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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

Hess Corporation
Hess Corporation is an exploration and production company that develops, produces, purchases, transports and sells crude oil, natural gas liquids, and natural gas. Industry peers include ConocoPhillips, Exxon Mobil, and Valero Energy.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $64.76, with an initial trailing stop set at $63.71. With a current price of $64.68, upward price movement will find resistance at $66.93. Downward price movement will find support at $63.04 and $60.98, with final support found at $59.47.

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 Hess Corporation, no U.S. federal tax has been accrued on the deemed repatriation of unremitted earnings of the company’s foreign subsidiaries.

A decrease in the U.S. federal corporate tax rate to 21% from 35% resulted in a $1,476 million reduction to the company’s U.S. federal net deferred tax asset, with a corresponding reduction in the U.S. valuation allowance. A deferred tax liability of $110 million no longer meets the recognition criteria with the transition to a territorial regime for U.S. taxation of foreign earnings and has been derecognized, with a corresponding adjustment to the valuation allowance against the U.S. federal net deferred tax asset.

Under the transition rules related to the repeal of the alternative minimum tax regime, an alternative minimum tax credit carryforward of $4 million will be refundable if not used to offset regular tax liability. The previously established valuation allowance against this credit carryforward has been released. Consequently, these tax law changes resulted in a net $4 million increase to net deferred tax.

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 Hess Corporation 62% 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 65 insider trades involving 434,052 shares of stock. Of those 65 insider trades, 35 were Buys involving 206,479 shares of stock, and 30 were Sells involving 227,573 shares of stock, creating an insider buy to sell ratio of 0.9 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2017.

Divestitures/Dispositions
In August 2017, the company completed the sale of its enhanced oil recovery assets in the Permian Basin for proceeds of $597 million. In November 2017, the company completed the sale of its interests in Equatorial Guinea for proceeds of $449 million, and in December 2017 the company completed the sale of its interests in the Valhall and Hod assets, offshore Norway for proceeds of $2,056 million. Funds from the sale of these assets will provide funds toward the company’s future development projects in the Stabroek Block, offshore Guyana, where the company and its partners have discovered significant crude oil and natural gas resources.

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 Hess Corporation, revenue increased by 20%, earnings decreased by 12%, free cash flow decreased by 12%, total debt increased by $1.69 million, and the stock price increased by 9%. Year to date the stock price is down 9%.

Future Value
My future (5 year hold) target price for the stock is $60, which is an average annual return of (2)%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of (3)% 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 $74. 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 $166. 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 Hess Corporation, the PE Ratio is 7, the PEG Ratio is (4.4), the Price to Book Ratio is 1.65, and the Price to Tangible Book Ratio is 1.7.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Hess Corporation (NYSE: HES) – FYE 12/2017 – UNDER VALUED The stock is currently trading at levels below with my most recent $100 buy 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 16:51:04.

Disclosure
I hold no shares of Hess Corporation
Posted on 07/31/18

Adams Resources and Energy, Inc.
Adams Resources and Energy is engaged in the business of crude oil marketing, tank truck transportation of liquid chemicals, and oil and gas exploration and production. Industry peers include Abraxas Petroleum Corporation, The Dana Companies, and Wynne Transport Services.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $45.97, with an initial trailing stop set at $38.98. With a current price of $39.57, upward price movement will find resistance at $41.77 and $42.70, with final resistance found at $43.97. Downward price movement will find no support.

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
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 Adams Resources and Energy, the company had a deferred tax liability of approximately $3.3 million and recorded a $2.0 million tax benefit, which relates entirely to the remeasurement of deferred tax liabilities to the 21 percent tax rate.

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 Adams Resources and Energy 15% 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 15 insider trades involving 4,539 shares of stock. Of those 15 insider trades, 13 were Buys involving 3,978 shares of stock, and 2 were Sells involving 561 shares of stock, creating an insider buy to sell ratio of 7.1 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2017.

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 Adams Resources and Energy, revenue increased by 20%, earnings decreased by 12%, free cash flow decreased by 12%, total debt increased by $1.69 million, and the stock price increased by 9%. Year to date the stock price is down 9%.

Future Value
My future (5 year hold) target price for the stock is $62, which is an average annual return of 12%. A prior five year hold of the stock (FY2013- FY2017) 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 baseline valuation for the company is $58. 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 $52. 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 Adams Resources and Energy, the PE Ratio is 9, the PEG Ratio is 0.8, the Price to Book Ratio is 1.13, and the Price to Tangible Book Ratio is 1.13.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Adams Resources and Energy, Inc. (NYSE: AE) – FYE 12/2017 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $52 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 03/12/2018 at 17:28:54.

Disclosure
I hold no shares of Adams Resources and Energy, Inc.
Posted on 07/30/18

Continental Resources, Inc.
Continental Resources is an independent crude oil and natural gas exploration and production company with properties in the North, South and East regions of the United States. The North region consists of properties north of Kansas and west of the Mississippi River and includes North Dakota Bakken, Montana Bakken, and the Red River units. The South region includes Kansas and all properties south of Kansas and west of the Mississippi River including various plays in the South Central Oklahoma Oil Province (“SCOOP”), Northwest Cana, and Arkoma areas of Oklahoma. The East region is comprised of undeveloped leasehold acreage east of the Mississippi River. Industry peers include Chesapeake Energy, Abraxas Petroleum, and EOG Resources.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $66.27, with an initial trailing stop set at $60.95. With a current price of $61.88, upward price movement will find resistance at $62.91 and $65.51, with final resistance found at $68.36. Downward price movement will find support at $57.68 and $54.56, with final support found at $52.09.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Continental Resources, the company remeasured its deferred tax assets and liabilities to reflect the reduction in the corporate tax rate from 35% to 21%. This remeasurement resulted in a $713.7 million decrease in net deferred income tax liabilities and corresponding decrease in income tax expense for FYE2017.

Net Income Quality
For fiscal 2017, 23% of net income came from income tax benefits and 1% came from sources unrealated to the company’s normal operations.

Insider Transactions
In the past 12 months, the company has reported 55 insider trades involving 1,230,980 shares of stock. Of those 55 insider trades, 22 were Buys involving 850,013 shares of stock, and 33 were Sells involving 380,967 shares of stock, creating an insider buy to sell ratio of 2.2 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2017.

Divestitures/Dispositions
In September the company sold non-strategic properties in the Arkoma Woodford area for cash proceeds of $65.3 million. The sale included approximately 26,000 net acres of leasehold in Atoka, Coal, Hughes, and Pittsburg Counties of Oklahoma and producing properties with production totaling approximately 1,700 barrels of oil equivalent per day. Also in September 2017, the company sold certain oil-loading facilities in Oklahoma for $7.2 million, and in October 2017, the company completed the sale of a non-core leasehold in the STACK play in Blaine County, Oklahoma for cash proceeds totaling $63.5 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 Continental Resources, revenue increased by 58%, earnings increased by 114%, free cash flow decreased by 41%, total debt decreased by 3%, and the stock price increased by 3%. Year to date the stock price is up 17%.

Future Value
My future (5 year hold) target price for the stock is $121, which is an average annual return of 19%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 9% 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 $55. 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 $110. 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, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Continental Resources, the PE Ratio is 9, the PEG Ratio is 0.3, Book Value is $14, Tangible Book Value is $14, the Price to Book Ratio is 5 and the Price to Tangible Book Ratio is 5.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Continental Resources, Inc. (NYSE: CLR) – FYE 12/2017 – UNDER VALUED The stock is currently trading at levels below my $66 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Continental Resources
Posted on 07/26/18

Contango Oil and Gas Company, Inc.
Contango Oil and Gas Company is an independent oil and natural gas company, engaged in the exploration, development, exploitation, production and acquisition of crude oil and natural gas properties in the shallow waters of the Gulf of Mexico and in the onshore Texas Gulf Coast and Rocky Mountain regions of the United States. Listed competitors are BP plc, Newfield Exploration, and Linn Energy.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $5.36, with an initial trailing stop set at $5.69. With a current price of $5.78, upward price movement will find resistance at $6.61. Downward price movement will find support at $5.44 and $4.75, with final support found at $4.44.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Contango Oil and Gas Company, the company recorded a net tax benefit due primarily to the remeasurement of deferred tax assets and liabilities from 35% to 21% and the removal of the valuation allowance on the estimated refundable Alternative Minimum Tax (“AMT”) credits. The valuation allowance decreased by $35.7 million due to the changes to tax laws and rates under the Act and increased by $7.2 million for normal operations.

