Headquartered in New York, NY, Foot Locker is a leading operator of retail apparel and athletic footwear stores. The company offers merchandise under the names of Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Kids Foot Locker, Runners Point, and Sidestep.
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Dick Johnson, who joined the company in 2003, is the CEO and Chairman of the Board.

Founded in 1974, Foot Locker is a leading global athletic retailer operating approximately 3,200 stores in 27 countries. Unlike their competitors, Foot Locker focuses on high end sneakers and athletic footwear with a higher profit margin. Their company strategy is to generate long-term growth by empowering youth culture across communities. They demonstrated this with the opening of their Detroit store where they teamed with local artists, musicians, and athletes on store decoration, design concepts, and apparel offerings geared towards greater community and local youth connection.

Over the next four years, Foot Locker is planning to aggressively invest in mobile and digital interaction technology to improve their adjustability to core customer shopping patterns. They will also revise merchandising and sales strategies with their main suppliers (e.g., Nike and Adidas). For example, in their newest New York City store in Washington Heights, Foot Locker customers can download the NikePlus app for product information and shoe availability—the first time Nike has made available their shopping technology to a third-party store. Customers can also use the Foot Locker app directly to shop for apparel and shoes across all brand offerings, and reserve forthcoming shoes prior to their in-store launch.
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Simultaneously, Foot Locker is shrinking their mall footprint from 80% to 70% of physical stores and increasing their standalone ‘power store’ format. These larger store concepts include design features and apparel offerings that reflect local communities and support the more interactive shopping experience. They include expansion across Asia, where the sneaker culture continues to gain popularity. In 2018 they opened a new power store in Hong Kong, and added digital platforms by partnering with Alibaba’s Tmall.com, which sells to Chinese consumers. These growth initiatives set the company up to deliver strong returns on capital, consistent profits, and dividend growth for shareholders in the coming years.

Foot Locker is trading at very attractive valuation levels. At their current sales and cash flow multiples, they are trading at roughly a 20% discount compared to their historical operating performance. Investor concerns over changing consumer shopping behavior surrounding physical mall locations are putting pressure on their shares. We realize that consumer shopping behavior is changing. Based on our analysis, we feel the market is overly pessimistic regarding the future of Foot Locker. If our analysis is incorrect, we believe there is a large margin of safety built into their current price.
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Risks we will monitor going forward include the company’s transformation from a traditional brick-and-mortal footprint to a digital one promoting local community experience, and Foot Locker’s relationship with their suppliers (e.g., Nike). Weighing both potential rewards and risks, we are optimistic that Foot Locker is a good long-term investment.

​Cairn Investment Group and its affiliates (“Cairn”) produces Company Spotlight reports (“Reports”) for its clients and the general public. The Reports are impersonal and do not provide individualized advice or recommendations for any specific investor or portfolio. Investing involves substantial risk. Cairn makes no guarantee or other promise as to any results that may be obtained from using the Reports. Past performance should not be considered indicative of future performance. No reader should make any investment decision without first conducting his or her own research and due diligence. At various times Cairn may own, buy or sell the securities discussed for purposes of investment or trading. Cairn disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in the Reports prove to be inaccurate, incomplete or unreliable or result in any investment or other losses.

The Reports commentary, analysis, opinions, advice and recommendations represent the then current views of Cairn, and are subject to change at any time. The information provided in the Reports is obtained from sources the author believes to be reliable. However, the author has not independently verified or otherwise investigated all such information.

​This is not a solicitation or offer to buy or sell any securities. Cairn does not receive any compensation from any of the companies featured in the Reports. Any redistribution of the Reports or the information contained therein, without the written consent of Cairn is strictly prohibited.

Cognizant Technology Solutions, a global IT services company, partners with clients worldwide to provide technology solutions to transform and modernize digital needs. Headquartered in Teaneck, NJ, Cognizant operates under four segments: financial services; healthcare; products and resources (retail, manufacturing, travel, energy); and communications, media, and technology.
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Cognizant’s new CEO, Brian Humphries, recently joined the company from Vodafone Business, where he also served as CEO.

