Latest news with #FCF
CNBC
19 hours ago
- Business
- CNBC
Bernstein upgrades Charter to outperform on recovering financials, predicts more than 20% upside ahead
Bernstein believes that shares of Charter Communications could rise, boosted by a recovering financial backdrop. The investment firm upgraded the telecommunications giant to an outperform rating from market perform. However, analyst Laurent Yoon accompanied the move by lowering his price target to $380 from $410. This new forecast still corresponds to an upside ahead of 23%. Shares of Charter are down 10% this year. CHTR YTD mountain CHTR YTD chart While Yoon noted that Charter's underlying fundamentals "remain challenged," he also pointed out that the company's financials should only get better from this point forward. "Charter's financial narrative is expected to improve in '26 and more substantially in '27 as Capex declines," he wrote. "Even with sustained competition, FCF yield is expected to be > 10% in '26 and mid-to-high-teens in '27, funding their buybacks." The analyst added that many investors might be too eager to walk away when it comes to the cable industry as a whole. While these cable giants will certainly cede their dominance in the future, Yoon wrote that they "are not standing still." "While we don't believe CableCos are positioned to regain dominance — that ship has sailed — we do believe they are far from structurally broken. In CHTR's case, growing FCF and continuing cost discipline provide an upside as the industry settles into a more stable competitive equilibrium," he wrote. Specifically, Yoon is optimistic over Charter's recent developments in its mobile business. The company's mobile net adds remain at "healthy levels," the analyst said.
Yahoo
2 days ago
- Business
- Yahoo
Alphabet Posts Lower Free Cash Flow and FCF Margins - Is GOOGL Stock Overvalued?
Alphabet Inc. (GOOG, GOOGL) reported higher Q2 revenue on July 23, but lower operating cash flow and significantly reduced free cash flow (FCF). Based on its capital expenditure plans, Alphabet's FCF could decline 10% over the next 12 months (NTM). As a result, GOOGL stock may be fully valued today. Shorting out-of-the-money (OTM) put options to set a lower buy-in point may be a good play here. This article will delve into this. More News from Barchart The Saturday Spread: Leveraging Practical Math to Extract Alpha in Hidden Places Stop Missing Market Moves: Get the FREE Barchart Brief – your midday dose of stock movers, trending sectors, and actionable trade ideas, delivered right to your inbox. Sign Up Now! GOOGL closed at $193.18 on Friday, July 25. That is up from its July 23 close of $190.23, and well off its 6-month peak of $206.38 on Feb. 4. It's possible, without a huge increase in the stock's FCF multiple, GOOGL could be worth around 10% less at $174 per share. Alphabet's AI-Driven Capital Spending Plans Alphabet's Q2 revenue rose 14% YoY, and its operating income was also 14% higher. Moreover, the operating income margin stayed flat at 32% for both periods. But that is all before the company's cash flows and, more importantly, its capital expenditure (capex) activities. The table below from its Q1 and Q2 earnings releases shows that operating cash flow margins fell YoY, and its capex spending exploded. As a result, this table shows that Alphabet's FCF margin imploded to just 5.5% of sales, down from 21% last quarter and 18% over the last year. It's due to capex spending, which is now 40% of sales and 80% of operating cash flow. If this keeps up over the next year, Alphabet's valuation could falter. In fact, Alphabet's CEO, Sundar Pichai, said on the first page of the Q2 earnings release, Alphabet will spend $85 billion this year on capex, all driven by its AI-driven activities. Let's look at that. The table above shows that capex so far this year is $39.943 billion. That leaves $45.057 billion over the next 2 quarters, or $22.5 billion on average (about equal to Q2). That implies that over the next 12 months (NTM), capex will be $90 billion (i.e., $22.5 x 4). Let's use that to forecast NTM FCF. Forecasting NTM FCF Analysts project sales this year will be $393.38 billion and next year $436.94 billion. That puts its next 12 months (NTM) sales forecast at $415.16 billion. So, if we use its Q2 operating cash flow (OCF) margin of 28.8% and assume it will last over the NTM period: $415.16b x 0.288 = $119.57 NTM OCF In other words, OCF could fall from $133.7 billion over the trailing 12 months (TTM) - see the table above - to just $120 billion. That's a 10.2% decline. So, just to be conservative, and to improve the outlook, let's assume the margin stays the same (36%) as the TTM figure above: $415.15b x 0.36 = $149.6 billion OCF Next, we can deduct the $90 billion in run-rate capex spending that the CEO implied in his statement that 2025 capex will be $85 billion in 2025: $150b OCF - $90b = $60 billion FCF But that is still -10% below the $66.728 billion Alphabet generated in the TTM period (see the table