Note that for fiscal 2017, 44% of net income came from sources other than the company’s normal income stream.

Insider Transactions
In the past 12 months, the company has reported 41 insider trades involving 621,109 shares of stock. Of those 41 insider trades, 16 were Buys involving 503,782 shares of stock, and 25 were Sells involving 117,327 shares of stock, creating an insider buy to sell ratio of 4.3 to 1.

Mergers/Acquisitions
There were no company mergers or business acquisitions during fiscal 2017.

Divestitures/Dispositions
In February, the company sold to a third party all of its assets in the North Bob West area and its operated assets in the Escobas area, both located in Southeast Texas, for a cash purchase price of $650,000.

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 Contango Oil and Gas Company, revenue increased by 0%, earnings increased by 26%, free cash flow decreased by 89%, total debt increased by 58%, and the stock price decreased by 98%. Year to date the stock price is up 23%.

Future Value
My future (5 year hold) target price for the stock is $3, which is an average annual return of (8)%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of (18)% 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 $17. 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 $11. 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, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Contango Oil and Gas Company, the PE Ratio is 7, the PEG Ratio is 0.2, Book Value is $9, Tangible Book Value is $9, the Price to Book Ratio is 0.7 and the Price to Tangible Book Ratio is 0.7.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Contango Oil and Gas Company, Inc. (NYSE: MCF) – FYE 12/2017 – UNDER VALUED The stock is currently trading at levels below my $7 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Contango Oil and Gas Company
Posted on 07/26/18

Callon Petroleum Company, Inc.
Callon Petroleum Company is an independent oil and natural gas company focused on building onshore reserves and production, specifically in the Permian Basin region in Texas. Industry peers include Apache Corporation, Carrizo Oil and Gas, Inc., and SM Energy Company.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $12.37, with an initial trailing stop set at $11.03. With a current price of $11.20, upward price movement will find resistance at $11.61 and again at $11.95, with final resistance found at $12.36. Downward price movement will find support at $10.76 and $10.21.

Days to Cover
The most recent days to cover number is 11. 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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Callon Petroleum Company, deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled. The 2017 Tax Reform lowered the U.S. federal corporate tax rate from 35% to 21%, which caused the company to remeasure its deferred income tax assets and liabilities at the new rate. As a result of the change in the applied tax rate on deferred tax assets and liabilities, the company recorded a $40,611 reduction in net deferred tax assets with a corresponding reduction in valuation allowance.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 46 insider trades involving 700,222 shares of stock. Of those 46 insider trades, 31 were Buys involving 482,194 shares of stock, and 15 were Sells involving 218,028 shares of stock, creating an insider buy to sell ratio of 2.2 to 1.

Mergers/Acquisitions
Acquisitions in 2017 were $718 million, which primarily included land purchases with oil and liquids rich potential.

Divestitures/Dispositions
Divestitures in 2017 were $23.1 million, which primarily included the sale of oil and natural gas assets.

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 Callon Petroleum Company, revenue increased by 82%, earnings increased by 149%, free cash flow decreased by 1148%, total debt increased by 59%, and the stock price decreased by 27%. Year to date the stock price is down 8%.

Future Value
My future (5 year hold) target price for the stock is $27, which is an average annual return of 28%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 32% 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 $16. 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 $20. 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, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Callon Petroleum Company, the PE Ratio is 9, the PEG Ratio is (0.5), Book Value is $9, Tangible Book Value is $9, the Price to Book Ratio is 1.22 and the Price to Tangible Book Ratio is 1.22.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Callon Petroleum Company, Inc. (NYSE: CPE) – FYE 12/2017 – UNDER VALUED The stock is currently trading at levels below my $12 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Callon Petroleum Company
Posted on 07/25/18

Encana Corporation
Encana Corporation, a Canadian corporation, is engaged in the exploration, development, and production and marketing of natural gas, oil and natural gas liquids. Industry peers include Apache Corporation, Chesapeake Energy Corporation, and Repsol Oil and Gas Canada, Inc..

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $13.43, with an initial trailing stop set at $12.59. With a current price of $12.78, upward price movement will find resistance at $13.18 and again at $13.62, with final resistance found at $14.01. Downward price movement will find support at $12.46 and $12.20, with final support found at $11.82.

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
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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Encana Corporation, the company calculated a deferred tax expense of $666 million which includes a provisional adjustment of $327 million resulting from the re-measurement of the company’s tax position due to U.S. Tax Reform. The adjustment of $327 million includes a $26 million valuation allowance re-measurement with respect to U.S. foreign tax credits and U.S. charitable donations. The ultimate impact of U.S. Tax Reform may differ from the provisional adjustment recognized of $327 million due to additional analysis, changes in interpretations and assumptions made by the company, additional regulatory guidance that may be issued, and actions the company may take as a result of U.S. Tax Reform.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 34 insider trades involving 1,799,648 shares of stock. Of those 34 insider trades, 21 were Buys involving 911,574 shares of stock, and 13 were Sells involving 888,074 shares of stock, creating an insider buy to sell ratio of 1 to 1.

Mergers/Acquisitions
Acquisitions in 2017 were $54 million, which primarily included land purchases with oil and liquids rich potential.

Divestitures/Dispositions
Divestitures in 2017 were $736 million, which primarily included the sale of the Piceance natural gas assets in northwestern Colorado, comprising approximately 550,000 net acres of leasehold and 3,100 operated wells. Divestitures also included the sale of the Tuscaloosa Marine Shale assets in Mississippi and Louisiana and the sale of certain properties that did not complement Encana’s existing portfolio of assets.

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 Encana Corporation, revenue increased by 52%, earnings increased by 38%, free cash flow decreased by 55%, total debt decreased by 0.03%, and the stock price decreased by 13%. Year to date the stock price is down 4%.

Future Value
My future (5 year hold) target price for the stock is $25, which is an average annual return of 20%. 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 $16. 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 $13. 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, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Encana Corporation, the PE Ratio is 13, the PEG Ratio is 0.8, Book Value is $7, Tangible Book Value is $4, the Price to Book Ratio is 1.85 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. Encana Corporation (NYSE: ECA) – FYE 12/2017 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $13 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Encana Corporation
Posted on 07/24/18

Ampco-Pittsburgh Corporation
Ampco-Pittsburgh Corporation classifies its businesses into two segments: Forged and Cast Engineered Products, which produces forged hardened steel rolls used in cold rolling by producers of steel, aluminum and other metals, as well as ingot and open die forged products which are used in the oil and gas industry and the aluminum and plastic extrusion industries; and Air and Liquid Processing, which produces finned tube heat exchange coils and related heat transfer products for various industries including fossil fuel and nuclear power generation, and automotive, as well as produces air handling systems and a line of centrifugal pumps for the refrigeration, power generation and marine defense industries. Industry peers include Roper Technologies, Ingersoll-Rand Plc, and Danaher Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $11.24, with an initial trailing stop set at $9.70. Basis the current price of $9.85, upward price movement will find resistance at $10.32 and again at $11.14, with final resistance found at $12.75. Downward price movement will find support at $9.24 and $8.95.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Ampco-Pittsburgh Corporation , the Tax Act negatively impacted the company’s income tax provision by approximately $1.565 million, principally related to the one-time repatriation transition tax offset by income tax benefits resulting from 100% bonus depreciation. There was no cash outlay due to the the Tax Act, however, it reduced the amount of the company’s carryback refund that it would have been able to receive. Additionally, there was no significant impact from remeasuring its U.S. deferred income tax assets and liabilities at the new enacted statutory income tax rate since these net deferred income tax assets are fully valued.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 208 insider trades involving 307,614 shares of stock. Of those 208 insider trades, 25 were Buys involving 136,505 shares of stock, and 183 were Sells involving 171,109 shares of stock, creating an insider buy to sell ratio of 0.8 to 1.

Mergers/Acquisitions
There were no mergers or acquisitions during fiscal 2017.

Divestitures/Dispositions
There were no divestitures or 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 Ampco-Pittsburgh Corporation, revenue increased by 30%, earnings increased by 131%, free cash flow increased by 224%, total debt increased by 27%, and the stock price decreased by 35%. Year to date the stock price is down 21%.