Cognizant Technology Solutions focuses on transforming the current and ongoing digital needs of their clients. Their global consulting team works closely with clients to develop digital platforms and solutions to increase operational efficiencies, while securing and modernizing their businesses. Due to the integrated nature of their IT work, Cognizant rapidly becomes engrained in client operations, making the costs of switching to a competitor high, and facilitating enduring client relationships.

Over the last five years, Cognizant led the industry in revenue growth, averaging over 12% compared to single digit growth for primary competitors Accenture and Infosys. This high growth combined with solid client relationships expedited their becoming a large player in the global IT services and consulting arena.

Cognizant Technology Solutions is trading at a large discount compared to their historical operating performance. Investor concerns over the recent CEO leadership change, and slower near-term growth in their two largest segments (financial services and healthcare), weighed on shares. We feel this is a short-term issue and presents an opportunity as the company has proven to operate at a high level, producing consistent growth over the long-term. Even with modest growth assumptions over the next business cycle, the company is trading at roughly a 20% discount to our fair value calculation. If our assumptions are incorrect, we believe this provides a margin of safety.

Risks that we will monitor going forward include growth in the overall IT consulting market, and Cognizant’s current upper management transition.
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Weighing both potential rewards and risks, we are optimistic that Cognizant is a good long-term investment.

​Cairn Investment Group and its affiliates (“Cairn”) produces Company Spotlight reports (“Reports”) for its clients and the general public. The Reports are impersonal and do not provide individualized advice or recommendations for any specific investor or portfolio. Investing involves substantial risk. Cairn makes no guarantee or other promise as to any results that may be obtained from using the Reports. Past performance should not be considered indicative of future performance. No reader should make any investment decision without first conducting his or her own research and due diligence. At various times Cairn may own, buy or sell the securities discussed for purposes of investment or trading. Cairn disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in the Reports prove to be inaccurate, incomplete or unreliable or result in any investment or other losses.

The Reports commentary, analysis, opinions, advice and recommendations represent the then current views of Cairn, and are subject to change at any time. The information provided in the Reports is obtained from sources the author believes to be reliable. However, the author has not independently verified or otherwise investigated all such information.

​This is not a solicitation or offer to buy or sell any securities. Cairn does not receive any compensation from any of the companies featured in the Reports. Any redistribution of the Reports or the information contained therein, without the written consent of Cairn is strictly prohibited.

​Headquartered in Cambridge, MA, Biogen is a biopharmaceutical company that specializes in the discovery and development of drugs for people suffering from neurological and autoimmune diseases. Their core business is a portfolio of medicines to treat multiple sclerosis (MS) and spinal muscular atrophy. Their CEO since 2017, Michel Vounatsos, was previously with Merck for 20 years.

According to NeurologyToday, neurological diseases are the leading cause of disability worldwide. Founded in 1978, Biogen rapidly became a global leader in developing medicines to treat serious neurological diseases. They have the largest portfolio of treatment options for MS, and an estimated 35% of MS patients globally use Biogen medicines. Their core MS medicine business coupled with continuous development of drugs for other neurological diseases including dementia provides them with robust growth potential moving forward. Within the next few years, the company intends to expand their neurological portfolio to better address neuromuscular diseases, strokes, and movement disorders. Biogen’s disciplined capital allocation framework and high research and development spending (19% of revenue) provides the potential for consistent growth. 

Biogen is trading at a large discount compared to their historical operating performance. Investor concerns caused the price move in March of 2019 after the company abandoned a late stage Alzheimer’s drug. While disappointing, and given the current price, we feel we are buying their still-expanding core MS business for free, and benefitting from future growth potential on their remaining portfolio. Even with modest growth assumptions over the next business cycle, the company is trading at a 20-30% discount to fair value. If our assumptions turn out to be incorrect, we believe this provides a margin of safety.
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Risks that we intend to monitor going forward involve regulation of drug prices and pipeline development. Weighing both potential rewards and risks, we are optimistic that Biogen is a good long-term investment.

