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Fair Warning

KMG Chemicals, Inc.
KMG Chemicals manufactures, formulates, and distributes high purity and ultra purity wet process chemicals primarily to clean and etch silicon wafers in the production of semiconductors. The company also manufactures penta products used to pressure treat wood products, primarily for utility poles and cross-arms, to extend their life by protecting against insect damage and decay. In addition the company sells hydrochloric acid, a byproduct of penta production, for use in the steel and oil well service industries as well as manufactures and distributes industrial sealants and lubricants. Industry peers include include Koppers Holdings and Perstorp AB.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $79.00, with an initial trailing stop set at $74.15. With a current price of $75.28, upward price movement will find resistance at $78.05. Downward price movement will find support at $73.72 and $70.48, with final support found at $68.50.

Days to Cover
The most recent days to cover number is 1. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
It is import that investors understand the potential impacts of the Tax Act since changes mandated by The Act can distort earnings and consequently fair value.

The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

In the case of KMG Chemicals, recorded a net tax benefit of approximately $12.3 million for the re-measurement of net deferred tax liabilities as of December 31, 2017. In addition for the Deemed Repatriation Transition Tax (Transition Tax), which is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of the company’s foreign subsidiaries, In addition, for the Deemed Repatriation Transition Tax (Transition Tax), which is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of the company’s foreign subsidiaries, The company is able to make a reasonable estimate of the Transition Tax and currently estimate that it will not have a material Transition Tax obligation.

The company is also analyzing other provisions of the Tax Act such as potential limitations on the amount of currently deductible interest expense, and the limitations on the deductibility of certain executive compensation. As of July 31, 2018 and 2017, the company has recorded a valuation allowance of $0.6 million and $1.8 million related to some of the company’s European and Asian tax jurisdictions and certain state net operating loss carryforwards. In assessing whether a deferred tax asset will be realized, the company considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The company considers the reversal of existing taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the company believes it is more likely than not that it will realize the benefits of these deductible differences, net of the existing valuation allowances, as of July 31, 2018.

Unrelated Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. For KMG Chemicals none of the company’s operating income came from income tax benefits or from other sources.

Insider Transactions
The SEC classifies insiders as the “management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their “insider” knowledge.

In the past 12 months, the company has reported 139 insider trades involving 1,120,557 shares of stock. Of those 139 insider trades, 40 were Buys involving 351,350 shares of stock, and 99 were Sells involving 769,207 shares of stock, creating an insider buy to sell ratio of 0.5 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2018.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Subsequent Events
Subsequent Events are material events that happen after the closes of a company’s fiscal year but before the company has filed its most recent annual 10-K reports. For KMG Chemicalson August 14, 2018, the company entered into a Merger Agreement with Cabot Microelectronics, providing for the acquisition of the company by Cabot Microelectronics which would make the company a wholly owned subsidiary of Cabot Microelectronics, with each outstanding share of the company’s common stock automatically converted into the right to receive $55.65 in cash and 0.2000 shares of common stock of Cabot Microelectronics. The Merger Agreement and the Merger have been unanimously approved by the boards of directors of the company and Cabot Microelectronics.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For KMG Chemicals, revenue increased by 40%, earnings increased by 37%, free cash flow increased by 54%, debt decreased by 45%, and the stock price increased by 29%. Year to date the stock price is up 5%.

Future Value
My future (5 year hold) target price for the stock is $171, which is an average annual return of 25%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 44% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $44. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $62. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Return on Assets, Return on Equity, Return on Capital Employed, Return on Invested Capital, Cash Flow From Invested Capital, and Tangible Book Value. For KMG Chemicals, the PE Ratio is 14, the PEG Ratio is 0.6, the Return on Assets is 9.9%, the Return on Equity is 19.6%, the Return on Capital Employed is 11.3%, the Cash Flow From Invested Capital is 18.4%, and the Tangible Book Value is $(7.60).

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. KMG Chemicals, Inc. (NYSE: KMG) – FYE 07/2018 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $62 fair value estimate. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 10/01/2018 at 17:31:15 HRS.

Disclosure
I hold no shares of KMG Chemicals, Inc.

Disclaimer
I am not a licensed or registered investment professional, nor am I qualified to provide investment advice. As such, always consult a licensed and registered professional investment advisor before investing any money.
Copyright © 2018 Wax Ink
Posted on 10/07/18

Western Digital Corporation
Western Digital Corporation is a developer, manufacturer, and provider of data storage devices and solutions that address the needs of the information technology (“IT”) industry. The company’s portfolio of products serves the Client Device; Data Center Device and Solutions; and Client Solution IT markets, Revenue is also generated thru license and royalty revenue. Industry peers include EMC Corporation, Seagate Technology PLC, and Toshiba Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $75.24, with an initial trailing stop set at $58.06. With a current price of $58.94, upward price movement will find resistance at $60.11 and $64.63, with final resistance found at $70.01. Downward price movement will find support at $57.48.

Days to Cover
The most recent days to cover number is 2. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
It is import that investors understand the potential impacts of the Tax Act since changes mandated by The Act can distort earnings and consequently fair value.

The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

In the case of Western Digital, the company has not finalized the accounting for the tax effects of the enactment of the 2017 Act. However, consistent with applicable SEC guidance, the company has made a reasonable estimate of the effects on the company’s existing deferred tax balances and the one-time mandatory deemed repatriation tax required by the 2017 Act and has recognized a provisional income tax expense of $1.57 billion for the one-time mandatory deemed repatriation tax and a provisional income tax benefit of $65 million related to the re-measurement of deferred tax assets and liabilities for the year ended June 29, 2018.

Unrelated Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. For Western Digital none of the company’s operating income came from income tax benefits or from other sources.

Insider Transactions
The SEC classifies insiders as the “management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders are required to abide by certain rules and fill out SEC forms every time they buy or sell company shares. In addition, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick trades based on their “insider” knowledge.

In the past 12 months, the company has reported 167 insider trades involving 2,305,602 shares of stock. Of those 167 insider trades, 95 were Buys involving 1,502,813 shares of stock, and 75 were Sells involving 802,789 shares of stock, creating an insider buy to sell ratio of 1.9 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2018.

Divestitures/Dispositions
In July 2018, the company announced the closing of its HDD manufacturing facility in Kuala Lumpur, Malaysia, in order to reduce its manufacturing costs and consolidate HDD operations into Thailand. The company expects the closure to be substantially completed by the end of the calendar year 2019 and to result in total pre-tax charges of approximately $160 million.

