The expected return somewhere in the 7-9% range for Buffett holdings.
http://online.wsj.com/article/SB10001424052970203363504577185440666871560.html
Saturday, January 28, 2012
Saturday, January 21, 2012
Infosys (INFY) Analysis
Infosys (INFY) is an Indian IT services company that has world wide presence. It gets most of its business from north america (~60%) with significant revenue from Europe and a very small incremental revenue (~2%) from India.
In the last year, the return (excluding dividends) has been -25% for Infosys and overall return for the past five years has been ~-7% excluding dividends.
Let us see if this is a business worth investing in given that it is the premier IT company in India. Revenues per share have grown from 78 cents/share to $12.78/share from 2000 - 2011. Earnings have grown from 24 cents/share in 2000 to $3/share in 2011.
So, it is not the company fundamentals that have caused stagnation in the stock price. It is the unreasonable expectations of the past that have made the stock price a lot higher than it should have been given the fundamentals.
So, is infosys a good investment now? Infosys faces many challenges moving forward - especially an uncertain 2012 with economic turmoil in Europe. The company can't be termed cheap with respect to cash flow or earnings in the U.S market. There are many companies that are cheaper than Infosys in the U.S market at the moment. However, Infosys is a well run company ( no significant dilution to shareholders from 2006 onwards ) with a strong balance sheet and no debt. It should do well over the long haul.
In the last year, the return (excluding dividends) has been -25% for Infosys and overall return for the past five years has been ~-7% excluding dividends.
Let us see if this is a business worth investing in given that it is the premier IT company in India. Revenues per share have grown from 78 cents/share to $12.78/share from 2000 - 2011. Earnings have grown from 24 cents/share in 2000 to $3/share in 2011.
So, it is not the company fundamentals that have caused stagnation in the stock price. It is the unreasonable expectations of the past that have made the stock price a lot higher than it should have been given the fundamentals.
So, is infosys a good investment now? Infosys faces many challenges moving forward - especially an uncertain 2012 with economic turmoil in Europe. The company can't be termed cheap with respect to cash flow or earnings in the U.S market. There are many companies that are cheaper than Infosys in the U.S market at the moment. However, Infosys is a well run company ( no significant dilution to shareholders from 2006 onwards ) with a strong balance sheet and no debt. It should do well over the long haul.
Google Earning Analysis
I went through google earnings through this table. I like to do my own analysis despite what the analysts say and come to my own conclusions.
After going through this table, the operating income grew by 11% year over year for the full year despite revenue going up 29%. It is still pretty decent but we aren't seeing the heady growth in income we saw before. Google is executing well with mobile (700K phones activated everyday), display ads (5 billion business), youtube and other businesses and will be a force to contend with for years to come. The stock valuation is a different story and it is not cheap by any means. This is keeping in mind that Google is about to buy Motorola Mobility which likely will change the MO relationship in a significant way for Android.
Since we are talking about business as a whole, let us look at the earning call transcript. From Larry Page:
After going through this table, the operating income grew by 11% year over year for the full year despite revenue going up 29%. It is still pretty decent but we aren't seeing the heady growth in income we saw before. Google is executing well with mobile (700K phones activated everyday), display ads (5 billion business), youtube and other businesses and will be a force to contend with for years to come. The stock valuation is a different story and it is not cheap by any means. This is keeping in mind that Google is about to buy Motorola Mobility which likely will change the MO relationship in a significant way for Android.
Since we are talking about business as a whole, let us look at the earning call transcript. From Larry Page:
Each of improved execution and velocity is focus. There are so many opportunities for Google today. But to make a real impact in the world, we need to make hard choices about where to focus our efforts.