Headquartered in Calabasas Hills, CA, The Cheesecake Factory is involved in the restaurant and baking industry. David Overton, CEO and Chairman of the Board, founded the company with his parents in 1978. Today they own and operate over 200 upscale yet casual dining restaurants in 36 states and Puerto Rico under the names ‘The Cheesecake Factory,’ ‘Grand Lux Café,’ ‘RockSugar Southeast Asian Kitchen,’ and ‘Social Monk Asian Kitchen.’

With strong brand recognition and customer loyalty, The Cheesecake Factory is a leader in the upscale, casual, and eclectic dining space. In 2018, their sales surpassed US$2.3 billion. Though mature, the company’s core Cheesecake Factory brand offers consistent sales growth and cash flows which they supplement by diversifying their restaurant portfolio across dining concepts. Fueling growth outside of their core brand, expansion plans involve healthy but fast casual dining opportunities via the brand Flower Child, which features locally sourced ingredients for vegetarian and vegan customers, and Social Monk, which is a modern Asian kitchen experience. They additionally hold a minority stake in North Italia, which focuses on upscale, made-from-scratch Italian cuisine in a modern urban atmosphere. The Cheesecake Factory plans to acquire the entire brand in late 2019 and open six new North Italia restaurants per year over the next few years (there 
are currently 23 locations).

The Cheesecake Factory is trading at attractive valuation levels. At their current sales and cash flow multiples, they are trading at a 20% discount compared to their historical operating performance. Investor concerns over rising wage costs and core brand growth are putting short-term pressure on shares. Based on conservative growth assumptions that The Cheesecake Factory will grow cash flows in tandem with broad economic growth, shares should be valued at close to $65, not the mid $40’s. These growth rate assumptions are much lower than their historical operating performance. If our assumptions turn out to be incorrect, we believe this supplies a margin of safety.
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Risks that we will monitor going forward involve growth rates of new concept restaurants and wage inflation pressures. Weighing both potential rewards and risks, we are optimistic that The Cheesecake Factory is a good long-term investment. 

​Cairn Investment Group and its affiliates (“Cairn”) produces Company Spotlight reports (“Reports”) for its clients and the general public. The Reports are impersonal and do not provide individualized advice or recommendations for any specific investor or portfolio. Investing involves substantial risk. Cairn makes no guarantee or other promise as to any results that may be obtained from using the Reports. Past performance should not be considered indicative of future performance. No reader should make any investment decision without first conducting his or her own research and due diligence. At various times Cairn may own, buy or sell the securities discussed for purposes of investment or trading. Cairn disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in the Reports prove to be inaccurate, incomplete or unreliable or result in any investment or other losses.

The Reports commentary, analysis, opinions, advice and recommendations represent the then current views of Cairn, and are subject to change at any time. The information provided in the Reports is obtained from sources the author believes to be reliable. However, the author has not independently verified or otherwise investigated all such information.

​This is not a solicitation or offer to buy or sell any securities. Cairn does not receive any compensation from any of the companies featured in the Reports. Any redistribution of the Reports or the information contained therein, without the written consent of Cairn is strictly prohibited.

Headquartered outside of Chicago in Deerfield, Illinois, Walgreens is one of the largest pharmacies in the United States, with nearly 9,600 locations in all 50 states, Puerto Rico, and the US Virgin Islands. Founded in 1901, Walgreens has three arms: retail US pharmacy, retail international pharmacy, and wholesale pharmaceuticals.

Walgreens CEO, Gregory Wasson, is serving his tenth year.

The Walgreens Company purchased United Kingdom-based Alliance Boots (pharmacy and distribution services) in 2014, becoming the Walgreens Boots Alliance Inc. This acquisition cemented their position as a global leader in retail pharmacy, health, and wellness services. In the US and US territories, Walgreens operates nearly 9,600 pharmacy locations that focus on prescription drug fulfillment and sale of household goods. In 2017, Walgreens filled around 20% of prescription drugs in the US, accounting for around 70% of their revenue.
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Due to the large disparity in revenue between pharmacy and retail household goods, Walgreens is partnering with other companies such as Kroger to expand their grocery offerings, and United Health Group’s MedExpress to introduce clinical services at their locations. These initiatives are expected to increase top line sales, and counterbalance their more mature pharmacy business. Large cash generation allows Walgreens to reward shareholders through dividend increases and strategic share buybacks. 

