WMT - Walmart Inc

[valueinvestor82]

I appreciate your thoughtful response. The problem is, Amazon spends roughly 10% (WACC) to earn 5%, and the highly touted "AWS" doesn't make the money that they claim. Fulfillment centers won't change the fact that they suck at being a PROFITABLE low cost retailer. They sell items at losses, the numbers show this. So I think Walmart will simply need to outlast their ability to have massive debt financings every few years as their assets reach their 3-4 year end of their useful lives (see end of 2014 financing) and wait for stock to be insufficient to pay employees, and Amazon will gradually end up being something different than it is today, if it is to survive.

 

I am both an Amazon customer and a Walmart customer, and I know that I will stop using Amazon the moment I can get the same price on my purchase along with immediate gratification by driving a few blocks down the street.

[Parsad]

Amazon is going to eat Walmart's lunch one day...12-15 years from now!  So if you plan on holding Walmart for 20 years, you might be in trouble. 

 

Now, I don't know how many times I've said this before, but there is a big difference between the long-term viability of a business and whether it is a good short-term investment.  In this case, without hesitation, only a fool would believe that Amazon is the better investment based on valuation, fundamentals, revenue, earnings, cash flow and net profit. 

 

I'm sure self-driving cars are going to significantly impact Geico's business one day, but is that going to make Geico unprofitable over the next 10-15 years?  Probably not.  Cheers!

[johnny]

Yeah, there is definitely a price where it makes sense to buy a company that is going to slowly die, but that's not the sort of rationale I typically hear invoked when people talk about Walmart. More than anything less, people seem to have a "worst case" scenario of the company where its revenues, margins, and therefore net income simply stagnate and it turns into a perpetual bond.

 

So if you're comfortable with the idea that Amazon is the future, there two important inputs are:

 

1. How will Walmarts revenue decay over time? and

 

2. Will the giant stores and operating leverage come back to haunt Walmart when those revenues start decreasing? How badly will the economics of a given Walmart store be impaired when they lose 10% of their traffic?

 

Just to break out of bear character for a second, I think a reasonable argument can be made that the Amazon model is not a universal one, and that it only really works at or above a specific population density. And given how much of Walmart's sales originate from rural America, I'd say it is reasonable that those are relatively safe customers for a while. Certainly Amazon's last-mile delivery integration (which forms a pretty important component of my "scale advantage" argument) is limited to only the largest US cities for now.

[Peregrine]

Interesting how people get more negative on a stock and find reasons to rationalize that sentiment when the stock is down.

[Picasso]

Personally, I think the current price of WMT is insane when you look at valuations across the rest of the market.

 

You have the low cost retailer doing close to $500 billion of sales.  In ten, twenty years from now WMT is going to crack sales over a trillion.  They actually return 100% of free cash flow back to shareholders.  They have generated large returns on capital for decades. They still generate 12-15% returns on invested capital.  Like Amazon they also have negative working capital.  Free cash flow over the next few years will amount to around $50 billion.  They own close to a billion square feet of real estate.  They have other hidden assets like Walmex.  Less than a couple years ago, the entry of a Walmart store would push up the prices of nearby real estate. 

 

But the market thinks this is only worth $180 billion, or less judging how the market expects the stock to keep falling.  If Walmart is screwed where else are we supposed to invest?

[handycap5]

can someone who owns the stock explain why they find it attractive, possibly including a EPS number something similar a few years out with which they are quantifying the attractiveness?

 

negative operating leverage at the store level is a scary development. competing against a superior offering who offers lower prices, may have lower costs, and is willing to do so at a lower margin is a scary competitive dynamic. and the impetus to feel like you have to compete by significantly increasing investment is maybe good money after bad (and may come in the form of investment by lower profits). but price is cheap. please help me...

[Picasso]

can someone who owns the stock explain why they find it attractive, possibly including a EPS number something similar a few years out with which they are quantifying the attractiveness?

 

negative operating leverage at the store level is a scary development. competing against a superior offering who offers lower prices, may have lower costs, and is willing to do so at a lower margin is a scary competitive dynamic. and the impetus to feel like you have to compete by significantly increasing investment is maybe good money after bad (and may come in the form of investment by lower profits). but price is cheap. please help me...