Since we last spoke, we've announced that we're closing 12 of our products, including Buzz, Knol and Friend Connect, integrating a whole bunch of others into features of existing products. This means that we can double down on the really big bets we had made like Android, Chrome, Gmail, Display and YouTube. And I'm pleased to say this big bets are really paying off. We're seeing extraordinary velocity, the kind of velocity we only we can dream about. Android is, quite simply, mind-boggling. 700,000 phones are lit up every day. And I'm pleased to announce 250 million Android devices in total, up 50 million since our last announcement just in November. In just 2 days over the holiday weekend, 3.7 million Androids were activated. And today, we're announcing over 11 billion downloads from Android markets. Wow. Ice Cream Sandwich, which is the new Android release in October, is by far our best build yet. And our exciting new phones. I simply love my Galaxy Nexus. Superfast, it's great for photos, has an amazing 720p screen.
Chrome is on fire, too. It's a wonderful example of kind of beautifully simple, intuitive experience that really improves users' lives. People thought we were crazy. Who wants another browser? It turns out a lot of people wanted to get to web quickly and securely, and we've got an amazing, fast-growing fan base all around the world.
From the start, Gmail had security, accessibility. Get all your emails from anywhere on any device. An insane storage. That made it a winner with consumers, businesses and education. From an internal beta project 8 years ago, I'm proud to tell you today that Google Gmail now has more than 350 million active users, and it's growing rapidly. That [indiscernible] said, our merging high-use project -- products can generate huge new businesses for Google in the long run, just like Search, and we have a ton of experience monetizing those old [ph] products over time. Take Display. We brought the science of search to the art of the Display, creating a business that our latest figures show has now reached an annualized run rate of over $5 billion.
I have some exciting new numbers also for the DoubleClick Ad Exchange, spending is up over 130% year-on-year, and the number of buyers and sellers have both more than doubled over the same period. I'm very pleased with the advertising on YouTube. TrueView gives users much more choice over what they watch, and advertisers only pay when someone watches their ad.
It's not just in advertising that we're doing well. Enterprise is doing great with over 5,000 new customers signing up every day. In fact, last week, we signed our biggest ever deal, about 110,000 users at BBDA, one of the world's leading banks. All of our experience says that well-run technology businesses with tremendous consumer research, make a lot of money over the long term.
MSFT - the stock popped, should one buy more or sell?
Microsoft reported its earnings this week and the stock popped as it beat analyst estimates. Let us look at the business as a whole to see if one should buy more or less?
The company's operating income for the first six months of the year decreased by ~1% and declined by ~2% in the December quarter. It is not huge but shows the business dynamics as a whole. The slow down is mostly because of the windows client slow down which will eventually show up in other businesses. However, the net income was up because of other income and a more favorable income tax rate. It didnt hurt that the number of shares outstanding declined by some 2.1%.
The other measure one must watch out for is the growth in share holder equity. The company pays out nearly 7 billion in dividends every year from its cash flows. The shareholder equity increased by about 7 billion dollars for the first six months of the year compared to June 2011. All the increase is from goodwill from the Skype purchase. Since Skype doesn't add to the bottom line yet, this increase in share holder equity will have to wait out to see how it does over time.
The company has prodigious cash flows even though it is somewhat stagnant/slightly declining year over year. The company is impacted by windows client decline but has had increases in server & tools, microsoft business division (where growth is moderating to low single digits) and declining losses in the search business. The entertainment and devices division is showing a larger decline in profits this year probably because of the acquisition of Skype.
With operating income of 27 billion in 2011 that is slightly declining year over year and not much in capex other than people that can be disposed of, a case can be made that Microsoft is under valued. However, a declining business has its own risks and there are many under valued investments available in today's market and will continue to be available. Microsoft provides a good yield that should remain reliable with increasing stock buy back even with declining cash flows. Microsoft's businesses remain solid but their hold on the market may be declining as customers flock to other form factors such as the tablet where Microsoft has been lagging.
The company's operating income for the first six months of the year decreased by ~1% and declined by ~2% in the December quarter. It is not huge but shows the business dynamics as a whole. The slow down is mostly because of the windows client slow down which will eventually show up in other businesses. However, the net income was up because of other income and a more favorable income tax rate. It didnt hurt that the number of shares outstanding declined by some 2.1%.
