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The Fair Value Report

Hanesbrands

My Disclaimer
I am a value investor. I am not a licensed or registered investment professional. I currently have NO investment position in the company mentioned in this report. Financial statement data was obtained from the company’s most recent SEC 10-K filing.

Risk
Past and future gains contained herein are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Valuations, while given as a specific amount, are always within a valuation range. Investors should be aware that any investment has the potential for loss, and past performance is no guarantee of future results.

Intent
The intent of this report is to provide the reader with a brief overview of my various company valuations so they can independently determine their current level of investment interest.

What They Do
Hanesbrands is a manufacturer and marketer of bras, panties, shapewear, hosiery, men’s underwear, children’s underwear, socks, T-shirts and other activewear under the brand names Hanes, Champion, Bali, Playtex, Maidenform, JMS/Just My Size, L’eggs, Flexees, barely there, Wonderbra, Gear for Sports and Lilyette. The company was spun off from the Sara Lee Corporation in 2006. Listed competitors include Fruit of the Loom, L Brands, and Jockey International.

Recent Business Acquisitions and Divestitures
There were no business acquisitions or divestitures during fiscal 2019.

Subsequent Events
There were no cross fiscal year subsequent events.

Short-Term Target
My current short-term target for the stock is $14.22, with an initial trailing stop set at $7.75. Based on a recent price of $7.87, upward price movement will find resistance at $9.05, and again at $9.79, with final resistance found at $12.54. Downward price movement will find no support.

Volatility Value
There are different metrics available to help investors determine the volatility of a particular stock as compared to the volatility of the market as a whole. To me, the beta ratio is the metric that is the most representative of a stock’s volatility. A beta ratio of less than 1 means that the security’s price will be less volatile than the market, while a beta ratio greater than 1 indicates that the security’s price will be more volatile than the market. My current beta ratio for this stock is 1.15 and my current volatility value is $7.

Quality of Earnings
A company’s earnings can be impacted by sources unrelated to the company’s day to day operations. These unrelated sources may distort a company’s operating income and consequently its fair value. Investors should always explore the sources of a company’s operating income to better understand potential valuation impacts. Considering the company’s earnings, $0 per share came from sources unrelated to day to day operations and/or from income tax benefits.

Momentum Target
My momentum target for the stock is $100. Momentum targets are determined by integrating a company’s most recent annual EPS and year-over-year earnings growth, with the current yield of a 10-year treasury. Momentum investing often requires investors to trade in stocks that have already enjoyed significant gains while making no allowances for overall market corrections or the sustainability of a company’s earnings.

Growth Target
My current growth target for the stock is $15. Growth targets are determined using a company’s year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Key Performance Indicator Rating
I use key performance indicators (KPIs) as a barometer to measure the effectiveness of management. Several of the metrics that I use are the tangible asset ratio, return on invested capital, free cash flow growth, earnings growth, debt growth, the dividend payout ratio, and the cash conversion cycle. Admittedly, my use of these and other metrics as a way to determine the effectiveness of management is subjective. Be that as it may, for me, they work. Based on a 0-105 scale, my KPI for this company is 61.

Five Year Growth of $10K
Had you invested $10K in this company five years ago (12/31/14), you would have received 358 shares of stock with a cost basis of $27.91 per share. Had you held the stock for five years and then closed your position (12/31/2019), you would have closed at $14.74 per share. During that holding period you would have collected $191 in regular and special dividends, and your initial $10K investment would have returned to you $5,281 a loss of 47% excluding regular and special dividends.

Cost of Common Equity
The cost of common equity is the minimum annual rate of return an investor should expect to earn when investing in shares of a particular company. I calculate this by adding the thirty-year treasury yield to the beta ratio for the stock multiplied by my default equity risk premium. My cost of common equity for this stock is 4.71%.

Insider Transactions
The SEC classifies insiders as “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.

Over the past 12 months, the company has recorded 63 insider trades involving 1,842,533 shares of stock. Of those 63 insider trades, 27 were Buys involving 1,336,447 shares of stock, and 36 were Sells involving 506,086 shares of stock, creating an insider buy to sell ratio of 2.6 to 1.

Prior Average Valuations
My average valuation for the prior five year fiscal period was $23. The stock price during that time period averaged $22, earnings averaged $1.11 per share, and the average PE Ratio was 20. The current PE Ratio is 5.

