I would argue that this week’s earnings reports were some of the more interesting on the quarter, primarily because they are all companies I’ve recently taken positions in.
I’m going to focus on those companies for the most part. However, I did want to go over a pretty key piece of news on the Berkshire Hathaway and UnitedHealth front, along with some moves I made in the portfolio.
Let’s get right into it.
Remember, a fraction of the updated earnings commentary is sent out via these newsletters. If you want to read all of it, simply head to your Stocktrades Premium dashboard to view them.
A Critical Reminder About Social Media Scams
I have had a growing number of members reach out to me regarding my “trading strategy,” which is a guarantee that social media scams are ramping up.
I will NEVER direct message you whether it is on Discord, X, Facebook, or any other social media network.
The scam accounts will look identical to my actual accounts in terms of profile picture, but they will have different usernames.
What these scammers will do is tell you that you can mimic my trading style. You will “deposit” money, and they will report fake gains to you to encourage you to deposit more.
Unfortunately, when you go to withdraw, you will never get your money.
Please do not engage with these people.
My portfolio moves this week
I withdrew the final portion of cash from my portfolio to finish up a basement development, so my cash position has been effectively reduced to 0%. From here on out, I’ll resume my weekly deposits and purchases and get back into my routine purchases.
However, I did have some money available in my tax-sheltered accounts, and I added to my Topicus (TOI.V) and Constellation Software (CSU) positions.
Constellation reported an outstanding quarter, one of its better ones over the last year. Although the market liked the report initially, it sold off a little post-earnings. With these two companies, I take advantage of whatever dips come my way without hesitation.
On the Topicus front, a lot of people get concerned with the overall volatility of this company. In its short existence as a publicly traded company, being spun off from Constellation in late 2021, it has routinely gone through large corrections.
I’ve added a chart below to highlight the instances in which the company draws down 15% or more.
The main thing you should take from this chart is that every large dip in this company has been an outstanding opportunity to add more shares. I view this as one of those opportunities, and I will continue to add aggressively if weakness continues.
Berkshire Hathaway Takes a Position in UnitedHealth (UNH)
There had been rumors that Berkshire had been making a “mystery buy” over the last few quarters, and late last week, news came out that the mystery company was the largest healthcare insurance company in the United States and US Foundational Stock UnitedHealth.
As the late Charlie Munger once said, if you cannot handle 50% or larger drawdowns in equities, you deserve the subpar returns you are likely to get.
This is a harsh statement, one of the harsher ones he made, but it does reflect the reality of the situation when it comes to stocks. While many retail investors sold the company at a loss due to the volatility, Berkshire saw it as an opportunity and scooped up around $1.6B in shares.
The announcement triggered the typical “Buffett Bounce.” UnitedHealth’s shares jumped by 13.5%. Despite all of the issues United is going through at the time, Berkshire’s move clearly signals confidence in the company’s long-term resilience and recovery.
Remember, Berkshire takes positions assuming multiple-decade-long time horizons, not the next 6 months or the next few years.
The one thing I find amusing about this whole situation is Berkshire has been selling off as of late due to Buffett’s stepping down as CEO and the fact that the company might eventually lose its touch as a strong capital allocator.
Yet on the flip side, money pours into UnitedHealth when Berkshire takes a position.
It is ironic that the same market participants that are discounting Berkshire’s future skill instantly reward another company simply for being chosen by Berkshire today.
Overall, I like the deal for Berkshire. I believe United is facing some extensive negative sentiment, and if profitability restarts in 2026, shares are likely still discounted.
Earnings
Boyd Group Services (TSE:BYD)
I will go over Boyd first, as it has been a Value Call here at Premium in multiple instances. This quarter had some strong signals of a potential turnaround in the operating environment, and some upbeat commentary from management confirms it further.
I have been accumulating a position in Boyd over the last few years with the expectation it will get back to being one of the best compounders on the index.
The quarter wasn’t flashy by any stretch. Which may have some people wondering why it jumped by 12%~ on earnings day.
This is a margin recovery in motion, and the volume headwinds that have plagued the sector might finally be subsiding.
Cost initiatives the company put in place are starting to come to fruition, new shop growth is accelerating, and it is fairly clear managements confidence is increasing. This quarter could be a potential indication that Boyd is finally come out on the other side of the brutal environment it’s been in for a year or two.
Revenue came in flat at $780.4M and same-store sales were down 2.1%.
On the surface this looks bad. However, the industry as a whole is declining by anywhere from 6-8%, suggesting Boyd is way ahead of the industry and continuing to capture market share during a rough environment.
Gross margin jumped 120 bps to 46.8%, adjusted EBITDA rose 4.7% to $93.8M and EBITDA margins came in at the highest level the company has posted since 2023. Earnings came in at $0.50, slightly below expectations, due to higher depreciation and finance costs.
One interesting piece of commentary from management on the conference call is that thus far, through the third quarter, they were realizing an increase in same store sales. It’s a bit too early to say with confidence this will continue through the entire third quarter, but if it does, it is a big sign of a turnaround.