 

I think you have a situation where the market is ignoring the long-term cash generation, assigning some low multiple to what might be trough earnings, and assuming the long-term value of WMT is now impaired.  That's not how I'm looking at the stock.

 

Rather just look at how much cash they can return to shareholders over the next several years and then the next decade and decade after that.  Even if they never grow the same way again and exhibit flat/slightly declining earnings you're going to get your entire investment back in less than ten years.  And if this is a short-term issue (which it probably is) then you're going to make a lot of money over time and this is not the kind of stock you have to worry about selling.

 

There are easy things WMT can do to fix the problem.  Clean up the stores, pay their employees better, make it easier and faster to shop in their stores, etc.  And the spend necessary to fix that is what is causing the drop in EPS for the next few years.  The Amazon effect is debatable but I think that most investors have no idea how the majority of the world shops.  Most people in this country are not as affluent as most of us investors.  So I can see why people want to value Amazon at over a hundred billion over WMT (with no operating profits when adjusting for various things) because it's easier to see the Amazon packages at your neighbors house and the massive growth in revenue. 

 

If I told you the catalyst to see better earnings will come in three years, would you buy the stock?  Most investors would not.  But for someone with a time horizon longer than a few years you can take advantage of the fact that 95% of the market no longer has the patience to wait that long.  And so you have a situation where the current price on WMT stock dramatically undervalued the long-term cash that will be generated on that share price.  EPS in a few years is irrelevant.

 

Obviously the market disagrees with me.

[rpadebet]

I maybe going up against the opinion of some very experienced investors here but I think AMZN will eat WMT's lunch soon unless they get their business model re-oriented. There has been some discussion on this in the AMZN thread but the key reasons why AMZN is a better investment than WMT long term are as follows

 

a) AMZN has developed a better mouse trap for the future. To give a early 20th century analogy, WMT is the best buggy whip manufacturer going up against AMZN's cars.

 

b) Negative WC for AMZN as opposed to low but positive for WMT. Negative WC is form of float, so returns are levered without taking on actual debt. This float grows as long as AMZN grows (like GIECO float) whereas WMT has to invest in WC to grow.

 

c) this is the most important- AMZN is still able to deploy all the cash they generate internally at very high ROIC's. WMT generates a lot more cash admittedly, but pays it out, as reinvestment opportunities in their business model are limited. For an investor AMZN's tax efficient reinvestment is great as we don't have to pay taxes on cash payouts and then find opportunities to reinvest ourselves. Usually over the long term companies that reinvest internally at high ROIC's tend to perform better than cash cows.

 

Finally, it is a myth that prices at AMZN are low compared to brick and mortar retailer like WMT. Most times the prices are higher or same. There are 2-3 dynamics at play here though 

 

- AMZN given its electronic model can change prices hundreds and thousands of times a day. Try doing this at a WMT store more than once a day (you have to change labels on all aisles- not much fun!)

 

- Selection of products - again the nature of the business model at AMZN lends itself to offer an order of magnitude higher selection than WMT. If you want some rare herbal product for some instance, would you rather search through the aisles at WMT or search for it on the AMZN app? This is actually where AMZN can make their margin, not on the consumer electronics which people focus on.

 

- Convenience - I don't know about others, but as a prime subscriber, unless it is a really beautiful day outside, I find it convenient to order stuff via AMZN store, even if it means I pay a dollar more for cereal or diapers. Driving to the store in rain/snow, finding parking, searching through the aisles, bagging the merchandize and bringing it back home, takes a lot more work and time than searching online, clicking to add to your cart and get things delivered to your doorstep in 1-2 days. (then i can spend the time researching why amzn is better than wmt :) )

 

 

 

[Picasso]

Where do you see positive working capital on WMT?  Maybe we're calculating it different ways.

[dwy000]

I maybe going up against the opinion of some very experienced investors here but I think AMZN will eat WMT's lunch soon unless they get their business model re-oriented. There has been some discussion on this in the AMZN thread but the key reasons why AMZN is a better investment than WMT long term are as follows

 

a) AMZN has developed a better mouse trap for the future. To give a early 20th century analogy, WMT is the best buggy whip manufacturer going up against AMZN's cars.

 

b) Negative WC for AMZN as opposed to low but positive for WMT. Negative WC is form of float, so returns are levered without taking on actual debt. This float grows as long as AMZN grows (like GIECO float) whereas WMT has to invest in WC to grow.

