Stock Thoughts

An Investment in Knowledge Pays the Best Interest

Benjamin Franklin

 

RTX Capitalizes on Secular Trends to Drive Dividend Growth

• 2.6% Dividend Yield should grow with earnings.
• Increased military spending by the US and NATO allies, driven by geopolitical tensions, is expected to fuel sustained growth in RTX’s defense segment.
• As commercial aviation recovers and aircraft average age ticks up, RTX stands to benefit from both new equipment and overhaul services.
• $5.5 billion in free cash flow generated in 2023 and an estimated 16.7% CAGR in free cash flow to 2025 provide a solid foundation for returns and expansion.
• A 12% year-over-year growth in backlog, now at $196 billion, and a book-to-bill ratio of 1.28x for 2023 indicate strong future revenue potential across all segments.

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MVP Pipedream Becomes Reality and Unlocks New Market for ETRN

• 5.7% dividend yield, with emphasis on maintaining dividend at the current level and using free cash to pay down debt.
• The Mountain Valley Pipeline is expected to be completed in mid-2024, providing access to Transco markets and Henry Hub and 2 Bcf/d in transit capacity.
• ETRN’s projected EBITDA for 2024 is $1.3 billion, representing an approximate 23% increase year over year.
• ETRN’s network includes 1,120 miles of gathering assets and 940 miles of transmission assets with a 12-year weighted average contract life.
• The total expansion project backlog is expected to add $300 million in yearly EBITDA, a 23% increase.

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Everest Reaches Peak Performance with Rising Premiums and Business Expansion

• 1.9% dividend yield, EG is targeting >17% shareholder return.
• Gross written premium growth of 20.9% year over year, with a combined ratio of 90.9%.
• EG expects to invest more in reinsurance underwriting opportunities in 2024, aiming for a combined ratio target of 89-91%.
• Strong earnings growth, with a continued hard market in reinsurance and new specialty lines in the primary insurance business.
• Sustaining catastrophe reinsurance share at 7% of business, realizing 45% increase in catastrophe reinsurance rates.

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Foot Locker Laces Up for Off-Mall Move

• Foot Locker is shifting from mall-based to off-mall ‘new format’ stores to attract a broader customer base.
• It has started partnerships with leading brands like Puma and Reebok and a renewed Nike partnership.
• NBA sponsorship to boost brand loyalty and engagement, tapping into the massive global basketball fanbase.
• Eyeing growth in the Asia-Pacific region and India, targeting the burgeoning middle-class population and their increasing purchasing power.
• The current economic environment has decreased earnings and margins, but the foundation is set for recovery as the consumer spending upcycle takes hold.

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Video: CVS Offers Recession-Resistant Growth with Acquisitions, Single Digit P/E, 3.6% Dividend Yield

• 3.6% Dividend Yield, single digit P/E.
• M&A period over, now focusing on integrating new businesses and strengthening the balance sheet.
• Healthcare as a sector is recession-resistant.
• Cost recovery on the horizon, with the conclusion of a cost optimization program expected to yield $700-800 million in savings.
• The expected addition of $2 billion to EBITDA by FY26 from Oak Street and a significant internal referral network from Signify Health.
• This could grow earnings by 10% or more.

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Barrick Taps into Existing Asset Base for Expansion

• 2.3% dividend yield.
• Competitive cost profile, with $1,300/oz breakeven for gold and $3.2/lb for copper.
• Gold prices should benefit from economic instability, persistent inflation, deficit spending, high debt, and a global move away from the dollar.
• Copper prices should benefit significantly from the push toward a green economy and increased demand for electronics.
• Targeting 25% increase in gold equivalent production by the end of the decade, with a significant medium-term organic expansion strategy utilizing existing property.
• Virtually zero debt, with $4.2 billion in cash on hand for expansion, acquisition, or increasing dividends.

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Global Leader in Gold Seeks To Dig Out Copper Niche

• 4% projected dividend yield for 2024.
• Gold prices should benefit from economic instability, persistent inflation, deficit spending, high debt, and a global move away from the dollar.
• Newmont is the world’s top gold producer, annually outputting 5.3 million ounces of gold and significant quantities of silver, copper, zinc, and lead.
• NEM’s main production assets are strategically located in politically stable regions.
• NEM benefits significantly from gold price increases, adding $400 million in annual free cash flow for every $100/oz rise in gold prices.
• The major acquisition of Newcrest closed in November, significantly expanding the gold and copper asset base.

