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October 16, 2019

Below are a series of updates we have recently sent our clients.

Please download any files you would like to keep as this page will only be available until the end of Q3 2019

Valuation 50 Factsheet

Valuation Dividend Factsheet

Valuation 50 Update: Pfizer’s (PFE) Upjohn Unit to Merge with Mylan (MYL), Reiterate Buy

Pfizer’s generic pharmaceutical unit, Upjohn, will merge with Mylan to create a leader in generic and off-patent pharmaceuticals. Pfizer will spin off Upjohn in a tax-free transaction that is expected to close in mid-2020, following regulatory approval. The new company, which is yet to be named, will be headquartered in the U.S. with expected sales of $19 – $20 billion in 2020. Pfizer will receive $12 billion in cash, while the new company will carry an additional $12 billion of debt on top of Mylan’s $13 billion of debt. PFE shareholders are expected to own 57% of the new company and MYL shareholders will own 43%…
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Valuation 50 Update: National Oilwell Varco (NOV) Exceeded Q2 2019 Results, Reiterate Buy

The price of oil seemed to be on a roller coaster ride as it rose from $56/bbl in the beginning of 2018 to above $72/bbl in early October 2018 and dropped below $48/bbl by the end of December 2018. The drastic decline in the commodity caused E&P companies to hold off investing in capital drilling projects, causing NOV and other service companies to lower expectations going into 2019. Today, the price of oil improved to $54/bbl, but it is still 17% lower than this time last year. While challenges remain, NOV’s performance and guidance suggests that the worst may be in the past.
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Valuation 50 Update: Alphabet Inc. (GOOGL)

Alphabet Inc. (GOOGL) reported earnings yesterday that exceeded consensus analyst expectations and its stock price has gained over 10%. Both top line growth and margins came in much better than expected, allaying fears that GOOGL was no longer a growth company given a disappointing Q1 growth rate. Yesterday’s report and management commentary reemphasized that GOOGL still has many levers to be a growth company for some time as management believes its investment in machine learning, artificial intelligence, expansion of Google Cloud under new leadership and its other bets will lead to increased cash flow in the years ahead…
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Valuation 50 Alert: Replacing Celgene Corporation (CELG) with Alexion Pharmaceuticals Inc (ALXN) in the Healthcare Sector

We are replacing Celgene (CELG) with Alexion Pharmaceuticals (ALXN) in the Healthcare sector for the Valuation 50. Alexion is a recognized leader in the ultra-rare and rare disease treatment space. The company is actively investing in innovation to stay ahead of potential competition and to strengthen the durability of its legacy portfolio. Recent drug approvals will also help the company maintain strong sales growth in the near term. Longer term, ALXN’s strong R&D spend has the potential to help diversify its revenue stream from its legacy business and significantly expand the addressable patient population in treating other rare diseases…
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Valuation Dividend Q2 Review 

In the 2nd quarter, the Russell 1000 value performed on par with the Russell 1000 universe, as both indices reacted similarly to a series of notable events in the past 3 months: optimism about a US/China trade agreement that was supposedly within reach, President Trump putting 25% tariff on $200 billion of Chinese imports amid a sudden U turn of the US/China trade negotiation, President Trump to implement 5% tariff immediately on Mexico imports, Fed Chairman Powell signaling openness to cut interest rates, Mexico promising to…
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Valuation 50 Q2 Review: Value Versus Cheapness: Same, Same, But Different

Cheapness has existed as an investment concept forever, but it became institutionalized with the Fama/French’s 1993 three factor model. Cheapness has never been the same as hundreds of billions was poured into equity investment strategies focused on buying “low price to something” stocks supported by reams of back test data. In addition, thousands of small investment professionals and amateurs replicate much of the process the large firms employ via access to abundant datasets on Yahoo! Finance…
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The Gross Profitability Trap

“But this time, it’s different!” More foolish words are rarely spoken in the financial industry, but they always seem to find their way back into the stock market lexicon. A firm’s intrinsic value should always be a function of discounted future cash flows that incorporate a comprehensive understanding of profitability, growth, competition, and risk. Occasionally, alternative approaches can find favor in enough market participants’ stock selection to distort the foundational understanding of firm value…
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Valuation 50 Update: Bristol-Myers Squibb (BMY) Acquisition of Celgene (CELG) Gets Delayed

Bristol-Myers Squibb (BMY) provided an update to the Celgene (CELG) acquisition. Following a March 2019 request for additional information from the U.S. Federal Trade Commission (FTC) about BMY and CELG’s immunology and inflammation (I&I) businesses, and to satisfy antitrust issues, BMY announced that it will divest CELG’s Otezla…
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Valuation 50 Alert: AbbVie Inc (ABBV) to Acquire Allergan plc (AGN), reiterate Buy:

AbbVie (ABBV) announced its intention to acquire Allergan (AGN) in a cash and stock transaction valued at $62 billion. The cash portion of the deal includes $120.30 per AGN share with the equity portion adding $67.94 per share (0.866 per ABBV share at ABBV’s closing price on 6/24/2019) for a total purchase consideration of $188.24 per share, or 45% premium to AGN shares at the 6/24/2019 close. The news sent AGN shares soaring 25% to $162…
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