A Current AIM Small Cap Equity Holding: Nexstar Media Group (NXST, $114.98): “Post Acquisition Reality”

Nexstar Media Group (NXST, $114.98): “Post Acquisition Reality”

By: Kat Christian, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary:

• Nexstar Media Group Inc. (NASDAQ: NXST) provides broadcasting and digital media services across the United States.

• NXST has paid a dividend since 2013 and grown over 24% on a compound annual basis since. NXST increased their quarterly dividend by 24.4% to reach $0.56 in January 2020.

• NXSP engaged in retransmission consent agreements this quarter, representing 70% of subscribers and made long-term affiliation contracts with CBS, FOX, and NBC.

• Management has indicated that the acquisition of the Tribune Organization is expected to generate more pro forma free cash flows of more than expected, increasing expectations from $1.02 to $1.175 billion.

• The company experienced double digit growth in all non-political revenue streams, due to the biennial nature of their political revenues business.  

• The company repurchased $45.1 million of common shares throughout their fourth quarter.   

Key points:

Purchase & Sale. 

NXST announced in November 2019 that they would be purchasing and divesting a number of affiliate networks with FOX Corporation.  They are purchasing networks worth $45 million and divesting to FOX Corporation in the sum of $350 million. These purchases are expected to realize operating and financial synergies for NXST in their North Carolina, South Carolina, and Virginia Markets. The proceeds from the sale of networks is in the process of being used towards the reduction of borrowings under a credit facility.

Horizons Broadened. 

2019 was a year very busy for NXST, as they are almost fully finished integrating Tribune Media into their operations, expecting to realize over $185 million in synergies, $25 million more than previously expected. This acquisition landed NXST the largest U.S. television broadcast station group on the country, with both national coverage and reach.

Summer News Launch. 

Expected to reach 75 million US households, News Nation, NXSP’s latest announcement, is the WGN prime-time national newscast that comes along with a new, around-the-clock news app. This news platform is set to use the expertise of 5,400 journalists and 110 newsrooms in the country. The goal of the platform is to provide fact-based information to viewers without any semblance of bias or opinion while also generating advertising revenue.

What has the stock done lately?

Since the beginning of 2020, NXST’s stock has decreased .03%, reacting much better to current economic factors that the market in general. However, in more recent times, the company announced earnings on February 26^th, missing expected EPS by $0.95, or -28.70%, but reaching record free cash flows, at $173.9 million. This is the second time in the last four quarters that NXST had missed earnings. This miss caused the stock to fall in conjunction with the effects of corona virus, approximately 10.43%.

Past Year Performance: 

NXST has increased 20.41% in value over the past year, but regardless, the stock is trading at a bargain due to current global economic factors.  With the progress of their acquisition, the synergies they have been realizing, and the progress they are expected to make, the company’s valuation is seen as low in comparison to its historical average and future potential.

Source: FactSet

My Takeaway

MXST missing earnings was as setback for the company and stock, but in general the company has just released new and improved expectations, higher expected synergies from their acquisition, and a new product that will reach 75 million U.S. households. The company is poised for more growth looking into 2020. Management is confident in the abilities of the pro forma operating company and the expertise it has, not only in select markets but across the country.

Source: FactSet

The Eighth Set of Spring AIM Program Student Equity Pitches on Friday, March 6th - Join Us in Person or On-Line!

AIM Class of 2021 Student Equity Presentations 

Friday, March 6th

The eighth set of spring AIM equity presentations for the Class of 2021 will be on Friday, March 6th, 2020.

   

Follow the link to access the student equity write-ups. You can also find every write-up since AIM's inception in 2005 here.

