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Fair Warning

The Mosaic Company
The Mosaic Company is a single source supplier of phosphate and potash based crop nutrients and animal feed ingredients, mining phosphate rock in Florida and processing minded rock into finished phosphate products at facilities in Florida and Louisiana. The company also mines potash in Saskatchewan and New Mexico. Industry peers include Intrepid Potash, Potash Corporation of Saskatchewan, and CF Industries.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $27.98, with an initial trailing stop at $27.44. Upward price movement will find no resistance, while downward price movement will find support at $27.20 and $26.54, with final support at $25.65.

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 Mosaic Company, the company recorded a provisional estimates of the impact of The Tax Act of $457.5 million, with repatriation accounting for $107.7 million, offset by a $202.6 million, non-cash reduction in the deferred tax liability, $2.3 million non-cash, deferred tax benefit related to the reduction of the U.S. federal rate from 35 percent to 21 percent, and valuation allowances against foreign tax credits and anticipatory foreign tax credits of $105.8 million and $440.3 million, respectively.

The Act also repeals the corporate alternative minimum tax, or AMT, system and allows for the cash refund of excess AMT credits. The refundable AMT amounts are subject to a set of federal budgeting rules. The company estimated it will receive a cash refund of $121.5 million net of an $8.6 million charge related to the sequestration rules.

Insider Transactions
In the past 12 months, the company recorded 32 insider trades involving 83,612 shares of stock. Of those 32 insider trades, 24 were Buys involving 69,689 shares of stock, and 8 were Sells involving 13,923 shares of stock, creating an insider buy to sell ratio of 5 to 1.

Acquisitions
The company had not acquisition activity during FY2017.

Growth and Not
There are several year over year growth metrics of interest; revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and finally year to date price growth. For The Mosaic Company, revenue grew by 3%, free cash flow declined by 164%, earnings declined by 152%, debt grew by 37%, and the stock price declined by 14%. Year to date the stock price has increased 9%.

Future Value
My future (5 year hold) target price for the stock is $23, which is an average annual return of (-3%). A prior five year hold of the stock (FY2013- FY2017) 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
My baseline valuation for the stock is $6. 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 (-$5). 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. The Mosaic Company (NYSE: MOS) – FYE 12/2017 – The stock is OVER VALUED, currently trading above my most recent (-$8) close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of The Mosaic Company
Posted on 05/24/18


Best Buy Company, Inc.
Best Buy is a provider of technology products and services, offering services to consumers, small business owners and educators. Industry peers include Amazon.com, Apple, Inc. and Wal-Mart Stores.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $77.52, with an initial trailing stop at $74.34. Upward price movement will find resistance at $78.50, while downward price movement will find support at $73.68 and $71.03, with final support at $68.72.

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 Best Buy Company, Inc., the company applied a blended U.S. statutory federal income tax rate of 33.7% for fiscal 2018. In addition, a provisional tax expense in fiscal 2018 of $283 million was recorded. The $283 million included a $209 million charge associated with the deemed repatriation tax and a $74 million charge related to the revaluation of deferred tax assets and liabilities to reflect the new tax rate.

Insider Transactions
In the past 12 months, the company recorded 154 insider trades involving 7,970,491 shares of stock. Of those 154 insider trades, 68 were Buys involving 1,928,388 shares of stock, and 86 were Sells involving 6,042,103 shares of stock, creating an insider buy to sell ratio of 0.3 to 1.

Acquisitions
The company made no business acquisitions during FY2018. However management did complete the consolidation of the company’s Canadian holdings resulting in the permanent closure of 66 Future Shop stores, the conversion of 65 Future Shop stores to Best Buy stores and the elimination of the Future Shop website.

Growth and Not
There are several year over year growth metrics of interest; revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and finally year to date price growth. For Best Buy Company, Inc., revenue grew by 7%, free cash flow declined by 17%, earnings decline by 15%, debt declined by 1%, and the stock price grew by 39%. Year to date the stock price has increased 4%.