Future Value
My future (5 year hold) target price for the stock is $12, which is an average annual return of 5%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of (7)% 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 $19. 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, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Ampco-Pittsburgh Corporation , the PE Ratio is 14, the PEG Ratio is 1.3, Book Value is $13, Tangible Book Value is $12, the Price to Book Ratio is 0.8 and the Price to Tangible Book Ratio is 0.8.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Ampco-Pittsburgh Corporation (NYSE: AP) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above my most recent $9 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Ampco-Pittsburgh Corporation
Posted on 07/23/18

Gilead Sciences, Inc.
Gilead Sciences, Inc. is a research-based biopharmaceutical company whose primary areas of focus include human immunodeficiency virus (HIV), liver diseases such as chronic hepatitis C virus (HCV) infection and chronic hepatitis B virus (HBV) infection, oncology and inflammation, and serious cardiovascular and respiratory conditions. Industry peers include GlaxoSmithKline plc, Pfizer, and Roche Holding AG.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $79.52, with an initial trailing stop set at $76.21. Upward price movement will find resistance at $78.46 and again at $81.42. Downward price movement will find support at $75.28 and $73.82, with final support found at $71.24.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Gilead Sciences, Inc., the company recorded an estimated $5.5 billion net charge to income tax expense. This amount includes: i) a provisional $308 million deferred tax benefit related to the re-measurement of certain deferred tax assets and liabilities, based on the revised rates at which they are expected to reverse in the future, and ii) a provisional $5.8 billion charge related to the transition tax on the mandatory deemed repatriation of accumulated foreign earnings. The provisional transition tax charge includes federal (net of certain offsetting adjustments related to unrecognized tax benefits), state and local, and foreign withholding tax on the accumulated foreign earnings, which are no longer considered indefinitely reinvested. The accrued federal liability for the transition tax will be payable over an eight year period.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 173 insider trades involving 3,469,869 shares of stock. Of those 173 insider trades, 81 were Buys involving 1,728,358 shares of stock, and 92 were Sells involving 1,741,511 shares of stock, creating an insider buy to sell ratio of 1 to 1.

Mergers/Acquisitions
In October 2017, the company completed the acquisition of Kite Pharma, Inc. (Kite) for $11,155 million, consisting of $10,420 million in cash to the outstanding Kite common stockholders, $645 million cash payment to vested equity award holders, $15 million to warrant holders, and approximately $75 million representing the portion of the replaced stock-based awards attributable to the pre-combination period. Kite’s cell therapies express either a chimeric antigen receptor (CAR) or an engineered T cell receptor, depending on the type of cancer. Kite’s most advanced therapy candidate, axicabtagene ciloleucel, is a CAR T cell therapy.

In December 2017, the company completed the acquisition of Cell Design Labs, a privately held company, with proprietary technology platforms in cellular therapy. The acquisition price was $150 million, net of acquired cash. Additionally, the shareholders of Cell Design Labs, other than those of Gilead, are eligible to receive contingent development and regulatory milestone-based payments of up to $322 million.

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

Year-Over-Year
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 Gilead Sciences, Inc., revenue increased by 11%, earnings increased by 51%, free cash flow increased by 62%, total debt increased by 6%, and the stock price increased by 19%. Year to date the stock price is up 6%.

Future Value
My future (5 year hold) target price for the stock is $227, which is an average annual return of 39%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 20% 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 $43. 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 $32. 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, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Gilead Sciences, Inc., the PE Ratio is 25, the PEG Ratio is 2.6, Book Value is $16, Tangible Book Value is $(1), the Price to Book Ratio is 5 and the Price to Tangible Book Ratio is (134).

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Gilead Sciences, Inc. (Nasdaq: GILD) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above my most recent $51 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Gilead Sciences, Inc.
Posted on 07/22/18

Kansas City Southern
Westinghouse Air Brake Technologies Corporation is a provider of value-added, technology-based equipment and services for the rail industry, with its products found on U.S. locomotives, freight cars, subway cars and buses. Industry peers include Electo-Motive Diesel, and Knorr Brake Truck Systems.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $116.59, with an initial trailing stop set at $109.38. Upward price movement will find resistance at $113.40. Downward price movement will find support at $109.3 and $108.3, with final support found at $106.80.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Kansas City Southern, the company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the company revalued its ending net deferred tax liabilities and recognized a provisional $487.6 million tax benefit.

The Tax Reform Act further provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The company had an estimated $1,479.2 million of undistributed foreign E&P subject to the deemed mandatory repatriation and recognized a provisional $74.6 million of income tax expense in the company’s consolidated statement of income. After the utilization of existing tax credits, the company expects to pay additional U.S. federal cash taxes of approximately $44.9 million on the deemed mandatory repatriation, payable over eight years.

Note that for fiscal 2017, 7% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 102 insider trades involving 109,410 shares of stock. Of those 102 insider trades, 50 were Buys involving 55,844 shares of stock, and 52 were Sells involving 53,566 shares of stock, creating an insider buy to sell ratio of 1 to 1.

Mergers/Acquisitions
There were no mergers or acquisitions during fiscal 2017.

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

Year-Over-Year
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 Kansas City Southern, revenue increased by 11%, earnings increased by 51%, free cash flow increased by 62%, total debt increased by 6%, and the stock price increased by 19%. Year to date the stock price is up 6%.

Future Value
My future (5 year hold) target price for the stock is $150, which is an average annual return of 7%. 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 $89. 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 $161. 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, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Kansas City Southern, the PE Ratio is 9, the PEG Ratio is 0.6, Book Value is $47, Tangible Book Value is $47, 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. Kansas City Southern (NYSE: KSU) – FYE 12/2017 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $161 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Kansas City Southern
Posted on 07/21/18

Westinghouse Air Brake Technologies Corporation
Westinghouse Air Brake Technologies Corporation is a provider of value-added, technology-based equipment and services for the rail industry, with its products found on U.S. locomotives, freight cars, subway cars and buses. Industry peers include Electo-Motive Diesel, and Knorr Brake Truck Systems.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $99.61, with an initial trailing stop set at $103.22. Upward price movement will find no resistance. Downward price movement will find support at $103.40 and $101.00, with final support found at $98.39.

Days to Cover
The most recent days to cover number is 12. 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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Westinghouse Air Brake Technologies Corporation, in relation to the initial analysis of the impact of the all tax law changes, the company has recorded a net tax expense of $4.3 million. This includes a provisional expense for the U.S. tax reform bill of $55.0 million, as well as a net benefit for the revaluation of deferred tax assets and liabilities of $50.7 million.

The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. In addition, the Tax Act makes certain changes to the depreciation rules and implements new limits on the deductibility of certain executive compensation. The company has evaluated these changes and has recorded a provisional benefit to net deferred taxes of $24.6 million. The company is still completing its calculation of the impact of these changes on its deferred tax balances.

Note that for fiscal 2018, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 66 insider trades involving 559,563 shares of stock. Of those 66 insider trades, 33 were Buys involving 275,983 shares of stock, and 33 were Sells involving 283,580 shares of stock, creating an insider buy to sell ratio of 0.97 to 1.

Mergers/Acquisitions
In March 2017, the company acquired Faiveley Transport, international manufacturer and supplier of equipment for the railway industry. The final purchase price was $1,507 million. In December 2017, the company acquired Melett Limited, a designer, manufacturer, and supplier of turbochargers and replacement parts to the turbocharger aftermarket. The purchase price was $74.0 million. In April 2017, the company acquired Thermal Transfer Corporation (“TTC”), a provider of heat transfer solutions for industrial applications. The purchase price was $32.5 million. In March 2017, the company acquired Aero Transportation Products (“ATP”), a manufacturer of engineered covering systems for hopper freight cars. The purchase price was $65.3 million. In October 2017, the company acquired AM General Contractor (“AM General”), a manufacturer of safety systems, mainly for transit rail cars. The purchase price was $10.4 million.

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

Year-Over-Year
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 Westinghouse Air Brake Technologies Corporation, revenue increased by 32%, earnings decreased by 10%, free cash flow decreased by 5%, total debt decreased by 1%, and the stock price decreased by 2%. Year to date the stock price is up 29%.

Future Value
My future (5 year hold) target price for the stock is $200, which is an average annual return of 18%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 17% 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 $39. 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 $37. 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, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Westinghouse Air Brake Technologies Corporation, the PE Ratio is 34, the PEG Ratio is 2, Book Value is $29, Tangible Book Value is $(9), the Price to Book Ratio is 4 and the Price to Tangible Book Ratio is -(12).