 

c) this is the most important- AMZN is still able to deploy all the cash they generate internally at very high ROIC's. WMT generates a lot more cash admittedly, but pays it out, as reinvestment opportunities in their business model are limited. For an investor AMZN's tax efficient reinvestment is great as we don't have to pay taxes on cash payouts and then find opportunities to reinvest ourselves. Usually over the long term companies that reinvest internally at high ROIC's tend to perform better than cash cows.

 

Finally, it is a myth that prices at AMZN are low compared to brick and mortar retailer like WMT. Most times the prices are higher or same. There are 2-3 dynamics at play here though 

 

- AMZN given its electronic model can change prices hundreds and thousands of times a day. Try doing this at a WMT store more than once a day (you have to change labels on all aisles- not much fun!)

 

- Selection of products - again the nature of the business model at AMZN lends itself to offer an order of magnitude higher selection than WMT. If you want some rare herbal product for some instance, would you rather search through the aisles at WMT or search for it on the AMZN app? This is actually where AMZN can make their margin, not on the consumer electronics which people focus on.

 

- Convenience - I don't know about others, but as a prime subscriber, unless it is a really beautiful day outside, I find it convenient to order stuff via AMZN store, even if it means I pay a dollar more for cereal or diapers. Driving to the store in rain/snow, finding parking, searching through the aisles, bagging the merchandize and bringing it back home, takes a lot more work and time than searching online, clicking to add to your cart and get things delivered to your doorstep in 1-2 days. (then i can spend the time researching why amzn is better than wmt :) )

 

That's all great but why does that make Amazon a better investment today?  Some would argue that everything you've pointed out and more has already been priced into the stock.  The assumptions on growth, margin expansion and reduced spending (which are contrary to each other) that are required to ultimately generate the cash flows that would justify todays price are hardly realistic.

 

I also think the idea that WMT, Target, Costco, Kohls, Macy's, Jet and everyone else will just stand still and let the market slip away from them is somewhat naïve.  They may be slow and cumbersome but they bring a lot of resources and customers to bear.

[rpadebet]

dwy000,

I think we discussed this earlier this year in the AMZN thread, when AMZN was trading around $300 and WMT around $85-90. ;)

 

I don't want to put too much stock in short term performance, but I agree at current prices the odds have shifted a bit. AMZN is higher and WMT is lower, but if you hold for long term, current price wouldn't matter as much to the return you would eventually realize. As Charlie Munger pointed out, in the long term an investors return would tend towards the return on the incremental capital investment either company makes from here on.

 

On the other hand,  if you are playing for a short term mean reversion of both valuations, then I won't argue. I will play that too if the relative valuations get that skewed. :)

 

Btw, to compare apples to apples, you would need to take off about 50-70b off the market value of AMZN attributable to AWS. WMT isn't in that business. Then compare the Gross merchandize value sold annually at each (AMZN's GMV should be adjusted for 3p sales where they only book a % margin instead of the entire sale amount as revenue). AMZN might appear relatively expensive even by that retail EV/GMV metric, but adjusted for growth prospects and reinvestment opportunities, it is reasonable in my opinion.

 

To be totally honest, WMT is no chump. I don't think they will be rolled over that easily, but the tail winds AMZN has (secular 15% ecommerce growth and AMZN taking market share within that, ease of global expansion for e-commerce players as opposed to B&M stores) is just too strong.

 

Scary thing for WMT and even other non-retailers is Bezos is a reinvestment machine. He doesn't care about current reported profts or evidently current cashflows as much (although in his letters he asks investors to focus on cash flows). He will reinvest as much as he can and fast as he can, if there is market share to be taken. In all honesty, I think an unstated goal of AMZN's is to get as close to 0 reported profts as possible each quarter. I too didn't appreciate this sort of capital allocation until I read about John Malone's methods.

 

Bezos is already building the second leg of the stool in AWS (retail being the first leg). He is now getting started on the 3rd leg - Media and advertising. AMZN could easily be bigger than AAPL if Bezos doesn't get hit by a bus in the near future.

 

AMZN has a founder-owner-operator and that is an advantage in itself. I guess if Sam Walton were alive and still running WMT, I would have loved to see these two aggressive businessmen compete. That would be a fight worth paying for.