Future Value
My future (5 year hold) target price for the stock is $149.00, which is an average annual return of 20%. A prior five year hold of the stock (FY2014- FY2018) would have returned an average of 70% 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
My baseline valuation for the stock is $46. 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 $39. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Best Buy Company, Inc. (NYSE: BBY) – FYE 02/2018, the stock is OVER VALUED, trading above my most recent $62 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Best Buy Company, Inc.
Posted on 05/23/18


PVH Corporation
PVH Corporation is an apparel company that designs and markets branded dress shirts, neckwear, sportswear and, to a lesser extent, footwear. The company’s brands consists of Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD, Bass, ARROW and Eagle, which are owned, and Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Sean John, JOE Joseph Abboud, Michael Kors, Chaps, Donald J. Trump Signature Collection, DKNY, Elie Tahari, Nautica, Ted Baker, J. Garcia, Claiborne, Robert Graham, U.S. POLO ASSN., Ike Behar, Axcess, Jones New York and John Varvatos, as well as various other licensed and private label brands. Industry peers include Nine West Holdings, Inc., Perry Ellis International, Inc., and Ralph Lauren Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $162.08, with an initial trailing stop at $152.22. Upward price movement will find resistance at $161.10, while downward price movement will find support at $150.70 and $145.10, with final support at $142.50.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 PVH Corporation, the company’s effective income tax rate for 2017 was lower than the United States statutory rate primarily due to the provisional net one-time benefit of $53 million recorded in connection with the Tax Legislation, which resulted in a benefit to their 2017 effective income tax rate of 10.4%, consisting of a $265 million benefit primarily from the remeasurement of their net United States deferred tax liabilities, partially offset by a $38 million valuation allowance on their foreign tax credits and a $174 million transition tax on earnings of foreign subsidiaries deemed to be repatriated.

Insider Transactions
In the past 12 months, the company recorded 146 insider trades involving 1,452,351 shares of stock. Of those 146 insider trades, 50 were Buys involving 746,892 shares of stock, and 96 were Sells involving 705,459 shares of stock, creating an insider buy to sell ratio of 1.1 to 1.

Acquisitions
In September 2017 the company acquired Tommy Hilfiger and Calvin Klein wholesale and concessions businesses in Belgium and Luxembourg for $13.9 million, consisting of $12.0 million. The company is still in the process of finalizing the valuation of certain tax related items; thus, the allocation of the acquisition consideration is subject to change.

In March 2017 the company acquired a direct-to-consumer intimate apparel digital commerce retailer, enabling the company to participate further in the fast-growing online channel and provides a platform to increase innovation, data-driven decisions and speed in the way it serves its consumers across its channels of distribution. The acquisition price was $28.5 million. The purchase price allocation was finalized during the fourth quarter of 2017.

Growth and Not
There are several year over year growth metrics of interest; revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and finally year to date price growth. For PVH Corporation, revenue grew by 9.0%, free cash flow declined by 5%, earnings grew by 14%, debt declined by 4%, and the stock price grew by 40%. Year to date the stock price is unchanged.

Future Value
My future (5 year hold) target price for the stock is $198.00, which is an average annual return of 6%. A prior five year hold of the stock (2013-2018) 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
My baseline valuation for the stock is $67. 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 $88. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. PVH Corporation (NYSE: PVH) – FYE 01/2018, the stock is OVER VALUED, trading above my most recent $140 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of PVH Corporation
Posted on 05/22/18


Science Applications International Corporation
Science Applications International Corporation is a provider of technical, engineering and enterprise information technology (IT) services primarily to the U.S. government, including the Department of Defense (DoD) and federal civilian agencies. Listed competitors include Computer Sciences Corporation, Booz Allen Hamilton Holding Corporation, and Jacobs Engineering Group, Inc..

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $87.49, with an initial trailing stop at $84.72. Upward price movement will find resistance at $89.54, while downward price movement will find support at $81.95 and $77.66, with final support at $74.27.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Science Applications International Corporation, as of February 3, 2018, the company had not finalized their accounting for the tax effects of the TCJA. The company has made a reasonable estimate of the effects of TCJA and recorded an estimated net benefit of $17 million which consists of a net benefit for the corporate rate reduction of $17 million to income tax expense for the year ended February 2, 2018.

Insider Transactions
In the past 12 months, the company recorded 75 insider trades involving 617,288 shares of stock. Of those 75 insider trades, 37 were Buys involving 256,692 shares of stock, and 38 were Sells involving 360,596 shares of stock, creating an insider buy to sell ratio of 0.7 to 1.