above). In other words, the outlook is not good for Alphabet's FCF rising. This could dramatically affect the stock over the next year. Setting a FCF-Based Price Target for GOOGL Stock One way to value a stock using its FCF forecast is to use a FCF yield metric. This assumes that 100% of the FCF is paid out to investors. What will the dividend yield be? For example, given the market cap today of $2.341 trillion from Yahoo! Finance, its TTM FCF represents 2.85% of its market value: $66.728 billion TTM FCF / $2,341 billion mkt cap = 0.0285 This is also the same as multiplying FCF by 35x (i.e., 1/0.0285 = 35.1) So, using this FCF yield metric, and applying to the $60 billion forecast for FCF over the next 12 months: $60.00b x 35.1 = $2,106 billion est. mkt cap That is still 10% below today's market cap of $2,341 billion. In other words, GOOGL stock's price target is 10% lower than today, or $173.86: $193.18 x (1-.10) = $193.18 x 0.90 = $173.86 price target The point is that GOOGL stock may be overvalued. The only way this might turn around is if its OCF margin rises over 36% (even though it was just 28.8% in Q2) and/or the market gives the stock a higher multiple than 35x FCF. Therefore, it might make sense to set a lower buy-in price by selling short out-of-the-money (OTM) put options. That way, an investor can get paid waiting for GOOGL stock to fall. Shorting OTM Puts For example, look at the Aug. 29 expiration period. That is just over one month from now. It shows that the $175.00 strike price put option, about 9.4% lower than today's price, has a midpoint premium of $1.23 per put contract. That means a short-seller of these puts can make a yield of 0.70% (i.e. $1.23/$175.00). But note that there is just a 13% chance of this occurring (i.e., the delta ratio is -0.1294). The point is that if GOOGL stock falls to $175.00, the breakeven point for the assigned investor's account is $173.77 (i.e., $175.00-$1.23). That is just below our breakeven point for the stock $173.86 - see above). If the investor is able to repeat this over the next 3 months until the next quarterly release, the expected return is +2.1% (i.e., 0.70% x 3). But at least investors in GOOGL stock can make extra income here, shorting puts if they already own shares. The bottom line is that if GOOGL stock falters one way to play it is to sell short OTM puts every month. On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 days ago
- Business
- Yahoo
IBM Upped Its FCF Outlook - Could Be Worth +16% More at $300 Per Share
International Business Machines Corp. (IBM) produced strong free cash flow guidance in its July 23 Q2 earnings release. Management said it now expects over $13.5 billion in FCF this year. That's 8.8% higher than 2024 and implies IBM stock could be worth 13% more at $294 per share. This article will show why. IBM closed at $260.51 on Thursday, July 24, down -7.6% for the day after its earnings release. IBM stock is well down from its recent peak of $294.78 on June 30. More News from Barchart Low IV Alert: Stocks that Could be Ready to Pop Unusual Volume in Las Vegas Sands Call Options - Investors Bullish on Macao Gambling Alpha From Ashes: 'Big Loser' Comstock Resources (CRK) is Flashing a Statistically Significant Reversal Signal Get exclusive insights with the FREE Barchart Brief newsletter. Subscribe now for quick, incisive midday market analysis you won't find anywhere else. That makes today's price a great buy-in opportunity for value investors. Moreover, it makes sense to sell out-of-the-money (OTM) put options for an even lower buy-in price (more on that below). First, let's look at IBM's results and the strong free cash flow (FCF) guidance. Strong Free Cash Flow (FCF) Outlook On July 23, IBM reported +7.6% higher Q2 revenue at $16.977 billion, compared to $15.77 billion last year. This was driven by its software (+10% YoY) and infrastructure (cloud storage) segments, up 14%, while its consulting division sales were up 3%. In addition, IBM's operating income before taxes grew +17% to $2.597 billion, with a strong operating margin of 15.3%, vs. 14.1% a year ago. Moreover, the company's first half free cash flow (FCF), adjusted by excluding financing receivables, was $4.8 billion, representing over 15.2% of sales. Its Q2 FCF adjusted margin was higher at 16.5% (i.e., $4.8 billion/$17b sales), as can be seen from the company's earnings presentation deck: As a result, management projected a strong free cash flow outlook. Here is what the CEO, Arvind Krishna, said: 'With our strong first-half performance, we are raising our full-year outlook for free cash flow, which we expect to exceed $13.5 billion." Since the company also expects over 5% revenue growth (i.e., from $62.753 billion last year to $65.89 billion), this FCF represents a 20.5% FCF margin: $13.5 billion FCF est. / $65.89 billion revenue = 0.2049 = 20.5% FCF margin In other words, management expects FCF margins to rise substantially in the next 2 quarters from 16.5% in Q2 and 15.2% in H1. As a