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Westinghouse Air Brake Technologies Corporation (NYSE: WAB) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above with my most recent $59 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Westinghouse Air Brake Technologies Corporation
Posted on 07/20/18

American Woodmark Corporation
American Woodmark manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. Products are sold under the brand names of American Woodmark®, Timberlake®, Shenandoah Cabinetry®, Shenandoah Value Series ™, and Waypoint Living Spaces®. Industry peers include Masterbrand Cabinets, Elkay Manufacturing, and Masco Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $108.95, with an initial trailing stop set at $98.11. Upward price movement will find resistance at $90.04 and $93.71, with final resistance found at $96.89. Downward price movement will find support at $85.58 and $82.04.

Days to Cover
The most recent days to cover number is 5. 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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of American Woodmark Corporation, recorded a provisional expense of $1.6 million related to the re-valuation of U.S. deferred taxes. Management further refined the calculation of the impact to reflect actual full-year activity and adjusted the provisional expense to $1.0 million. The company may further adjust these amounts in future periods if our interpretation of the Tax Act changes or as additional guidance from the U.S. Treasury becomes available.

The company had not recorded an estimate of the impact of the Tax Act on the existing deferred tax assets related to executive compensation, since no reasonable estimate could be made at the time. Management has further determined that a reasonable estimate of the impact is a reduction in deferred tax asset and a related expense of $0.1 million. This estimate is provisional and the company may further adjust these amounts in future periods.

Note that for fiscal 2018, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 95 insider trades involving 222,283 shares of stock. Of those 95 insider trades, 25 were Buys involving 32,333 shares of stock, and 70 were Sells involving 189,500 shares of stock, creating an insider buy to sell ratio of 0.2 to 1.

Mergers/Acquisitions
In December 2017, the company completed the acquisition of RSI, a manufacturer of kitchen and bath cabinetry and home organization products, for consideration consisting of 1,457,568 newly issued shares of American Woodmark common stock, approximately $364 million in net cash, and the assumption of approximately $589 million of RSI debt, including accrued interest.

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

Year-Over-Year
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 American Woodmark Corporation, revenue increased by 21%, earnings decreased by 18%, free cash flow increased by 1%, total debt increased by 4723%, and the stock price decreased by 12%. Year to date the stock price is up 21%.

Future Value
My future (5 year hold) target price for the stock is $331, which is an average annual return of 46%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 29% 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 $37. 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 $42. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For American Woodmark Corporation, the PE Ratio is 28, the PEG Ratio is (3.3), Book Value is $18, Tangible Book Value is $(26), the Price to Book Ratio is 6 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. American Woodmark Corporation (Nasdaq: AMWD) – FYE 04/2018 – OVER VALUED The stock is currently trading at levels above with my most recent $67 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of American Woodmark Corporation
Posted on 07/19/18

Patterson Companies, Inc.
Patterson Companies, Inc. is a specialty distributor serving the dental supply and animal health supply markets. The company offers products, equipment, software, technology solutions and services to dental practitioners as well as consumable supplies, equipment and software, diagnostic products, vaccines and pharmaceuticals to both the animal markets. Industry peers include are DENTSPLY International, Henry Schein, and MWI Veterinary Supply.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $26.28, with an initial trailing stop set at $22.41. Upward price movement will find resistance at $24.15 and $25.11, with final resistance found at $31.47. Downward price movement will find support at $21.19.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Patterson Companies, Inc., the company utilized a blended rate of approximately 30.5%. For the fiscal year 2018, the Tax Act impacts resulted in a provisional discrete net tax benefit of $76.7 million, which included provisional amounts of $81.9 million of tax benefit on U.S. deferred tax assets and liabilities, $4 million of tax expense for a one-time transition tax on unremitted foreign earnings and $1.2 million in withholding tax paid on current year distributions. In accordance with the Tax Act, the transition tax will be payable over an eight year period.

The legislative changes included in the Tax Act are broad and complex. Management has determined that the transition tax on unremitted foreign earnings is provisional because various components of the computation are unknown as of April 28, 2018. Management further determined that the impact of the U.S. federal corporate income tax rate change on the U.S. deferred tax assets and liabilities is provisional because the amount cannot be calculated until the underlying timing differences are known rather than estimated.

During the fourth quarter, and directly connected to the transition tax legislation, the company approved a one-time repatriation of cash included in the transition tax computation. There was an approximate $1.2 million one-time cost recorded to reflect the added withholding tax cost associated with this repatriation. With the exception of this one-time repatriation, the company will continue to apply ASC 740 based on the provisions of the tax law that were in effect immediately prior to the enactment of the new law. With regard to unremitted earnings of foreign subsidiaries generated after December 31, 2017, the company does not currently provide for U.S. taxes since they intend to invest such undistributed earnings indefinitely outside of the U.S.

Management continues to review the anticipated impacts of the global intangible low taxed income (“GILTI”) and base erosion and anti-abuse tax (“BEAT”) provisions which are not effective until fiscal 2019.The company has not recorded any impact associated with either GILTI or BEAT for the fiscal year ended April 28, 2018.

Note that for fiscal 2018, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 31 insider trades involving 204,786 shares of stock. Of those 31 insider trades, 24 were Buys involving 203,347 shares of stock, and 7 were Sells involving 1,439 shares of stock, creating an insider buy to sell ratio of 141 to 1.

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

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

Year-Over-Year
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 Patterson Companies, Inc., revenue decreased by 2%, earnings increased by 20%, free cash flow increased by 21%, total debt decreased by 5%, and the stock price decreased by 91%. Year to date the stock price is down 2%.

Future Value
My future (5 year hold) target price for the stock is $29, which is an average annual return of 5%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of (7)% 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 $26. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Patterson Companies, Inc., the PE Ratio is 11, the PEG Ratio is 1.1, Book Value is $15, Tangible Book Value is $(3), the Price to Book Ratio is 1 and the Price to Tangible Book Ratio is 8.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Patterson Companies, Inc. (Nasdaq: PDCO) – FYE 04/2018 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $26 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Patterson Companies, Inc.
Posted on 07/18/18

Finisar Corporation
Finisar Corporation is a provider of optical subsystems and components that are used in data communication and telecommunication applications. Their optical subsystems consist primarily of transmitters, receivers, transceivers, transponders, optical engines, and active optical cables that provide the fundamental optical-electrical, or optoelectronic, interface for interconnecting the electronic equipment used in communication networks, including the switches, routers, and servers used in wireline networks as well as the antennas and base stations used in wireless networks. Listed competitors include Avago Technologies Ltd, Viavi Solutions, and Oplink Communications.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $19.08, with an initial trailing stop set at $17.70. Upward price movement will find resistance at $19.07 and $20.40, with final resistance found at $22.01. Downward price movement will find support at $17.44 and $16.75, with final support found at $15.72.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Finisar Corporation, the company revalued its net deferred tax asset and recorded a reduction in its deferred tax assets and a corresponding deferred tax expense of approximately $30.3 million. For fiscal 2018, the company’s blended corporate income tax rate is 30.4%, which is based on the applicable tax rates before and after the enactment of the The Act and the number of days in each period.

The Tax Act allows 100% expensing of cost of qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. The bonus depreciation percentage is phased down from 100% beginning in 2023 through 2026. The company elected to claim the 100% bonus depreciation for the assets placed into service after September 27, 2017. The net impact of this provision is not material to the company’s financial position, results of operations and cash flows.

The Act also implements a territorial tax system. In general, under the territorial tax system, the company’s foreign earnings will no longer be subject to tax in the U.S. As part of transitioning to the territorial tax system, The Act includes a mandatory deemed repatriation of all undistributed foreign earnings that are subject to a U.S. income tax. As of December 31, 2017, the company had approximately $123.0 million of undistributed earnings for certain non-U.S. subsidiaries that have been indefinitely reinvested outside the U.S. The mandatory deemed repatriation of these undistributed earnings resulted in a one-time deferred tax expense of approximately $19.1 million. This provisional estimate may be impacted by a number of additional considerations, including, but not limited to, the issuance of final regulations and the company’s ongoing analysis of The Act.

The company has historically asserted its intent to reinvest these earnings in foreign operations indefinitely and continues to do so. The company does not intend to repatriate these earnings to fund its U.S. operations and, accordingly, it does not provide for the U.S. state income and foreign withholding tax on these earnings.