Subsequent Events
Aside from stock repurchases, dividend payments, treasury stock repurchases, and loss contigencies due to on-going legal proceedings, all of which are part of the company’s normal business activities, there were no subsequent events announced after the close of the company’s current fiscal year.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Western Digital, revenue increased by 8%, earnings increased by 84%, free cash flow increased by 10%, debt decreased by 15%, and the stock price decreased by 14%. Year to date the stock price is down 24%.

Future Value
My future (5 year hold) target price for the stock is $178, which is an average annual return of 40%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 5% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $61. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $85. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Western Digital, the PE Ratio is 10, the PEG Ratio is 0.2, the Price to Book Ratio is 1.5, and the Price to Tangible Book Ratio is (14).

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Western Digital Corporation (NYSE: WDC) – FYE 06/2018 – INITIATE The stock is currently trading at levels in line with my most recent $51 initiate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 08/02/2018 at 16:45:52 HRS.

Disclosure
I hold no shares of Western Digital Corporation

Disclaimer
I am not a licensed or registered investment professional, nor am I licensed or registered with any government agency as such. Always consult a registered professional investment advisor before investing any money.
Copyright © 2018 Wax Ink
Posted on 10/01/18

Thor Industries, Inc.
Thor Industries manufactures recreational vehicles (“RVs”) in the United States. The company’s principal recreational vehicles and/or subsidiaries are Airstream, Thor Motor Coach Keystone RV, Crossroads, Dutchmen, Bison Horse Trailers, Cruiser RV, DRV, Thor Livin’ Lite, Postle, Jayco, StarCraft, Highland Ridge and Entegra Coach. Industry peers include Winnebago Industries, Inc., Supreme Industries, Inc., and Forest River, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $105.72, with an initial trailing stop set at $85.16. With a current price of $86.46, upward price movement will find resistance at $92.56 and $95.34, with final resistance found at $98.63. Downward price movement will find no support.

Days to Cover
The most recent days to cover number is 4. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Thor Industries, tax changes created by the Tax Act were immaterial to the company’s earnings.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. For Thor Industries 0% of the company’s operating income came from income tax benefits, and 1% came from other sources.

Insider Transactions
In the past 12 months, the company has reported 28 insider trades involving 105,835 shares of stock. Of those 28 insider trades, 11 were Buys involving 71,475 shares of stock, and 17 were Sells involving 34,360 shares of stock, creating an insider buy to sell ratio of 2.1 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2018, however, in February 2018, the company announced the formation of a joint venture with Tourism Holdings Limited (“thl”) called TH2connect, LLC (“TH2”). The company and thl each have a 50% ownership position in TH2 and equal representation on the board of directors of TH2.

The company contributed cash totaling $46.9 million to TH2 in early March 2018 while thl contributed various assets with the same approximate fair value. The company’s investment in TH2 was funded entirely from cash on hand. In accordance with the operating agreement, TH2’s future capital needs, which are not expected to be material to the company, will be funded proportionally by thl and the company, and an additional $3.5 million was contributed to TH2 by both Thor and thl in June 2018. TH2 was formed to own, improve and sell innovative and comprehensive digital applications through a platform designed for the global RV industry. TH2 will offer a variety of products focused on enhancing the enjoyment, safety, connectivity and convenience of RV ownership and use.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Subsequent Events
In September 2018, the company and the shareholders of Erwin Hymer Group SE (“Erwin Hymer Group”) announced that they entered into a definitive agreement for the company to acquire Erwin Hymer Group. In accordance with the agreement, consideration to be paid to the sellers at closing will consist of approximately EUR 1.7 billion cash ($2.0 billion at current exchange rate) and equity consisting of approximately 2.3 million shares of the company. The company will also assume responsibility for the debt of the Erwin Hymer Group of approximately EUR 300 million ($350 million at current exchange rate).

The Erwin Hymer Group is headquartered in Bad Waldsee, Germany and is the largest RV manufacturer in Europe, by revenue. The transaction is subject to customary closing conditions, including regulatory approvals. The transaction is expected to close near the end of calendar year 2018. The company plans to finance the acquisition primarily through debt financing. In connection with the planned acquisition, the company has obtained financing commitments for a 5 year, $750 million asset-based credit facility and a 7 year, $2.3 billion term loan.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Thor Industries, revenue increased by 15%, earnings increased by 11%, free cash flow increased by 6%, debt decreased by 100%, and the stock price decreased by 11%. Year to date the stock price is down 9%.

Future Value
My future (5 year hold) target price for the stock is $243, which is an average annual return of 36%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 16% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $76. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $107. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Thor Industries, the PE Ratio is 9, the PEG Ratio is 0.3, the Price to Book Ratio is 2.35, and the Price to Tangible Book Ratio is 3.89.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Thor Industries (NYSE: THO) – FYE 07/2018 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $107 fair value estimate. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 09/20/2018 at 07:11:02 HRS.

Disclosure
I hold no shares of Thor Industries
Posted on 09/25/18

Parker-Hannifin Corporation
Parker-Hannifin is a manufacturer of motion and control technologies and systems for the mobile, industrial and aerospace markets. Industry peers include Emerson Electric, Eaton Corporation, and Honeywell International.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $180.65, with an initial trailing stop set at $168.96. With a current price of $171.53, upward price movement will find resistance at $174 and $177.20, with final resistance found at $180.30. Downward price movement will find support at $167.10 and $163.90, with final support found at $158.40.

Days to Cover
The most recent days to cover number is 2. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Parker-Hannifin, based on the information available as of June 30, 2018, the Company recorded a net provisional discrete income tax cost of $233 million as a result of the TCJ Act being enacted.

The reduction in the corporate tax rate under the TCJ Act required a one-time revaluation of certain tax-related assets and liabilities to reflect their value at the reduced corporate tax rate of 21 percent, which resulted in a decrease in income tax expense of approximately $80 million. The one-time transition tax on undistributed foreign earnings and profits resulted in an increase in income tax expense of $297 million. The company intends to make the election to pay the one-time transition tax over eight years.

The company also recorded deferred tax assets of $679.880 million resulting from $2,633.218 million in loss carryforwards. A valuation allowance of $675.045 million related to the loss carryforwards has been established due to the uncertainty of their realization. Of this valuation allowance, $640.239 million relates to non-operating entities whose loss carryforward utilization is considered to be remote. Some of the loss carryforwards can be carried forward indefinitely; others can be carried forward from three to 20 years. In addition, a valuation allowance of $19.812 million related to future deductible items has been established due to the uncertainty of their realization.