Walgreens is trading at very attractive valuation levels. At their current sales and cash flow multiples, they are trading at roughly a 30% discount compared to their historical operating performance. Investor concerns over Amazon entering the health care space is putting short-term pressure on Walgreen shares. Based on conservative growth assumptions that Walgreens will grow cash flows at 3% in the near future, Walgreens should be valued at close to $88, not the low $60s. These growth rate assumptions are much lower than their historical operating performance. If our assumptions turn out to be incorrect, we believe this provides a margin of safety.
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Risks that we will monitor going forward surround the ever-changing landscape of health care services and the continued results from Walgreens’ growth initiatives. Weighing both potential rewards and risks, we are optimistic that Walgreens Boots Alliance is a good long-term investment. 

Headquartered in Bellevue, WA, PACCAR is a global leader in the design and manufacturing of light, medium, and heavy-duty trucks. The trucks are sold worldwide under the Kenworth, Peterbilt, and DAF names. PACCAR also designs and builds engines and powertrain components for its own use, and for sale to third parties.
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Ron Armstrong has been the CEO since 2014 and has spent over 20 years with the company.

Originally founded in 1905 as a railway and logging equipment manufacturer, PACCAR became a heavy-duty truck manufacturer in 1945 with its acquisition of Kenworth. Since this transition over 70 years ago, PACCAR has become the global leader in truck manufacturing. Their high degree of product customization and brand name recognition has allowed them to maintain a strong competitive advantage. As an example, PACCAR controls over 30% of the heavy duty truck market share in the U.S. and Canada while generating operating margins in excess of the major competitors on a consistent basis. Over the last 18 months PACCAR has been focused on technological advancements with the opening of their Innovation Center in Northern California. This group has partnered with chip maker, NVIDIA, to develop self-driving technologies for trucks, and has developed hydrogen-fuel-cell powered trucks which emits only water vapor at the tailpipe.

PACCAR’s strong balance sheet, focus on operational efficiency, and consistent cash flow generation (over $2 billion annually) allows them to invest in projects that will continue their leadership position in heavy duty trucks.

PACCAR is trading at attractive valuations compared to both historical operating performance and to free cash flow projections. PACCAR is trading at 1.09 times sales and 9 times operating cash flows which is over a 15% discount compared to its five and ten year averages. We expect the company to grow free cash flow along with overall economic growth which is averaging 2% after inflation. This is well below their historical growth rate as the economic cycle shifts towards the later stages of growth. If our conservative assumptions turn out to be overly optimistic, there is a margin of safety built into the current price based on the company’s current valuation compared to its historical operating performance, and strong financial position.

Risks that we will monitor going forward surround market share strength and growth in the heavy truck market. Weighing both potential rewards and risks, we are optimistic PACCAR will be a good long-term investment.

Headquartered in Kansas City, MO, Cerner is a supplier of health care information technology solutions and services. Cerner is a leader in electronic medical records solutions for hospitals and health clinics worldwide.
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Brent Shafer took over as CEO on February 1, 2018 after the passing of Co-Founder and CEO Neal Patterson. Mr. Shafer joined Cerner after serving as CEO of Phillips North America.

Founded in 1979, Cerner is a global leader in healthcare IT solutions. Cerner enjoys a strong competitive advantage due to the high costs for customers to change to a competitor and long lead times for sales and product implementation. They are the number two provider of electronic medical records systems and services to hospitals, and the number one provider across the entire medical field. The company’s customer base is well diversified across numerous private companies and public entities. Recently, Cerner has gained contracts with the U.S. government starting a multi-year transition to the Cerner platform for the Department of Defense. Cerner is also a strategic partner with Adventist Health (an OHSU partner), in charge of the company’s day-to-day operation of their revenue management and clinical IT staff.

Cerner has been very conservative with their capital allocation strategy, choosing to reinvest most cash flows back into the business to remain competitive with software and solutions research and development. The company’s operating performance has been very strong over time. The firm generates high operating margins, averaging 19% over the previous 5 years.

