Custom Investing Search Tool

Friday, March 3, 2017

Annaly Capital: A must read

I have been holding Annaly Capital (NYSE:NLY) for years. I have analyzed the name from many different angles over the years, but at the end of the day this is an income name, plain and simple. As an income play, one of the strong positives in this name is that the stock has mostly traded sideways in recent quarters. What this means is that you are relying on the dividend payout, and that is the crux of today's piece.

While there is pressure to constantly follow the ups and downs in your holdings day to day, I contend that investors should take a longer-term approach. Higher rates bode well for the mREITs, but in the short term, rate movements could introduce volatility. Stay the course, and don't worry about the day to day. From a longer-term perspective, what we need to be concerned with are total returns and dividend coverage.

First, we should discuss.......READ MORE

Frontier Communications is a mess

Frontier Communications Corporation (NASDAQ:FTR) has been a stock that I have been following for a while. Now, for a long time, I had worries over the company's dividend, and sure enough, it had been cut over time. Back in the fall I told you plainly that the loss of customers was unsustainable. However, it has managed to keep the payouts going. Some claim it's unsustainable, but my prior work has shown nothing to indicate a truly imminent cut. Frontier has delivered. The stock, however, has been a mess and has imploded once again after reporting earnings, which I would like to discuss.

The fact is that performance has been slowly declining for the company so there is truly cause for concern, not just short-term, which the stock clearly suggests, but also long-term. It is tough to understand where the company is going and so caution must be exercised. The name is very risky here. We cannot compare this quarter to those past directly as we are now past the Verizon (NYSE:VZ) asset acquisition. Now, I will be clear. The dividend is safe, for now. The company just declared a $0.105 per share payout, in line with previous. I see the dividend as secure so long as revenues aren't expected to drop off significantly. They have been pressured of course, driven by customer churn and the stock has responded by dropping in tandem with customers.

The customer count is impacting things. However, given the acquisitions made, you wouldn't......READ MORE

Endeavour Silver Falls Apart

Endeavour Silver (NYSE:EXK) is about to get crushed. This is a name that I recommended profit taking on last spring but is a name that I have wrestled with for some time, but have maintained a buy rating on pullbacks. The stock, along with many in the sector experienced a meteoric rise in 2016. I was really surprised at first when the company decided to slash production entering 2016; however, upon further consideration, I concluded the long-term survival of the company took precedence and so saving cash was key. Still, there are concerns over performance and the stock is about to implode today on the back of the just reported Q4.

In this column will discuss the production and finances, as well as the outlook for the name to shed light on why the stock is getting smashed. Metals have retracted a bit at the end of 2016 and into 2017. Now, I had no real expectations for output, and truthfully the production numbers disappointed me because they came in below the company's planned production. Endeavour churned out silver production that was down year over year at 1,088,845 million ounces for Q4 2016. That, of course, is a 37% decline from last year. While this was planned, it is still an 'ouch' moment. Gold production came in at 11,402 ounces, a whopping 26% decrease year over year. Using a 75:1 ratio for silver to gold, it is important to note that for the quarter, silver equivalent production was 1.9 million ounces. Of course, this is down from last year in line with guidance. Metals sold were down heavily as well, with just 946,546 ounces of silver and 11,004 ounces of gold sold, dropping 44% and 28%, respectively.

Now I have to tell you that........READ MORE

AT&T is mindblowing

One of my key holdings is AT&T (NYSE:T), and it's a name which I have discussed in many articles. Overall, the share price had been very stable, it was reliable for income, but growth kicked in last year, and shares have spiked from the low 30s to the 40s in a year. Then, the proposed deal with Time Warner (NYSE:TWX) sent shares down close to 20%, giving a buying opportunity. Shares have recouped most of those losses now. While I love the growth, I am in this name not for growth, but the incredible strength of the company's growing dividend payments over time. Still, with all of the action in the name, the company really is the new AT&T, and news today continues to signify that.