Historically, all foreign undistributed earnings were permanently reinvested in international operations. No tax was provided on such earnings as it was not practicable to estimate the additional tax that might be payable on the eventual distribution. The enactment of the TCJ Act created a territorial tax system significantly reducing the U.S. federal tax cost of future distributions. Although future distributions of foreign earnings to the U.S. should not be subject to U.S. federal income taxes, other U.S. or foreign taxes may be imposed on such earnings. The company has analyzed existing factors and determined it will no longer permanently reinvest certain foreign earnings. On these undistributed foreign earnings of approximately $274 million that are no longer permanently reinvested outside of the U.S., the company has recorded a deferred tax liability of $12 million. The remaining undistributed foreign earnings of approximately $2,700 million remain permanently reinvested outside the U.S. at June 30, 2018.

Of these undistributed earnings, we have recorded a deferred tax liability of $4 million where certain foreign holding companies are not permanently reinvested in their subsidiaries. It is not practicable to estimate the additional taxes, including applicable foreign withholding taxes, that might be payable on the potential distribution of such permanently reinvested foreign earnings.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. For Parker-Hannifin 0% of the company’s operating income came from income tax benefits, and 3% came from other sources.

Insider Transactions
In the past 12 months, the company has reported 123 insider trades involving 644,775 shares of stock. Of those 123 insider trades, 52 were Buys involving 391,976 shares of stock, and 70 were Sells involving 252,799 shares of stock, creating an insider buy to sell ratio of 1.6 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2018.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Parker-Hannifin, revenue increased by 19%, earnings increased by 18%, free cash flow increased by 19%, debt decreased by 16%, and the stock price decreased by 3%. Year to date the stock price is up 10%.

Future Value
My future (5 year hold) target price for the stock is $306, which is an average annual return of 16%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 13% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $69. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $97. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Parker-Hannifin, the PE Ratio is 22, the PEG Ratio is 1.4, the Price to Book Ratio is 4, and the Price to Tangible Book Ratio is (14).

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Parker-Hannifin Corporation (NYSE: PH) – FYE 06/2018 – OVER VALUED The stock is currently trading at levels above my most recent $155 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 08/24/2018 at 14:00:26 HRS.

Disclosure
I hold no shares of Parker-Hannifin Corporation
Posted on 08/25/18

Carpenter Technology Corporation
Carpenter Technology develops, manufactures and distributes cast/wrought and powder metal stainless steels and special alloys including high temperature (iron-nickel-cobalt base), stainless, superior corrosion resistant, controlled expansion alloys, ultra-high strength and implantable alloys, tool and die steels and other specialty metals, as well as cast/wrought titanium alloys. Carpenter also manufactures and rents down-hole drilling tools and components used in the oil and gas industry. Listed competitors include Eramet, Allegheny Technologies, and United States Steel.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $58.80, with an initial trailing stop set at $55.89. With a current price of $56.74, upward price movement will find resistance at $58.55, with final resistance found at $59.97. Downward price movement will find support at $53.38 and $52.07, with final support found at $50.98.

Days to Cover
The most recent days to cover number is 7. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Carpenter Technology, the company had $99.1 million of indefinitely reinvested foreign earnings for which it had not provided deferred income taxes. Due to a change in foreign cash requirements for one of its foreign subsidiaries, the company changed its intent with regard to indefinite reinvestment of foreign earnings of this subsidiary. As a result of this change, the company repatriated $11.5 million of foreign earnings during fiscal year 2017 and recognized associated tax benefits of $0.9 million. The remaining balance of unremitted foreign earnings continues to be indefinitely reinvested.

Deferred taxes are recorded for temporary differences between the carrying amounts of assets and liabilities and their tax bases. In connection with the Act, during fiscal year 2018 the company recorded a provisional net benefit of $78.9 million for the re-measurement of deferred tax assets and liabilities at the lower U.S. federal tax rate. Although the company believes the net benefit recorded is a reasonable estimate of the deferred tax impact of the Act, the re-measurement of deferred tax assets and liabilities at the lower federal corporate income tax rate is provisional until such time that the underlying temporary differences are known rather than estimated.

A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The company had state net operating loss carryforwards of $339.9 million expiring between 2019 and 2038. A significant portion of the state net operating loss carryforwards are subject to an annual limitation that under current law is likely to limit future tax benefits to approximately $3 million. Valuation allowances increased by $5.4 million during fiscal year 2018 primarily due to the re-measurement of deferred tax assets and corresponding valuation allowances due to the Act as well as the impact of a state tax law change that will limit the company’s ability to utilize the state net operating loss carryforwards in future years.

Prior to the Act, undistributed earnings of foreign subsidiaries, totaling $93.8 million were considered permanently reinvested. Upon enactment of the provisions of the Act, the company recorded a $5.0 million accrual for the anticipated one-time mandatory tax on previously deferred foreign earnings (i.e. transition tax). The company is still in the process of evaluating its assertion for indefinite reinvestment.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts.

For Carpenter Technology 15% of the company’s operating income came from income tax benefits, and 1% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 61 insider trades involving 414,437 shares of stock. Of those 61 insider trades, 32 were Buys involving 248,117 shares of stock, and 29 were Sells involving 166,320 shares of stock, creating an insider buy to sell ratio of 1.5 to 1.

Mergers/Acquisitions
During FY18, the company acquired all of the outstanding membership interests of MB CalRAM LLC (“CalRAM”), for a cash purchase price of $13.3 million. The acquisition provides the company entry into the part production segment of the additive manufacturing value chain.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Carpenter Technology, revenue increased by 20%, earnings increased by 291%, free cash flow increased by 102%, debt decreased by 10%, and the stock price increased by 29%. Year to date the stock price is up 8%.

Future Value
My future (5 year hold) target price for the stock is $58, which is an average annual return of 0.4%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 4% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $50. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $80. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Carpenter Technology, the PE Ratio is 14, the PEG Ratio is 40, the Price to Book Ratio is 2, and the Price to Tangible Book Ratio is 2.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Carpenter Technology Corporation (NYSE: CRS) – FYE 06/2018 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $80 fair value estimate. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 08/14/2018 at 16:03:45 HRS.