 

 

[dwy000]

rpadebet - congrats on the share price doubling. Getting good investment gains is really hard so regardless of the reason for it I commend it! 

 

So what's your intrinsic value of AMZN?  If value investing is by definition buying something below intrinsic value, what do you see that value as for Amazon?  It certainly can't be cheap at any price, right?  Why was it cheap at $300 and still cheap (but less so at $600)?  I can't for the life of me figure out the math.

 

Can you also point out how you are calculating ROIC?  Amazon has no cash return (well, $600M after cap leases but not subtracting stock based comp). 

[Picasso]

I'm also curious how he gets positive working capital requirements. WMT has had massive nevative working capital forever.

[rpadebet]

I'm also curious how he gets positive working capital requirements. WMT has had massive nevative working capital forever.

 

Picasso,

I am sorry, I may have got things mixed up. Yes WC is negative for WMT. I was referring to the cash conversion cycle which we discussed on the AMZN thread as well. (it has been negative for AMZN and low positive for WMT)  See the comparative charts in the link below to get an idea of difference in WC management efficiency inherent in the business models. It is also mainly because they take longer to pay their suppliers.

 

http://www.forbes.com/sites/ycharts/2012/03/10/the-cash-conversion-cycle/

 

dwy000,

 

It is really tough to sense sarcasm on internet message boards, but I do sense a little bit in your post. Your instinct maybe right, I might have just gotten lucky. It is difficult to separate luck from skill in a bull market anyway.

 

@300 AMZN was obviously cheap in my opinion when I valued it as described.

@600 it is clearly not as cheap. All I am saying is it might not be as overvalued as people here seem to suggest.If they continue to execute as they have, few years from now there is a good chance even 600 might prove cheap.

 

Regarding your question about ROIC calculation - I estimate it by looking at growth in BV per share.

It was 6.24$ as of dec-2008 and 26.5$ as of end of Sep-2015. It has compounded at 24% approximately in this period

 

Now do the same for WMT - 16.71$ in 10/2008 to 24.53 in 7/2015 (all my data is according to Factset). That is a 5.85% compound. Adjust this for the dividends paid and you will get a compounding close to 8-9%.

 

Obviously future returns will depend upon what rate each company is able to compound in the future. Make what you will out of this, I just think Bezos can reinvest at a better tax adjusted rate than I can from any cash WMT might throw my way.

 

 

 

 

 

[dwy000]

No sarcasm there at all.  I sincerely congratulate you or anyone else who had the guts to take a position in Amazon at $300 and get a double out of it.  Now, I'm not kicking myself for sitting on the sidelines as I often do when I miss a big move, because I still don't understand the rationale behind it. 

 

To your point that it was cheap at $300 in your opinion (and less so now), what was the intrinsic value calculation that you made to get that view?  This is not meant as a "gotcha", it is a legitimate question to see what I'm missing. 

 

From the original discussion on the Amazon board to now, I haven't seen anyone do a realistic intrinsic value calculation that justified the investment.  It was always based on the argument that Amazon will be bigger tomorrow than today and revenues will grow for a long time.  Well, okay, yeah but that doesn't mean it's cheap.  Whenever I tried putting numbers behind it, there was no scenario that was even close to realistic that PV'd back to being a value based investment. 

[johnny]

You have the low cost retailer doing close to $500 billion of sales.  In ten, twenty years from now WMT is going to crack sales over a trillion.  They actually return 100% of free cash flow back to shareholders.

 

Thanks for the thoughts. I appreciate what you have to say, but I have a problem with these two statements.

 

The first is that if you look at domestic Walmart same-store sales for the past FIVE years, here is what you find:

 

2011: -1.6%

2012: +0.2%

2013: +1.8%

2014: -0.6%

2015: +0.5%

 

That is a five year picture, so if you are projecting that Walmart is on track to add $500 billion more annual sales, I think your theory for how that happens needs to reconcile the glorious future with the mediocre past.

 

On management's shareholder-friendly cashflow policies: in this case I think it is coming from a position of weakness and not strength. Look at how the stock has been absolutely punished in the past few months. Why did this happen? Because management indicated that EPS would drop slightly next year while they invested more into the business? What does this say about the sort of shareholders that have been attracted to the company?

 

Since management's options probably just got completely smashed by this recent sell-off, how does this experience shape management's incentives going forward? Why should they ever again subordinate short-term EPS to long term strategic goals? I'd be very afraid that they will have learned their lesson here, and will never again do something so stupid.