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GFI Poised to Grow Its 3% Dividend with Expansion and Optimization

• 3% projected dividend yield for 2025.
• Gold prices should benefit from economic instability, persistent inflation, deficit spending, high debt, and a global move away from the dollar.
• Production is concentrated in geopolitically stable areas like Australia and the Americas, with limited geopolitical risk compared to competitors.
• Low-cost greenfield expansion and disposal of older mines should drive down company-wide all-in-sustaining costs.
• The Salares Norte project will open in April 2024 and add 600k ounces by 2025 at only $700/oz in all-in sustaining costs.
• Salares Norte will drive double-digit low-cost growth in production.

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High Dividend Yield Remains Anchored by Grocery Stability

• 9.7% distribution yield, 125% coverage from funds from operations.
• Grocery Anchors drive traffic, as 94% of grocery demand is met through physical storefronts.
• Strong occupancy rates, with a 94.1% overall rate and 99.3% in grocery space.
• 100% renewal rate on grocery-anchor spaces, 90% on connected retail locations in the last quarter.
• Average new rent is 16.4% higher than the expiring rent in the quarter.

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Video: Everest Group (EG) Raising Premiums and Profits with Compelling Low Valuation

• 1.9% dividend yield, EG is targeting over 13% shareholder return.
• Natural disasters are becoming more frequent and more intense, with primary insurers facing restrictions on premium hikes.
• Reinsurance rates have sustained tailwinds, with Everest realizing a 26.9% increase in premiums.
• Even in the face of increased catastrophe claims, the combined ratio in all segments of the company has improved. Reinsurance combined ratio dropped 340 bps to 88.2%, and primary insurance dropped 120 bps to 91.5%.
• International expansion effort in the primary insurance area resulting in premium growth of 13.5% year over year.
• Strong EPS growth to an expected $61 per share in 2024
• Compelling low valuation with a PE of 6

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Civitas CIVI Permian Pivot Yields Massive 9% Dividend Yield

• 2.9% Base Yield, paying out 50% of average TTM quarterly Free Cash Flow as a variable dividend.
• 582k acres in low-cost basins in the US, expecting to have 280 Mboe/d in production by the end of 2023.
• Total 2024 production is expected to increase significantly, with quarterly production growing by at least 16% to 325 Mboe/d (thousands of barrels of oil equivalent per day).
• Entered the oil-rich Permian basin, significantly increasing its production targets by 101 Mboe/d in 2023 and 168 Mboe/d in 2024.
• These recent acquisitions are expected to surge earnings above $15/share in 2024, with 2024 guidance pointing to $1.8 billion in free cash flow.
• OPEC+ production cuts and Mideast uncertainty could put upward pressure on pricing, bringing WTI oil back to the $80/bbl area.
• Strong balance sheet, targeting a debt-to-EBITDA ratio of 0.9x by the end of fiscal 2024.
• 15.6% pullback from its $82.63 high is an attractive entry point in our opinion.

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Video: Civitas CIVI Permian Pivot Yields Massive 9% Dividend Yield

• 2.9% Base Yield, paying out 50% of average TTM quarterly Free Cash Flow as a variable dividend bringing full yield to 9%.
• 582k acres in low-cost basins in the US, expecting to have 280 Mboe/d in production by the end of 2023.
• Total 2024 production is expected to increase significantly, with quarterly production growing by at least 16% to 325 Mboe/d (thousands of barrels of oil equivalent per day).
• Entered the oil-rich Permian basin, significantly increasing its production targets by 101 Mboe/d in 2023 and 168 Mboe/d in 2024.
• These recent acquisitions are expected to surge earnings above $15/share in 2024, with 2024 guidance pointing to $1.8 billion in free cash flow.
• OPEC+ production cuts and Mideast uncertainty could put upward pressure on pricing, bringing WTI oil back to the $80/bbl area.
• Strong balance sheet, targeting a debt-to-EBITDA ratio of 0.9x by the end of fiscal 2024.
• 15.6% pullback from its $82.63 high is an attractive entry point in our opinion.

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