Disclosure
I hold no shares of Carpenter Technology Corporation
Posted on 08/19/18

Kennametal, Inc.
Kennametal is engaged in the development and manufacturing of metalworking tools and wear-resistant engineered components and coatings using a specialized type of powder metallurgy. The company also develops, manufactures and markets engineered components and surface technology solutions with proprietary metal cladding capabilities, as well as process technology and materials that focus on component deburring, polishing and effecting controlled radii. Listed competitors include Atlas Copco AB, Sandvik AB, and DMG Mori Aktiengesellschaft.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $41.52, with an initial trailing stop set at $38.25. With a current price of $38.83, upward price movement will find resistance at $39.30 and $40.87, with final resistance found at $42.69. Downward price movement will find support at $37.34, with final support found at $35.72.

Days to Cover
The most recent days to cover number is 4. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Kennametal, Inc., the company estimated the toll tax charge to be $80.9 million after available foreign tax credits. The toll tax charge consumed its entire U.S. federal net operating loss carryforward and other credit carryforwards, which represent a significant portion of its previously available deferred tax assets, and was offset by the release of the valuation allowance associated with these assets. The company estimates a cash payment of $3.5 million associated with the toll charge which will be paid over eight years, of which $3.2 million is classified as long-term accrued income taxes.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts.

For Kennametal, Inc. 0% of the company’s operating income came from income tax benefits, and 0% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 155 insider trades involving 506,502 shares of stock. Of those 155 insider trades, 58 were Buys involving 357,222 shares of stock, and 97 were Sells involving 149,280 shares of stock, creating an insider buy to sell ratio of 2.4 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2018.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Kennametal, Inc., revenue increased by 15%, earnings increased by 70%, free cash flow increased by 34%, debt increased by 43%, and the stock price decreased by 4%. Year to date the stock price is up 8%.

Future Value
My future (5 year hold) target price for the stock is $54, which is an average annual return of 8%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of (1)% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $35. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $39. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Kennametal, Inc., the PE Ratio is 14, the PEG Ratio is 1.8, the Price to Book Ratio is 3, and the Price to Tangible Book Ratio is 4.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Kennametal, Inc. (NYSE: KMT) – FYE 06/2018 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $39 fair value estimate. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 08/10/2018 at 14:14:26.

Disclosure
I hold no shares of Kennametal, Inc.
Posted on 08/12/18

AAR Corporation
AAR Corporation is a provider of services and products to commercial aviation and to the government and defense markets. Services and products include: aviation supply chain and parts support programs; maintenance, repair and overhaul of airframes, landing gear, and certain other airframe components; design and manufacture of pallets, shelters, and containers; expeditionary airlift services; aircraft modifications and aircraft and engine sales and leasing. Industry peers include Curtiss-Wright Corporation, Rockwell Collins, Inc., Spirit Aerosystems Holdings, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $49.01, with an initial trailing stop set at $45.35. With a current price of $46.04, upward price movement will find resistance at $47.02, with final resistance found at $48.28. Downward price movement will find support at $45.32 and $44.21, with final support found at $43.35.

Days to Cover
The most recent days to cover number is 4. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of AAR Corporation, the company re-measured its deferred tax assets and liabilities based on the tax rate at which they are expected to reverse in the future, which is either at a federal rate of 29.2% for reversals in fiscal 2018 or 21% for reversals in fiscal 2019 and subsequent years, and recognized an income tax benefit of $14.1 million for the re-measurement impact on a provisional basis as permitted under Staff Accounting Bulletin No. 118, which allows the use of a measurement period, similar to that used in business combinations, to account for the impacts of the Tax Reform Act.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts.

For AAR Corporation 0% of the company’s operating income came from income tax benefits, and 0% of operating income came from other sources. It is also important to note that discontinued operations impacted earnings by $1.67 per share.

Insider Transactions
In the past 12 months, the company has reported 54 insider trades involving 1,458,276 shares of stock. Of those 54 insider trades, 28 were Buys involving 684,576 shares of stock, and 26 were Sells involving 773,700 shares of stock, creating an insider buy to sell ratio of 0.9 to 1.

Mergers/Acquisitions
During FY18 the company acquired the outstanding shares of two MRO facilities in Canada owned by Premier Aviation for approximately $24.8 million.

Divestitures/Dispositions
During FY18 the company sold interests in two aircraft joint ventures receiving cash proceeds of $7.3 million and recognizing a gain on the sale of $0.4 million.

Year-Over-Year Metrics
Several year over year metrics that are of interest to many investors are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For AAR Corporation, revenue increased by 10%, earnings decreased by 71%, free cash flow decreased by 15%, debt increased by 15%, and the stock price increased by 22%. Year to date the stock price is up 3%.

Future Value
My future (5 year hold) target price for the stock is $104, which is an average annual return of 25%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 25% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my current baseline valuation for the company is $37. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $5. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For AAR Corporation, the PE Ratio is 97, the PEG Ratio is 3.8, the Price to Book Ratio is 2, and the Price to Tangible Book Ratio is 2.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. AAR Corporation (NYSE: AIR) – FYE 05/2018 – OVER VALUED The stock is currently trading at levels above my most recent $7 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 07/11/2018 at 16:59:41.

Disclosure
I hold no shares of AAR Corporation
Posted on 08/12/18

Worthington Industries, Inc.
Worthington Industries is a metals manufacturing company producing pressure cylinders for liquefied petroleum gas (“LPG”), compressed natural gas (“CNG”), oxygen, refrigerant and other industrial gas storage; hand torches and filled hand torch cylinders; propane-filled camping cylinders; helium-filled balloon kits; steel and fiberglass tanks and processing equipment primarily for the oil and gas industry; cryogenic pressure vessels for liquefied natural gas (“LNG”) and other gas storage applications; engineered cabs and operator stations and cab components; steel pallets and racks; suspension grid systems for concealed and lay-in panel ceilings; laser welded blanks; light gauge steel framing for commercial and residential construction; and model automotive service stampings. Listed competitors include AK Steel Holding, Steel Technologies, and Gibraltar Industries.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $49.15, with an initial trailing stop set at $44.34. With a current price of $45.02, upward price movement will find resistance at $45.62 and $46.65, with final resistance found at $47.87. Downward price movement will find support at $44.38 and $43.08, with final support found at $40.39.

Days to Cover
The most recent days to cover number is 6. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Worthington Industries, the company has elected to account for the tax on GILTI as a period cost and thus has not adjusted any of the deferred tax assets and liabilities of its foreign subsidiaries for the new tax. The two material items that impacted the company were the reduction in the tax rate and a one-time mandatory deemed repatriation tax imposed on the company’s unremitted foreign earnings.