The other measure one must watch out for is the growth in share holder equity. The company pays out nearly 7 billion in dividends every year from its cash flows. The shareholder equity increased by about 7 billion dollars for the first six months of the year compared to June 2011. All the increase is from goodwill from the Skype purchase. Since Skype doesn't add to the bottom line yet, this increase in share holder equity will have to wait out to see how it does over time.
The company has prodigious cash flows even though it is somewhat stagnant/slightly declining year over year. The company is impacted by windows client decline but has had increases in server & tools, microsoft business division (where growth is moderating to low single digits) and declining losses in the search business. The entertainment and devices division is showing a larger decline in profits this year probably because of the acquisition of Skype.
With operating income of 27 billion in 2011 that is slightly declining year over year and not much in capex other than people that can be disposed of, a case can be made that Microsoft is under valued. However, a declining business has its own risks and there are many under valued investments available in today's market and will continue to be available. Microsoft provides a good yield that should remain reliable with increasing stock buy back even with declining cash flows. Microsoft's businesses remain solid but their hold on the market may be declining as customers flock to other form factors such as the tablet where Microsoft has been lagging.
Sunday, August 14, 2011
Biglari Holdings - BH quarterly analysis
BH is known as a Berkshire wannabe. Biglari Holdings reported quarterly earnings this week. Let us take a quick glance.
The way to value BH is by taking into account three components.
1. Operating cash flow
2. Investments
3. Subtract the incentive compensation part paid to the Chairman
Let us value BH based on these three components:
Operating cash flow:
The SnS brand sales growth is leveling off and Western Sizzling is going down. The top line growth went up by 3.5% and operating earnings by 10%; for the quarter both SNS amd Western Sizzling had less operating profit.
Earning before income tax was 29 million for the first forty weeks. Normalizing to 52 weeks gives a value of 37.7 million.
Investments
Investments totaled 117 million at the end of Q2. Most likely the investments have dropped since Q2 after the market adjusted. The BH group made money with FMMH.PK but the market value of CBRL has dropped since then. Anyway, we will leave it as is for the sake of this analysis.
Adjustment for chairman's compensation
Shareholders equity went up by 10% from Sept of last year, we can assume it will be up by 12% for the year. The chairman will take 1.5% of the addition in book value over 5%. This brings chairmans compensation to ~4 million.
Valuation
At the low end, we will pay 6 multiple for the earnings before income tax as the earnings are flat or declining for the restaurant business. This in addition to the investments and subtracting chairman's compensation gives us a valuation of ~340 million.
At the high end, we will pay 8 multiple for the earnings before income tax. This in addition to the investments and subtracting the chairman's compensation gives us a valuation of ~420 million.
Current Price
Using the treasury stock, we get a valuation of 580 million. Treasury stock is stock held by the various partnerships that Biglari runs under the BH umbrella. The treasury stock is used when voting for the chairman's causes but not used in calculating the EPS figure.
Without the treasury stock, we get a valuation of 450 million with a share price of $340/share.
We believe that BH is currently overvalued. Even adding back 40 million in retained earning for SnS/West and investment gains of 24 million for the next year without including chairman's compensation, we don't find BH to be a bargain even with a high multiple for earnings.
More at: http://valueinvesting.proboards.com/
The way to value BH is by taking into account three components.
1. Operating cash flow
2. Investments
3. Subtract the incentive compensation part paid to the Chairman
Let us value BH based on these three components:
Operating cash flow:
The SnS brand sales growth is leveling off and Western Sizzling is going down. The top line growth went up by 3.5% and operating earnings by 10%; for the quarter both SNS amd Western Sizzling had less operating profit.
Earning before income tax was 29 million for the first forty weeks. Normalizing to 52 weeks gives a value of 37.7 million.
Investments
Investments totaled 117 million at the end of Q2. Most likely the investments have dropped since Q2 after the market adjusted. The BH group made money with FMMH.PK but the market value of CBRL has dropped since then. Anyway, we will leave it as is for the sake of this analysis.
