THE FAIR WARNING REPORT - 02/17/2018

AAR Corporation
In 2015 the company unload some assets, selling Telair Cargo Group Precision Systems Manufacturing. I thought that was a mistake at the time. Turns out, it was the right thing to do. The company was becoming debt heavy. But selling off Telair and Precision allowed the company to reduce it's debt by 76%. Management has been smart and allowing very little new debt. This has allowed the company to do what it does best, which is to provide maintenance and repair services to aircraft. That is reflected in the FY 2017 numbers with the company ending the year with 936% increase in y-o-y free cash flow, an 18% increase in y-o-y earnings, against a y-o-y increase in debt of 6%. Not a bad take-off from a prior crummy landing.

AAR Corporation (NYSE: AIR) - FYE 05/2017 - OVER VALUED - The stock is trading at levels above my most recent fair value estimate - Please See Linked Worksheet

McCormick and Company, Inc.
It troubled me that I didn't come up with a higher valuation for the stock. Then I looked at five year averages and found the return on a five year hold for the stock was 61%, roughly 12% per year. After that I looked at a few y-o-y numbers and found that sales had grown 10%, earnings had grown 9%, and free cash flow had grown 16%. Then I compared those growth numbers to the 247% growth in debt and finally I felt better about my fair value number for the stock. But what I felt the best about was that I had no plans to buy the stock. So sprinkle some of THAT!!...on your pancakes Waldo.

McCormick and Company, Inc. (NYSE: MCK) - FYE 11/2017 - OVER VALUED - The stock is trading at levels above my most recent fair value estimate - Please See Linked Worksheet

Intuitive Surgical, Inc.
I don't own this stock. I wish I did. They have no competition, not really. The return on investment for this stock over the prior five years was 125%, 25% per year. As I said, I don't own any of this stock. But then I don't own Apple, or Amazon, or Google either. [Long Sigh]. Figures.

Intuitive Surgical, Inc. (Nasdaq: ISRG) - FYE 12/2017 - OVER VALUED - The stock is currently trading at levels above my most recent fair value estimate - Please See Linked Worksheet

Regeneron Pharmaceuticals, Inc.
I called my friend, a microbiologist, and asked him to explain to me what Familial Cold Autoinflammatory Syndrome (FCAS) and Muckle-Wells Syndrome (MWS) was. I still have no clue. Regeneron makes ARCALYST which treats whatever that is. They also make DUPIXENT which treats moderate-to-severe atopic dermatitis, EYELEA, which treats Neovascular (Wet) Age-related Macular Degeneration and which doesn't seem to offer much benefit, at least from three of the colleagues I know whose spouses get monthly injections, KEVZARA, which treats moderately to severely active rheumatoid arthritis (RA), and PRALUENT, which treats high LDL cholesterol which I stopped taking because I had perpetual prostatitis until I did. I'm not saying the products that the company makes don't indeed offer all sorts of relief for the folks that take them, certainly they do or physicians wouldn't prescribe them. What I'm saying is, overpaying for a stock is not any different than taking medicines whose efficacy seems to be marginal. Eventually like the medicines, it just stops working, leaving the stockholder with itchy skin, poor eyesight, and joints that don't move. Sign me up.

Regeneron Pharmaceuticals, Inc. (Nasdaq: REGN) - FYE 12/2017 - OVER VALUED - The stock is currently trading at levels above my most recent fair value estimate - Please See Linked Worksheet
 

Have a great week!

Wax