Consistent with applicable Securities and Exchange Commission guidance , the company has made a reasonable estimate of the one-time mandatory deemed repatriation and as such, the company recognized a provisional income tax expense of $6.9 million for the one-time mandatory deemed repatriation tax. for fiscal 2018.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts.

For Worthington Industries 0% of the company’s operating income came from income tax benefits, and 80% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 98 insider trades involving 740,132 shares of stock. Of those 98 insider trades, 47 were Buys involving 336,295 shares of stock, and 51 were Sells involving 403,837 shares of stock, creating an insider buy to sell ratio of 0.8 to 1.

Mergers/Acquisitions
During FY18 the company acquired AMTROL, a manufacturer of pressure cylinders and water system tanks with operations in the U.S. and Europe for a total purchase price of $291.921 million.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Worthington Industries, revenue increased by 19%, earnings increased by 55%, free cash flow increased by 43%, debt increased by 30%, and the stock price increased by 12%. Year to date the stock price is down 6%.

Future Value
My future (5 year hold) target price for the stock is $111, which is an average annual return of 29%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 8% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $34. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $32. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Worthington Industries, the PE Ratio is 19, the PEG Ratio is 0.6, the Price to Book Ratio is 3, and the Price to Tangible Book Ratio is 6.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Worthington Industries, Inc. (NYSE: WOR) – FYE 05/2018 – SELL HALF The stock is currently trading at levels above my most recent $32 fair value estimate, but below my most recent $52 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 07/30/2018 at 16:19:26.

Disclosure
I hold no shares of Worthington Industries, Inc.
Posted on 08/11/18

RPM International, Inc.
RPM International manufactures, markets and sells various specialty chemical product lines, including high-quality specialty paints, protective coatings, roofing systems, sealants and adhesives. Industry peers include The Sherwin-Williams Company, Axalta Coating Systems, and PPG Industries.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $60.71, with an initial trailing stop set at $62.79. With a current price of $63.75, upward price movement will find resistance at $63.99. Downward price movement will find support at $61.86 and $60.34, with final support found at $58.25.

Days to Cover
The most recent days to cover number is 2. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of RPM International, Inc., the company recorded a net provisional income tax expense of $7.3 million as a result of the Act being enacted during this fiscal year. The net provisional income tax expense is comprised of a benefit of $15.7 million related to the provisional re-measurement of our U.S. deferred tax assets and liabilities at the reduced U.S. corporate tax rates, a provisional expense of $67.9 million for the transition tax on unremitted earnings from foreign subsidiaries, and a provisional benefit of $44.9 million for the partial reversal of a previously recorded deferred tax liability recorded for the estimated tax cost associated with unremitted foreign earnings not considered indefinitely reinvested.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. For RPM International, Inc. 0% of the company’s operating income came from income tax benefits, and 0% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 67 insider trades involving 1,075,977 shares of stock. Of those 67 insider trades, 26 were Buys involving 452,702 shares of stock, and 41 were Sells involving 623,275 shares of stock, creating an insider buy to sell ratio of 0.7 to 1.

Mergers/Acquisitions
During FY18 the company completed a total of seven acquisitions which include a manufacturer of high-performance spray applied polyurea waterproofing systems, as well as a range of polymer flooring systems headquartered in Norway; a manufacturer and marketer of terrazzo and resinous flooring, wall coating systems and other concrete repair and maintenance materials headquartered in Ohio; a manufacturer and installer of a range of specialty bridge bearings and expansion joints, as well as custom engineered solutions for bridges, wind turbines and other structures located in the U.K; a manufacturer of sealers, cleaners, polishes and related products primarily for tile and natural stone based in California; a manufacturer and marketer of specialty cleaners for rust stain removal based in Iowa; a manufacturer of adjuvants, which are used to enhance the productivity of herbicides for farming and forest protection programs based in Australia; the assets of a distributor of high-performance wood finishes located in the U.K.. The total spent on acquisitions was $112.4 million.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For RPM International, Inc., revenue increased by 7%, earnings decreased by 6%, free cash flow decreased by 0.5%, debt increased by 4%, and the stock price decreased by 10%. Year to date the stock price is up 29%.

Future Value
My future (5 year hold) target price for the stock is $110, which is an average annual return of 14%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 11% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $32. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $31. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For RPM International, Inc., the PE Ratio is 24, the PEG Ratio is 2, the Price to Book Ratio is 6, and the Price to Tangible Book Ratio is (60).

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. RPM International, Inc. (NYSE: RPM) – FYE 05/2018 – OVER VALUED The stock is currently trading at levels above my most recent $50 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 07/23/2018 at 15:49:28.

Disclosure
I hold no shares of RPM International, Inc.
Posted on 08/10/18

Cal-Maine Foods, Inc.
Cal-Maine Foods is a producer and marketer of shell eggs, selling approximately 1 million dozen shell eggs annually produced from a flock of approximately 36.3 million mature female chickens(layers) and 9.6 million female chickens usually under 18 weeks of age (pullets), and breeders. Industry peers include Michael Foods Group, Moark LLC, and Rose Acre Farms.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $49.85, with an initial trailing stop set at $45.95. With a current price of $46.65, upward price movement will find resistance at $47.34 and $49.26, with final resistance found at $51.37. Downward price movement will find support at $44.93 and $44.06, with final support found at $42.83.

Days to Cover
The most recent days to cover number is 18. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Cal-Maine Foods, Inc., the company completed its analysis and recorded a $43.0 million tax benefit in connection with the Act for FY18.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. For Cal-Maine Foods, Inc. 5% of the company’s operating income came from income tax benefits, 4% of operating income came from other sources, and 2% was from interest income.

Insider Transactions
In the past 12 months, the company has reported 8 insider trades involving 13,862 shares of stock. Of those 8 insider trades, 6 were Buys involving 12,128 shares of stock, and 2 were Sells involving 1,734 shares of stock, creating an insider buy to sell ratio of 7 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2018.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Cal-Maine Foods, Inc., revenue increased by 40%, earnings increased by 329%, free cash flow increased by 314%, debt decreased by 44%, and the stock price increased by 23%. Year to date the stock price is down 3%.

Future Value
My future (5 year hold) target price for the stock is $96, which is an average annual return of 21%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 24% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $35. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $11. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Cal-Maine Foods, Inc., the PE Ratio is 12, the PEG Ratio is 0.5, the Price to Book Ratio is 2, and the Price to Tangible Book Ratio is 3.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Cal-Maine Foods, Inc. (Nasdaq: CALM) – FYE 05/2018 – OVER VALUED The stock is currently trading at levels above my most recent $17 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 07/23/2018 at 07:27:47.

