Screener B – January 3, 2025

1 Alexandria Real Estate Equities (ARE) – remains on list

First appearing on the list in September 2023 (Y230923) and intermittently thereafter, Alexandria Real Estate Equities is a REIT that develops, owns and operates urban offices and labs for healthcare companies. The Pasadena, CA based company 74mm rentable sq ft across the Boston, San Francisco, San Diego and Maryland areas, with tenants in the life sciences, pharma, bio-tech, and med-tech industries. Over the past 9 years, revenues and funds from operations have increased materially and as a REIT, the dividend payout is considerable.

COMMENT: Commercial real estate has been challenged by inflation, rising borrowing costs, and changes in demand. Many of Alexandria’s properties are leased by large, IG rated healthcare companies. Further, ~94% of Alexandria’s leases are triple net leases, requiring the tenants to pay substantially all building costs, taxes, insurance, utilities, etc. Management has historically financed expansion through equity and asset sales. They have guided investors to expect to fund a significant portion of current capital needs for development (and to reduce leverage) via asset or equity sales.

2 Intel (INTC) – remains on list

Intel is one of the world’s largest semiconductor companies that designs and manufactures computer CPUs and related technology. Headquartered in Santa Clara, CA the company has recently been the primary beneficiary of the CHIPS and Science Act and is the central component on Washington’s big re-think on semiconductor manufacturing. Spurred by the perceived over-dependence on Taiwan for cutting edge chip manufacturing, the U.S. Federal Government has rolled out capital programs and incentives to entice chip manufactures to make more chips in the continental U.S. Intel’s net revenue (2023A) outside the United states was 74%. Top line and EPS are trending sharply down. The dividend has been cut and share repurchases are expected to be nonexistent. The company is facing gigantic headwinds as their customers have found substitutes for their core CPU technology / architecture. New market entrants have begun successfully designing their own purpose-designed chips.

COMMENT: From our perspective, Taiwan’s TSMC has likely fundamentally shifted the operating model, with their fab-as-a-service approach. The capital intensity of the industry has put Intel in a severe bind (debt / EBITDA approaching ~5.5x in June 2024). This appears to be a moment in time for Intel when tectonic realignment is required, but the execution risks are immense. With Pat Gelsinger no longer the ship’s captain, we feel the immediate future for the company is likely to be very challenged

3 The Kraft Heinz Company (KHC) – remains on list

First appearing on the list in May 2023 (Y230505) and intermittently thereafter, Kraft Heinz is one of the largest food companies in the world, generating ~75% of revenues from the U.S. and Canada and ~25% from the U.K. and other countries. The company was formed in July 2015, when Kraft Foods Group merged with H.J. Heinz Co. Today, the company is co-headquartered in Pittsburgh, PA and Chicago, IL and has well-recognized brands including Heinz, Kraft, Capri Sun, Jell-O, Kool-Aid, Lunchables, Maxwell House, Philadelphia, Velveeta and others. Sales and earnings have been relatively flat, or slightly down, since the merger 9 years ago. The company pays a consistent dividend and has been reducing debt, realigning the product portfolio and reducing operating costs. Berkshire Hathaway holds ~25% of KHC common stock and investment group 3G (who was a significant participant during the 2015 merger and creation of the combined KHC) no longer holds an ownership stake.

COMMENT: From a fundamental value perspective, we think this price is attractive for KHC. The large cash dividend, stable consistent earnings, and the low book to market value ratio make this highly attractive for establishing a position that is likely to compound satisfactory returns over the coming years. Since a significant goodwill write down in 2018, just a few years after the controversial merger, the company has traded well below book. Despite the market voicing the actual productivity or true asset value of KHC is below the asset value on a GAAP basis, we like the stability and consistency of the brand portfolio and its defensive characteristics. KHC has materially de-levered in the past few years and the story has continued to steadily improve.

4 Molson Coors Beverage Co. (TAP) – remains on list

Molson Coors has intermittently been on and off the list throughout 2024, first appearing in May (Y240504). The company is one of the largest brewers in the world, and sells their alcoholic beverages (Coors, Molson, Blue Moon, Carling, etc.) globally. Formed through a 2005 merger, the Coors and Molson families combined control +90% of the Class A stock and control voting rights. Top line has grown ~9.0% annually over the past 10 years, while EPS has only notched low-single digit annualized growth. The common stock pays a reasonable dividend and the company has repurchased only a small amount of stock in the past two years. Debt to EBITDA has come down to the 2.5x-3.0x area, while remaining substantially below Anheuser-Busch, a similar global competitor although much larger in scale.

Interpreting results

Broadly this is an output of U.S. companies with a current market equity value above $10bn, a very low market price relative to GAAP book value, and negative price performance over the last 52 week period. While the circumstances that push a company to meet these criteria are virtually infinite, typically the company is facing heightened profitability risks, competitive challenges, legal or regulatory risks , or other circumstances directly endangering the probability of future profits.

Every so often, we find a company that is facing temporary challenges and / or circumstantial headwinds. These instances warrant timely investigation and review.

Why this screen can be helpful

We find watching this output over time, allows us to quickly identify potential companies or situations to investigate further, augments the weekly Value Line publication well, and keeps us informed on the less-loved corners of the public markets without having to watch misleading charts or spin our wheels on short-term market movements.  We like to observe new entrants and subsequent exits to the list, over time, and share with our trusted readers.