The firm also generates over $700 million annually in free cash flow and has historically had a return on capital in the mid-teens. Their strong financial performance combined with their high quality balance sheet allows the company to fund operations internally, which we find attractive at this stage of the economic cycle.

Cerner is trading at attractive valuations compared to both historical operating performance and to free cash flow projections. Cerner is trading at 3.7 times sales and 11.9 times operating cash flows which is over a 20% discount compared to its ten year average. On a free cash flow basis, we expect the company to grow free cash flow on average at 9% annually, below its current growth rate of 20% over the previous 10 years, due to a more challenging health care spending and regulatory environment. If our conservative assumptions turn out to be overly optimistic, we feel there is a large margin of safety built into the current price based on the com­pany’s current valuation compared to its historical operating performance, and strong financial position.

Risks that we will monitor going forward surround market share strength and new client additions. Also, we would like to see the company continue to spend most of their excess cash on research and development to remain competitive. Weighing both potential rewards and risks, we are optimistic Cerner will be a good long-term investment.

Headquartered in Dublin, OH, Cardinal Health is a pharmaceutical distribution and medical device company. The company provides its services to healthcare providers, pharmacies, and pharmaceutical manufacturers.
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With the company since 1990, Mike Kaufmann became CEO on January 1, 2018. 

Cardinal Health is the third largest pharmaceutical distribution company by revenue behind McKesson and AmerisourceBergen. The company is the largest supplier to CVS pharmacies. In 2014, the two companies started a joint venture for generic drug sourcing and distribution, forming the largest generic drug sourcing entity in the US. The high barriers to entry in this space allows Cardinal Health to produce consistent and stable operating results as their large distribution network would be hard to emulate for a new company entering the market. In recent years, the company has expanded into medical device manufacturing and distribution via internal development and acquisition of Medtronic’s patient recovery business (professional products for patient care). This 2017 acquisition furthers their focus on higher margin medical products and distribution, generating roughly $2.4 billion in additional sales. The acquisition will complement the company’s strong supply chain management and large customer relationships allowing them to generate significant cash flows even in a low margin business.

Cardinal Health is trading at a discount compared to its historical valuations and below fair value based on scenario analysis of free cash flow growth. Cardinal Health has a dividend yield of 2.75% and generates over $1.5 billion in free cash flow to give them the flexibility to continue to raise their dividend over time. On a free cash flow basis, we expect the company to grow cash flow at 3.0% annually over the next decade. This is below its historical growth rate due to higher pricing pressure on pharmaceuticals and high revenue concentration. Modeling our conservative assumption places a price of $80 on shares, which is almost a 21% premium, based on the price as of the date of this report. If our conservative assumptions turn out to be overly optimistic, we feel there is a margin of safety built into the current price based on the company’s high returns on capital and strong cash flow generation.

Though Cardinal Health has only two main competitors in the pharmaceutical distribution business, it is a highly competitive environment. We would like to see continued discipline in regard to capital spending while continuing to grow their dividend. Continued focus on the company’s revenue breakdown, along with integration among its recent acquisition, will be areas to monitor closely.
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Weighing the potential rewards and risks, we are optimistic that Cardinal Health will be a good long-term investment. 

Headquartered in Houston, TX, Occidental Petroleum is an international oil/gas exploration and production company with operations in the US, Latin America and the Middle East. The company operates three segments: oil/gas exploration, chemicals, and midstream/marketing.
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With the company for over 35 years, Vicki Hollub became CEO in 2016.

​Occidental Petroleum is the largest producer of oil in the Permian Basin (New Mexico and Texas). Since 2013 they have been reorganizing their asset base focusing on acquiring low cost, high return assets in the Permian Basin. This included spinning off their California oil/gas assets into a separate company, selling their non-core assets in the Middle East and North Dakota, further concentrating their effort in the lucrative Permian Basin. This strategy has strengthened the company’s profitability potential even if oil/gas markets come under pricing pressure. Occidental Petroleum also operates a chemicals segment, accounting for 35% of sales, manufacturing basic chemicals and vinyls.