Acquisitions
The company made no acqisitions during its prior fiscal year.

Growth and Not
There are several year over year growth metrics of interest; revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and finally year to date price growth. For Science Applications International Corporation, revenue grew by 0.3%, free cash flow grew by 9%, earnings grew by 26%, debt declined by 2%, and the stock price fell by 6%. Year to date the stock price is up 12%.

Future Value
My future (5 year hold) target price for the stock is $613, which is an average annual return of 122%. A prior five year hold of the stock (2013-2018) would have returned an average of 110% 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
My baseline valuation for the stock 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 $85. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Science Applications International Corporation (NYSE: SAIC) – FYE 01/2018, the stock is FAIRLY VALUED, trading in line with with my most recent $85 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Science Applications International Corporation
Posted on 05/21/18


The Gap, Inc.
The Gap is a retail apparel company offering apparel, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. Industry peers include The TJX Companies, Inc., American Eagle Outfitters, Inc., and J. Crew Group, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $33.05, with an initial trailing stop at $31.10. Upward price movement will find resistance at $32.55 and $33.40, with final resistance at $34.30. Downward price movement will find support at $30.78 and $29.79, with final support at $28.88.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Gap, Inc., as of February 3, 2018, they had not finalized their accounting for the tax effects of the TCJA. The company has made a reasonable estimate of the effects of TCJA and recorded an estimated net charge of $57 million, primarily due to the impact of the one-time transition tax on the deemed repatriation of foreign income and the impact of TCJA on remeasurement of deferred tax assets and liabilities. The provisional net charge is subject to revisions as the company completes its analysis of the TCJA, collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service (“IRS”), FASB, and other standard-setting and regulatory bodies.

Insider Transactions
In the past 12 months, the company recorded 134 insider trades involving 5,913,368 shares of stock. Of those 134 insider trades, 58 were Buys involving 518,767 shares of stock, and 76 were Sells involving 5,394,601 shares of stock, creating an insider buy to sell ratio of 0.1 to 1.

Acquisitions
The company made no acqisitions during its prior fiscal year.

Growth and Not
When it comes to growth there are several year over year metrics I follow; revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and finally year to date price growth. For The Gap, revenue grew by 2%, free cash flow fell by 21%, earnings grew by 10%, debt grew by 3%, and the stock price grew by 31%. Year to date the stock price is down 5%.

Future Value
My future (5 year hold) target price for the stock is $46, which is an average annual return of 9%. A prior five year hold of the stock (2013-2018) 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
My baseline valuation for the stock is $33. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For The Gap, Inc. (NYSE: GPS) – FYE 01/2018, the stock is currently FAIRLY VALUED, trading in line with with my most recent $26 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of The Gap, Inc.
Posted on 05/20/18


REX American Resources Corporation
REX American Resources Corporation is a holding company with interests in four ethanol production entities, two of which, they have a majority ownership interest in. The company also has interests in heavy oil and oil sands production. Industry peers include Green Brick Partners, Green Plains, Inc., and Archer-Daniels-Midland Company.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $83.49, with an initial trailing stop at $72.88. Upward price movement will find resistance at $76.09 and $81.85, with final resistance at $83.95. Downward price movement will find support at $71.93.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 REX American Resources Corporation, although the accounting for the tax effects of the Tax Act are not yet complete, at January 31, 2018 the company made a preliminary estimate of the effect of the tax rate reducing on the existing deferred tax balances and recorded a tax benefit of approximately $14,362,000 to remeasure the deferred tax liability at the new 21% rate.

The company will continue to refine the calculation as additional analysis is completed; including a final determination of the deferred tax balances at January 31, 2018 after the federal income tax return is filed, and as further guidance is provided by the Internal Revenue Service.

Insider Transactions
In the past 12 months, the company recorded 13 insider trades involving 14,156 shares of stock. Of those 13 insider trades, 9 were Buys involving 14,156 shares of stock, and 4 were Sells involving 5,080 shares of stock, creating an insider buy to sell ratio of 2.8 to 1.