March 6th Write Ups

Student	Company	Ticker	Fund/Sector
Tyler Bomba	Jernigan Capital, Inc.	JCAP	Domestic Real Estate
Riley Arnold	TE Connectivity Ltd.	TEL	Intl Information Technology
Thomas Martinez	Green Dot Corporation	GDOT	Domestic Financials
Haley Gaffner	Avalara, Inc.	AVLR	Domestic Technology
Solomon Dworsky	Generac Holdings, Inc.	GNRC	Domestic Industrials

• Location: Marquette University, College of Business Administration - Straz Hall, 1225 W. Wisconsin Avenue, Milwaukee 53233 - in Room 488. 

• Presentation Times: 1:00 to 2:30 p.m. CST

• Link to PDF Student Equity Write-ups

If you are unable to attend, you can always view them via YouTube HERE.

Meet Tim Hanley, Marquette University’s Interim Keyes Dean of Business Administration

Tim Hanley is Marquette’s Interim Keyes Dean of Business Administration

Tim Hanley, Interim Dean of the College of
Business Administration, Marquette University

This week Marquette’s Provost, Dr. Kimo Ah Yun, announced that Tim Hanley, who has been serving as the college’s executive-in-residence, will serve as the interim Keyes Dean of Business Administration.

Tim is a 1978 graduate of the college and a former senior partner at Deloitte. Additionally, he was the College of Business Administration’s 2012 Distinguished Alumnus of the Year and a long-time member of the college’s Dean’s Council. He formerly led Deloitte’s Global Consumer and Industrial Products industry, and also has held a variety of other leadership roles during his long and distinguished career.

We are in good hands because Tim had developed a close working relationship with Joe Daniels and is supportive of the College’s strategic plan and the vision Joe was working to implement.

Tim brings a wealth of business leadership experience to the College, and as an engaged alumnus he has worked closely with past deans and faculty members to advance the strategic direction of the College. He is an ideal fit to help the business school continue its momentum in finishing the funding for the new building and to support our innovative leadership programs.

While his primary focus in the interim dean's role will be external with a major focus on fundraising, I know Tim’s leadership style is one of working with faculty, staff, alumni, business leaders and students. His approach is collaborative and open – and he will be a good fit for the College. Dave Clark, our associate dean, will keep the trains running on time and will deal with most of the academic and internal-related aspects for the College. So, overall we are in good hands.

Marquette has been a huge part of the Hanley family background. Tim’s father was an Engineering graduate in 1951, and was quite active with the Marquette Alumni association his entire life. Three of Tim’s brothers also attended Marquette, all graduates of the College of Business. Monica, Tim’s spouse, also attended Marquette, and two of their four children also attended Marquette.

Tim had a great career working at both Arthur Andersen and Deloitte, and has lived in the Milwaukee area the past four decades. When he retired in May 2019, Tim accepted a position in the College as the Executive in Residence which is an important piece of the strategic plan – and he is fully capable of stepping into the role as our interim dean.

We are confident that Tim will help all of us deliver on Joe Daniels’ vision for a world class business school and help us move into a new facility that will enable Marquette to be a leader for decades to come. 

Tim, Welcome and best wishes.

A Current AIM International Equity Holding: L’Oreal SA ADR (LRLCY, $53.33): “Beauty is in the Eye of This Shareholder”

L’Oreal SA Unsponsored ADR (LRLCY, $53.33): “Beauty is in the Eye of This Shareholder”

By: Riley Pollard, AIM Student at Marquette University

 

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• L’Oreal SA Unsponsored ADR (OTC:LRLCY) manufactures and sells beauty and hair products. It is the top ranked beauty manufacturer by revenue worldwide and operates through four segments: Professional Products, Consumer Products, L’Oréal Luxe and Active Cosmetics.

• LRLCY is geographically spread out over 130 countries, with a 12% share of the €175 billion beauty market. Their product lines consist of skin care (31.8% of FY18 sales), makeup (27.4%), hair care and colorants (27.1%), and perfumes (9.3%).

• LRLCY reported FY2019 sales growth of 8% on a like-for-like basis, making 2019 their ‘best year for sales growth since 2007’.

• LRLCY acquired Mugler brands and Azzaro fragrances from Clarins Group in late 2019, adding market share to their existing perfume business which contributed 9% of group sales in FY2018 and grew 9% in FY2019.  