result, we can project higher FCF over the next 12 months (NTM). Projecting FCF and Target Price Analysts are even more ebullient about IBM's revenue prospects. The average of 21 analysts surveyed by Seeking Alpha is $66.6 billion for 2025, and $69.51 billion next year. That works out to an average next 12 months (NTM) revenue forecast of $68.06 billion. Therefore, if IBM makes a 20.5% FCF margin, as management expects in 2025, its FCF could rise to almost $14 billion over the next 12 months: $68.06 billion NTM sales x 0.205 = $13.95 billion NTM FCF That would be +3.3% higher than management's expectation for 2025 and +13% over the $12.34 billion it made over the trailing 12 months (TTM), according to Stock Analysis. (That TTM FCF figure may not have added back financing receivables as the company does). How will the market value this? One method is to use an FCF yield metric. That assumes that 100% of its FCF is paid out to shareholders in dividends. The resulting dividend yield is also equal to its FCF yield. For example, the $12.34 billion TTM FCF represents 5.1% of its existing market value of $242.1 billion (Yahoo! Finance). Therefore, it's reasonable to assume the market will value IBM with at least a 5.1% FCF yield over the next 12 months. That is the same as multiplying FCF by 19.6x (i.e., 1/0.051 =19.6): $13.95 billion NTM FCF x 19.6 = $273.4 billion target That is +12.9% over Thursday's market cap of $242.1 billion. In other words, IBM stock is worth at least 12.9% more or $294 per share: $260.51 p/sh x 1.129 = $294.11 target price Analysts Agree IBM is Undervalued For example, Yahoo! Finance's survey shows an average analyst survey price target of $277.01, and Barchart's mean survey price is $269.95. In addition, Stock Analysis says that 14 analysts have an average of $277.36. However, which tracks recent analysts' reports and recommendations, says that the average is $311.18. As a result, the mean survey price target is $283.88 per share, which is close to our price target of $294.11. However, there is no guarantee this will occur over the next 12 months. It could stay flat. As a result, it makes sense to set a lower buy-in target and get paid in the process. Shorting OTM Puts This is what happens when you enter an order to 'Sell to Open' out-of-the-money (OTM) put options in nearby expiry periods - i.e., shorting OTM puts. For example, look at the Aug. 22 expiration period, which is 29 days to expiry (DTE). The $250.00 exercise price in the put option chain shows that the midpoint premium is $2.80 per put contract. So, the short-seller of these puts makes an immediate yield of 1.12% (i.e., $2.80/$250.00). The reason is that the investor must secure $25,000 with their brokerage firm to do this trade. In return, the $2.80 put price represents $280 received (i.e., $2.80 x 100 shares per contract): $280 / $25,000 = 0.0112 = 1.12% over 29 days Note that this strike price is 4% below the trading price, i.e., out-of-the-money (OTM). However, the chance of IBM falling to this strike price is low, as the delta ratio is just 25.8%. Moreover, the breakeven point, even if IBM stock falls to $250.00 on or before Aug. 22, is low at $247.20 (i.e., $250-$2.80). That is 5.1% below Thursday's closing price. An investor willing to take on more risk could short the $255.00 strike price, i.e., 2% below the trading price. However, the short-put yield is higher at 1.68% (i.e., $4.28/$255.0). The bottom line is that investors can set a lower buy-in price shorting OTM puts. Given that the stock is worth +13% more, based on FCF projections, that might work out well for investors over the next 12 months. On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Sign in to access your portfolio
Yahoo
4 days ago
- Business
- Yahoo
Why Enphase Stock Crashed Today
Key Points Enphase beat on sales and earnings last night, but investors are selling the stock regardless. Earnings growth was good, but perhaps not as good as meets the eye, and free cash flow was even weaker than reported earnings. At 32 times earnings, Enphase stock is priced for growth, but new guidance suggests sales might actually decline in Q3. 10 stocks we like better than Enphase Energy › Enphase Energy (NASDAQ: ENPH) stock, which makes microinverters for converting solar power to usable electricity, cratered Wednesday, down 15% through 2:50 p.m. ET despite beating on its earnings report last night. Analysts forecast Enphase would earn $0.62 per share on $359.8 million in sales, and Enphase beat both numbers, earning $0.69 and doing $363.2 million in sales. So why is the stock down? Enphase's Q2 earnings Well for one thing, the news isn't quite as good as the earnings beat makes it sound. Turns out, Enphase's $0.69 profit was non-GAAP (adjusted). When calculated according to generally accepted accounting principles (GAAP), the company actually earned only $0.28 per share. Granted, while smaller than the non-GAAP numbers, Enphase's GAAP earnings rose substantially year over year -- up 250% in