Note that for fiscal 2018, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 58 insider trades involving 1,150,688 shares of stock. Of those 58 insider trades, 18 were Buys involving 553,796 shares of stock, and 40 were Sells involving 596,892 shares of stock, creating an insider buy to sell ratio of 0.9 to 1.

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

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

Year-Over-Year
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 Finisar Corporation, revenue decreased by 9%, earnings decreased by 115%, free cash flow decreased by 163%, total debt increased by 5%, and the stock price decreased by 47%. Year to date the stock price is up 15%.

Future Value
My future (5 year hold) target price for the stock is $28, which is an average annual return of 12%. 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 baseline valuation for the company is $11. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Finisar Corporation, the PE Ratio is (52), the PEG Ratio is (2.7), Book Value is $14, Tangible Book Value is $13, 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. Finisar Corporation (Nasdaq: FNSR) – FYE 04/2018 – OVER VALUED The stock is currently trading at levels above my most recent $(5) close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Finisar Corporation
Posted on 07/16/18

Aerovironment, Inc.
Aerovironment, Inc. supplies unmanned aircraft systems, or UAS, tactical missile systems and related services primarily to organizations within the U.S. Department of Defense, or DoD. The company also supplies charging systems and services for electric vehicles, or EVs, and power cycling and test systems to commercial, consumer and government customers. Industry peers include Lockheed Martin Corporation, L-3 Communications, and Aker ASA.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $63.77, with an initial trailing stop set at $72.27. Upward price movement will find no resistance. Downward price movement will find support at $60.33 and $57.03, with final support found at $54.48.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a company’s earnings and consequently its fair value.

In the case of Aerovironment, Inc., the company remeasured its existing deferred tax assets and liabilities at the rate the company expects to be in effect when those deferred taxes will be realized (30.4% if in 2018 or 21% thereafter) and recorded a one-time deferred tax expense of approximately $3.4 million during the year ended April 30, 2018.

The $3.4 miilion expense for the one-time deferred tax remeasurement is a provisional estimate of the impact of the Tax Act. In addition, the company has estimated that it will not have an income tax payable as a result of the one-time deemed repatriation transition tax on unrepatriated foreign earnings. These amounts are considered provisional because they use estimates for which final tax computations or returns have not been completed and because estimated amounts may be impacted by future regulatory and accounting guidance if and when issued.

Note that for fiscal 2017, 27% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 92 insider trades involving 173,530 shares of stock. Of those 92 insider trades, 18 were Buys involving 39,481 shares of stock, and 74 were Sells involving 134,049 shares of stock, creating an insider buy to sell ratio of 0.3 to 1.

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

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

Year-Over-Year
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 Aerovironment, Inc., revenue increased by 18%, earnings increased by 62%, free cash flow increased by 62%, total debt decreased by 100%, and the stock price increased by 48%. Year to date the stock price is up 35%.

Future Value
My future (5 year hold) target price for the stock is $94, which is an average annual return of 6%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 36% 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 $12. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Aerovironment, Inc., the PE Ratio is 87, the PEG Ratio is 9.2, Book Value is $17, Tangible Book Value is $17, the Price to Book Ratio is 4 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. Aerovironment, Inc. (Nasdaq: AVAV) – FYE 04/2018 – OVER VALUED The stock is currently trading at levels above my most recent $19 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Aerovironment, Inc.
Posted on 07/16/18

The J.M. Smucker Company
The J.M. Smucker Company is a manufacturer and marketer of branded food and beverage products, including Folgers®, Dunkin’ Donuts®, and Café Bustelo®, Jif®, Smucker’s®, Crisco®, PillsburyTM, Uncrustables®, Meow Mix®, Milk-Bone®, Natural Balance®, Kibbles ‘n Bits®, 9Lives®, Pup-Peroni®, and Nature’s Recipe®. Industry peers include Conagra Brands, Inc., Hormel Foods Corporation, Mondelez International, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $120.99, with an initial trailing stop set at $109.39. Upward price movement will find resistance at $115.70 and $119.30, with final resistance found at $121.70. Downward price movement will find support at $40.22 and $39.09, with final support found at $37.88.

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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of The J.M. Smucker Company, their income tax provision as of April 30, 2018, reflects the current year impacts of the Act and the following provisional estimates of our adjustments resulting directly from the enactment of the Act based on information available, prepared, or analyzed to date in reasonable detail. The net impact on U.S. deferred tax assets and liabilities was $(791.9), the transition tax was $26.1, making the net impact of adjustments $(765.8)

Note that for fiscal 2017, 27% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 40 insider trades involving 160,977 shares of stock. Of those 40 insider trades, 17 were Buys involving 113,275 shares of stock, and 23 were Sells involving 47,702 shares of stock, creating an insider buy to sell ratio of 2.4 to 1.

Mergers/Acquisitions
During the fourth quarter of 2018, the company announced a definitive agreement to acquire the stock of Ainsworth Pet Nutrition, LLC, a producer, distributor, and marketer of premium pet food and pet snacks, predominantly within the U.S. Approximately two-thirds of Ainsworth’s sales are generated by the Rachael Ray® Nutrish® brand, which is driving significant growth in the premium pet food category. Ainsworth also sells pet food and pet snacks under several additional branded and private label trademarks. In May 2018, the company completed the all-cash transaction, valued at $1.9 billion, which was funded with a new $1.5 billion bank term loan and $400.0 in borrowings under its commercial paper program.

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

Year-Over-Year
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 The J.M. Smucker Company, revenue decreased by 0.5%, earnings increased by 77%, free cash flow increased by 54%, total debt decreased by 10%, and the stock price decreased by 11%. Year to date the stock price is down 2%.

Future Value
My future (5 year hold) target price for the stock is $162, which is an average annual return of 9%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 3% 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 $100. 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 $224. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For The J.M. Smucker Company, the PE Ratio is 7, the PEG Ratio is 0.8, Book Value is $(35), Tangible Book Value is $(52), 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. The J.M. Smucker Company (NYSE: SJM) – FYE 04/2018 – UNDER VALUED The stock is currently trading at levels below my most recent $134 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of The J.M. Smucker Company
Posted on 07/15/18

DXP Enterprises, Inc.
DXP Enterprises, Inc. is engaged in the business of distributing maintenance, repair and operating (MRO) products, equipment and service to industrial customers. Industry peers include Applied Industrial Technologies, MSC Industrial Direct Company, and Industrial Distribution Group.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $40.19, with an initial trailing stop set at $41.74. Upward price movement will find no resistance. Downward price movement will find support at $40.22 and $39.09, with final support found at $37.88.

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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of DXP Enterprises, Inc., the company remeasured its net deferred income tax liabilities by a provisional $1.3 million benefit and a corresponding provisional decrease in the net deferred tax liability. They are still in the process of analyzing The Act’s impact as permitted under SAB 118. The largest impact to the company being the remeasurement of deferred taxes due to the U.S. statutory tax rate change. The mandatory repatriation and resulting toll charge on accumulated foreign earnings and profits has limited impact on the company as unremitted earnings from non-US jurisdictions is minimal. The company is provisional in its approach and assertion that there is no financial statement impact as of December 31, 2017.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 38 insider trades involving 156,240 shares of stock. Of those 38 insider trades, 22 were Buys involving 49,910 shares of stock, and 16 were Sells involving 156,240 shares of stock, creating an insider buy to sell ratio of 0.5 to 1.

Mergers/Acquisitions
There were no mergers or acquisitions during fiscal 2017.

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

Year-Over-Year
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 DXP Enterprises, Inc., revenue increased by 5%, earnings increased by 291%, free cash flow increased by 42%, total debt increased by 8%, and the stock price decreased by 17%. Year to date the stock price is up 43%.