Disclosure
I hold no shares of Cal-Maine Foods, Inc.
Posted on 08/09/18

Scholastic Corporation
Scholastic Corporation is a children’s publishing, education and media company as well as a developer of educational technology products and ebooks for children. Listed competitors are Pearson plc, Penguin Random House LLC, and McGraw Hill.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $45.93, with an initial trailing stop set at $40.03. With a current price of $40.64, upward price movement will find resistance at $41.55 and $42.85, with final resistance found at $44.59. Downward price movement will find support at $39.40 and $38.60, with final support found at $37.51.

Days to Cover
The most recent days to cover number is 14. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Scholastic Corporation, the company’s income tax benefit includes expense related to the re-measurement of the company’s U.S. deferred tax balances of $5.7, based upon the company’s estimate of the amount and timing of future income taxes and related deductions. The Act requires the company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets, as defined by the Act, and 8.0% on the remaining earnings. The company does not expect to incur a one-time transition tax on earnings of foreign subsidiaries.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuation impacts. For Scholastic Corporation 0% of the company’s operating income came from income tax benefits and 0% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 130 insider trades involving 1,059,002 shares of stock. Of those 130 insider trades, 57 were Buys involving 542,951 shares of stock, and 76 were Sells involving 516,051 shares of stock, creating an insider buy to sell ratio of 1.1 to 1.

Mergers/Acquisitions
During FY18, the company purchased two U.S.-based book fair businesses resulting in $1.8 million of amortizable intangible assets. The company also purchased a UK-based book distribution business resulting in $1.5 million of amortizable intangible assets.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Scholastic Corporation, revenue decreased by 6%, earnings increased by 10%, free cash flow decreased by 52%, debt increased by 27%, and the stock price increased by 5%. Year to date the stock price is down 10%.

Future Value
My future (5 year hold) target price for the stock is $179, which is an average annual return of 68%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 19% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $51. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value estimate for the stock is $68. The fair value estimate is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Scholastic Corporation, the PE Ratio is 11, the PEG Ratio is 0.2, the Price to Book Ratio is 1, and the Price to Tangible Book Ratio is 1.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Scholastic Corporation (Nasdaq: SCHL) – FYE 05/2018 – UNDER VALUED The stock is currently trading at levels below my most recent $41 initiate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 07/25/2018 at 16:46:34.

Disclosure
I hold no shares of Scholastic Corporation
Posted on 08/08/18

Paychex, Inc.
Paychex, Inc. is a provider of integrated payroll, human resource, insurance, and benefits outsourcing solutions for small to medium sized businesses. Industry peers include Automatic Data Processing, TriNet Group, and Insperity, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $72.88, with an initial trailing stop set at $69.34. With a current price of $70.40, upward price movement will find resistance at $71.72. Downward price movement will find support at $68.93 and $67.94, with final support found at $65.43.

Days to Cover
The most recent days to cover number is 4. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Paychex, Inc., the company derived estimated tax benefits of $102.6 million, including a net tax benefit of $25.5 million related to the revaluation of the company’s net deferred tax liabilities and a net tax benefit of $77.1 million related to the reduction in the company’s statutory income tax rate. These amounts totaled $0.07 per diluted share and $0.21 per diluted share, respectively.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors should always explore the sources of a company’s earnings to better understand potential valuations impacts. For Paychex, Inc. 0% of the company’s operating income came from income tax benefits and 0% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 99 insider trades involving 1,079,677 shares of stock. Of those 99 insider trades, 49 were Buys involving 563,889 shares of stock, and 50 were Sells involving 515,788 shares of stock, creating an insider buy to sell ratio of 1.1 to 1.

Mergers/Acquisitions
In February 2018, the company completed its acquisition of Lessor Group (“Lessor”). Upon closing, Lessor became a wholly owned subsidiary of the company. Lessor is a provider of payroll and HCM software solutions headquartered in Denmark and serving clients in Northern Europe. The company believes that the acquisition will provide additional opportunities for growth in Europe. The purchase price was $162.5 million.

In August 2017, the company acquired HROI and all of its operating subsidiaries. HROI is a PEO (professional employer organization) that provides HR solutions to small and medium sized businesses in 35 states. The acquisition expands the company’s presence in the PEO industry. The purchase price was $75.4 million.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2018.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Paychex, Inc., revenue increased by 7%, earnings increased by 8%, free cash flow increased by 8%, the company has no debt, and the stock price increased by 10%. Year to date the stock price is up 7%.

Future Value
My future (5 year hold) target price for the stock is $121, which is an average annual return of 14%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 16% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $32. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $29. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. value investing initiate, reduce, and terminate targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Paychex, Inc., the PE Ratio is 29, the PEG Ratio is 2, the Price to Book Ratio is 12, and the Price to Tangible Book Ratio is 24.

Fair Warning
Paychex, Inc. (Nasdaq: PAYX) – FYE 05/2018 – OVER VALUED The stock is currently trading at levels above my most recent $47 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 07/20/2018 at 17:11:56.

Disclosure
I hold no shares of Paychex, Inc.
Posted on 08/07/18

Cintas Corporation
Cintas Corporation operates in several business segments; Rental Uniforms which rents and services uniforms, Ancillary Products which sells mats, mops, shop towels and other ancillary items, Uniform Direct Sales which sells uniforms and related items, the First Aid, Safety and Fire Protection Services which provides consists of first aid, safety and fire protection products and services, and Document Management Services which provides document destruction, document imaging, and document retention services. Industry peers include Alsco, Inc. and Aramark.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $201.01, with an initial trailing stop set at $203.82. With a current price of $206.92, upward price movement will find no resistance. Downward price movement will find support at $195.10 and $190.70, with final support found at $186.40.

Days to Cover
The most recent days to cover number is 9. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Cintas Corporation, the company revalued its deferred tax assets and liabilities based on the newly enacted 21% U.S. corporate tax rate. The provisional amount related to the revaluation of the net deferred tax liability balance was a benefit of $175.6 million. The one-time transition tax is based on post-1986 earnings and profits (E&P) of foreign subsidiaries that were previously deferred for U.S. income tax purposes for which the company recorded a transition tax liability, net of foreign tax credits, of $9.8 million.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors need to take the time to explore the quality of a company’s earnings to understand its source. For Cintas Corporation 0% of the company’s operating income came from income tax benefits and 0% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 42 insider trades involving 1,134,492 shares of stock. Of those 42 insider trades, 25 were Buys involving 686,170 shares of stock, and 17 were Sells involving 448,322 shares of stock, creating an insider buy to sell ratio of 1.5 to 1.