Future Value
My future (5 year hold) target price for the stock is $183, which is an average annual return of 30%. A prior five year hold of the stock (2013-2018) would have returned an average of 55% 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
My baseline valuation for the stock 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 ($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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For REX American Resources Corporation (NYSE: REX) – FYE 01/2018 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 REX American Resources Corporation
Posted on 05/16/18


Titan Machinery, Inc.
Titan Machinery owns and operates a network of full service agricultural and construction equipment stores and is a retail dealer of both Case IH and New Holland agriculture and construction equipment. Industry peers include Catepillar, Inc., Deere and Company, and Komatsu, Ltd..

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $21.84, with an initial trailing stop at $18.63. Upward price movement will find resistance at $19.61 and $21.28, with final resistance at $22.37. Downward price movement will find support at $16.14 and $15.10, with final support at $14.00.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Titan Machinery, Inc., the company recorded a net tax benefit of $1.8 million for the fiscal year ended January 31, 2018 as a result of remeasuring its domestic deferred tax assets, deferred tax liabilities and any valuation allowances based on the 21% corporate tax rate at which these deferred tax amounts are expected to reverse in the future.

As of January 31, 2018, the company had recorded $24.4 million of net operating loss carryforwards within certain of its foreign jurisdictions; $15.3 million of net operating loss carryforwards are within jurisdictions with unlimited carryforward periods, while the remaining $9.1 million of net operating loss carryforwards expire at various dates between the company’s fiscal years 2018 and 2022.

As of January 31, 2018, the company has recorded $20.5 million and $58.5 million of net operating loss carryforwards within the U.S. federal and certain of its state jurisdictions, respectively. Its U.S. federal net operating losses have an unlimited carryforward period, while its state net operating losses expire at various dates between the Company’s fiscal years 2031 and 2038.

In reviewing deferred tax assets as of January 31, 2018 and 2017, management has concluded that a partial valuation allowance for U.S. federal and state deferred tax assets was warranted. In total, the company recognized a valuation allowance of $5.4 million and $3.9 million as of January 31, 2018 and 2017. In addition, as of January 31, 2018 and 2017, management concluded that a valuation allowance for certain of foreign deferred tax assets, including net operating losses, was warranted in the amount of $2.3 million and $5.1 million.

The recognition of the valuation allowances for its U.S. and foreign deferred tax assets was based on the presence of historical losses and expected future sources of taxable income, including taxable income in prior carryback years, if applicable, and the anticipated future reversal of our existing deferred tax assets and liabilities.

Insider Transactions
In the past 12 months, the company recorded 20 insider trades involving 252,230 shares of stock. Of those 20 insider trades, 11 were Buys involving 111,249 shares of stock, and 9 were Sells involving 140,981 shares of stock, creating an insider buy to sell ratio of 0.8 to 1.

Future Value
My future (5 year hold) target price for the stock is $17, which is an average annual return of (-2%). A prior five year hold of the stock (2013-2018) 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
My baseline valuation for the stock 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 $1. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Titan Machinery, Inc. (Nasdaq: TITN) – FYE 01/2018 OVER VALUED The stock is currently trading at levels above with my most recent $2 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Titan Machinery, Inc.
Posted on 05/15/18


GameStop Corporation
GameStop Corporation is a video game retailer, selling new and pre-owned video game hardware, physical and digital video game software, video game accessories, and pre-owned and new mobile consumer electronics products and other merchandise. Industry peers include Amazon.com, Best Buy Company, and Wal-Mart Stores.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $15.94, with an initial trailing stop at $12.52. Upward price movement will find resistance at $13.94, and at $15.48 with final resistance at $16.08. Downward price movement will find no support.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 GameStop Corporation, accounting for certain elements of the Tax Act is incomplete. However, the company was able to make reasonable estimates of the effects and, therefore, recorded provisional estimates for these items. In connection with its initial analysis of the impact of the Tax Act, they have recorded a provisional net tax expense of $42.0 million in the period ended February 3, 2018.

This provisional estimate consists of a net expense of $10.2 million for the one-time transition tax resulting from the recognition of approximately $333.4 million of foreign earnings and profits, and a net expense of $31.8 million related to revaluation of deferred tax assets and liabilities, caused by the new lower corporate tax rate.

