Wal-Mart Stores (WMT)

SSG and PERT A (17 Dec 2005) | Google “stocks: wmt” | Company Website

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats in the United States and internationally. It has two segments: The Wal-Mart Stores and The SAM’S CLUB. The Wal-Mart Stores segment includes Discount Stores, Supercenters, and Neighborhood Markets in the United States, as well as Walmart.com. As of July 31, 2005, Wal-Mart operated 1,276 Wal-Mart stores, 1,838 Supercenter, 92 Neighborhood Markets, and 556 SAM’s Clubs in 50 states in the United States. The company operates various retail formats in Argentina, Brazil, Canada, Germany, Mexico, Puerto Rico, South Korea, and the United Kingdom.

Growth. Value Line projects 3-5 year revenue growth of 12.5% and EPS growth of 13.5%. Reuters reports an analysts consensus EPS growth of 13.7% (based on 16 analysts). M* projects future growth to decline from 13% to 10%. The attached stock selection guide (SSG) assumes revenue growth of 11% and EPS growth of 11.4%. This resulting in a 5-yr EPS of $4.40.

Quality. Wal-Mart is a high quality company. Part 1 of the SSG shows very consistent revenue and earnings growth. From Part 2 of the SSG we see that Wal-Mart has averaged a 20% return on equity over the last five years. Part 2 of the SSG and the PERT chart, and PERT graph (see attached SSG), show consistent pretax margins slightly over 5%. M* gives Wal-Mart a stewardship grade of A. Value Line rates Wal-Mart financial strength A++ and earnings predictability of 100. That is as good as it gets. The Robertson quality rating is 82.3.

Valuation. Wal-Mart has a projected average return (PAR) of 14.3% and total return of 18.2%. See SSG. (Manifest Investing projects PAR as 14.35%.) U/D ratio for Wal-Mart is 10 to 1 and the buy price using 25%-50%-25% zoning is $60.30. (Current price is $49.27.) M* rates Wal-Mart undervalued with five stars.

Microsoft Company

Microsoft Corporation (MSFT) engages in the development, manufacture, license, and support of software products for various computing devices worldwide. Its Client segment offers operating systems for servers, personal computers (PCs), and intelligent devices. The company’s Server and Tools segment provides server applications and developer tools, as well as training and certification services.

Growth. Value Line projects 3-5 year revenue growth of 12.5% and EPS growth of 13.5%. Reuters reports an analysts consensus EPS growth of 11.5% (based on 20 analysts). M* projects future growth at 10%. The attached SSG assumes revenue growth of 9.5% and EPS growth of 10.9%. This resulting in a 5year EPS of $2.03.

Quality. Microsoft is a high quality company. Part 1 of the SSG shows consistent revenue and earnings growth. From Part 2 of the SSG we see that MSFT has averaged a 17.1% return on equity over the last five years with no debt less.Part 2 of the SSG and the PERT chart, and PERT graph (see attached SSG), show consistent pretax margins over 40%. M* gives Microsoft a stewardship grade of A. Value Line rates Dell’s financial strength A++ and earnings predictability of 90. The Robertson quality rating is 83.2 (a rating above 65 is excellent).

Valuation. MSFT has a PAR of 15.2% and TR of 18.1%. See SSG. (Manifest Investing projects PAR as 17.7%.) U/D ratio for MSFT is 7.7 to 1 and the buy price using 25%-50%-25% zoning is $32.10. M* rates MSFT five stars meaning it is undervalued.

Coca-Cola Company

The Coca-Cola Company (KO) engages in manufacturing, distributing, and marketing nonalcoholic beverage concentrates and syrups worldwide. The company also produces, markets, and distributes juices and juice drinks, as well as water products. It sells beverage concentrates and syrups to bottling and canning operators, distributors, fountain wholesalers, and fountain retailers.

Growth. Value Line projects 3-5 year revenue growth of 6% and EPS growth of 75%. Reuters reports an analysts consensus EPS growth of 8.7% (based on 6 analysts). M* projects future growth at 5% and operating margins at 25%. The attached SSG assumes revenue growth of 6% and EPS growth of 6.8%. This resulting in a 5-yr EPS of $3.03.

Quality. Coca-Cola is a quality company. Part 1 of the SSG shows consistent revenue and earnings growth. From Part 2 of the SSG we see that MSFT has averaged a 35.2% return on equity over the last five years. Part 2 of the SSG and the PERT chart, and PERT graph (see attached SSG), show consistent pretax margins around 30%. M* gives Coca-Cola a stewardship grade of C. Value Line rates Coca-Cola’s financial strength A++ and earnings predictability of 90. The Robertson quality rating is 82.1.