• Through M&A and new product lines, LRLCY has strategically positioned themselves to capitalize on changing consumer preferences within “new-markets” (including the Asia-Pacific region), which consists of ~45% of group sales.

Key points:

L’Oréal is an extremely established brand. In addition to their namesake, they own well-known brands such as Maybelline, Lancôme, Garnier and Essie and they continue to grow their portfolio. Some of their newest additions and segment transformations are expected to stimulate the most growth in 2020.

LRLCY is optimistic about the Asia-Pacific region, which represents one-third of total sales (FY2019). China is maintaining consistent growth while India, Malaysia, Indonesia and Vietnam are all producing double-digit growth. The region overall saw 25.5% growth during FY2019. LRLCY is looking to capitalize on demand for skin-care products and growth in e-commerce (up 52% in 2019) globally, but especially in China. Their recent acquisition of the Mugler and Azzaro perfume brands was also done with the Asia-Pacific region in mind, as they are looking to penetrate the underdeveloped Asian perfume market.

LRLCY has also been transforming their L'Oréal Luxe segment, which increased profitability by 50 basis points in 2019. The segment saw 13.8% like-for-like growth in FY2019, with well-known Lancôme, Yves Saint Laurent, Giorgio Armani and Kiehl’s brands at the helm. In December of 2019, LRLCY signed a long-term license agreement with Prada (PRDSY) that will allow them to create, develop and distribute luxury beauty products under the Prada name, starting in 2021. A similar agreement was signed with Valentino in 2018 and will take effect in 2020.

While LRLCY has primarily seen growth across the globe, demand for makeup in the US has slowed. Although the US is not their biggest market, it still contributes ~25% of sales annually. In an attempt to turn things around, LRLCY appointed Stéphane Rinderknech, the head of L'Oréal China, as president and CEO of L’Oréal USA in September 2019.

L’Oréal is considered the most valuable personal care brand in the world, and they have the numbers to prove it. LRLCY has consistently outpaced the 5.5% growth rate of the global beauty market, most recently with their reported 8% growth during FY2019, and seem primed to continue to do so.

What has the stock done lately?

Unsurprisingly, LRLCY has not proven immune to the effect of the Coronavirus on the market. The stock is down 10.67% YTD and 7.19% in the last 3 months. The stock saw a dip to $55.58 on January 31^st before rebounding to over $60 the first week of February, following LRLCY’s Q4 earnings release. It’s been a downhill battle since then, although the price has yet to cross its 52-week-low threshold ($50.54). LRLCY closed at $53.33 on February 28^th.

Past Year Performance:

LRLCY’s stock price has grown 4.77% over the past year, experiencing a low of $50.54 and a high of $61.09. The stock has moved closely with the S&P 500, thus producing much less optimistic YTD returns. While strong growth and earnings reports usually signal optimistic future performance growth, the Coronavirus may throw a wrench in those plans. Management expects a period of disturbance followed by resumed consumption stronger than before, similar to what they experienced with SARS. 

Source: FactSet

My Takeaway:

LRLCY was pitched and added to the international AIM fund in November 2015 at a price of $35.48, with an initial price target of $43.11. Since then, LRLCY has well surpassed its price target. While the Coronavirus poses a threat to (hopefully short-term) growth, I believe that LRLCY has primed themselves for growth in new markets once global markets rebound. We may experience a few bumps and blemishes in the near future, but LRLCY is a quality holding and remains a valuable addition to the AIM International Fund.

Source: FactSet

AIM Donation Challenge - 2020 Give Marquette Day Tuesday, March 3rd!!

AIM Program Donation Challenge for the 2020 Give Marquette Day!

DONATE HERE TO THE AIM PROGRAM!

Today marks Marquette University’s annual day of giving. It is a day for the entire Marquette community to join together to combine their support and maximize impact.