Future Value
My future (5 year hold) target price for the stock is $89, which is an average annual return of 22%. A prior five year hold of the stock (FY2013- FY2017) 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 $20. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For DXP Enterprises, Inc., the PE Ratio is 50, the PEG Ratio is 2, Book Value is $15, Tangible Book Value is $0.14, the Price to Book Ratio is 3 and the Price to Tangible Book Ratio is 303.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. DXP Enterprises, Inc. (Nasdaq: DXPE) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above with my most recent $5 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of DXP Enterprises, Inc.
Posted on 07/14/18

Lydall, Inc.
Lydall, Inc. designs and manufactures specialty engineered filtration media, industrial thermal insulating solutions, automotive thermal and acoustical barriers, medical filtration media and devices and biopharmaceutical processing components for thermal/acoustical, filtration/separation and bio/medical applications. The company also designs and manufactures non-woven felt filtration media and filter bags used primarily in industrial air filtration applications including power, cement, asphalt, incineration, food and pharmaceutical. Listed competitors include Johns Manville Corporation, Morgan Advanced Materials, and Danaher Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $47.54, with an initial trailing stop set at $44.42. Upward price movement will find resistance at $46.93 and $48.37, with final resistance at $49.63. Downward price movement will find support at $43.68 and $42.47, with final support found at $41.65.

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
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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Lydall, Inc., the company had an estimated $12.0 million of undistributed foreign E&P subject to the one-time mandatory repatriation and recognized a provisional $0.5 million of income tax expense in the company’s consolidated statement of operations for the year ended December 31, 2017. The company’s undistributed earnings for which it had previously made an indefinite reinvestment assertion under ASC 740-30 are approximately $6.2 million. The company has not yet made a determination to remain permanently reinvested outside of the United States in response to the Tax Reform Act. As a result, the company has not included a provisional tax cost related to this balance at this time as a reasonable estimate has not been determined.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 67 insider trades involving 234,975 shares of stock. Of those 67 insider trades, 43 were Buys involving 109,834 shares of stock, and 24 were Sells involving 125,141 shares of stock, creating an insider buy to sell ratio of 0.9 to 1.

Mergers/Acquisitions
There were no mergers or acquisitions during fiscal 2017.

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

Year-Over-Year
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 Lydall, Inc., revenue increased by 23%, earnings increased by 40%, free cash flow increased by 68%, total debt decreased by 40%, and the stock price increased by 22%. Year to date the stock price is down 11%.

Future Value
My future (5 year hold) target price for the stock is $172, which is an average annual return of 56%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 51% 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 $43. 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 $38. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Lydall, Inc., the PE Ratio is 15, the PEG Ratio is 7.7, Book Value is $20, Tangible Book Value is $14, 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. Lydall, Inc. (NYSE: LDL) – FYE 12/2017 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $38 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Lydall, Inc.
Posted on 07/12/18

Gentex Corporation
Gentex Corporation designs and manufactures automatic-dimming rearview mirrors and electronics for the automotive industry, dimmable aircraft windows for the aviation industry, and commercial smoke alarms and signaling devices for the fire protection industry. Industry peers include Magna Mirrors of America, Ichikon Industries, and Ficosa International.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $25.38, with an initial trailing stop set at $22.82. Upward price movement will find resistance at $23.62 and $24.33, with final resistance at $25.22. Downward price movement will find support at $22.83 and $22.39, with final support found at $21.40.

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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Gentex Corporation, the company reduced the value of its net deferred tax liability by $38.4 million which was recorded as a reduction to income tax expense. The company’s revaluation of its net deferred tax liability is subject to further refinement as additional information becomes available and further analysis is completed. Additionally, the company does not anticipate the one-time transition tax, the provisional estimate of which is $1.2 million, to be material.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 56 insider trades involving 2,718,884 shares of stock. Of those 56 insider trades, 39 were Buys involving 1,390,070 shares of stock, and 17 were Sells involving 1,328,814 shares of stock, creating an insider buy to sell ratio of 1.05 to 1.

Mergers/Acquisitions
There were no mergers or acquisitions during fiscal 2017.

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

Year-Over-Year
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 Gentex Corporation, revenue increased by 7%, earnings increased by 20%, free cash flow increased by 30%, total debt decreased by 58%, and the stock price increased by 7%. Year to date the stock price is up 11%.

Future Value
My future (5 year hold) target price for the stock is $39, which is an average annual return of 14%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 30% 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 $18. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Gentex Corporation the PE Ratio is 16, the PEG Ratio is 2, Book Value is $7, Tangible Book Value is $5, 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. Gentex Corporation (Nasdaq: GNTX) – FYE 12/2017 – SELL HALF The stock is currently trading at levels above my most recent $18 fair value estimate, but below my most recent $29 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Gentex Corporation
Posted on 07/12/18

Sealed Air Corporation
Sealed Air Corporation is engaged in the food safety and security, and the facility hygiene and product protection business, serving the end markets of food and beverage processing, food service, retail, health care and industrial, commercial and consumer applications. The company has widely recognized and inventive brands such as Bubble Wrap ® brand cushioning, Cryovac ® brand food packaging solutions and Diversey ® brand cleaning and hygiene solutions. Industry peers include Printpack, Sonoco Products, and Bemis Company.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $47.55, with an initial trailing stop at $42.19. Upward price movement will find resistance at $43.50 and $44.12, with final resistance at $44.75. Downward price movement will find support at $42.48 and $41.81.

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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Sealed Air Corporation, the company revalued its ending net deferred tax assets and recognized a provisional $41.1 million tax expense. The one-time mandatory tax is based on our total post-1986 earnings and profits (E&P) deferred from U.S. income taxes, cash and cash equivalents and foreign tax pools.

The company has not recorded a deferred tax liability related to the federal and state income taxes and foreign withholding taxes on approximately $3.5 billion of undistributed earnings of certain foreign subsidiaries indefinitely reinvested. Upon repatriation of those earnings the company could be subject to both U.S. income taxes and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable due to the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce a portion of the U.S. tax liability.

Note that for fiscal 2017, 0% of net income came from income tax benefits and 78% came from the sale of assets.

Insider Transactions
In the past 12 months, the company has reported 38 insider trades involving 320,283 shares of stock. Of those 38 insider trades, 22 were Buys involving 220,126 shares of stock, and 16 were Sells involving 100,157 shares of stock, creating an insider buy to sell ratio of 2.2 to 1.

Mergers/Acquisitions
In October 2017, the company acquired Fagerdala Singapore Pte Ltd. (“Fagerdala”), a manufacturer and fabricator of polyethylene foam based in Singapore, for a consideration of S$144.7 million. The company plans to leverage Fagerdala’s manufacturing footprint in Asia, expertise in foam manufacturing and fabrication, and commercial organization to grow sales in the consumer electronics, medical equipment and devices, automotive, temperature assurance, and e-commerce fulfillment sectors.

In August 2017, the company acquired Deltaplam Embalagens Indústria e Comércio Ltda (“Deltaplam”), a family owned and operated Brazilian flexible packaging manufacturer for a consideration of $25.8 million.

Divestitures/Dispositions
In September 2017, the company sold its Diversey Care division and the Food Hygiene and Cleaning business within our Food Care division for gross proceeds of USD equivalent of $3.2 billion, recording a net gain of $640.7 million, net of taxes of $197.5 million. The company intends to use the cash generated from this transaction to repay debt and maintain its credit profile, repurchase shares to minimize earnings dilution, and fund core growth initiatives, including potential complementary acquisitions. The sale of Diversey will allow the company to enhance its strategic focus its Food Care and Product Care businesses and simplify its operating structure.

In August 2017, the company sold its polystyrene food tray business in Guarulhos, Brazil for $7.2 million.

Year-Over-Year
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 Sealed Air Corporation, revenue increased by 6%, earnings increased by 78%, free cash flow decreased by 40%, total debt decreased by 21%, and the stock price increased by 9%. Year to date the stock price is down 13%.

Future Value
My future (5 year hold) target price for the stock is $101, which is an average annual return of 27%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 41% 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 $24. 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 $73. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Sealed Air Corporation the PE Ratio is 8, the PEG Ratio is 0.6, Book Value is $1, Tangible Book Value is ($11), the Price to Book Ratio is 47 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. Sealed Air Corporation (NYSE: SEE) – FYE 12/2017 – UNDER VALUED The stock is currently trading at levels below my most recent $44 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Sealed Air Corporation
Posted on 07/10/18

Seaboard Corporation
Seaboard Corporation is a diverse agribusiness and transportation company with operations in pork production, turkey operations, commodity merchandising, grain processing, sugar production, electric power generation, ocean transportation. Industry peers include Smithfield Foods, Bunge Limited, and Louis Dreyfus Holding BV.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $4350.27, with an initial trailing stop at $3900.57. Upward price movement will find resistance at $4008 and $4096, with final resistance at $4175. Downward price movement will find support at $3922 and $3776.

