my portfolio.
Posted on 04/17/18

Trinity Industries, Inc. - Riding the Rails

2018-04-09T04:35:00.003-05:00

Trinity Industries, Inc.
Trinity Industries provides products and services to the energy, chemical, agriculture, transportation, and construction sectors. The company manufacturers and sells railcars and railcar parts, steel components, highway products, construction aggregates, inland barges, structural wind towers, steel utility structures, storage and distribution containers, trench shields and shoring products, as well as provides leasing, leasing management, and maintenance of railcars. Listed competitors are Clipper Windpower Holdings, American Railcar Industries, and Lafarge North America.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $36.09, with an initial trailing stop at $31.18. Upward price movement will encounter resistance at $32.19, and then at $32.83, with final resistance at $34.01, while downward price movement will find support at $30.25, $29.49, and then at $28.65.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Trinity Industries, Inc., the company has completed an initial assessment of the tax effects of the Act, and have made a reasonable estimate of the effects on its existing deferred tax balances. The company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to impact future tax returns. However, they are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts resulting in adjustments in future periods in 2018.

The impact of the Act may differ from the company's estimate due to changes in the regulations, rulings, guidance, and interpretations issued by the IRS and the FASB as well as interpretations and assumptions made by the Company. For the items for which they were able to determine a reasonable estimate, they recognized a provisional net benefit of $476.2 million for the year ended December 31, 2017, which is included as a component of income tax expense.

Insider Transactions
For FY17, the company recorded 76 insider trades involving 6,203,658 shares of stock. Of the 76 insider trades, 61 were Buys involving 5,829,298 shares of stock, and 15 were Sells involving 311,360 shares of stock, creating an insider buy to sell ratio of 18.9 to 1.

Future Value
My future (5 year hold) target price for the stock is $51, which is an average annual return of 12%. A prior five year hold of the stock would have returned an average of 22% per year. Please be aware that past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. In the case of Trinity Industries, Inc. (NYSE: TRN) - FYE 12/2017 the stock is UNDER VALUED and trading at levels below my most recent $45 buy target. Please See Linked PDF Worksheet

Of Note
On December 12, 2017, the company announced that its Board of Directors unanimously approved a plan to pursue a spin-off of the company's infrastructure-related businesses to Trinity stockholders. The separation is planned as a tax-free spin-off transaction to the company's stockholders for U.S. federal income tax purposes. The transaction is expected to result in two separate public companies: (1) Trinity, the currently existing company, which will be comprised primarily of Trinity’s rail-related businesses and (2) a new infrastructure company, focused on infrastructure-related products and services (the “Infrastructure Company”).

Completion of the spin-off will be subject to, among other things, the effectiveness of appropriate filings with the Securities and Exchange Commission, final approval from the company's Board of Directors, and other customary conditions. The company may, at any time and for any reason until the proposed transaction is complete, abandon the separation or modify or change its terms. The separation is expected to be completed in the fourth quarter of 2018, but there can be no assurance regarding the ultimate timing of the separation or that the separation will ultimately occur.

Disclosure
I hold no shares of Trinity Industries, Inc. in my portfolio.
Posted on 04/09/18

Superior Energy Services, Inc. - Fracking the World

2018-04-07T08:53:00.001-05:00

Superior Energy Services, Inc.
Superior Energy rent and sell specialized equipment and tools for use with well drilling, completion, production and workover activities. The company also provides pressure pumping, fluid handling and well servicing rigs as well as providing services which enhance, maintain and extend oil and gas production during the life of the well.
Industry peers include Baker Hughes, Parker Drilling, and Schlumberger Ltd.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $10.07, with an initial trailing stop at $8.32. Upward price movement will encounter resistance at $9.25, $9.68, and $10.17, while downward price movement will find support at $7.90.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Superior Energy Services, Inc., they recorded a provisional income tax benefit of $76.5 million during the fourth quarter of 2017. The provisional amount related primarily to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities. Any subsequent adjustments to the provisional amount will be reported as component of income tax expense (benefit) in the reporting period in which any such adjustments are determined.

Insider Transactions
For FY17, the company recorded 19 insider trades involving 440,279 shares of stock. Of the 19 insider trades, 13 were Buys involving 404,543 shares of stock, and 6 were Sells involving 35,736 shares of stock, creating an insider buy to sell ratio of 11.3 to 1.