Enterprise and Equity Values
As a fair value investor, I am looking for companies that have low debt and generate lots of cash. To me, the easiest way to highlight a company’s ability to generate cash is to compare the Enterprise Value to the Equity Value, what I call my E2E Ratio. What I am looking for with this ratio is something close to or above 1, meaning the company generates cash at a rate equal to or faster than it generates debt. For this company my enterprise value (market cap plus debt less cash) is $8 and my equity value (market cap plus cash less debt) is $(2), making my E2E Ratio, (0.11).

Risk/Reward Ratio
There are many different ways to determine the risk/reward ratio for a stock. But to me, simpler is better. I determine my risk reward ratio by subtracting the current price from my terminate target and then dividing that result by my initiate target less a price fluctuation variable of 20%. What I am looking for with this ratio is a value of 5 or greater. My risk/reward ratio for this stock is 10.

Fair Value Investing
Fair value investing, more commonly known as value investing, requires investors to consider a company’s overall financial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. My most recent fair value estimate for this stock as an on-going concern is $18. My worksheet target prices are derivatives of my fair value estimate.

Hanesbrands, Inc. (NYSE: HBI) – FYE 12/2019 – INITIATE – The stock is currently trading at levels in line with or below my most recent $11 initiate target. Please See Linked PDF Worksheet
Revised on 04/01/2020

There you are, short and, hopefully, to the point.

Wax
Revised on 04/01/2020

Chevron Corporation

My Disclaimer
I am a value investor. I am not a licensed or registered investment professional. I currently have NO investment position in the company mentioned in this report. Financial statement data was obtained from the company’s most recent SEC 10-K filing.

Risk
Past and future gains contained herein are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Valuations, while given as a specific amount, are always within a valuation range. Investors should be aware that any investment has the potential for loss, and past performance is no guarantee of future results.

Intent
The intent of this report is to provide the reader with a brief overview of my various company valuations so they can independently determine their current level of investment interest.

What They Do
Chevron Corporation, manages its investments in subsidiaries and affiliates and provides administrative, financial, management and technology support to U.S. and international subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations, and power and energy services. Listed competitors are BP plc, Exxon Mobil Corporation, and Royal Dutch Shell plc.

Recent Business Acquisitions and Divestitures
There were no business acquisitions or divestitures during fiscal 2019.

Subsequent Events
There were no cross fiscal year subsequent events.

Short-Term Target
My current short-term target for the stock is $110.49, with an initial trailing stop set at $70.87. Based on a recent price of $71.95, upward price movement will find resistance at $82.83, and again at $95.30, with final resistance found at $107.68. Downward price movement will find support at $68.90 and again at $59.86 with final support found at $54.22.

Volatility Value
There are different metrics available to help investors determine the volatility of a particular stock as compared to the volatility of the market as a whole. To me, the beta ratio is the metric that is the most representative of a stock’s volatility. A beta ratio of less than 1 means that the security’s price will be less volatile than the market, while a beta ratio greater than 1 indicates that the security’s price will be more volatile than the market. My current beta ratio for this stock is 1.14 and my current volatility value is $63.

Quality of Earnings
A company’s earnings can be impacted by sources unrelated to the company’s day to day operations. These unrelated sources may distort a company’s operating income and consequently its fair value. Investors should always explore the sources of a company’s operating income to better understand potential valuation impacts. Considering the company’s earnings, $0 per share came from sources unrelated to day to day operations and/or from income tax benefits.

Momentum Target
My momentum target for the stock is $956. Momentum targets are determined by integrating a company’s most recent annual EPS and year-over-year earnings growth, with the current yield of a 10-year treasury. Momentum investing often requires investors to trade in stocks that have already enjoyed significant gains while making no allowances for overall market corrections or the sustainability of a company’s earnings.

Growth Target
My current growth target for the stock is $79. Growth targets are determined using a company’s year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Key Performance Indicator Rating
I use key performance indicators (KPIs) as a barometer to measure the effectiveness of management. Several of the metrics that I use are the tangible asset ratio, return on invested capital, free cash flow growth, earnings growth, debt growth, the dividend payout ratio, and the cash conversion cycle. Admittedly, my use of these and other metrics as a way to determine the effectiveness of management is subjective. Be that as it may, for me, they work. Based on a 0-105 scale, my KPI for this company is 66.

Five Year Growth of $10K
Had you invested $10K in this company five years ago (12/31/14), you would have received 89 shares of stock with a cost basis of $112.18 per share. Had you held the stock for five years and then closed your position (12/31/2019), you would have closed at $119.85 per share. During that holding period you would have collected $392 in regular and special dividends, and your initial $10K investment would have returned to you $10,684 a gain of 7% excluding regular and special dividends.

