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Ulta Beauty, Inc. - Simply Pretty

May 11, 2018 – Comments (0) | RELATED TICKERS: ULTA

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  [more]

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Phillips 66 - Taxes Helped

April 30, 2018 – Comments (0) | RELATED TICKERS: PSX

Phillips 66 operates in four operating segments. Midstream- Gathers, processes, transports and markets natural gas; and transports, fractionates and markets natural gas liquids (NGL) in the United States and transports refinery crude. Chemicals – Manufactures and markets petrochemicals and plastics on a worldwide basis. Refining – Buys, sells and refines crude oil and other feedstocks at 14 refineries. Marketing and Specialties – Purchases for resale and markets refined petroleum products. This segment includes the manufacturing and marketing of specialty products, as well as power generation operations. Industry peers include Marathon Petroleum Corporation, Shell Oil Products US, and Valero Energy Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $106.46, with an initial trailing stop at $109.67. Upward price movement will find no resistance while downward price movement will find support at $105.80 and $102.10, with final support at $99.90.  [more]

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Occidental Petroleum Corporation - Rock Steady Value

April 27, 2018 – Comments (0) | RELATED TICKERS: OXY

Occidental Petroleum Corporation's businesses consist of three principal segments, Oil and Gas, Chemicals, and Midstream and Marketing. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGLs) and natural gas. The chemical segment (OxyChem) mainly manufactures and markets basic chemicals and vinyls. The midstream, marketing and other segment (midstream and marketing) gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide (CO2) and power. Industry peers include E. I. du Pont de Nemours, Exxon Mobil, and BPplc.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $74.41, with an initial trailing stop at $76.44. There is no resistance to upward price movement. Downward price movement will find support at $75.26 and again at $73.76, with final support at $70.56.

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 Occidental Petroleum Corporation, total deferred tax assets, after valuation allowances, were $1.8 billion as of December 31, 2017. The company expects to realize the recorded deferred tax assets, net of any allowances, through future operating income and reversal of temporary differences. The reduction in the net deferred tax liabilities is primarily related to the reduction in the federal corporate income tax rate from 35 percent to 21 percent and the addition of $221 million of general business credits to the credit carryforward balance.

As of December 31, 2017, the company had foreign tax credit carryforwards of $2.8 billion, which expire in varying amounts through 2027, $35 million of state operating loss carryforwards, which have varying carryforward periods through 2037, $402 million of federal operating loss carryforwards that expire in 2037, and $407 million of general business credit carryforwards that expire between 2033 and 2037. The company also had corporate AMT carryforwards of $221 million, that have been classified as non-current receivables due to Tax Reform.

At December 31, 2017, the company reversed its indefinite re-investment assertion with regards to its investments in foreign subsidiaries and, as a result, a deferred foreign tax liability of $99 million was recorded. The company's valuation allowance provides for substantially all of the foreign tax credit carryforwards and approximately $4 million of the state net operating loss carryforwards. As of December 31, 2017, the company had liabilities for unrecognized tax benefits of approximately $22 million included in deferred credits and other liabilities, all of which, if subsequently recognized, would favorably affect the company's effective tax rate.

Insider Transactions
In the past 12 months, the company recorded 68 insider trades involving 495,531 shares of stock. Of those 68 insider trades, 38 were Buys involving 432,394 shares of stock, and 30 were Sells involving 63,137 shares of stock, creating an insider buy to sell ratio of 6.8 to 1.

Future Value
My future (5 year hold) target price for the stock is $78, which is an average annual return of less than 0.1%. A prior five year hold of the stock (2012-2017) would have returned an average of 1% 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.

Fair Warning
Fair warning means that the time for bidding has ended and an exchange is about to be concluded. For Occidental Petroleum Corporation (NYSE: OXY) - FYE 12/2017 FAIRLY VALUED The stock is currently trading at levels in line with my most recent $98 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Occidental Petroleum Corporation
Posted on 04/27/18  [more]

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General Electric - Not Exactly Stellar

April 23, 2018 – Comments (0) | RELATED TICKERS: GE

General Electric Company
General Electric is a digital industrial company working with industry to create purposeful software-defined machines and solutions that are connected, responsive and predictive. The company produces products that serve the aircraft industry, the power industry, the oil and gas industry, the medical industry, and the financing and industrial products industries. Industry peers include Citigroup, Koninklijke Philips NV, and Siemens Aktiengesellschaft.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $16.59, with an initial trailing stop at $14.32. Upward price movement will encounter resistance at $15.16 and again at $16.20 with final resistance at $17.65, while downward price movement will find support at $13.98 and again at $13.04.

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 General Electric Company, included in the total charge associated with U.S. tax reform for 2017 is a tax charge of $1.2 billion for the provisional estimate of the tax charge associated with the transition tax on historic foreign earnings under tax reform. The company expects to finalize this amount as well as the impact of U.S. tax reform on deferred taxes during 2018.

The provisional transition tax is computed on earnings as measured for U.S. tax purposes, that were reduced by netting of historic tax losses and by partial U.S. tax credit for foreign taxes paid on the historic earnings. The provisional tax charge is also reduced by $2.6 billion of U.S. tax accrued in prior years on foreign earnings. Management expects the transition tax liability to be offset by accelerated use of deductions and tax credits.

Insider Transactions
In the past 12 months, the company recorded 80 insider trades involving 4,378,289 shares of stock. Of those 80 insider trades, 53 were Buys involving 4,067,042 shares of stock, and 27 were Sells involving 311,247 shares of stock, creating an insider buy to sell ratio of 13.1 to 1.

Future Value
My future (5 year hold) target price for the stock is $24, which is an average annual return of 13%. A prior five year hold of the stock (2012-2017) would have returned an average of (-2%) 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.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. For General Electric Company (NYSE: GE) - FYE 12/2017 OVER VALUED The stock is currently trading at levels above my most recent $12 close target. Please See Linked PDF Worksheet

Disclosure
I hold shares of General Electric Company
Posted on 04/23/18  [more]

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Carlisle Companies, Inc. - Quick Version

March 11, 2018 – Comments (0) | RELATED TICKERS: CSL

The Carlisle Companies designs, manufactures and markets products for the commercial roofing, energy, agriculture, mining, construction, aerospace and defense electronics, medical technology, food service, healthcare, sanitary maintenance, transportation, general industrial, protective coating, wood, specialty, automotive, and auto refinishing industries.

Listed competitors are Atlas Roofing Corporation, Bridgestone Corporation, and Harvey Industries.

Future Value
My short-term (3-6 week hold) target price for the stock is $115.90, with an initial trailing stop at $105.86. My future (5 year hold) target price for the stock is $204, which is an average annual return of 18%. A prior five year hold of the stock would have returned an average of 19% per year. Please remember that any investment has the potential for loss and that past performance is no guarantee of future results.

Repatriation
The Tax Cuts and Jobs Act of 2017 provides companies that have unremitted foreign earnings from investments in foreign subsidiaries and currently hold those earnings overseas, the opportunity to repatriate those earnings by paying a one-time net charge related to the taxation of those unremitted foreign earnings. Paying the calculated charges on repatriated income can distort a companies earnings and consequently its fair value.

In the case of Carlisle Companies,Inc. the company has recorded a deferred tax liability of $7.9 million related to cash repatriation primarily related to foreign withholding taxes and does not expect the one-time repatriation tax on deferred foreign income to have a significant impact on liquidity or capital resources.

Fair Warning
SELL HALF The stock is currently trading at levels above my most recent $78 fair value estimate, but below my most recent $124 close target. Please See Linked Worksheet
Posted on 03/11/18  [more]

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