fact. But actual free cash flow for the quarter was only $18.4 million (about half of reported GAAP earnings), and down about 84% year over year. So whether you evaluate Enphase's results by GAAP or by FCF, either way, the quarter was a whole lot uglier than the non-GAAP headline figure made it seem. Is Enphase stock a buy? And things could be getting worse for Enphase. Turning to guidance, management warned that Q3 sales will range from $330 million to $370 million. At the midpoint ($350 million) this implies a big decline from Q2. It also means Enphase will probably miss analyst forecasts for $368 million in Q3 sales. Long story short, after growing sales and earnings substantially in Q2, Enphase just warned of a sales slowdown in Q3 that will probably impact profits as well. The stock, however, is priced for strong and steady growth at 32 times trailing earnings. If that growth isn't going to happen, it may be time to sell. Should you buy stock in Enphase Energy right now? Before you buy stock in Enphase Energy, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Enphase Energy wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $641,800!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,023,813!* Now, it's worth noting Stock Advisor's total average return is 1,034% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 21, 2025 Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Enphase Energy. The Motley Fool has a disclosure policy. Why Enphase Stock Crashed Today was originally published by The Motley Fool
Yahoo
5 days ago
- Business
- Yahoo
Why IBM Stock Is Plummeting Today
Key Points IBM stock is sinking Thursday even though the company published better-than-expected quarterly results yesterday. Sales and earnings topped Wall Street's expectations in Q2, but software revenues fell short of expectations. IBM is seeing some clients adopt a cautious approach in signing new deals due to geopolitical dynamics. 10 stocks we like better than International Business Machines › IBM (NYSE: IBM) stock is moving lower on Thursday despite the company posting better-than-expected quarterly results. The tech stalwart's share price was down 8% as of 11:15 a.m. ET. Shares had been down as much as 10.1% near the start of today's trading. IBM published its second-quarter results after the market closed yesterday, and actually delivered results that came in significantly better than Wall Street had anticipated. The company also raised its full-year guidance for free cash flow (FCF), but softness in the company's Q2 software numbers is causing investors to move out of the stock. IBM stock sinks as software revenue misses expectations IBM reported non-GAAP (generally accepted accounting principles) adjusted earnings per share of $2.80 on revenue of $16.98 billion in the second quarter -- a performance that came in far better than the average analyst estimate's call for adjusted earnings of $2.64 per share on sales of $16.59 billion. The company's revenue was up 8% year over year in the period, and earnings per share were up roughly 18% compared to the prior-year period. While the company's Q2 report looked strong overall, investors are concentrating on a performance shortfall in the software segment. Category revenue climbed 10% year over year to reach $7.39 billion, but the average analyst estimate had called for sales of $7.39 billion in the period. The software business's gross margin of 83.9% also fell slightly short of the average analyst estimate's target for a gross margin of 84% in the period. What's next for IBM? With its latest quarterly report, IBM reiterated guidance for sales growth of at least 5% on a currency-adjusted basis this year. Management also said that it now expects to generate more than $13.5 billion in FCF this year -- up from its previous target for FCF of roughly $13.5 billion. CEO Arvind Krishna said that geopolitical uncertainty is causing some clients to take a more cautious approach to new contracts, and the sales shortfall for the software segment that's central to the company's growth and standing in the artificial intelligence market is causing some investors to lose confidence in the stock. On the other hand, the company's Q2 numbers looked pretty solid overall, and it's possible that recent unevenness on the contract front will smooth out with time. Should you invest $1,000 in International Business Machines right now? Before you buy stock in International Business Machines, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and International Business Machines wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $634,627!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,046,799!* Now, it's worth noting Stock Advisor's total average return is 1,037% — a market-crushing outperformance compared to 182% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 21, 2025 Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy. Why IBM Stock Is Plummeting Today was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
