Olstein: "Free Cash Flow is Air of Corporations"

Valuation vs. Cash Flow

This week my favorite mutual fund manager Bob Olstein appeared on CNBC-TV explaining the most important metric, "free cash flow", when evaluating an underlying business. After finding a business with great cash flow, Olstein then focuses on "Price,Price, Price" of the stock's relation to cash flow.

 
Olstein shared his view on Macy (M), Amazon (AMZN), Microsoft (MSFT), Johnson & Johnson (JNJ, Cisco (CSCO), Lowes (LOW), Dupont (DD), Harman (HAR), Lennar (LEN).
(click to Stock Name to view Equities Research archives with Stockdiagnostics cash flow charts)

click Equities Research Archives of Bob Olstein

• OLSTEIN Earnings vs Cash Flow
• Olstein Shareholder Letters 
• (Olstein)Eight Warnings you want to See by Herb Greenberg 2000

• There are Nice People on Wall Street
• Olstein BullishOn Dupont & Cisco

Olstein Eyes Microsoft & Intel

ADP NOT AAA CREDIT WORTHY

ADP NOT AAA CREDIT WORTHY
the 4 AAA rated S&P 500 companies:
Exxon, Microsoft, Johnson & Johnson, Automatic Data Processing

November 2, 2012 10am est.

Equities Research

Friday Morning Call: STRONG SELL  (NYSE: ADP) $59.36

Automatic Data Processing, Inc.
Operational Cash Flow per share (OPS) declined 121% year over year
1st Quarter 2013 financials filed with Securities & Exchange Commission on November 2,2012 @ 9:22am est.

After 72 consecutive quarters (18 years) reporting positive operational cash flow, ADP disclosed  FY2013 1st Quarter Operational Cash flow of NEGATIVE $65 million!


Stockdiagnostics has ranked ADP with a "1" (highest ranking) for 72 consecutive quarters until this morning's downgrade to a "2" ranking.T

1st Quarter 2013 10Q (ending 9/30/2012)

                               - $0.13 OPS (Q1 2013) vs. $0.65  (Q1 2012).OPS DECLINED 121%

ADP reported negative $65 million in Operational Cash flow down from $316 million a year ago for the comparable 1st quarter.


OPS Spread:
Earnings Per share vs. Operational Cash Flow per share
1Q 2012 ADP had a positive $0.04 OPS spread. EPS $0.61 vs. OPS $0.65
1Q 2013 ADP had a negative $0.76 OPS Spread. EPS $0.63 vs. OPS -$0.13

Operational Cash Flow trailing 12 months declined 15%

TTM ending 9/30/2011 : $1.799 billion
TTM ending 9/30/2012 : $1.528 billion

OPS Multiple Trailing Twelve Month
9/30/2011 TTM 3Q 2011 $3.71 OPS X 13
9/30/2012 TTM 3Q 2012 $3.14 OPS X 19


Stockdiagnostics Chart with ADP Operational Cash Flow Statistics
Archive posts of ADP on EquitiesResearch.com


shares outstanding 485,473,927


**from 10Q for September 30,2012 quarter

**Net cash flows used in operating activities were $65.1 million for the three months ended September 30, 2012, as compared to $316.3 million provided by operating activities for the three months ended September 30, 2011.  The decrease in net cash flows provided by operating activities was due to the payment of a premium of $141.4 million related to our reinsurance arrangement with ACE American Insurance Company, higher pension plan contributions of $50.3 million, an unfavorable change in the net components of working capital and a variance in the timing of tax-related net cash payments of $23.6 million.

YAHOO Makes History: $1 Billion Operational Cash Quarter!

Yahoo (NASDAQ:YHOO) generated $1 billion in operational cash flow in a quarter for the first time in the companies history!

• 3Q operational cash flow improves by $690 million vs. Q3 2011 

• Q3 2012 operational cash flow increases 193% vs Q3 2011  

Other Operational Cash Flow Increases and Decreases for the Quarter ending September 30,2012 vs. Quarter ending September 30,2011:

INCREASES
CRAY Inc.	(NASDAQ:CRAY)	248%
Yahoo	(NASDAQ:YHOO)	193%
ADE-Es, Inc	(NASDAQ:ADES)	126%
Akami Technology	(NASDAQ:AKAM)	21.60%
Cognizant Tech. Sol.	((NASDAQ:CTSH	17%
Ultimate Software	(NASDAQ:ULTI)	14%
Pfizer	(NYSE:PFE)	12.70%
DECREASES
Sketchers USA	(NYSE:SKX)	-415%
Stratasys, Inc.	(NASDAQ:SSYS)	-262%
Interactive Brokers	(NASDAQ:IBKR)	-219%
ACETO Corp	(NASDAQ:ACET)	-150%
Merck & Co.	(NYSE:MRK)	-31.42%
Deckers	(NASDAQ:DECK)	-32%
Elizabeth Arden	(NASDAQ:RDEN)	-26%
PDF Solutions	(NASDAQ:PDFS)	-22%
Home Depot*	(NYSE:HD)	-6.73%
Dunkin Brands	(NASDAQ:DNKN)	-6.22%
Jazz Pharmaceutical	(NASDAQ:JAZZ)	-4.15%
Johnson & Johnson	(NYSE:JNJ)	-3.29%
*period 10/28/2012 vs. 10/28/2011

 

Cash Flow in the News

• Bob Olstein : Earnings vs. Cash Flow 

• James Chanos Exams Cash Flow 

• Cramer talks Operational Cash Flow 

Warren Buffett on importance of Cash Flow:

• Warren Buffett, Chairman of Berkshire Hathaway: 2000 Annual Report:

 "Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation except to the extent they provide clues to the amount and timing of cash flows into and from the business. Indeed, growth can destroy value if it requires cash inputs in the early years of a project or enterprise that exceed the discounted value of the cash that those assets will generate in later years.
Market commentators and investment managers who glibly refer to growth and value styles as contrasting approaches to investment are displaying their ignorance, not their sophistication. Growth is simply a component--usually a plus, sometimes a minus-- in the value equation."