 

I am reminded of Dell here: I believe that Dell spent more money on share repurchases than it earned during its entire existence as a public company. This didn't work out very well for most of the investors involved, even though a lot of those repurchases were at bargain prices, from a FCF yield perspective.

 

That said, I think the decay of Walmart is likely to be slow, and there is a very good chance that a buyer at today's prices will have more than a few nice exit opportunities. So I'm not here to hurt anybody's feelings about it. I just think that it is a little too easy to adopt an overly simplistic "here's a business I understand" thesis with Walmart, while simultaneously writing off Amazon as "too complicated".

 

You may find Dreadnoughts to be straightforward and easy to understand, and you may even be able to buy them at bargain prices. But if somebody else is spending all of their time building U-boats, you could still end up with a very mediocre outcome.

[Picasso]

Walmart is going to represent some relatively fixed percentage of the overall economy, whether that is 5, 10, or 20 years from now. Rather than just look at SSS, look at sales per share from 2011 to 2015 and now include another $20 billion of share purchases and another $20 billion of dividends the next three years. That alone is worth at least $12 on a $57 stock. Is the remaining business really worth only $45?  As a WMT shareholder you are going to own a large part of the economy and increasingly more over time based on reinvesting those capital returns.

 

As time goes on either they find a way to maintain or grow SSS as the economy grows or they are going to run into some negative operating leverage. So far we have not even seen evidence of big drops in SSS.  Will that happen and we suddenly find WMT trade for 5x earnings?  Because that is pretty much the only way you lose investing at this price.

 

Investors are assuming that a rapidly rising Amazon stock price while Walmart reinvests capital (funny how Amazon spending money means growth but Walmart spending capital means destruction) and lowers guidance points to the demise of shareholder returns. If Walmart is indeed doomed to poor returns then so if everyone else and you guys are going to be extraordinary rich from Amazon.  You will have then finally  seen mostly everyone else go out of business and Amazon can finally start pulling in higher margins. 

 

Nevermind the fact that Amazon issues a ton of stock at half the price it trades for today and you won't call that an expense.  I suspect we are going to see some more "Buffett lost his marbles investing in WMT, KO, etc" fairly soon. 

[Guest Schwab711]

I'm still looking into WMT but I agree with Picasso, there is a lot to like! AMZN has AWS but I really like WalmartLabs, Sam's Club, WMT Mexico, property ownership (obligatory mention of REIT potential), and WMT's market share lead in grocery. It blows my mind that WMT has negative WC! There are dozens of >$1b companies that list WMT as their top customer by a country mile.

 

If WMT takes some risks with their online site then I could see them steal share. A video/streaming partnership seems likely at some point if they don't already have some. There are still a lot of things I think WMT does better than AMZN because of their distribution network and brick-and-mortar stores (grocery, furniture, clothing/baby stuff, ect). I don't have much more to add right now.

[Picasso]

I mentioned this to someone else but if WMT trades for 10x, they can start creating a REIT at a 5-6% cap rate versus the 10% earnings yield the stock trades for.  900mm square feet of real estate gives them a lot of protection.

 

Anyway who knows if they do it or not but those assets are real and you can unlock them if necessary. 

[valueinvesting101]

I'm still looking into WMT but I agree with Picasso, there is a lot to like! AMZN has AWS but I really like WalmartLabs, Sam's Club, WMT Mexico, property ownership (obligatory mention of REIT potential), and WMT's market share lead in grocery. It blows my mind that WMT has negative WC! There are dozens of >$1b companies that list WMT as their top customer by a country mile.

 

If WMT takes some risks with their online site then I could see them steal share. A video/streaming partnership seems likely at some point if they don't already have some. There are still a lot of things I think WMT does better than AMZN because of their distribution network and brick-and-mortar stores (grocery, furniture, clothing/baby stuff, ect). I don't have much more to add right now.

 

Is it worth for WMT to have high payable on their books? They basically hold this inventory for free but their supplier get paid later. So supplier must be financing these funding gap with short term borrowing. So now you have

 

supplier cost + short term borrowing cost = supplier COGS

Supplier sale price (WMT COGS) - supplier COGS = profit.