Valuation. Coca-Cola has a PAR of 12.7% and TR of 18.1%. See SSG. (Manifest Investing projects PAR as 11.5%.) U/D ratio for Coca-Cola is 7.7 to 1 and the buy price using 25%-50%-25% zoning is $47.60. (Current price is $41.21.) M* rates Coca-Cola undervalued with five stars. While Coca-Cola is not a classic NAIC growth stock, it has the potential for a good return with little risk.

Rebalancing Completed

We rebalanced the portfolio this week. We sold our positions in JCI, FISV, LNCR, and ORLY. None of these are bad stocks. However, we were trying to reduce the overall number of stocks in the portfolio to about 20. Someone had to be voted off the island. We also were trying to raise the overall projected average return (PAR) of the portfolio by replacing low PAR stocks with equal or better quality stocks with higher PAR.

We took a new position in Synovus Financial Corp. (SNV). We increased our position in Chevron (CVX) and purchased a second energy stock, Occidental Petroleum Corp. (OXY). We also added to our positions in ACS, PFE, FTB, JKHY, BBY, and WMT.

Jack Henry & Assoc. (JKHY)

SSG and PERT A (11-18-2005) | Google “stocks: jkhy” | Company Website

Jack Henry & Associates (JKHY) is a stock that frequently shows up in screens for quality growth stocks. Using NAIC criteria, JKHY is a buy up to $22.90 (current price is $19.10). Projected average return over the next 5 years is 15.2%. The SSG assumes a 13.5% revenue growth based on Value Line projections.

Jack Henry & Associates provides integrated computer systems and processes ATM and debit card transactions for banks and credit unions. It describes itself as:

A technology provider for the financial industry. That’s the simplest way to describe what we do. But it hardly describes what Jack Henry & Associates is really about. We’re about solutions and support. We’re about building relationships and making things work. We’re about doing the right things for our customers, no matter what. It began as a vision, and it’s become our tradition.

A substantial amount of JKHY’s revenue, about 60%, comes from recurring sales. The company has a strong customer focus. 92% of its customers renw. Its several corporate aircraft are used to transport customer support teams — not company executives. Great concept!

Value Line rates JHKY’s financial strength “B++” and earnings predictability as 80 (out of 100). Its RQR quality rating is 63 — a little lower than the Moose Pond Investors portfolio average. Given the projected average return above 15% and the that fact that JKHY is a medium size company, the slightly lower quality rating is acceptable. Morningstar gives JKHY a rating of five stars and a wide economic moat. It estimates fair value at $23 assuming a growth in revenue of 12%.

Synovus Fin. Corp. (SNV)

SSG and PERT A (11-12-2005) | Google “stocks: snv” | Company Website

We took an initial position today in SNV. It has a projected average return of 18.7% and a RQR quality rating of 70.1. The director of investor relations spoke at the Better Investing National Conference in Atlanta. Two key points from the presentation were that SNV is well managed and the price of banks have been driven down based on concern about bank profitability due to the increase in long term interest rates. SNV has maintained very solid profitability with an return on assets (a key metric for banks) of about 1.9%. Return on equity has been steady aroud 18%. See Morningstar profitability summary below.

Business Description. Synovus Financial Corp., a holding company, provides various financial services. It operates in two segments, Financial Services and Transaction Processing Services (TPS).

The Financial Services segment provides commercial banking services, including commercial, financial, agricultural, and real estate loans; retail banking services, including accepting demand and savings deposits; individual, consumer, installment, and mortgage loans; safe deposit services; leasing services; automated banking and fund transfer services; and bank credit card services. It also provides portfolio management services; securities brokerage; trust services; insurance agency services; financial planning services; asset management services; and investment advisory services.

The TPS segment primarily provides electronic payment processing services in the United States, Canada, Mexico, Honduras, Puerto Rico, and Europe. It also provides back-end processing services to support merchant processing and offers other products and services to support its processing services. In addition, the TPS segment provides commercial printing and related services; programming support and assistance with the conversion of card portfolios to TS2; recovery collections, bankruptcy process and legal account management, and skip tracing services; Internet, Intranet, and client/server software solutions for commercial card management programs; targeted loyalty consulting, as well as travel, gift card, and reward programs; gift card processing services to Japanese clients; prepaid card solutions; and sells and leases computer related equipment associated with its electronic payment processing services. As of April 26, 2005, Synovus operated 41 banks and other Synovus’ offices in Georgia, Alabama, South Carolina, Florida, and Tennessee. The company was formed in 1888 and was formerly known as CB&T Bancshares, Inc. It changed its name to Synovus Financial Corp. in 1989. Synovus is headquartered in Columbus, Georgia.