Adjustment for chairman's compensation
Shareholders equity went up by 10% from Sept of last year, we can assume it will be up by 12% for the year. The chairman will take 1.5% of the addition in book value over 5%. This brings chairmans compensation to ~4 million.
Valuation
At the low end, we will pay 6 multiple for the earnings before income tax as the earnings are flat or declining for the restaurant business. This in addition to the investments and subtracting chairman's compensation gives us a valuation of ~340 million.
At the high end, we will pay 8 multiple for the earnings before income tax. This in addition to the investments and subtracting the chairman's compensation gives us a valuation of ~420 million.
Current Price
Using the treasury stock, we get a valuation of 580 million. Treasury stock is stock held by the various partnerships that Biglari runs under the BH umbrella. The treasury stock is used when voting for the chairman's causes but not used in calculating the EPS figure.
Without the treasury stock, we get a valuation of 450 million with a share price of $340/share.
We believe that BH is currently overvalued. Even adding back 40 million in retained earning for SnS/West and investment gains of 24 million for the next year without including chairman's compensation, we don't find BH to be a bargain even with a high multiple for earnings.
More at: http://valueinvesting.proboards.com/
Sunday, June 19, 2011
TARP Warrants issues by company
Company Name
JPM
Capital One
BAC-WTA
BAC-WTB
PNC
WFC
CMA
AIG
citi-a
citi-b
HIG
LNC
FFBCW
VLY
SBIB
WFSLW
BPFHW
WTFCW
TCB/WS
JPM
Capital One
BAC-WTA
BAC-WTB
PNC
WFC
CMA
AIG
citi-a
citi-b
HIG
LNC
FFBCW
VLY
SBIB
WFSLW
BPFHW
WTFCW
TCB/WS
Saturday, June 18, 2011
New forum for financial news and investments
New forum for value investing at http://valueinvesting.proboards.com/
Also you can follow the value investing news at @valinvest
Also you can follow the value investing news at @valinvest
Sunday, October 03, 2010
Why Microsoft stock is not moving up?
In the past columns, we have looked at the balance sheets of several companies. In this analysis, we will take a look at Microsoft balance sheet. Let us see why Microsoft stock is not going up and is there is any prospect for it to go up significantly.
First, let us look at the top line. The overall revenue went up by about 6.8% compared to 2009 and about 3% compared to 2008. The operating income increased by about 18% compared to 2009. Let us look at division by division on how the growth looks like.
Windows & windows live:
Although the profits in windows & windows live went up by 26% compared to FY2009, the profit edged up only by 1.8% compared to FY2008. While some of this can be attributed to a weak economy, the growth of smart phones and the tablet platform may also be contributing to the slow growth.
Server and Tools:
Server and tools has done pretty well even in a tight economy increasing profits through FY 2009 and FY 2010. This division has contributed close to 5 billion in net income to Microsoft's bottom line.
Microsoft Business Division:
Microsoft business division's growth has been flat through FY 2008, FY 2009 and FY 2010. While some of the flat growth may be attributed to the new version of Office coming out, more likely than not, it is likely that the growth in this division will be in single digits.
Online service division:
Microsoft's online service division has been losing money and the gap has increased widely in FY2010. It lost 2.4 billion in FY2010 from 1.6 billion in FY2009. The increased loss is likely to be persist well into FY2011 and FY2012 as Microsoft/Yahoo partnership comes into play.
Entertainment and Devices Division:
It looks as though this division has finally turned the corner and has become profitable. It has generated 589 million in annual profit. I expect this profit to cross 1 billion in FY2011 with continued market share gains for XBox and also increased sales of the Kinect system for gaming.
Microsoft has an excellent cash position which is bolstered by additional debt. The main concern here is the use of cash. Microsoft has shown in the past that it is not very adept in using cash wisely. Thus the increased dividend is a welcome sign for the shareholders. However, the growth of long term debt is not encouraging as it increases the liabilities and weakens the company's otherwise strong balance sheet.