Days to Cover
The most recent days to cover number is 8. 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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Seaboard Corporation, the company has recognized the provisional tax impacts related to mandatory deemed repatriated earnings and the revaluation of deferred tax assets and liabilities in the amount of $112 million.

In addition, beginning in fiscal 2018, the 2017 Tax Act also imposes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provision and the base-erosion and anti-abuse tax (“BEAT”) provision. The company will account for the GILTI and BEAT taxes in the period incurred, and therefore has not provided any deferred tax impacts in its consolidated financial statements for the year ended December 31, 2017.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 1 insider trades involving 25 shares of stock. Of that 1 insider trades, 0 were Buys involving 0 shares of stock, and 1 were Sells involving 25 shares of stock, creating an insider buy to sell ratio of 0.0 to 1.

Mergers/Acquisitions
In August 2017, Seaboard’s Pork segment acquired hog inventory and hog farms in the Central U.S. from New Fashion Pork, LLP for total cash consideration of $40 million.

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

Year-Over-Year
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 Seaboard Corporation, revenue increased by 8%, earnings decreased by 72%, free cash flow decreased by 104%, total debt increased by 9%, and the stock price increased by 10%. Year to date the stock price is down 10%.

Future Value
My future (5 year hold) target price for the stock is $6767, which is an average annual return of 14%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 15% 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 $720. 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 $322. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, Tangible Book Value, Price to Book, and Price to Tangible Book. For Seaboard Corporation the PE Ratio is 122, the PEG Ratio is 8.4, Book Value is $2910, Tangible Book Value is $2892, 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. Seaboard Corporation (NYSE: SEB) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above with my most recent $515 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Seaboard Corporation
Posted on 07/09/18

Kaman Corporation
Kaman Corporation produces/markets proprietary aircraft bearings and components, complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft. The company also produces safe and arming solutions for missile and bomb systems, and performs subcontract helicopter work. The company is also a power transmission, motion control, electrical and automation, and fluid power industrial distributor. Industry peers include Spirit AeroSystems, United Technologies Corporation, and W.W. Grainger.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $72.99, with an initial trailing stop at $66.87. Upward price movement will find resistance at $70.02 and $72.67. Downward price movement will find support at $64.06 and $62.53, with final support at $60.62.

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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Kaman Corporation, the company’s U.S. net deferred tax assets were required to be revalued as of December 31, 2017. This resulted in a one-time charge to tax expense of $9.7 million. Other Tax Reform provisions that will impact the Company include the elimination of the deduction for manufacturing activities, changes to the deductibility of executive compensation and various international tax law changes.

One of the international tax law changes provided for with Tax Reform relates to the taxation of a corporation’s global intangible low-taxed income (“GILTI”) for tax years beginning after December 31, 2017. Due to the complexity of the new GILTI tax rules, the company is continuing to evaluate this provision of Tax Reform and the application of ASC 740.

Note that for fiscal 2017, 27% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company has reported 29 insider trades involving 82,367 shares of stock. Of those 29 insider trades, 17 were Buys involving 37,306 shares of stock, and 12 were Sells involving 45,061 shares of stock, creating an insider buy to sell ratio of 0.8 to 1.

Mergers/Acquisitions
There were no mergers or acquisitions during fiscal 2017.

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

Year-Over-Year
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 Kaman Corporation, revenue decreased by 0.14%, earnings decreased by 17%, free cash flow decreased by 6%, total debt decreased by 4%, and the stock price increased by 16%. Year to date the stock price is up 16%.

Future Value
My future (5 year hold) target price for the stock is $105, which is an average annual return of 11%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 12% 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 $36. 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 $21. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, and Tangible Book Value, Price to Book, and Price to Tangible Book. For Kaman Corporation the PE Ratio is 37, the PEG Ratio is 2.7, Book Value is $23, Tangible Book Value is $6, the Price to Book Ratio is 3 and the Price to Tangible Book Ratio is 11.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Kaman Corporation (Nasdzq: KAMN) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above with my most recent $34 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Kaman Corporation
Posted on 07/08/18

Superior Industries International, Inc.
Superior Industries designs and manufactures aluminum road wheels for sale to original equipment manufacturers including Ford, General Motors, Toyota, Fiat Chrysler Automobiles N.V., BMW, Mitsubishi, Nissan, Subaru, Volkswagen and Tesla. Industry peers include Maxion Wheels, The CarlStar Group, and Meritor, Inc..

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $18.56, with an initial trailing stop at $17.43. Upward price movement will find resistance at $18.04 and $19.23. Downward price movement will find support at $16.66 and $16.01, with final support at $15.05.

Days to Cover
The most recent days to cover number is 8. 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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Superior Industries International, Inc., the impact primarily consists of a $7.3 million related to re-measurement of U.S. deferred tax assets due to the lowering of the corporate tax rate described above and $9.3 million of expense for the estimate of the impact of one-time transition tax on the mandatory repatriation of earnings of foreign subsidiaries. The company anticipates additional guidance and clarification regarding the implementation of the transition tax will be issued by federal and state taxing authorities and this estimate is, therefore, subject to future refinement.

Note that for fiscal 2017, 27% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company reported 67 insider trades involving 285,687 shares of stock. Of those 67 insider trades, 41 were Buys involving 229,470 shares of stock, and 26 were Sells involving 56,217 shares of stock, creating an insider buy to sell ratio of 4.1 to 1.

Mergers/Acquisitions
During fiscal 2017 the company acquired Uniwheels AG, a European company that develops, produces, and sells alloy wheels for the automotive and accessory markets, providing its wheels under the ATS, Rial, Alutec, and Anzio brands to tire and wheel retail chains, wholesalers, retailers, and car dealers. The aggregate purchase price was $766.2 million.

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

Year-Over-Year
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 Superior Industries International, Inc., revenue decreased by 51%, earnings decreased by 159%, free cash flow decreased by 65%, total debt was increased almost 7 times 2016 levels, and the stock price decreased by 75%. Year to date the stock price is up 19%.

Future Value
My future (5 year hold) target price for the stock is $31, which is an average annual return of 15%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of (-3%) 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 (-$8). 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, and Tangible Book Value. For Superior Industries International, Inc. the current twelve month trailing PE Ratio is (-17), the PEG Ratio is (-1.6), Book Value is $24, and Tangible Book Value is $3.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Superior Industries International, Inc. (NYSE: SUP) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels aboe with my most recent (-$12) close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Superior Industries International, Inc.
Posted on 07/07/18

Wabash National Corporation
Wabash National Corporation is an industrial manufacturer of semi-trailers and liquid transportation systems. The company designs, manufactures, and markets dry freight and refrigerated trailers, platform trailers, bulk tank trailers, dry and refrigerated truck bodies, truck-mounted tanks, intermodal equipment, aircraft refueling equipment, structural composite panels and products, trailer aerodynamic solutions, specialty food grade and pharmaceutical equipment. Industry peers include Great Dane Limited Partnership, Trinity Industries, and Utility Trailer Manufacturing Company.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $22.17, with an initial trailing stop at $19.04. Upward price movement will find resistance at $19.56 and $20.18, with final resistance found at $20.59. Downward price movement will find support at $18.89.

Days to Cover
The most recent days to cover number is 17. 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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Wabash National Corporation, the re-measurement of deferred tax assets and liabilities at the new tax rate resulted in a provisional tax benefit of approximately $19.7 million.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company reported 48 insider trades involving 771,097 shares of stock. Of those 48 insider trades, 31 were Buys involving 560,995 shares of stock, and 17 were Sells involving 210,102 shares of stock, creating an insider buy to sell ratio of 2.7 to 1.

Mergers/Acquisitions
In September 2017, the company completed the acquisition of Supreme Industries, Inc. (“Supreme”), a manufacturer of specialized commercial vehicles, including cutaway and dry-freight van bodies, refrigerated units, and stake bodies with manufacturing facilities in Goshen and Ligonier, Indiana; Jonestown, Pennsylvania; Cleburne, Texas; Griffin, Georgia; and Moreno Valley, California. The aggregate purchase price of $360.4 million.

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

Year-Over-Year
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 Wabash National Corporation, revenue decreased by 4%, earnings decreased by 5%, free cash flow decreased by 7%, total debt was increased by 132%, and the stock price increased by 27%. Year to date the stock price is down 11%.