Mergers/Acquisitions
During FY18, the company completed its acquisition of G&K. Pursuant to the merger agreement governing the acquisition, each share of common stock of G&K issued and outstanding immediately prior to the effective time of the G&K acquisition was canceled and converted into the right to receive $97.50 in cash. The total purchase price was $2,078.4 million, which was funded using a combination of new senior notes, a term loan, other borrowings under existing credit facility and cash on hand.

Divestitures/Dispositions
During FY18, the company sold a significant business referred to as Discontinued Services for $187.8 million.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Cintas Corporation, revenue increased by 22%, earnings increased by 57%, free cash flow increased by 67%, total debt decreased by 19%, and the stock price increased by 31%. Year to date the stock price is up 14%.

Future Value
My future (5 year hold) target price for the stock is $486, which is an average annual return of 27%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 60% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $50. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $112. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Cintas Corporation, the PE Ratio is 25, the PEG Ratio is 0.9, the Price to Book Ratio is 7, and the Price to Tangible Book Ratio is 130.

Fair Warning
<Cintas Corporation (Nasdaq: CTAS) – FYE 05/2018 – OVER VALUED The stock is currently trading at levels above my most recent $179 terminate target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 07/27/2018 at 12:27:03.

Disclosure
I hold no shares of Cintas Corporation
Posted on 08/06/18

Bristol Meyers Squibb Company, Inc.
Bristol-Myers Squibb Company is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of biopharmaceutical (drug) products. Listed competitors include AstraZeneca plc, Pfizer, Inc., and Roche Holding AG.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $61.77, with an initial trailing stop set at $58.27. With a current price of $59.16, upward price movement will find resistance at $60.66 and $61.73, with final resistance found at $62.94. Downward price movement will find support at $56.68 and $54.74, with final support found at $53.05.

Days to Cover
The most recent days to cover number is 3. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Bristol Meyers Squibb Company, while many aspects of the Act are not effective until 2018, additional tax expense of $2.9 billion was recognized in the fourth quarter of 2017 upon enactment of the Act. The additional expense increased the effective tax rate by 56.7% and included a $2.6 billion one-time deemed repatriation transition tax on previously untaxed post-1986 foreign earnings and profits (including related tax reserves). Those earnings were effectively taxed at a 15.5% rate to the extent that the specified foreign corporations held cash and certain other assets and an 8.0% rate on the remaining earnings and profits. The remaining $285 million of additional tax expense included an adjustment to measure net deferred tax assets at the new U.S. tax rate of 21%.

The accounting for the reduction of deferred tax assets to the 21% tax rate is complete. The tax charge for the deemed repatriation tax is incomplete, but was recorded as a provisional amount as management was able to make a reasonable estimate of this tax. The provisional amounts may change when completed in 2018 upon finalizing untaxed post-1986 foreign earnings and profits and related cash and certain eligible assets of the specified foreign corporations. The provisional amounts may also change if additional guidance of the relevant tax code is released.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors need to take the time to explore the quality of a company’s earnings to understand its source. For Bristol Meyers Squibb Company 0% of the company’s operating income came from income tax benefits and 297% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 150 insider trades involving 1,263,626 shares of stock. Of those 150 insider trades, 91 were Buys involving 792,838 shares of stock, and 59 were Sells involving 470,788 shares of stock, creating an insider buy to sell ratio of 1.7 to 1.

Mergers/Acquisitions
In 2017, the company acquired all of the outstanding shares of IFM, a private biotechnology company focused on developing therapies that modulate novel targets in the innate immune system to treat cancer, autoimmunity and inflammatory diseases. The acquisition provided BMS with full rights to IFM’s preclinical STING and NLRP3 agonist programs focused on enhancing the innate immune response for treating cancer. Contingent consideration includes development, regulatory and sales-based milestone payments. The company may pay up to $555 million in additional contingent milestones for any subsequent products selected from IFM’s preclinical STING and NLRP3 agonist programs which is not included in the contingent consideration amount in the table above.

Divestitures/Dispositions
During 2017, the company sold its small molecule active pharmaceutical ingredient manufacturing operations in Swords, Ireland to SK Biotek for approximately $165 million, subject to certain adjustments. SK Biotek will provide certain manufacturing services for the company through 2022.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Bristol Meyers Squibb Company, revenue increased by 7%, earnings decreased by 117%, free cash flow decreased by 135%, total debt increased by 19%, and the stock price increased by 5%. Year to date the stock price is down 3%.

Future Value
My future (5 year hold) target price for the stock is $96, which is an average annual return of 13%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 19% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $8. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $(3). The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Bristol Meyers Squibb Company, the PE Ratio is (188_, the PEG Ratio is (15), the Price to Book Ratio is 8, and the Price to Tangible Book Ratio is 25.

Fair Warning
Bristol Meyers Squibb Company, Inc. (NYSE: BMY) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above my most recent $(4) close target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 02/13/2018 at 09:26:31.

Disclosure
I hold no shares of Bristol Meyers Squibb Company
Posted on 08/05/18

Johnson & Johnson
Johnson & Johnson is a holding company whose subsidiaries are engaged in the research and development, manufacture and sale of a broad range of health care field products in the consumer, pharmaceutical, and medical devices markets. Industry peers include Bristol Meyers Squibb Company, Inc., Eli Lilly and Company, Inc., and Merck and Company, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $136.91, with an initial trailing stop set at $129.97. With a current price of $131.95, upward price movement will find resistance at $133 and $138.20, with final resistance found at $140.20. Downward price movement will find support at $127.90 and $126.10, with final support found at $123.20.

Days to Cover
The most recent days to cover number is 3. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of Johnson & Johnson, the company has provisionally booked a $10.1 billion charge on undistributed earnings. Additionally, the company has provisionally recorded a $4.5 billion deferred tax liability for foreign local and withholding taxes, offset by a $1.1 billion deferred tax asset for U.S. foreign tax credits, for repatriation of substantially all undistributed foreign earnings. The company is currently evaluating the remaining undistributed foreign earnings for which it has not provided deferred taxes for foreign local and withholding tax, as these earnings are considered to be indefinitely reinvested. The amount of these unrecorded deferred taxes is not expected to be material.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors need to take the time to explore the quality of a company’s earnings to understand its source. For Johnson & Johnson 0% of the company’s operating income came from income tax benefits and 10% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 49 insider trades involving 1,056,123 shares of stock. Of those 49 insider trades, 27 were Buys involving 664,932 shares of stock, and 22 were Sells involving 391,191 shares of stock, creating an insider buy to sell ratio of 1.7 to 1.