The main concern with Microsoft is the stagnant top line growth in its primary businesses of Windows and Office. The huge losses suffered by the online services division doesnt help the situation. The bright spot for Microsoft is the Server and Tools business. This is followed by the Entertainment and Devices division finally turning the corner.
Microsoft can increase the attractiveness of the stock to the shareholders by increasing the share re-purchase followed by increased dividend payout. As a top rated company, the payout will eventually get investor interest.
First, let us look at the top line. The overall revenue went up by about 6.8% compared to 2009 and about 3% compared to 2008. The operating income increased by about 18% compared to 2009. Let us look at division by division on how the growth looks like.
Windows & windows live:
Although the profits in windows & windows live went up by 26% compared to FY2009, the profit edged up only by 1.8% compared to FY2008. While some of this can be attributed to a weak economy, the growth of smart phones and the tablet platform may also be contributing to the slow growth.
Server and Tools:
Server and tools has done pretty well even in a tight economy increasing profits through FY 2009 and FY 2010. This division has contributed close to 5 billion in net income to Microsoft's bottom line.
Microsoft Business Division:
Microsoft business division's growth has been flat through FY 2008, FY 2009 and FY 2010. While some of the flat growth may be attributed to the new version of Office coming out, more likely than not, it is likely that the growth in this division will be in single digits.
Online service division:
Microsoft's online service division has been losing money and the gap has increased widely in FY2010. It lost 2.4 billion in FY2010 from 1.6 billion in FY2009. The increased loss is likely to be persist well into FY2011 and FY2012 as Microsoft/Yahoo partnership comes into play.
Entertainment and Devices Division:
It looks as though this division has finally turned the corner and has become profitable. It has generated 589 million in annual profit. I expect this profit to cross 1 billion in FY2011 with continued market share gains for XBox and also increased sales of the Kinect system for gaming.
Microsoft has an excellent cash position which is bolstered by additional debt. The main concern here is the use of cash. Microsoft has shown in the past that it is not very adept in using cash wisely. Thus the increased dividend is a welcome sign for the shareholders. However, the growth of long term debt is not encouraging as it increases the liabilities and weakens the company's otherwise strong balance sheet.
The main concern with Microsoft is the stagnant top line growth in its primary businesses of Windows and Office. The huge losses suffered by the online services division doesnt help the situation. The bright spot for Microsoft is the Server and Tools business. This is followed by the Entertainment and Devices division finally turning the corner.
Microsoft can increase the attractiveness of the stock to the shareholders by increasing the share re-purchase followed by increased dividend payout. As a top rated company, the payout will eventually get investor interest.
Sunday, June 20, 2010
Microsoft, Google, Apple, Yahoo revisited
In a previous article we looked at Microsoft, Google and Yahoo. In this article, we will look at these companies again. We have added Apple and Yahoo to the list to see how the tech industry is shaping up.
Microsoft
In the latest quarter, Microsoft had earnings of 4006 million dollars. After paying out dividends of 1139 million dollars for the quarter with a capex of 408 million dollars, Microsoft has a net accretion of 2459 million dollars. Microsoft also spent 143 million dollars for acquisitions which we wont include in this computation.
From the balance sheet, Microsoft has 39,666 million dollars in cash, cash equivalents and short term investments. Of this amount,~6000 million dollars is from short term, long term debt. Backing the debt out, Microsoft has approximately 33,666 million dollars in cash, cash equivalents and short term investments.
Google
Google had a net income of 1955 million dollars in Q1 2010. Google spent 239 million dollars in capex in the same quarter. Google doesnt pay out any dividends - this left Google with a net positive cash flow of 1716 million dollars.
Google also has cash and marketable securities worth 26.5 billion dollars on the balance sheet. While this is not the same as Microsoft, the war chest is comparable in size while being off by about seven billion dollars.
Apple
Apple had a net income of 6452 million for the first six months of the year. Backing out the capex, the income averages to 2951 million dollars for the quarter.
Apple has cash, short term securities and long term marketable securities in the amount of 41704 million dollars.