Future Value
My future (5 year hold) target price for the stock is $31, which is an average annual return of 12%. A prior five year hold of the stock (FY2013- FY2017) would have returned an average of 29% 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 $24. 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 $27. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, and Tangible Book Value. For Wabash National Corporation the current twelve month trailing PE Ratio is 9, the PEG Ratio is 0.2, Book Value is $9, and Tangible Book Value is (-$1).

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Wabash National Corporation (NYSE: WNC) – FYE 12/2017 – FAIRLY VALUED The stock is currently trading at levels in line with my most recent $27 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold shares of Wabash National Corporation
Posted on 07/05/18

Friedman Industries, Inc.
Friedman Industries is engaged in steel processing, pipe manufacturing and processing and steel and pipe distribution. The coil products group purchases prime hot-rolled steel coils, processes the coils into flat, finished sheet and plate and sells these products on a wholesale, rapid-delivery basis in competition with steel mills, importers and steel service centers. Through its Texas Tubular Products Division the company manufactures, purchases, processes and markets tubular products to API standards. Industry peers include Synalloy Corporation, Olympic Steel, and LB Foster Company.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $8.66, with an initial trailing stop at $6.71. Upward price movement will find no resistance. Downward price movement will find support at $6.48 and at $6.19, with final support at $6.01.

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
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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Friedman Industries, Inc., the re-measurement of deferred tax assets and liabilities at the new tax rate resulted in a provisional noncash tax benefit of approximately $77,000 due to the reduction of the company’s net deferred tax liability position.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company reported 0 insider trades involving 0 shares of stock. Of those 0 insider trades, 0 were Buys involving 0 shares of stock, and 0 were Sells involving 0 shares of stock, creating an insider buy to sell ratio of 0.0 to 1.

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

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

Year-Over-Year
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 Friedman Industries, Inc., revenue increased by 56%, earnings increased by 198%, free cash flow increased by 294%, total debt was unchanged, and the stock price decreased by 10%. Year to date the stock price is up 45%.

Future Value
My future (5 year hold) target price for the stock is $8, which is an average annual return of (-2%). A prior five year hold of the stock (FY2014- FY2018) would have returned an average of (-7%) 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 $19. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, and Tangible Book Value. For Friedman Industries, Inc. the current twelve month trailing PE Ratio is 22, the PEG Ratio is (-3.6), Book Value is $9, and Tangible Book Value is $9.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Friedman Industries, Inc. (NYSE: FRD) – FYE 03/2018 – OVER VALUED The stock is currently trading at levels above my most recent $4 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Friedman Industries, Inc.
Posted on 07/05/18

DowDupont, Inc.
DowDuPont, a holding company comprised of The Dow Chemical Company and E. I. du Pont de Nemours and Company, is a diversified manufacturer and supplier of products used primarily as raw materials in the manufacture of products and services for companies in the appliance; automotive; agricultural; building and construction; chemical processing; electronics; furniture; housewares; oil and gas; packaging; paints, coatings and adhesives; personal care; pharmaceutical; processed foods; pulp and paper; textile and carpet; utilities; and water treatment industries. Industry peers include BASF, Monsanto Company, and Ashland Global Holdings.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $73.04, with an initial trailing stop at $64.17. Upward price movement will find resistance at $66.67 and $67.72, with final resistance at $70.26. Downward price movement will find support at $64.38 and at $63.24.

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.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

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.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of DowDupont, Inc., the provisional amount recorded related to the remeasurement of the company’s deferred tax balance was $2,666 million, recorded as a benefit to provision (credit) for income taxes on continuing operations.

The Act also requires a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (“E&P”), which results in a one-time transition tax. As a result, the company recorded a provisional amount for the transition tax liability for its foreign subsidiaries of $1,580 million, recorded as a charge to provision (credit) for income taxes on continuing operations.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions
In the past 12 months, the company reported 236 insider trades involving 7,482,742 shares of stock. Of those 236 insider trades, 115 were Buys involving 2,119,296 shares of stock, and 121 were Sells involving 5,363,446 shares of stock, creating an insider buy to sell ratio of 0.4 to 1.

Acquisitions/Mergers
In March 2017, DuPont entered into a definitive agreement with FMC Corporation for FMC to acquire the assets related to DuPont’s crop protection business and research and development (“R&D”) organization that DuPont was required to divest in order to obtain European Commission (“EC”) approval for the merger with Dow. In addition, under the FMC Transaction Agreement, DuPont agreed to acquire certain assets relating to FMC’s Health and Nutrition segment, excluding its Omega-3 products (the “H&N Business”) (the sale of the Divested Ag Business and acquisition of the H&N Business referred to collectively as the “FMC Transactions”).

In November 2017, DuPont completed the FMC Transactions through the acquisition of the H&N Business and the divestiture of the Divested Ag Business. The acquisition will be integrated into Nutrition & Biosciences to enhance the Company’s position as a leading provider of sustainable, bio-based food ingredients and allow for expanded capabilities in the pharma excipients space. DuPont accounted for the acquisition in accordance with ASC 805, which requires the assets acquired and liabilities assumed to be recognized on the balance sheet at their fair values as of the acquisition date.

Divestitures/Dispositions
In February 2017, Dow announced it would divest the EAA Business to SK Global Chemical Co., Ltd. The divestiture included production assets located in Freeport, Texas, and Tarragona, Spain, along with associated intellectual property and product trademarks. Under terms of the purchase agreement, SK Global Chemical Co., Ltd will honor certain customer and supplier contracts and other agreements. In September 2017, the sale was completed for $296 million, net of working capital adjustments, costs to sell and other adjustments, with proceeds subject to customary post-closing adjustments.

In July 2017, Dow announced it had entered into a definitive agreement with CITIC Agri Fund to sell the DAS Divested Ag Business, including four corn seed production sites and four research centers, a copy of Dow AgroSciences’ Brazilian corn germplasm bank, certain commercial and pipeline hybrids, the MORGAN™ trademark and a license to the DOW SEMENTES™ trademark for 12 months. In November 2017, the sale was completed for $1,093 million, net of working capital adjustments, costs to sell and other adjustments, with proceeds subject to customary post-closing adjustments.

DuPont was required to sell its Divested Ag Business, specifically DuPont’s Cereal Broadleaf Herbicides and Chewing Insecticides portfolios, including RYNAXYPYR®, CYAZYPYR®, and Indoxacarb as well as the crop protection R&D pipeline and organization, excluding seed treatment, nematicides, and late-stage R&D programs. In March 2017, DuPont and FMC entered into the FMC Transaction Agreement under which FMC agreed to acquire the Divested Ag Business; in addition, DuPont agreed to acquire the H&N Business. The sale of the Divested Ag Business meets the criteria for discontinued operations and as such, earnings are included within loss from discontinued operations, net of tax for periods subsequent to the Merger.

In November 2017, DuPont completed the FMC Transactions through the disposition of the Divested Ag Business and the acquisition of the H&N Business. The preliminary fair value as determined by DuPont of the H&N Business is $1,970 million. The FMC Transactions include a cash consideration payment to DuPont of approximately $1,200 million, which reflects the difference in value between the Divested Ag Business and the H&N Business, as well as favorable contracts with FMC of $495 million, subject to adjustments for inventory of the Divested Ag Business and net working capital of the H&N Business. Due to the proximity of the Merger and the closing of the sale, the carrying value of the Divested Ag Business approximated the fair value of the consideration received, thus no resulting gain or loss was recognized on the sale.

Year-Over-Year
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 DowDupont, Inc., revenue increased by 30%, earnings decreased by 1%, free cash flow increased by 20%, total debt decreased by 59%, and the stock price increased by 20%. Year to date the stock price is down 9%.

Future Value
My future (5 year hold) target price for the stock is $115, which is an average annual return of 15%. A prior five year hold of the stock (FY2013- FY2017) 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 baseline valuation for the company is $41. 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 $32. 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.

Value Considerations
Other value considerations include the PE Ratio, the PEG Ratio, Book Value, and Tangible Book Value. For DowDupont, Inc. the current twelve month trailing PE Ratio is 25, the PEG Ratio is 3.6, Book Value is $44, and Tangible Book Value is $4.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. DowDupont, Inc. (NYSE: DWDP) – FYE 12/2017 – OVER VALUED The stock is currently trading at levels above my most recent $51 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of DowDupont, Inc.
Posted on 07/04/18