Occidental Petroleum is trading in line with their historical valuations and below fair value based on scenario analysis of free cash flow growth. Occidental has a dividend yield of 4.46% and generates over $1.3 billion in free cash flow, giving them the flexibility to continue to raise their dividend over time. The company forecasts their cash dividend will be raised if West Texas Intermediate (WTI) crude oil stays over $50 per barrel with the current dividend maintained at a WTI price above $40.00 per barrel. On a free cash flow basis, we expect the company to grow cash flow in the mid-single digits over the next decade, due to the company’s shift to higher margin assets. Modeling our conservative assumption places a price of $80 on the shares which is almost a 20% increase based on the share price as of the date of this report. If our conservative assumptions turn out to still be overly optimistic, we feel there is a margin of safety built into the current price based on the company’s strong cash flow generation and balance sheet.

As we continue to monitor our investment in Occidental Petroleum, we would like to see continued discipline in regards to capital spending and their amount of leverage while continuing to grow their dividend. Continued focus on the company’s revenue breakdown and operating margins will be areas to monitor closely.

Weighing the potential rewards and risks, we are optimistic that Occidental Petroleum will be a good ​long-term investment. 

​Headquartered in Issaquah, WA, Costco Corp. operates warehouse wholesale-membership stores. Through its stores it offers a variety of grocery products, clothing and other household goods.

​Craig Jelinek has been the CEO since 2012 and has been with Costco for over 20 years.

Costco operates over 740 warehouses worldwide with over 200 stores outside the U.S. Costco offers over 90 million members a variety of household goods at low prices. According to Costco they are the 2nd largest retailer in the world with over $126 billion in sales for their 2017 fiscal year. Costco’s key strategy is to grow revenue through offering low prices on a number of bulk items. As an example, Costco sold $7.5 billion in meat and $1.6 billion in seafood during their 2017 fiscal year. 

Costco has a broad footprint across the U.S. with most warehouses located in larger populated suburban areas. With only 4% of sales currently via the internet, there is ample ability to expand their e-commerce business as more customers shift to an experience called “click and collect” in which they buy on line and then pick-up in the store.

Costco has demonstrated consistent operating performance across many financial metrics. Though the grocery and retail business is fiercely competitive, Costco manages to generate high returns on capital (averaging over 13% during the last 5 years) and free cash flow generation. This allows the company to continue to invest in future growth initiatives (e-commerce and international expansion) while rewarding shareholders via an increasing dividend.

Costco is trading at premium valuations compared to historical operating performance and peer group. As of the date of this report, Costco traded at over a 15% premium to its historical ten year sales multiple. Based on numerous free cash flow growth possibilities, we’ve assumed an overall compound annual growth rate (CAGR) in free cash flow of 7.0% over the long-term. This blended growth rate is well below the growth rate achieved historically. This reflects conservative assumptions based on increasing competition from new entrants into the market, such as Amazon, and pricing pressures from existing competitors like Walmart. Based on the probability of different growth rates for the company going forward, even our most optimistic outlook does not support the company’s current valuation, therefore caution is warranted.

Costco is a well-managed, high quality company but with the increased risk of competition and the company’s elevated valuation we feel new investments in Costco should be deferred until valuations are more in line with the company’s operating performance. 

​Cairn Investment Group and its affiliates (“Cairn”) produces Company Spotlight reports (“Reports”) for its clients and the general public. The Reports are impersonal and do not provide individualized advice or recommendations for any specific investor or portfolio. Investing involves substantial risk. Cairn makes no guarantee or other promise as to any results that may be obtained from using the Reports. Past performance should not be considered indicative of future performance. No reader should make any investment decision without first conducting his or her own research and due diligence. At various times Cairn may own, buy or sell the securities discussed for purposes of investment or trading. Cairn disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in the Reports prove to be inaccurate, incomplete or unreliable or result in any investment or other losses.

The Reports commentary, analysis, opinions, advice and recommendations represent the then current views of Cairn, and are subject to change at any time. The information provided in the Reports is obtained from sources the author believes to be reliable. However, the author has not independently verified or otherwise investigated all such information.

​This is not a solicitation or offer to buy or sell any securities. Cairn does not receive any compensation from any of the companies featured in the Reports. Any redistribution of the Reports or the information contained therein, without the written consent of Cairn is strictly prohibited.