Saibus Research

DISCK: Discovery Communications Inc. Strong Buy We recommend Discovery Communications Inc. (NASDAQ:DISCK) (NASDAQ:DISCA) as a Strong Buy, based on strong revenue and profit growth from scientific, educational and non-fiction media content business and ample free cash flows, Fair Value Price of $64.90 per share. RECOMMENDATION We are reiterating our Strong Buy rating on Discovery Communications Inc. (NASDAQ:DISCK) (NASDAQ:DISCA) Class C Common Shares and reducing our fair intrinsic value target price from $65.67 to $64.90, which is over 20% above current levels.  We expect to see the company generate earnings per share of $2.70 in 2012 and to increase EPS by 15-20% annually over the following three years. COMPANY OVERVIEW Management: John Hendricks Founded the Discovery Channel in 1985 and still serves as the Chairman of the Board.  David Zaslav has been CEO of Discovery Communications since 2007.  He has executed a number of initiatives that have focused the organization on growth, performance and operational efficiency.  He has directed a strategic effort to clarify and strengthen Discovery’s world-class brands, including a renewed focus on creativity and a nearly two-fold increase in investment in original content.  Prior to Discovery, he had worked at NBC since 1989 and played a part in the creation of CNBC and MSNBC.  Zaslav
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We entered into a long position in UMB Financial Corporation (NASDAQ:UMBF) towards the end of July 2011 because we were impressed with the results of the company from 2004-2010 and because it didn’t need a bailout, nor was it dragooned into taking TARP.  We think it is ridiculous for the Federal Reserve to include banks like UMB Financial Corporation (NASDAQ:UMBF) as part of the stress test because UMB Financial is a well-respected, steady-growing superregional banking and diversified financial services. Headquartered in Kansas City, it has a conservative, credit risk management oriented and deposit gathering centric business model.  UMB is also a well-capitalized bank with Tier One, Leverage and Total Risk-Based Capital Ratios of 11.69%, 7.15%, and 12.62% respectively. UMB Financial Corporation (NASDAQ:UMBF) knocked the ball out of the park in Q1 2012 and Q2 2012, although Q3 2012 results missed expectations due to higher marketing and salary expenses.  We’ll give UMB the benefit of the doubt on this since these expenses are being used to build and develop the company’s operations; we expect this to translate into future revenue growth.  UMB achieved Q3 2012 quarterly net income of $26.125M, or $0.64 per share.  Non-Interest income grew by 5.3% and continues to
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We think Check Point Software Technologies (CHKP) remains a strong value in the software technology industry.  We are surprised that the company’s shares have dropped from a high of $65 in April, to a low of $40.60 recently, in the wake of soft guidance after it released its Q3 2012 earnings. While we reduced our target price from $65.65 to $58.19 recently, we believe that the company will see its momentum rebound next year, plus it is still generating strong free cash flows. What reinforced our thesis behind Check Point was the announced expansion of its share repurchases.  Check Point had previously made $200M of gross repurchases in 2010.  In 2011 and the first half of 2012, it increased that to $300M annualized.  After CHKP’s results were released, the company announced that it was expanding the repurchase authorization to $1B over a two year period, which represents 10% of the company’s market capitalization, as of July 23rd.  We see that Israel’s recent tax reform has enabled CHKP to set a more assertive share repurchase program, and we are expecting that this tax reform will enable CHKP to potentially pay a dividend.  This has borne itself out as CHKP doubled its
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We published our full, comprehensive research report in which we analyzed and evaluated Rayonier Inc. (NYSE:RYN), which was a former subsidiary of the old ITT Corp (NYSE:ITT). We concluded that while Weyerhaeuser Company (NYSE:WY) was the biggest Timber REIT, Rayonier Inc. (NYSE:RYN) generates the strongest profit margin of the big four Timber REITs (Rayonier, Weyerhaeuser, Potlatch and Plum Creek).  Despite the fact that Rayonier’s total net income of $284M over the last twelve months is within 22% of Weyerhaeuser’s $347M, Weyerhaeuser’s market capitalization of 14.4B is 2.35X that of Rayonier’s $6.1B.  We also find that Rayonier has less downside risk than Weyerhaeuser Company (NYSE:WY) because of its strong performing Performance Fibers Division, which generated an ample 32.5% operating margin in H1 2012.  Rayonier’s Performance Fibers business accounts for nearly 70% of its H1 2012 revenues versus 28% for WY.  Rayonier’s operating margin of 32.5% for its Performance Fibers division easily exceeds the 9% for WY’s Cellulose Fibers unit.  That means that even though RYN’s Performance Fibers H1 2012 revenue of $432.4M is less than the $932M of WY’s Cellulose Fibers revenue, RYN’s Performance Fibers operating income of $164.4M almost double WY’s $84M in Cellulose Fibers operating income. Plum Creek Timber Co. Inc.