This year the AIM Program is challenging you!  Help us reach our goal and consider supporting the AIM Program! 

Look at some of the specific AIM Challenges:

 A group of AIM Alumni will match $1 for $1 for every donation, up to $8,000

Donate at least $100 and receive a grey tri-blend custom AIM T-Shirt.

DONATE HERE TO THE AIM PROGRAM!

Spread the word!  And thank you for your continued support!

Marquette Alumnus and Wasatch Ultra Growth Fund Portfolio Manager, John Malooly, Again Visited the AIM Program

On Monday, March 2, 2020, John Malooly, CFA, paid his annual visit to Marquette’s AIM program

For well over a decade, John Malooly, a Marquette College of Business graduate and portfolio manager at Wasatch Advisors, has addressed the students in the AIM program

John Malooly, PM of the Wasatch Ultra Growth Fund

On March 2nd, John Malooly, CFA, paid his annual visit to Marquette’s AIM program. This is John’s 13th year returning to his alma mater to address the students in the program.

John graduated from Marquette’s College of Business Administration in 1990 and is now in his 22^nd year at Wasatch Advisors, which is located in Salt Lake City, Utah. He is the Lead Portfolio Manager for the Wasatch Ultra Growth Fund – and he is also an analyst and co-PM on other Wasatch small cap funds. 

The Wasatch Ultra Growth (WAMCX) has been an incredibly performer. John’s mutual fund excels in selecting small-cap growth stocks.

John Malooly visited the AIM program again in 2020

AIM director, David Krause said, “John’s approach at Wasatch has been based on fundamental bottom-up analysis which is consistent with what our AIM students learn. His class presentation that included numerous examples helped to reinforce the concepts and approach to investment analysis that we employ in the AIM program. John’s visit is always one of the highlights of the semester and it is always great to have John back on campus again.”

John Malooly has been a Portfolio Manager for the Wasatch Ultra Growth Fund since 2012.  He was previously a Portfolio Manager for the Wasatch Micro Cap Value Fund.  He joined Wasatch Advisors in 1997 as a research analyst on the Small Cap Growth Fund.  From 1999 to 2003, he worked as a Senior Research Analyst on the Micro Cap Fund.

John is a Wisconsin native from the Green Bay area who enjoys the outdoors and spending time with his family. Krause added, “John is a great friend of the AIM program and an excellent resource – I know the students enjoyed having lunch with him and getting the chance to talk stocks.”

Incredible performance!

John’s fund has been a perennial outperformer of the benchmark (Russell 2000 Growth Index). In 2019 his fund was the award winner of Investor’s Business Daily Best Mutual Funds for U.S. Diversified Stock, Growth and Small Cap categories.

One of the students asked John how his fund has been able to outperform so consistently? And always humble, John replied that he worked with a great team and that their focus is on companies with high-quality management teams and solid business models. He tries to find companies that are disrupting and not being disrupted.

John Malooly has visited the AIM program
nearly every year since 2005

Krause stated, “This should sound familiar to students who have passed through the AIM program over the years. We always require students to write a term paper on innovations and disruptions that are occurring within their sectors. And like John and his team, we are trying to find companies across sectors that are going to benefit from advances in technology and changes to industry models.”

The beauty of John and his team’s approach is that they are long-term investors and are not focused on the next quarterly earnings call. They invest with a three to five year horizon and not three to five days or weeks. “It is always a pleasure to host John,” added Krause. “He is the type of investor we need – the focus should be on a firm’s long-run earnings growth potential and not some short-term piece of information. He’s a superstar!”

Tim Hanley named interim Keyes Dean of Business Administration at Marquette University

Good news regarding the leadership of the Marquette College of Business Administration. 

Today, Dr. Kimo Ah Yun, Provost, announced that Tim Hanley, who is currently serving as the college’s executive-in-residence, has accepted the offer to serve as the interim Keyes Dean of Business Administration.