Mergers/Acquisitions
During 2017, the company completed the acquisition of Actelion Ltd for $29.6 billion. As part of the transaction, immediately prior to the completion of the acquisition, Actelion spun out its drug discovery operations and early-stage clinical development assets into a newly created Swiss biopharmaceutical company, Idorsia Ltd. The shares of Idorsia are listed on the SIX Swiss Exchange (SIX). The Company currently holds 9.9% of the shares of Idorsia and has rights to an additional 22.1% of Idorsia equity through a convertible loan with a principal amount of approximately $0.5 billion.

Also during 2017, the company acquired Abbott Medical Optics (AMO), a wholly-owned subsidiary of Abbott Laboratories, for $4.3 billion. The acquisition included ophthalmic products related to: cataract surgery, laser refractive surgery and consumer eye health.

Divestitures/Dispositions
During the first quarter of 2017, the company announced it is engaging in a process to evaluate potential strategic options for the Johnson & Johnson Diabetes Care Companies, specifically LifeScan, Inc., Animas Corporation, and Calibra Medical, Inc. During the fiscal fourth quarter of 2017, the company announced its decision to exit the Animas insulin pump business. The company is continuing to evaluate potential strategic options for LifeScan, Inc. and determine the best opportunity to drive future growth and maximize shareholder value. There were no assets held for sale as of December 31, 2017 related to the announcement. During 2017, the company divestitures primarily included: the Codman Neurosurgery business, to Integra LifeSciences Holdings Corporation and the divestiture of COMPEED® to HRA Pharma.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Johnson & Johnson, revenue increased by 6%, earnings decreased by 90%, free cash flow decreased by 74%, total debt increased by 27%, and the stock price increased by 18%. Year to date the stock price is down 6%.

Future Value
My future (5 year hold) target price for the stock is $209, which is an average annual return of 12%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 21% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $28. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $6. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For Johnson & Johnson, the PE Ratio is 198, the PEG Ratio is 17, the Price to Book Ratio is 6, and the Price to Tangible Book Ratio is (14).

Fair Warning
Johnson & Johnson (NYSE: JNJ) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above with my most recent $10 close target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 02/21/2018 at 16:49:20.

Disclosure
I hold no shares of Johnson & Johnson
Posted on 08/04/18

World Fuel Services Corporation
World Fuel Services Corporation is a fuel logistics, transaction management and payment processing company, principally engaged in the distribution of fuel and related products and services in the aviation, marine and land transportation industries. Listed competitors are BP Marine Limited, Mercury Air Group, and Sun Coast Resources.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $24.71, with an initial trailing stop set at $27.64. With a current price of $28.06, upward price movement will find resistance at $28.85. Downward price movement will find support at $26.12 and $24.58, with final support found at $23.65.

Days to Cover
The most recent days to cover number is 6. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In the case of World Fuel Services Corporation, their effective income tax rate was (707.1)%, and their income tax provision was $149.2 million, as compared to an effective income tax rate of 11.0% and an income tax provision of $15.7 million for 2016. The higher effective income tax rate for 2017, as compared to 2016, resulted principally from the effects of the Tax Act’s $143.7 million one-time transition tax on historic accumulated foreign earnings. Without the transition tax charge, the effective income tax rate for 2017 would have been (25.9)%.

Management has analyzed the company’s global working capital and cash requirements and the potential tax liabilities attributable to repatriation and have determined that the company intends to continue its assertion to permanently reinvest $725 million of foreign earnings in non-US business operations. For these investments, due to uncertainty in foreign law, it is not practical to determine the amount of deferred taxes payable if such earnings are not reinvested indefinitely. For the remaining $1.7 billion accumulated foreign earnings that are actually or deemed repatriated, the company has made a reasonable provisional estimate of the associated foreign withholding and state income tax effects of $13.8 million.

Operating Income
Income unrelated to a company’s day to day operation, such as income tax benefits or income from other sources will distort a company’s earnings and consequently its fair value. Investors need to take the time to explore the quality of a company’s earnings to understand its source. For World Fuel Services Corporation 0% of the company’s operating income came from income tax benefits and 0% of operating income came from other sources.

Insider Transactions
In the past 12 months, the company has reported 39 insider trades involving 1,128,724 shares of stock. Of those 39 insider trades, 24 were Buys involving 635,075 shares of stock, and 15 were Sells involving 493,649 shares of stock, creating an insider buy to sell ratio of 1.3 to 1.

Mergers/Acquisitions
In the first quarter of 2016, the company signed a definitive agreement to acquire from certain ExxonMobil affiliates, their aviation fueling operations at more than 80 airport locations in Canada, the United Kingdom, Germany, Italy, France, Australia and New Zealand. The transaction closed in phases with the Canada, France and U.K. locations closing during 2016 and the remaining locations closing during the first quarter of 2017. The aggregated cost of the transaction was $117. million.

Divestitures/Dispositions
There were no company divestitures or business dispositions during fiscal 2017.

Year-Over-Year Metrics
Several year over year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For World Fuel Services Corporation, revenue increased by 25%, earnings decreased by 110%, free cash flow decreased by 62%, total debt decreased by 23%, and the stock price decreased by 63%. Year to date the stock price is down 0.25%.

Future Value
My future (5 year hold) target price for the stock is $31, which is an average annual return of 2%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of (6)% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $23. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $(2). The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Other Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, the Price to Book Ratio and the Price to Tangible Book Ratio. For World Fuel Services Corporation, the PE Ratio is (152), the PEG Ratio is (80), the Price to Book Ratio is 1.1, and the Price to Tangible Book Ratio is 4.5.

Fair Warning
World Fuel Services Corporation (NYSE: INT) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above with my most recent $(3) close target. Please See Linked PDF Worksheet

Financial Data
Financial data used in this report was taken from the most recent SEC 10-K filing as reported to the U.S. Securities and Exchange Commission on 02/28/2018 at 14:48:03.

Disclosure
I hold no shares of World Fuel Services Corporation
Posted on 08/02/18