To determine the transition tax, management must determine the amount of post-1986 accumulated earnings and profits of the company’s relevant subsidiaries as of certain prescribed measurement dates, as well as the amount of non-U.S. income taxes paid on such earnings. While management is able to make a reasonable estimate of the transition tax based on the guidance issued as of the date of these financial statements, they continue to gather additional information, and expect additional guidance from the Treasury and IRS, to be able to more precisely compute the final amount.

As of February 3, 2018, the company had approximately $25.3 million of net operating loss (“NOL”) carryforwards in various foreign jurisdictions that expire in years 2018 through 2035, as well as $246.1 million of foreign NOL carryforwards that have no expiration date. In addition, the company has approximately $0.9 million of foreign tax credit carryforwards that expire in years 2022 through 2026. The company also has approximately $74.2 million of Federal NOL carryovers acquired through the ThinkGeek acquisition that will expire in years 2020 through 2035.

Insider Transactions
In the past 12 months, the company recorded 32 insider trades involving 602,039 shares of stock. Of those 32 insider trades, 17 were Buys involving 517,722 shares of stock, and 15 were Sells involving 84,317 shares of stock, creating an insider buy to sell ratio of 6.1 to 1.

Future Value
My future (5 year hold) target price for the stock is $16, which is an average annual return of 6%. A prior five year hold of the stock (2013-2018) 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
My baseline valuation for the stock is $44. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $69. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For GameStop Corporation (NYSE: GME) – FYE 01/2018 UNDER VALUED The stock is currently trading at levels below with my most recent $41 buy target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of GameStop Corporation
Posted on 05/14/18


Lowe’s Companies, Inc.
Lowe’s Companies, Inc. is a home improvement retailer. Industry peers include Builders FirstSource, Inc., Home Depot, Inc., and Huttig Building Products, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $93.54, with an initial trailing stop at $86.14. Upward price movement will find resistance at $91.80, and at $93.52 with final resistance at $96.57. Downward price movement will find support at $86.13 and at $83.44, with final support at $80.23.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Lowe’s Companies, Inc., the company utilized a blended statutory tax rate of 33.7% for 2017 in accordance with Section 15 of the Internal Revenue Code. This blended rate resulted in a tax benefit of $58 million for the year. The company recorded a $56 million provisional tax expense for the measurement of its U.S. net deferred tax assets at the newly enacted corporate rate and a $22 million provisional tax expense for the one-time transition tax on unrepatriated earnings of foreign subsidiaries.

While the company made reasonable estimates of the impact of the reduction in the corporate rate and the deemed repatriation transition tax, the final impact may differ due to subsequent legislative action changes in interpretations and assumptions as well as the issuance of additional guidance from the Internal Revenue Service and state taxing authorities. The company will continue to gather additional information to determine the concluding impact.

As of February 2, 2018, the company reported a deferred tax asset of $225 million, for the capital loss realized in 2017 for U.S. federal income tax purposes related to the exit from the company’s joint venture investment in Australia. Since no present or future capital gains have been identified through which the asset can be realized, the company has a full valuation allowance against the deferred tax asset. For U.S. federal tax purposes, this loss has a five-year carryforward period expiring at the end of fiscal 2022. As of February 3, 2017, the company reported a deferred tax asset and full valuation allowance of $381 million related to its intention to exit the company’s joint venture investment in Australia.

In December 2016, the U.S. Treasury Department and the U.S. Internal Revenue Service issued final and temporary regulations under Internal Revenue Code Section 987 (the Regulations). The Regulations provide guidance on the taxation of foreign currency gains and losses arising from qualified business units that operate in a currency other than the currency of their owner. As a result of the newly enacted guidance, net deferred tax assets were reduced by $11 million in 2017 and $33 million in 2016.

The company operates as a branch in various foreign jurisdictions and cumulatively has incurred net operating losses of $720 million and $640 million as of February 2, 2018, and February 3, 2017, respectively. These net operating losses are subject to expiration in 2018 through 2037. Deferred tax assets have been established for these foreign net operating losses in the accompanying consolidated balance sheets. Given the uncertainty regarding the realization of the foreign net deferred tax assets, the company recorded cumulative valuation allowances of $234 million and $197 million as of February 2, 2018, and February 3, 2017, respectively.