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We recently had the opportunity to interview Wisconsin Energy’s (WEC) CEO and CFO, Gale Klappa, and J. Patrick Keyes. The interview was conducted on October 11, 2012. You can view the complete transcript report here. SR: Since 2003, your organization has generated impressive absolute and relative performance and we’re interested in seeing how it came about. Mr. Klappa: The place to start is where our region found itself in the early 2000s because that is an important piece of the story. In the early 2000s, the state found itself in very significant need of additional energy infrastructure. The state did not have enough generating capacity. It did not have enough transmission capacity to support jobs and future economic growth and it got to the point where literally something had to be done. And borne out of that need our company stepped forth with a plan to upgrade the energy infrastructure of the region. Borne out of that need was what we called the Power the Future plan. The majority of the plan was approved by the state Public Service Commission, with support from the state legislature and support from the governor. The size and scope of that plan compared to the capital
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By Saibus Research As everyone knows, Warren Buffett and Charlie Munger are living legends in the investing world.  Despite the fact that Berkshire Hathaway Inc. (NYSE:BRK.B) (NYSE:BRK.A) was originally an investment mistake made by Warren Buffett in response to Seabury Stanton trying to pull a fast one on him, Berkshire Hathaway has become one of the most widely admired corporate holding companies and it sports a $206B market capitalization.  Berkshire Hathaway has increased its per share book value by a compounded annual growth rate of 19.8% from December 31, 1964 to December 31, 2011.  This easily outpaces the 9.2% Compounded Annual Return of the S&P 500 Total Return Index during this time period.  The cumulative return differential is even more striking because Berkshire’s cumulative gain in book value per share was 513,055%, which dwarfed the 6,397% total return of the S&P 500 Index during this time period.  Berkshire’s previously unimpeachable allocation of shareholders capital is a reason why our firm has a long position in Berkshire’s Class B shares.   Source: Berkshire Hathaway 2011 Annual Report However, Berkshire’s best days are certainly behind it.  While Berkshire’s growth in book value since the beginning of 1999 has continued to beat the S&P
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  As everyone knows, Mohamed A. El-Erian, Bill Gross and the rest of the PIMCO organization were touting the “New Normal” thesis from 2009-2011, when the US stock market was near its lowest point.   Key points from PIMCO’s New Normal thesis were as follows: US economy is in a major national and global realignment.  US economy had structural flaws which were exacerbated by the 2008 financial crisis. Muted economic growth worldwide, growth shifting to emerging markets Public sector increases its role as a goods provider Unemployment would be higher and more structural More expansive regulation, higher taxation and government intervention would sap the growth potential of developed economies Investors should reduce exposures to equities and expect lower investment returns Investors should favor the front-end of yield curves in many countries, income-generating investments and international investments instead of US investments. We would have liked it if El-Erian, Gross, PIMCO et al had used their towering influence to actually suggest proactive ideas and solutions to enable the US to avoid the weak economic recovery from 2009 to present.  We concede that El-Erian said that there “was the hope that policy makers would recognize that there are structural responses they needed to embark on.”  Our
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  We like  Scripps Networks Interactive (NYSE SNI) based on strong revenue and profit growth from lifestyle media content business and ample free cash flows.  We expect to see the company generate earnings per share of $3.17 in 2012 and to increase EPS by 12-15% annually over the following three years. Scripps Networks Interactive is an industry leading developer of high-profile, lifestyle-oriented content for many media platforms including television, digital, mobile and publishing.  Previously headquartered in Cincinnati, SNI relocated to Knoxville, TN last year and has offices in New York, Los Angeles, Chicago, Cincinnati, Detroit, Atlanta, Nashville, San Francisco and Chevy Chase, MD.  SNI has 1800 employees; only about 5.6% work in corporate overhead.  On July 1, 2008, Scripps Networks Interactive, Inc. became a publicly traded company as the result of the separation of The E. W. Scripps Company into two independent, publicly-traded companies through the spin-off of Scripps Networks Interactive, Inc. to the E. W. Scripps shareholders. The company’s media portfolio includes these popular lifestyle brands: Keys to Investment Thesis We like that Debt Net of Cash only accounts for less than 16% of assets. Although the company has total debt that represents 35% of total assets, the company could
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