Stock Thoughts
An Investment in Knowledge Pays the Best Interest
Benjamin Franklin
FedEx Presents Opportunity After Sell Off
• FedEx’s DRIVE and Network 2.0 programs aim to streamline operations, saving $6 billion annually by 2028 without sacrificing top line growth.
• Despite a recent 9% stock price drop, FedEx offers a 4.0% buyback yield and 2.1% dividend yield, making it attractive for long-term investors.
• The expiration of the USPS airmail contract poses short-term challenges but could improve margins through better fleet utilization and cost management.
• FedEx maintains strong financials with $5.9 billion in cash and a net debt to EBITDA of 1.9x, ensuring stability amid economic uncertainties.
Potato Pros Lamb Weston Invest in Volume
• 2.2% Yield.
• LW holds #1 market share in North America, and #2 for the rest of the world for frozen-potato products.
• Dominance in the frozen-potato product market, being the provider for French-fries for customers such as McDonalds, Chic Fil A, Arby’s and Sonic.
• Transitioning to a volume-focused growth strategy rather than pricing-focused.
• Expects headwinds in restaurant traffic to begin to alleviate in the middle of 2025.
Albertsons-Kroger Deal Offers a Potential Premium
• 2.7% Yield.
• Kroger agreed to purchase Albertsons for $24.6 billion in October 2022.
• If approved, Albertsons shareholders will receive $27.25 per share, a 48.3% premium to the current stock price.
• Albertsons holds 6.4% of total grocery market share in 2023, while Kroger holds 10.1%.
• $600 million claw back provision to be paid to Albertsons if the merger does not go through, recouping its costs.
Dividend Aristocrat Target Waits for Consumer Rebound
• 2.94% Yield.
• Expanding margins despite sales slump, increasing gross margin by 160bps.
• Deleveraged balance sheet down to 1.8x net debt to EBITDA, down substantially from 2022 highs.
• Approaching holiday season will buoy results until rate cuts begin to impact consumer spending habits back toward discretionary goods.
• Resumed share buybacks, authorized outstanding buybacks are 13.6% of outstanding shares.
• Stock is a hold post August 21st earnings release as the stock has popped 22.5% since its August 5th lows.
PotlatchDeltic’s Strong Roots Amidst Headwinds
• 4.2% Dividend Yield
• Trading at substantial discount to our $53 per share estimate of asset value.
• Timberland is good inflation hedge.
• Share repurchases demonstrate management’s belief in the underlying asset values.
• Strong real estate performance has offset the weak performance in the wood products segment.
• Lumber market appears to have bottomed out with expectations of a recovery in the spring.
PepsiCo Occupies Sweet Spot With Dividend Growth
• 3.1% Dividend Yield
• More than 500 brands globally, with 23 flagships earning more than $1 billion in revenue.
• Consumer staples giant, owning Quaker Foods, Frito-Lay, and Pepsi.
• Pepsi is trading at a discount compared to peers and its own historical valuation.
• Elevated capex for improving resilience in the supply chain and efficiency improvements.
• Expects long-term revenue growth between 4-6%, with high single digit earnings growth.
Volkswagen’s High Yield Backed By Undervalued Brand Portfolio
• 8.9% Dividend Yield.
• Powerful brands including Audi, Lamborghini, Bentley, and majority ownership in Porsche.
• New EV JVs to reduce capital costs, with Rivian for global EVs and Xpeng for Chinese-made EVs.
• Cost savings program targeting $11 billion in total savings by 2026.
• 11% market share, second in the world with 9.4 million vehicles delivered in 2023.
• Low valuation relative to peers, trading at just 3.1x earnings.
Enbridge 6.9% Dividend Yield Transported by Strong Expansion
• 6.9% Dividend Yield
• Strong acquisition and expansion profile, focusing on building out utility and Gulf Coast capacity.
• Secular tailwinds in liquids from 500 Mbbl/d in expansion in the WCSB.
• Strong LNG and WCSB export demand driving expansionary footing.
• Expects continued capital deployment of $4-7 billion per year over the medium-term.
ADYEY Continues to Ride Secular Payments Growth with Land-and-Expand Strategy
• Adyen is increasing market share through new customers and greater wallet share per customer.
• Expected sales growth of 22% to 26% and earnings growth of 20% to 25% over the medium term.
• Long-term revenue growth driven by increased wallet share on existing customers, enhanced by very low 1% quarterly churn.
• 10% buyback authorized of outstanding stock by the end of November 2025.
• $1.7 billion in free cash flow in 2023 and $9 billion of cash on hand with no debt.
Camping World Ready for Strong Upcycle
• 2.44% Yield.
• Strong market share growth, moving from 18% to 25% in a single quarter.
• Aggressive expansion campaign, hoping to add just over 100 locations by 2028, largely through acquisitions.
• Largely finished with inventory management ahead of the market, with 90% of inventory now containing the cheaper 2024 models.
• Internal actions to move SG&A expenses back from 80% of gross profit back down to 70%, which should provide incremental net income margin gains.
AHR Set to Grow 6.5% Yield with Demographic Tailwinds and Expansion
• 6.5% Distribution Yield.
• Strong demographic tailwinds in the US, with the over 80 population increasing by more than 50% by the end of the decade.
• Occupancy rates are trending above pre-COVID average, with AHR reporting 91% weighted average occupancy.
• Seeking to offload an additional $50 million in non-core assets to fund expansion and purchasing the remaining interest in its largest operator.
• Strengthened balance sheet by going public. Debt now has a 4.89% weighted average interest and a 9.7-year average term.
Exxon’s Growing Dividend Supported by Great Assets and Prodigious Free Cashflow
• 3.3% Dividend Yield.
• Free cash flow machine that will repurchase 8.7% of outstanding shares by 2025.
• Permian acquisition will expand US footprint by double, targeting 2 million barrels per day by 2027.
• Large Guyana development plans in one of the lowest cost basins in the world, with more than 1.5 million barrels per day in planned capacity.
• Free cash machine with little debt, Guyanese development could make up as much as 20% of FCF to 2040.