But what exactly do I mean by the new AT&T? Well, if you have not been following my work, I am talking about innovation. I have covered the path to innovation over the course of many articles as I have developed this thesis. The company has quite simply fundamentally changed in the last three to five years. For AT&T, this much innovation in such a short period of time has been unprecedented. There are a number of purchases it has made, as well as experiments with social media, its Hello Lab project, and many others. The best move for growth has been the company's push to integrate its DirecTV content with mobile. I would be remiss if I didn't also at least mention that the company working to be first on 5G technology, in addition to pumping hundreds of millions of dollars into its infrastructure. AT&T is now a global telecommunications and media company, rather than just a simple "phone" company. And that takes me to today, where we learned that......READ MORE

Sunday, February 21, 2016

AT&T And The Mountain Debt

As many of my followers know I have been covering AT&T (NYSE:T) heavily of late because I continue to establish the thesis that the company is changing. How? Well, one word - innovation. I argue that this is no longer the second-rate phone company it was once known as. I contend that moving forward that the stock will cease to trade sideways while paying its nice dividend, because the company is changing its approach. Look I love the dividend. I love the stability of the stock. But what I love even more is a company that is able to increase its payout to shareholders and provide growth as well. This path to innovation and the crux of my thesis centers on the unprecedented push to integrate its DirecTV content with mobile. If you have not looked into the service in a while, it is offering the best new customer deals I have seen in years. The company is also looking to take the lead in the sector and be first on 5g technology. I invite you to review these pieces and to read more on the story of innovation that I am telling. The bottom line is that AT&T is serious about being a leader as the 21st century progresses. However, there remains one key bottleneck to the company andthe stock's success. I am talking about the debt. Strike that. I am talking about the mountain of debt.

I have cited many times previously in prior articles that the large amount of debt is a risk for AT&T. The debt is keeping management from raising its dividend by more than a penny each year. The debt keeps a lid on research and development expenses. The debt also keeps many would be investors out of the name. I am on record as saying that the company must prioritize reducing its debt and protecting its ratings. That said, the company has taken yet another step in the right direction.

In a somewhat quiet and under-covered story in my opinion, the company today began exchange offers of 16 series of its DirecTV notes for AT&T notes. We are talking about a credit positive move on the order of $17 billion. Now I will admit, I am certainly not an expert in debt restructuring, but the news sounded very positive. You can read specifically about the notes being exchanged here. The details of the exchanges, while important, are beyond the scope of this article and would really be a regurgitation of the facts. But I will say that each AT&T note issued in exchange for a DirecTV note will have an interest rate and maturity that is identical to the interest rate and maturity of the tendered DirecTV note, as well as identical interest payment dates and optional redemption prices. No accrued but unpaid interest will be paid on the DirecTV notes in connection with the exchange offers. However, interest on the applicable AT&T Note will accrue from and including the most recent interest payment date of the tendered DirecTV note. In other words, the move isn't really costing the company, other than interest on the AT&T note. So why is this move a positive?

To answer this question I turn to expert commentary from Moody's, who specializes in debt and debt ratings. They discussed the move. There is one key point in Moody's note that I want to focus in on. They stated:

"The exchange offer has the potential to greatly reduce in the degree of structural subordination of debt at AT&T Inc. If a large majority of debt is tendered, the exchange will reduce the amount of debt structurally senior to unsecured creditors of AT&T Inc. from $37billion (26% of total, including device securitization and Mobility II preferred equity) to around $20 billion (15% of total)."

What this means for shareholders is that without such a move, the amount of debt as stands today in its current format would pressure AT&T's unsecured ratings. This means, that the move is helping stave off a potential credit downgrade. That is a key piece of positive news. A downgrade means increased costs of borrowing and of course unsettles investors. Any DirecTV debt that is exchanged for AT&T notes will be rated at Baa1, which is in line with current ratings. All in all, if a large degree of debt is moved in this manner, it will reduce the amount of debt structurally senior to unsecured AT&T creditors from $37 billion to around $20 billion, yielding the $17 billion figure I mentioned above.

Bottom line here? The move saves money. It makes the debt "cheaper" for lack of a better term and protects the rating of the debt. Since the debt is among the largest concerns of shareholders, I felt it prudent to cover this piece. Now I want to turn it over to you? What do you think about the move? Will DirecTV debt holders bite? Do you agree lowering costs long-term makes the debt more manageable? Let the community know below.

Popular Posts