Future Value
My future (5 year hold) target price for the stock is $7, which is an average annual return of (-3%). A prior five year hold of the stock would have returned an average of (-11%) per year. Please be aware that past and future gains are based on actual and anticipated earnings. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. In the case of Superior Energy Services, Inc. (NYSE: SPN) - FYE 12/2017 the stock is UNDER VALUED and trading at levels below my most recent $17 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Superior Energy Services, Inc. in my portfolio.
Posted on 04/06/18

Pitney Bowes, Inc. - Finding No Love

2018-04-06T05:28:00.001-05:00

Pitney Bowes provides a full range of mailing equipment, software, supplies and support services in addition to providing equipment and services that enable large enterprises to process inbound and outbound mail. The company also provides information management, location intelligence, customer engagement, shipping management and global e-commerce solutions to clients. Industry peers include Siemens AG, NEOPOST SA, and Xerox Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $13.45, with an initial trailing stop at $10.79. Upward price movement will encounter resistance at $11.29, $12.26, and $12.83, while downward price movement will find support at $10.41 and $9.82.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Pitney Bowes, Inc., they recorded a net provisional one-time non-cash benefit of $39 million, which is comprised of a provisional $130 million benefit from the remeasurement of net U.S. deferred tax liabilities arising from a lower U.S. tax rate, offset by a provisional $91 million charge related primarily to the U.S. tax on unremitted earnings of our foreign subsidiaries.

Their estimates of the impact of the Act are based on current calculations and interpretations, as well as assumptions and expectations relating to the Act, which are subject to adjustment based on further guidance and factual changes during the measurement period. As a result of the treatment of foreign earnings under the Act, they have reconsidered their permanent investment position and provisionally concluded they will no longer assert indefinite investment with respect to foreign unremitted earnings as of December 31, 2017.

Insider Transactions
For FY17, the company recorded 44 insider trades involving 215,919 shares of stock. Of the 44 insider trades, 25 were Buys involving 166,609 shares of stock, and 19 were Sells involving 49,310 shares of stock, creating an insider buy to sell ratio of 3.4 to 1.

Future Value
My future (5 year hold) target price for the stock is $16, which is an average annual return of 9%. A prior five year hold of the stock would have returned an average of 3% per year. Please be aware that past and future gains are based on actual and anticipated earnings. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. In the case of Pitney Bowes, Inc. (NYSE: PBI) - FYE 12/2017 the stock is UNDER VALUED, and is currently trading at levels below my most recent $13 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Pitney Bowes, Inc. in my portfolio.
Posted on 04/06/18

International Paper Company

2018-04-01T08:20:00.001-05:00

International Paper is a producer of renewable fiber-based packaging, pulp and paper products, operating 29 pulp, paper and packaging mills, 170 converting and packaging plants, 16 recycling plants and three bag facilities. Listed industry peers include Ball Corporation, Packaging Corporation of America, and WestRock Company.

Future Value
My short-term (3-6 week hold) target price for the stock is $61.79, with an initial trailing stop at $52.63. My future (5 year hold) target price for the stock is $92, which is an average annual return of 14%. A prior five year hold of the stock would have returned an average of 15% per year. Past and future gains are based on actual and anticipated earnings. Any investment has the potential for loss, and past performance is no guarantee of future results.

The Tax Act
The Tax Cuts and Jobs Act of 2017 significantly changes U.S. tax law by, among other things, reducing the U.S. federal corporate tax rate from 35% to 21%, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.

The law provides companies that have unremitted foreign earnings from investments in foreign subsidiaries and currently hold those earnings overseas, the opportunity to repatriate those earnings by paying a one-time net charge related to the taxation of those unremitted foreign earnings.

The Act also allows for the increase of Federal bonus depreciation from 50% to 100% on certain qualifying assets retroactive to September 27, 2017.

The Federal Accounting Standards Board (FASB) has determined that filers have a policy choice to account for this tax on either a period basis or a deferred tax basis. In addition, the FASB requires that companies include in their financial statements the reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined.

It is important to note that income tax adjustments required on repatriated earnings will distort a companies earnings and consequently its fair value.

In the case of International Paper Company, the impact of the Tax Act, created a provisional net tax benefit of $1.22 billion in the period ending December 31, 2017. The net tax benefit primarily consists of a net tax benefit for the re-measurement of U.S. deferred taxes of $1.454 billion and an expense for the Transition Tax of $231 million.

Had there been no provisional tax benefit the company's 2017 earnings would have been $5.96 and my fair value estimate would have been $79.

Insider Transactions
For FY17, the company recorded 35 insider trades involving 354,233 shares of stock. Of the 35 insider trades, 19 were Buys involving 271,310 shares of stock, and 16 were Sells involving 82,923 shares of stock, creating an insider buy to sell ratio of 3.3:1.

Fair Warning
International Paper Company (NYSE: IP) - FYE 12/2017 UNDER VALUED The stock is currently trading at levels below my $86 buy target. Please See Linked Worksheet

Disclosure
I hold no shares of International Paper Company in my portfolio.
Posted on 04/01/18