The amounts of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate were $5 million as of February 3, 2017, and $2 million as of January 29, 2016. The company recognized $3 million of interest income, $2 million of interest expense, and $1 million of interest income related to uncertain tax positions during 2017, 2016, and 2015, respectively. The company had no accrued interest related to uncertain tax positions as of February 2, 2018 and $3 million as of February 3, 2017.

Insider Transactions
In the past 12 months, the company recorded 46 insider trades involving 279,930 shares of stock. Of those 46 insider trades, 20 were Buys involving 161,041 shares of stock, and 26 were Sells involving 118,889 shares of stock, creating an insider buy to sell ratio of 1.4 to 1.

Future Value
My future (5 year hold) target price for the stock is $182, which is an average annual return of 22%. A prior five year hold of the stock (2013-2018) would have returned an average of 35% 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
My baseline valuation for the stock is $47. 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 $82. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Lowe’s Companies, Inc. (NYSE: LOW) – FYE 01/2018 FAIRLY VALUED The stock is currently trading at levels in line with my most recent $82 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Lowe’s Companies, Inc.
Posted on 05/13/18


The Home Depot, Inc.
The Home Depot, Inc. is engaged as a home improvement retailer, selling an assortment of building materials, home improvement products and lawn and garden products as well as providing a number of services. Industry peers include True Value Company, Lowe’s Companies, and Menard, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $189.67, with an initial trailing stop at $187.46. Upward price movement will find resistance at $192.80, and again at $206.10. Downward price movement will find support at $187.00 and at 182.70, with final support at $178.10.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Home Depot, Inc., for fiscal 2017, the impacts of the Tax Act resulted in a provisional charge in the fourth quarter of approximately $400 million, comprising U.S. repatriation taxes, foreign withholding taxes, and state taxes.

The lower corporate income tax rate of 21% is effective January 1, 2018, resulting in a U.S. statutory federal tax rate of approximately 34% for fiscal 2017, and 21% for subsequent fiscal years, which provided a benefit to the fiscal 2017 tax provision of approximately $126 million. The reduction of the U.S. corporate tax rate requires a remeasurement of U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. This resulted in a provisional benefit of $147 million for fiscal 2017.

Expected additional regulatory guidance and technical clarifications from the U.S. Department of the Treasury and IRS within the next 12 months. Any subsequent adjustment to these amounts will be recorded to income tax expense from continuing operations in the quarter of fiscal year 2018 in which the analysis is complete.

Insider Transactions
In the past 12 months, the company recorded 96 insider trades involving 1,271,356 shares of stock. Of those 96 insider trades, 48 were Buys involving 659,914 shares of stock, and 48 were Sells involving 611,442 shares of stock, creating an insider buy to sell ratio of 1.1 to 1.

Future Value
My future (5 year hold) target price for the stock is $432, which is an average annual return of 25%. A prior five year hold of the stock (2013-2018) 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
My baseline valuation for the stock is $68. 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 $111. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For The Home Depot, Inc. (NYSE: HD) – FYE 01/2018 OVER VALUED The stock is currently trading at levels above my most recent $178 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of The Home Depot, Inc.
Posted on 05/12/18


Ulta Beauty, Inc.
Ulta Beauty is a beauty retailer that provides one-stop shopping for prestige, mass and salon products and salon services. The company focuses on providing affordable indulgence to customers by combining unmatched product breadth, value and convenience with the distinctive environment and experience of a specialty retailer. Industry peers include Regis Corporation, Macy’s, Inc., and Sephora Usa, Inc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $237.25, with an initial trailing stop at $245.17. Upward price movement will find no resistance. Downward price movement will find support at $242.90 and at $235.00, with final support at $227.10.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Ulta Beauty, Inc., recorded a provisional estimated after-tax benefit of $38,287 during the fourth quarter of fiscal 2017 based on the re-measurement of net deferred tax liabilities and $9,778 due to the lower tax rate in January 2018. Given the significant complexity of the Tax Reform, the company will continue to evaluate and analyze the impact of this legislation.