The company’s “Project 360” plan, which was simply a goal a year ago to cut costs down and improve margins, is finally starting to actually show in the company’s results. The company is already realizing $30M~ in annual savings from improvements to the labor model, improved sourcing of parts, and pricing improvements with insurers. They expect these savings to hit $70M a year by the end of 2026, and $100M~ total by the end of 2029.
Boyd added 53 new shops year-over-year including its first Multi Shop Operator since 2021, an 8-shop regional operator in Virginia.
The company hit a significant milestone on the quarter, that being 1000 shops, and plans to expand to 1,400 total by the end of 2029.
Industry-wide repairable claim counts are still soft, but two vital reported numbers suggested the environment is changing.
Used car prices increased by 2.8% year-over-year, ultimately lowering the amount of total loss decisions insurance companies have made, leading to more repairs versus writeoffs.
Insurance premium inflation dropped to 5%, which is down from nearly 20% a year ago, which could suggest some relief to consumers, ultimately leading to potentially lower deductibles and more claims.
Overall, on the surface results are still soft, but the main thesis behind Boyd at this point in time is the fact it is being dragged down by things it really has no control over. That being used auto prices and overall insurance prices.
Almost every number this quarter points to the environment improving, and if the company reports a strong third quarter, I do believe the discounted valuation gap I’ve spoken about numerous times over the last year will close. Margins are accelerating faster than expected, July comparable sales turned positive, and macro conditions (used car pricing, insurance premiums) are easing. Tuck-in mergers and acquisitions are active again, highlighting the fact the company is comfortable deploying capital, another sign of a potential turnaround.
Click here to read my full report on Boyd
Franco Nevada (TSE:FNV)
Franco-Nevada posted a strong second quarter, driven by high gold prices and meaningful contributions from newly acquired assets. There is zero doubt an extensive amount of tailwinds for this company at this point in time, especially considering the state of its balance sheet (zero debt) which allows it to acquire meaningful deals with no financing expenses.
The company reported record quarterly revenue of $369.4 million, up 42% year-over-year, the bulk of this due to a 42%+ surge in gold prices. One thing you will notice is that revenue and EBITDA are now well above late 2023 levels, which would have had Cobre Panama operations in it.
Adjusted EBITDA increased 65% to $365.7 million, and adjusted net income also grew 65% to $238.5 million, or $1.24 per share. Total GEOs (Gold Equivalent Ounces) sold increased 2% to 112,093.
For those who might now know, Franco Nevada has a very diverse streaming portfolio, including things like oil and gas. To make things a bit easier to report, it converts sales like silver, oil, etc, to Gold Equivalent Ounces to it can just report one single sales number.
The company’s oil and gas segment continues to struggle, which isn’t all that surprising considering the price of many energy-based commodities.
However, precious metals accounted for 82% of revenue, so the vast majority of the business is firing on all cylinders (see chart below for precious metal revenue).
The company made some moves on the royalty front, completing its $1.05 billion acquisition of a royalty on Côté Gold and later acquiring a 1% royalty on AngloGold’s Arthur project in Nevada for $250 million. The Arthur project is one of the most promising new gold districts in North America.
Management confirmed it is on track to meet full-year guidance of 465,000 to 525,000 total GEOs, with 385,000 to 425,000 from precious metals. The company also managed to get around 10,000 GEO’s of gold from the Cobre Panama mine that were released, which will likely have it hitting guidance on the higher end, however it has not factored these into its guidance overall.
Cash costs per GEO came in at $299, compared to $264 a year ago, with rising gold prices helping to expand margins. Margin per GEO was nearly $3,000 per ounce on the quarter. And yes, you read that right. $300~ an ounce costs versus $3300~ realized gold prices, resulting in margins approaching 90%.
As you’ll notice by the chart below, this is materially higher than 10 years ago, and notable upgrades over the last half decade.
The company’s deal pipeline is strong, and cash flow generation, now around $1.6 billion annually, combined with zero debt means they have an extensive amount of flexibility when it comes to acquiring new deals.
Some comments on Cobre. They mentioned on the conference call that there seems to be more public support for the mine re-opening, and the president of Panama has mentioned that they are now more open to getting the mine back up and running. A lot more open than they were a year ago. If you remember, when the mine got shut down in late 2023, it resulting in a 20%~ hit to Franco Nevada’s EBITDA. Look to the chart below.
I’m certainly not banking on the mine re-opening, but if I were to guess the chances, I’d say it is around 10%. A year ago, I would have suggested 1% would have been high. If the mine does get re-opened and stays open, this will result in a material increase to Franco Nevada’s EBITDA, and I have little doubt its share price would react positively.
It is not a core part of my thesis whatsoever, but would certainly be a cherry on top of a rock-solid compounder.
Overall, Franco-Nevada has executed well for many years, and is now reaping the benefits of skyrocketing gold prices. It should be able to parlay that strong cash flow into further deals, which will ultimately compound earnings, even if gold prices do take a step back.