Tim Hanley is a 1978 graduate of the college and a former senior partner at Deloitte. Additionally, he was the College ofBusiness Administration’s 2012 Distinguished Alumnus of the Year and a long-time member of the college’s Dean’s Council. He formerly led Deloitte’s Global Consumer and Industrial Products industry, and also had a variety of other leadership roles during his long and distinguished career.

Tim brings a wealth of business leadership experience to the college, and as an engaged alumnus who has worked closely with past deans and faculty members to advance the strategic direction of the college, he is the ideal fit to help the business school continue its momentum. He will be instrumental in working closely with University Advancement to help raise funds for the new home for the college and innovation leadership programs.

We welcome Tim Hanley to Marquette's College of Business Administration!

The Coronavirus epidemic is striking fear in the markets - I'll gladly take an active manager over an ETF

You can sing the praises all day long of your passive ETF investments, but in the midst of the Coronavirus epidemic I’ll gladly pay a little more in fees for an actively managed fund

Go ahead – naively hold investments in the shares of restaurants, amusement parks, hotel and cruise companies in your ETF – I’ll let my active fund managers decide which firms and sectors are going to be hit the hardest in the long-run as the result of the Coronavirus outbreak.

Additionally, I’ll let my active manager identify the areas where opportunities exist – while your naïve passively managed strategy takes it on the chin. The central banks aren’t going to be able to stimulate demand with zero or negative interest rates forever – and they are running out of further stimulus tricks in their bag.

The Coronavirus epidemic could cause serious short- and long-term consequences to consumption-linked stocks and they can have a knock-on effect on other sectors and geographic regions. So, go ahead and talk about your lower fee ETFs and I’ll see you next year and we can compare our risk-adjusted performance! I will take active investment management over an ETF - especially now.

The debate overactive versus passive investing has been well documented. Depending upon the time period and the asset classes selected, it remains an open question. Additionally, risk-adjusted performance needs to be taken into consideration as to which of the two strategy is best. I also contend that when the markets cease to be supported by global central banks who intervene every time the market drops by 10%, then we’ll begin to see the value of active management come forth.

Given the black swan event of the past two months involving the Coronavirus epidemic, I will pay more in fees to have an active manager navigating the turbulent markets. When massive outflows begin to occur in less-than-liquid ETFs, I’ll be glad I have active fund managers protecting my downside risks.

As stocks fell across the board - and recorded their worst weekly performance since the 2008 Financial Crisis during the last week of February, numerous investment opportunities have begun to appear. And while the Coronavirus is serious and its potential to spread globally remains uncertain, it should be noted that active managers can sell the stocks most negatively impacted and buy those that have been oversold. This isn’t the case with an ETF – you hold all the stocks in the index regardless of whether or not they are going to be decimated by Coronavirus fears. 

Currently there is significant market dislocation occurring which will present excellent opportunities for active managers to showcase their skills.

Okay, by way of full disclosure – I am the director of Marquette University’s Applied Investment Management (AIM) program where I teach active management. Therefore, I firmly believe in the ongoing value of active investment management and its ability to help investors achieve their long-term objectives.

To that end, the AIM program is preparing the next generation of investment managers – we given our students the autonomy to manage a portion of the University’s endowment. 

The students hone their valuation skills and develop investment processes that allow them to identify and act upon opportunities. Through their detailed analysis and research, they learn how to manage funds in a responsible, ethical manner. We apply rigorous risk controls and avoid significant deviations from our benchmarks; however, we believe in active management and its ability to generate value.

The AIM students employ a process to identify innovative, well-managed companies and then they overweight the stocks they believe to be future outperformers. We do this weekly so that we can react to shifting investment themes by altering industry and individual stocks weightings. And when markets are challenging – like they are presently with Coronavirus, the student-managers can avoid areas with deteriorating outlooks, helping to protect the University’s capital.

We see value in passive investing for smaller investors and for times when an inexpensive and quick means of gaining exposure to a sector or investment theme is needed; however, at the end of the day we prefer sound, grounded active investment management.