The $38,287 estimate is provisional and based on the company’s initial analysis of the Tax Reform, and may be adjusted in future periods due to, among other things, additional analysis and additional guidance that may be issued by the U.S. Department of Treasury, the Securities and Exchange Commission, and/or the Financial Accounting Standards Board.

Insider Transactions
In the past 12 months, the company recorded 48 insider trades involving 385,359 shares of stock. Of those 48 insider trades, 31 were Buys involving 264,794 shares of stock, and 17 were Sells involving 120,565 shares of stock, creating an insider buy to sell ratio of 2.2 to 1.

Future Value
My future (5 year hold) target price for the stock is $614, which is an average annual return of 29%. A prior five year hold of the stock (2013-2018) 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
My baseline valuation for the stock is $81. 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 $119. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Ulta Beauty, Inc. (Nasdaq: ULTA) – FYE 01/2018 OVER VALUED The stock is currently trading at levels above my most recent $191close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Ulta Beauty, Inc.
Posted on 05/11/18


Layne Christensen Company
Layne Christensen is a water management, construction and drilling company whose customers include government agencies, investor-owned utilities, industrial companies, global mining companies, consulting engineering firms, heavy civil construction contractors, oil and gas companies, power companies and agribusiness. Industry peers include Black and Veatch Corporation, Garney Holding Company, and Parsons Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $15.43, with an initial trailing stop at $15.07. Upward price movement will find resistance at $15.94 with final resistance at $16.51. Downward price movement will find support at $14.72 and at $13.52, with final support at $13.03.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Layne Christensen, the company remeasured its ending net domestic deferred tax asset at January 31, 2018 and recognized a provisional tax expense of $31.1 million. Following the remeasurement of its net deferred tax asset, the company recorded an offsetting tax benefit as a reduction to its valuation allowance. There was no income expense or benefit recorded as a result in the change in the tax rate.

The Act also provides for a one-time deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits through the year ended January 31, 2018 (“Deemed Dividend”). The company estimated a provisional Deemed Dividend of $17.3 million resulting in $5.7 million of tax expense. and recognized a $3.7 million tax benefit upon reversal of a previously recorded deferred tax liability relating to unremitted earnings of its less than 50% owned Affiliates. Management also adjusted the company’s valuation allowance as a result of the Deemed Dividend resulting in a $4.6 million tax benefit.

The net tax benefit resulting from these adjustments to deferred taxes was $2.6 million during the fiscal year ended January 31, 2018.

Insider Transactions
In the past 12 months, the company recorded 6 insider trades involving 75,986 shares of stock. Of those 6 insider trades, 4 were Buys involving 57,596 shares of stock, and 2 were Sells involving 18,390 shares of stock, creating an insider buy to sell ratio of 3.1 to 1.

Future Value
My future (5 year hold) target price for the stock is $14, which is an average annual return of (-1%). A prior five year hold of the stock (2013-2018) 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
My baseline valuation for the stock is $5. 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 (-$1). 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Layne Christensen Company (Nasdaq: LAYN) – FYE 01/2018 OVER VALUED The stock is currently trading at levels above my most recent ($2) close target. Please See Linked PDF Worksheet

Disclosure
I hold shares of Layne Christensen Company
Posted on 05/10/18


Xerox Corporation
Xerox Corporation is a provider of business process and document management solutions. The company also provides document technology, services, software and supplies for graphic communication and office printing environments. Industry peers include Accenture plc, Canon, and Hewlett-Packard.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $32.62, with an initial trailing stop at $28.94. Upward price movement will find resistance at $29.73 and at $30.23, with final resistance at $30.72. Downward price movement will find support at $28.14.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Xerox Corporation, the company recorded an estimated non-cash provisional charge of $400 million reflecting the impact associated with the provisions of the Tax Act based on currently available information. Approximately $165 million of the charge is related to the deemed repatriation tax, $135 million from the re-measurement of U.S. deferred tax assets and liabilities to the lower enacted statutory tax rate and the remainder associated with other tax liabilities resulting from anticipated distributions of our net accumulated foreign earnings and profits.

As a consequence of the Tax Act, the company now anticipates the distribution of these foreign earnings and no longer consider them indefinitely reinvested. Additionally, the company expects to utilize its existing foreign tax credit carryforward to settle the estimated deemed repatriation tax.

