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Stock Pick of the Week: Sell/Short CBS Class B (CBS) Very Dangerous Rating

CBS’s get our Very Dan­ger­ous Rating. There is lots of down­side risk given the Mis­lead­ing Earn­ings and there is lit­tle upside reward given the already-rich expec­ta­tions embed­ded in the stock price. RED FLAGS: 1. Mis­lead­ing Earn­ings: CBS reported a $11,899mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $548mm. 2. Underfunded Pensions of $2,239mm (20% of market value) 3. Asset-write-offs of $10,559mm in asset write-offs (50% of Net Assets and nearly 100% of the market value) 4. High Valuation: market price implies CBS must grow its revenue at 10% com­pounded annu­ally for 23 years and increase its ROIC from 2.4% to 6% over the same time frame.
by David Trainer, Founder & CEO
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icad Inc (ICAD) — free report for Ask Matt, Dangerous Rating

icad (ICAD) gets a Dan­ger­ous Rat­ing because of these RED FLAGs: 1. Very Expensive valuation: current stock price implies the company will grow revenues at 20% compounded annually for the next 10 years while also improving ROIC from -3.7% to 1.5% within the same time frame. 2. Option Liabilities: of $2.1mm or 3% of the current market value 3. Asset-write-offs: $4.4mm or 7% of Net Assets
by David Trainer, Founder & CEO
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Stock Pick of the Week: Sell/Short Capital One Financial (COF)

The Risk/Reward of invest­ing in Capital One’s stock looks Very Dan­ger­ous to me. There is lots of down­side risk given the Mis­lead­ing Earn­ings and there is lit­tle upside reward given the already-rich expec­ta­tions embed­ded in the stock price. RED FLAGS: 1. Mis­lead­ing Earn­ings: COF reported a $399mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $1,783mm. 2. The company’s ROIC is in the Bot­tom Quin­tile of all the com­pa­nies we cover. 3. Stock price of $40.69 implies COF must grow its NOPAT at 15% com­pounded annu­ally for 15 years.
by David Trainer, Founder & CEO
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JDS Uniphase Cp (JDSU) — free report for Ask Matt, Dangerous Rating

RED FLAG: Our analy­sis of the Finan­cial Foot­notes reveals: the com­pany has writ­ten off over $60bn in assets over the last twelve years. That is a big num­ber com­pared to the company’s mar­ket cap of roughly $2.2bn and its net assets of about $1.3bn. This results in economic earnings of -$5,346mm compared to Net Income of -$866mm during the last fiscal year. For details on what causes the dif­fer­ence between Eco­nomic Ver­sus Account­ing Prof­its, see Appen­dix 3 on page 10 of our free report on JDSU.
by David Trainer, Founder & CEO
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McDonalds Corp (MCD) – free report for Ask Matt, Very Attractive Rating

HIDDEN GEM: Our detailed val­u­a­tion model shows that MCD grew its “eco­nomic” prof­its more than it account­ing prof­its dur­ing its last fis­cal year. Eco­nomic prof­its rose by $272mm while account­ing prof­its rose by $238mm. For details on what causes the dif­fer­ence between Eco­nomic Ver­sus Account­ing Prof­its, see Appen­dix 3 on page 10 of our free report on MCD.
by David Trainer, Founder & CEO