Cost of Common Equity
The cost of common equity is the minimum annual rate of return an investor should expect to earn when investing in shares of a particular company. I calculate this by adding the thirty-year treasury yield to the beta ratio for the stock multiplied by my default equity risk premium. My cost of common equity for this stock is 4.68%.

Insider Transactions
The SEC classifies insiders as “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.

Over the past 12 months, the company has recorded 100 insider trades involving 560,686 shares of stock. Of those 100 insider trades, 51 were Buys involving 290,606 shares of stock, and 49 were Sells involving 270,080 shares of stock, creating an insider buy to sell ratio of 1.1 to 1.

Prior Average Valuations
My average valuation for the prior five year fiscal period was $35. The stock price during that time period averaged $75, earnings averaged $3.34 per share, and the average PE Ratio was 23. The current PE Ratio is 10.

Enterprise and Equity Values
As a fair value investor, I am looking for companies that have low debt and generate lots of cash. To me, the easiest way to highlight a company’s ability to generate cash is to compare the Enterprise Value to the Equity Value, what I call my E2E Ratio. What I am looking for with this ratio is something close to or above 1, meaning the company generates cash at a rate equal to or faster than it generates debt. For this company my enterprise value (market cap plus debt less cash) is $83 and my equity value (market cap plus cash less debt) is $61, making my E2E Ratio, 0.73.

Risk/Reward Ratio
There are many different ways to determine the risk/reward ratio for a stock. But to me, simpler is better. I determine my risk reward ratio by subtracting the current price from my terminate target and then dividing that result by my initiate target less a price fluctuation variable of 20%. What I am looking for with this ratio is a value of 5 or greater. My risk/reward ratio for this stock is 9.

Fair Value Investing
Fair value investing, more commonly known as value investing, requires investors to consider a company’s overall financial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. My most recent fair value estimate for this stock as an on-going concern is $140. My worksheet target prices are derivatives of my fair value estimate.

Chevron Corporation (NYSE: CVX) – FYE 12/2019 – INITIATE – The stock is currently trading at levels in line with or below my most recent $84 initiate target. Please See Linked PDF Worksheet
Revised on 03/31/2020

There you are, short and, hopefully, to the point.

Wax
Revised on 03/31/2020

AbbVie, Inc.

My Disclaimer
I am a value investor. I am not a licensed or registered investment professional. I currently have NO investment position in the company mentioned in this report. Financial statement data was obtained from the company’s most recent SEC 10-K filing.

Risk
Past and future gains contained herein are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Valuations, while given as a specific amount, are always within a valuation range. Investors should be aware that any investment has the potential for loss, and past performance is no guarantee of future results.

Intent
The intent of this report is to provide the reader with a brief overview of my various company valuations so they can independently determine their current level of investment interest.

What They Do
AbbVie is a research-based biopharmaceutical company operating in the pharmaceutical products segment. The company develops and markets advanced therapies used to treat rheumatoid arthritis, psoriasis, Crohn’s disease, HIV, cystic fibrosis complications, low testosterone, thyroid disease, Parkinson’s disease, ulcerative colitis, and complications associated with chronic kidney disease. The company continues to invest in new medicines and compounds for the treatment of renal care, hepatitis C, women’s health, oncology, and neuroscience, including multiple sclerosis and Alzheimer’s disease. Listed competitors include Eli Lilly and Company, AstraZeneca PLC, and Sinofi SA.

Recent Acquisitions and Divestitures
In June 2019, the company announced that it entered into a definitive transaction agreement under which AbbVie will acquire Allergan plc (Allergan) in a cash and stock transaction for a transaction equity value of approximately $63 billion. Allergan is focused on developing, manufacturing and commercializing branded pharmaceutical, device, biologic, surgical and regenerative medicine products, marketing a portfolio of brands and products primarily focused on key therapeutic areas including aesthetics, eye care, neuroscience, gastroenterology and women’s health.

In October 2019, the company and Reata Pharmaceuticals, Inc. entered into an amended and restated license agreement. Under the terms of the agreement, Reata reacquired exclusive development, manufacturing and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie for territories outside of the United States with respect to bardoxolone methyl and worldwide with respect to omaveloxolone and other next-generation Nrf2 activators. As consideration for the rights reacquired by Reata, the company will receive a total of $330 million in cash payable in three installments through 2021. In addition, AbbVie will receive low single-digit, tiered royalties from worldwide sales of omaveloxolone and certain next-generation Nrf2 activators.

Subsequent Events
There were no cross fiscal year subsequent events.

Short-Term Target
My current short-term target for the stock is $88.56, with an initial trailing stop set at $71.58. Based on a recent price of $72.67, upward price movement will find resistance at $74.17, and again at $77.47, with final resistance found at $82.01. Downward price movement will find support at $65.92 and again at $71.12.