Insider Transactions
In the past 12 months, the company recorded 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 to 0.

Future Value
My future (5 year hold) target price for the stock is $38, which is an average annual return of 6%. A prior five year hold of the stock (2012-2017) would have returned an average of 13% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
My baseline valuation for the stock is $33. 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 $25. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Xerox Corporation (NYSE: XRX) – FYE 12/2017 FAIRLY VALUED The stock is currently trading at levels in line with my most recent $25 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Xerox Corporation
Posted on 05/03/18


The Sherwin-Williams Company, Inc.
The Sherwin-Williams Company is engaged in the development, manufacture, distribution and sale of paint, coatings and related products to professional, industrial, commercial and retail customers in North and South America, the Caribbean region, Europe and Asia. Industry peers include PPG Industries, Inc., The Valspar Corporation, Akzo Nobel N.V.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $425.50, with an initial trailing stop at $368.21. Upward price movement will find resistance at $383.30 and at $389.60, with final resistance at $395.90. Downward price movement will find support at $354.20.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Sherwin-Williams Company, Inc., the company recorded a provisional reduction of income taxes of $607,919 as a result of the Tax Act. The company’s deferred tax liabilities were reduced by $560,198 due to the lower income tax rate. The remaining $47,721 is the effects of the implementation of the territorial tax system and the remeasurement of U.S. deferred tax liabilities on unremitted foreign earnings.

The final impact of the Tax Act may differ from the provisional amounts recorded at December 31, 2017, due to, among other things, changes in interpretations and assumptions the company has made, guidance that may be issued and actions the company may take as a result of the Tax Act..

Insider Transactions
In the past 12 months, the company recorded 70 insider trades involving 93,729 shares of stock. Of those 70 insider trades, 45 were Buys involving 47,288 shares of stock, and 25 were Sells involving 46,441 shares of stock, creating an insider buy to sell ratio of 1 to 1.

Future Value
My future (5 year hold) target price for the stock is $850, which is an average annual return of 25%. A prior five year hold of the stock (2012-2017) would have returned an average of 34% 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
My baseline valuation for the stock is $121. 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 $288. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For The Sherwin-Williams Company, Inc. (NYSE: SHW) – FYE 12/2017 SELL HALF The stock is currently trading at levels above with my most recent $288 fair value estimate, but below my most recent $461 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of The Sherwin-Williams Company, Inc.
Posted on 05/02/18


Sensient Technologies Corporation
Sensient Technologies Corporation is a global developer, manufacturer and supplier of flavor and fragrance systems for the food, beverage, personal care and household-products industries. The company’s flavor formulations are used in consumer products. Additionally the company is a supplier to multinational companies through its Sensient Flavors, Sensient Natural Ingredients and Sensient Fragrances brands. Industry peers include International Flavors and Fragrances, McCormick and Company, and DD Williamson and Company

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $76.83, with an initial trailing stop at $65.65. Upward price movement will find resistance at $68.14 and at $69.46, with final resistance at $70.92. Downward price movement will find no support levels.

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 SAB 118, 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.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

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 Sensient Technologies Corporation, management believes that $18.4 million is a reasonable estimate of the current year impact of the 2017 Tax Legislation, it should be considered a provisional estimate. The company expects additional guidance on the 2017 Tax Legislation in 2018, and will finalize certain tax positions when it files its 2018 U.S. tax return.

The ultimate impact could differ from these provisional amounts, possibly materially, due to, additional guidance, changes in interpretation, additional analysis and assumptions the company has made. Any adjustments to the provisional estimate will be reported in income tax expense in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018.

Insider Transactions
In the past 12 months, the company recorded 25 insider trades involving 140,444 shares of stock. Of those 25 insider trades, 12 were Buys involving 73,124 shares of stock, and 13 were Sells involving 67,320 shares of stock, creating an insider buy to sell ratio of 1.1 to 1.

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 (2012-2017) would have returned an average of 22% per year. Please be aware that past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
My baseline valuation for the stock 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 for the stock is $23. 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Sensient Technologies Corporation (NYSE: SXT) – FYE 12/2017 OVER VALUED The stock is currently trading at levels above with my most recent $37 close target. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Sensient Technologies Corporation
Posted on 05/01/18