Thursday, December 25, 2014

IBM: Capital Returns To Shareholders Aren't Financial Engineering

Summary

  • Financial engineering is an overused term when a company does a large-scale stock buyback program.
  • The weak results of IBM are well documented, but the FCF remains strong compared to the market valuation.
  • The recent 15% net payout yield is a strong buy signal.
With the recent collapse of International Business Machines' (NYSE:IBM) stock, lots of questions surround the large stock buyback. When a company uses FCF (free cash flow) and even issues debt to repurchase shares, some in the investment community - including an article by Stock Market Sherpa - like to proclaim financial engineering has occurred. By making that statement, it suggests that the company is undertaking something to deceive investors.


Read the full article at Seeking Alpha.


 Disclosure: Long IBM. Please read the disclaimer page for more details.

Wednesday, December 24, 2014

Buy Twitter If Instagram Is Worth $35 Billion


Summary

  • Citigroup analysts assigned a $35 billion valuation to Instagram that is only now monetizing the user base.
  • Instagram and Twitter have comparable logged-in user bases, though the former is growing faster.
  • Twitter is significantly ahead of Instagram on the monetization path, and provides an attractive valuation compared to Instagram that is part of the significantly larger Facebook.
The absurdity of a $35 billion valuation on a company division that is barely producing revenue is comical, but that is the valuation assigned to Instagram by a Citigroup analyst. The market and especially investors in Facebook (NASDAQ:FB) that bought the social picture sharing service for $1 billion were initially excited about that news. Clearly, Facebook got a great deal at the $1 billion valuation, but investors need to wise up to the proclaimed valuation.

Read the full article at Seeking Alpha.


Disclosure: Long TWTR via GSVC. Please review the disclaimer page for more details. 




Is AT&T Harming DirecTV Shareholders?


Summary

  • The AT&T and DirecTV deal isn't set to be finalized until next year.
  • AT&T is potentially the big bidder at the AWS-3 spectrum auction that could harm the valuation ultimately obtained by DirecTV shareholders when the deal closes.
  • The domestic wireless pricing wars and wireless spectrum auctions continue to dilute the potential windfall for DirecTV shareholders.
With AT&T (NYSE:T) in the middle of closing the DirecTV (NASDAQ:DTV) merger, the apparent aggressive spending on the domestic wireless auction brings up corporate governance issues for shareholders. Along with the domestic wireless pricing war, the situation highlights the issues with corporate stock deals that take so long to finalize. It leaves investors of the acquired company trapped waiting to cash out of the stock while hoping the acquirer doesn't make moves in the meantime to impact the stock.

 Read the full article at Seeking Alpha.

 Disclosure: Long T and DTV. Please read the disclaimer page for more details.

Tuesday, December 23, 2014

Chesapeake Energy: Brilliant Stock Buyback, But Will It Help?


Summary

  • Chesapeake Energy closes deal with Southwestern Energy to sell Southern Marcellus Shale assets providing a significant liquidity injection.
  • Chesapeake surprises the market with the authorization of a large stock buyback.
  • The brilliant moves to improve liquidity and reward shareholders can't overcome the weak commodity environment.
Before the opening bell, Chesapeake Energy (NYSE:CHK) announced that it had finalized the nearly $5 billion sale of Marcellus assets. Along with the deal completion, the Board of Directors authorized a $1 billion stock buyback plan.

 Read the full article at Seeking Alpha.

 Disclosure: No positions mentioned. Please read the disclaimer page for more details.