Yahoo
Yahoo had operating income of 118.7 million dollars. The company had a capex of 70 million in the same period. The net cash flow was 48.7 million dollars in that period.
The company has more than 2 billion in cash and equivalents.
Comparison
Microsoft has very robust revenue stream primarily from the windows and office franchises. The server and tools business has generated net income of about a billion dollars. The server and tools business is facing a well entrenched adversary in Oracle who recently bought Sun which gives it the range it didnt have before.
Apple is on the acendancy where the popularity of its iPhone platform has enabled it to gain market share with iPad tablets and also with Mac converts. Its overall cash balance is higher than that of Microsoft its net income is robust.
Google has a very strong balance sheet and continues to build its cash pile. Although it made a mistake in dealing with China, it has got a very strong international presence. Microsoft has 2 billion dollars yearly revenue from its online services division but is losing a dollar for every dollar in revenue. Google is closing in on 28 billion dollar in annual revenue which makes it about ten times bigger than Microsoft in the same space. Even taking over all of Yahoo's search isn't likely impact Google much in the search space. Google is increasingly becoming the dominant player in the mobile handset space by taking over market share with its Android OS. Android is expected to displace RIMM as the top OS in the smart phone space in the next three years.
Microsoft
In the latest quarter, Microsoft had earnings of 4006 million dollars. After paying out dividends of 1139 million dollars for the quarter with a capex of 408 million dollars, Microsoft has a net accretion of 2459 million dollars. Microsoft also spent 143 million dollars for acquisitions which we wont include in this computation.
From the balance sheet, Microsoft has 39,666 million dollars in cash, cash equivalents and short term investments. Of this amount,~6000 million dollars is from short term, long term debt. Backing the debt out, Microsoft has approximately 33,666 million dollars in cash, cash equivalents and short term investments.
Google had a net income of 1955 million dollars in Q1 2010. Google spent 239 million dollars in capex in the same quarter. Google doesnt pay out any dividends - this left Google with a net positive cash flow of 1716 million dollars.
Google also has cash and marketable securities worth 26.5 billion dollars on the balance sheet. While this is not the same as Microsoft, the war chest is comparable in size while being off by about seven billion dollars.
Apple
Apple had a net income of 6452 million for the first six months of the year. Backing out the capex, the income averages to 2951 million dollars for the quarter.
Apple has cash, short term securities and long term marketable securities in the amount of 41704 million dollars.
Yahoo
Yahoo had operating income of 118.7 million dollars. The company had a capex of 70 million in the same period. The net cash flow was 48.7 million dollars in that period.
The company has more than 2 billion in cash and equivalents.
Comparison
Microsoft has very robust revenue stream primarily from the windows and office franchises. The server and tools business has generated net income of about a billion dollars. The server and tools business is facing a well entrenched adversary in Oracle who recently bought Sun which gives it the range it didnt have before.
Apple is on the acendancy where the popularity of its iPhone platform has enabled it to gain market share with iPad tablets and also with Mac converts. Its overall cash balance is higher than that of Microsoft its net income is robust.
Google has a very strong balance sheet and continues to build its cash pile. Although it made a mistake in dealing with China, it has got a very strong international presence. Microsoft has 2 billion dollars yearly revenue from its online services division but is losing a dollar for every dollar in revenue. Google is closing in on 28 billion dollar in annual revenue which makes it about ten times bigger than Microsoft in the same space. Even taking over all of Yahoo's search isn't likely impact Google much in the search space. Google is increasingly becoming the dominant player in the mobile handset space by taking over market share with its Android OS. Android is expected to displace RIMM as the top OS in the smart phone space in the next three years.
Microsoft is competing in multiple markets and each of the markets, it is facing well entrenched competitors with huge war chests. The other companies are attacking Microsoft from the fringes which is likely to put increasing pressure on Microsoft's core franchises. The tech landscape is likely change significantly in the next several years with power shifting to different players in the tech space. This is likely to spur more innovation in the tech space and offer more opportunities to tech entrepreneurs.
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