Volatility Value
There are different metrics available to help investors determine the volatility of a particular stock as compared to the volatility of the market as a whole. To me, the beta ratio is the metric that is the most representative of a stock’s volatility. A beta ratio of less than 1 means that the security’s price will be less volatile than the market, while a beta ratio greater than 1 indicates that the security’s price will be more volatile than the market. My current beta ratio for this stock is 0.89 and my current volatility value is $117.

Quality of Earnings
A company’s earnings can be impacted by sources unrelated to the company’s day to day operations. These unrelated sources may distort a company’s operating income and consequently its fair value. Investors should always explore the sources of a company’s operating income to better understand potential valuation impacts. Considering the company’s earnings, $0 per share came from sources unrelated to day to day operations and/or from income tax benefits.

Momentum Target
My momentum target for the stock is $500. Momentum targets are determined by integrating a company’s most recent annual EPS and year-over-year earnings growth, with the current yield of a 10-year treasury. Momentum investing often requires investors to trade in stocks that have already enjoyed significant gains while making no allowances for overall market corrections or the sustainability of a company’s earnings.

Growth Target
My current growth target for the stock is $145. Growth targets are determined using a company’s year-over-year earnings growth, year-over-year PE growth, and year-over-year price growth.

Key Performance Indicator Rating
I use key performance indicators (KPIs) as a barometer to measure the effectiveness of management. Several of the metrics that I use are the tangible asset ratio, return on invested capital, free cash flow growth, earnings growth, debt growth, the dividend payout ratio, and the cash conversion cycle. Admittedly, my use of these and other metrics as a way to determine the effectiveness of management is subjective. Be that as it may, for me, they work. Based on a 0-105 scale, my KPI for this company is 72.

Five Year Growth of $10K
Had you invested $10K in this company five years ago (12/31/14), you would have received 149 shares of stock with a cost basis of $67.14 per share. Had you held the stock for five years and then closed your position (12/31/2019), you would have closed at $88.52 per share. During that holding period you would have collected $448 in regular and special dividends, and your initial $10K investment would have returned to you $13,184 a gain of 32% excluding regular and special dividends.

Cost of Common Equity
The cost of common equity is the minimum annual rate of return an investor should expect to earn when investing in shares of a particular company. I calculate this by adding the thirty-year treasury yield to the beta ratio for the stock multiplied by my default equity risk premium. My cost of common equity for this stock is 3.93%.

Insider Transactions
The SEC classifies insiders as “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.

Over the past 12 months, the company has recorded 97 insider trades involving 1,244,343 shares of stock. Of those 97 insider trades, 73 were Buys involving 874,995 shares of stock, and 24 were Sells involving 369,348 shares of stock, creating an insider buy to sell ratio of 2.4 to 1.

Prior Average Valuations
My average valuation for the prior five year fiscal period was $35. The stock price during that time period averaged $75, earnings averaged $3.34 per share, and the average PE Ratio was 23. The current PE Ratio is 10.

Enterprise and Equity Values
As a fair value investor, I am looking for companies that have low debt and generate lots of cash. To me, the easiest way to highlight a company’s ability to generate cash is to compare the Enterprise Value to the Equity Value, what I call my E2E Ratio. What I am looking for with this ratio is something close to or above 1, meaning the company generates cash at a rate equal to or faster than it generates debt. For this company my enterprise value (market cap plus debt less cash) is $91 and my equity value (market cap plus cash less debt) is $55, making my E2E Ratio, 0.6.

Risk/Reward Ratio
There are many ways to determine the risk/reward ratio for a stock. But to me, simpler is better. I determine my risk reward ratio by subtracting the current price from my terminate target and then dividing that result by my initiate target less a price fluctuation variable of 20%. What I am looking for with this ratio is a value of 5 or greater. My risk/reward ratio for this stock is 7.31.

Fair Value Investing
Fair value investing, more commonly known as value investing, requires investors to consider a company’s overall financial condition including past and future earnings growth, free cash flow, both book and tangible book values, net current asset value, and many other valuation metrics. My most recent fair value estimate for this stock as an on-going concern is $101. My worksheet target prices are derivatives of my fair value estimate.

AbbVie, Inc. (NYSE: ABBV) – FYE 12/2019 – FAIRLY VALUED – The stock is currently trading at levels above my most recent $60 initiate target, but below my most recent $126 reduce target. Please See Linked PDF Worksheet

There you are, short and, hopefully, to the point.

Wax
Revised on 03/30/2020