 

I guess WMT borrowing cost would be lower than supplier's borrowing cost. Does it make sense for them to push this financing to supplier? Can WMT pay them immediately with short term borrowing on WMT's book but get even lower COGS?

 

[rpadebet]

I mentioned this to someone else but if WMT trades for 10x, they can start creating a REIT at a 5-6% cap rate versus the 10% earnings yield the stock trades for.  900mm square feet of real estate gives them a lot of protection.

 

Anyway who knows if they do it or not but those assets are real and you can unlock them if necessary.

 

I don't know guys, but once you start hoping for a retailers value to be realized through real estate, you are clubbing it with the infamous Sears and Jc penny....

 

Maybe you guys are more pessimistic about wmt than I am. :)

 

I like wmt is investing in growth now. I don't care whether they make their eps. If eps driven investors dump the stock because of this, I will gladly buy. I am yet to see a strong strategic offense being mounted  towards AMZN.  I will be out until I see clear decisive, all in commitment towards that.

 

I guess management change is required to overhaul strategy to such extent. So that could be the investment catalyst here.

[rpadebet]

No sarcasm there at all.  I sincerely congratulate you or anyone else who had the guts to take a position in Amazon at $300 and get a double out of it.  Now, I'm not kicking myself for sitting on the sidelines as I often do when I miss a big move, because I still don't understand the rationale behind it. 

 

To your point that it was cheap at $300 in your opinion (and less so now), what was the intrinsic value calculation that you made to get that view?  This is not meant as a "gotcha", it is a legitimate question to see what I'm missing. 

 

From the original discussion on the Amazon board to now, I haven't seen anyone do a realistic intrinsic value calculation that justified the investment.  It was always based on the argument that Amazon will be bigger tomorrow than today and revenues will grow for a long time.  Well, okay, yeah but that doesn't mean it's cheap.  Whenever I tried putting numbers behind it, there was no scenario that was even close to realistic that PV'd back to being a value based investment.

 

Dwy000,

 

Why do you need to calculate a specific intrinsic value? Does it make a better investment only if you can calculate something exactly? We are not talking about a melting ice cube in AMZN or a steady slow grower w hich can be modeled in excel.

 

Heck I don't even know if their largest business 15y from now will be retailing or aws or media or advertising. Each of these has their own economics and scalability factor.

 

Their retail scale helped incubate aws. Their aws scale along with prime subscription is now helping incubate media. This could eventually help incubate advertising which feeds into retail again. It is the flywheel effect.

 

I can't really figure out what the sell price on such a business should be just yet. Once growth saturates, reinvestment opportunities run out and they start paying dividends or start accumulating cash, I could then hopefully put a sell price on it.

 

 

AMZN is to WMT, what WMT was to SHLD 20-30 years ago. WMT should know that to survive and thrive, they need to drastically reinvent themselves for the next generation. If they are smart they will use their B&M stores and cash flow to fund that reinvention. MSFT had to do this recently. IBM did it a few times and has to do it again. Most good companies figure out they need to do this eventually.

[Picasso]

Walmart actually has a competitive advantage versus JCP or whoever else. Their real estate or other assets are just a form of asset protection on the downside.

 

I supposed the assets that GE or MCD has sold/might sell makes them like JCP in that logic.

 

You also happen to get the low cost leader that will still be generating substantial cash flows iin 10, 20 plus years.

[dwy000]

 

Dwy000,

 

Why do you need to calculate a specific intrinsic value? Does it make a better investment only if you can calculate something exactly? We are not talking about a melting ice cube in AMZN or a steady slow grower w hich can be modeled in excel.

 

 

I don't need specific, down to the penny calculations and I think you understand that.  But there has to be some estimate of intrinsic value or there is no basis to say that it's a buy.  Surely it's not inexpensive at any price, right? So why is $600 too low? or $300? or $20? or $1000?

 

Isn't the whole premise of value investing the idea of buying $1 of value for $0.80 (or cheaper)?  How can you buy something without having a view as to what the true underlying intrinsic value is?  And that value has to be based on some rational view of future revenues and cash flows.

[Guest Schwab711]

Do you think Buffett would rather own 100% of PCP or 17.5% of WMT (both roughly $32b)?

 

17.5% of WMT generated $2.9b in FCF

100% of PCP generated $1.25b in FCF (probably more like $1.4-$1.5b "earnings power")