Seeking Alpha
  • Levy Acquisition Corp.: A Hot Taco At A Not So Loco Valuation

    Summary

    • LEVY, following its acquisition of Del Taco at less than 9x EV/EBITDA, represents a significantly mis-priced security and a compelling opportunity trading at a massive discount to peers.
    • LEVY has a great story to tell, but as a SPAC has been ignored. Bulge-bracket coverage likely in June should close the valuation gap vs. QSR peers.
    • LEVY bears an uncanny resemblance to LOCO. We think LEVY/LOCO represents a compelling pair trade, with an 8x difference in EBITDA multiples.
    • LEVY warrants (LEVYW) appear to offer compelling value and could further amplify returns.
    • We see 50%+ upside to LEVY and 150-200% upside to LEVYW over the next 3-6 months.
  • Sears Hometown And Outlet Stores: A Classic Value Trap Headed To Zero
    PRO Top Idea SHOS Today, 5:00 AM Michael A. Williams 4 Comments

    Summary

    • Initial franchise fees have inflated gross margins and reported EBITDA.
    • SHOS is now running at a loss on an EBITDA basis, and SSS declines are accelerating.
    • A return to profitability is unlikely, and the company's ABL facility expires in 2017.
    • Liquidation analysis suggests common equity recovery of zero.
  • Landauer - New Competitive Product Threatens Core Business
    PRO Top Idea LDR Sat, Mar. 28, 5:00 AM Sleuth Investor 2 Comments

    Summary

    • LDR's Radiation Measurement business drives nearly all of LDR's profits and faces a new competitive threat that could erase more than 50% of EBITDA.
    • We believe Instadose 2, developed by LDR's primary competitor, privately-held Mirion, is ramping up commercial production and will beat Verifii to the market by at least 1 year.
    • LDR hopes to launch Verifii (similar to Instadose 2) in calendar 2016. We are skeptical LDR hits their timeline and think late 2017/2018 is more likely.
    • At a recent industry conference, Mirion noted a waiting list of nearly 195,000 units of Instadose 2 badges (~10% of the market), many of which are currently LDR customers.
    • LDR trades at 10.7x FY15 EBITDA with 3x leverage. We think the stock is worth $5 to $25 and that investors are unaware of the threat posed by Instadose 2.
  • John B. Sanfilippo: Severely Mispriced With Significant Near-Term Upside
    PRO Top Idea JBSS Fri, Mar. 27, 5:00 AM Howie Man 19 Comments

    Summary

    • Trading at a very low multiple for a CPG with high returns, low economic sensitivity, and an attractive growth profile with limited capex needs.
    • Ongoing mix shift leading to significant margin expansion and value creation.
    • Recent overreaction/misunderstanding surrounding immaterial news has created a unique buying opportunity.
    • Stock has +50% upside and potentially upwards of 140% in the event of a sale.
  • Sphere 3D: A Short So Fat, When I Yell 'Hey Kool-Aid!' It Comes Crashing Through The Wall
    PRO Top Idea ANY Fri, Mar. 27, 5:00 AM Keubiko 191 Comments

    Summary

    • Sphere 3D is a recent assembly of four money-losing companies.
    • The majority of the company's valuation is linked to its "Glassware 2.0" virtualization software.
    • I believe the company is setting up for disappointment with material downside in the share price possible, if not likely.
  • Williams Companies: Playing The Gas Infrastructure Super-Cycle
    PRO Top Idea WMB Fri, Mar. 27, 5:00 AM Stanislav Ermilov 23 Comments

    Summary

    • WMB offers top-class capex pipeline to support robust dividend growth for the foreseeable future.
    • Market valuations don't fully reflect the post-merger benefits of WPZ/ACMP deal.
    • Little linkage of revenues to short-term energy price swings with majority contracts being fixed-fee.
    • Under-appreciated value of the company's GP interest in Williams Partners.
  • FRP Holdings: Small-Cap Real Estate Spin-Off Valued At 35%+ Premium To Current Market Value
    PRO Top Idea FRPH Thu, Mar. 26, 5:00 AM Monsieur Market 4 Comments

    Summary

    • Spin-off of FRP Holdings creates a repricing opportunity.
    • Margin of Safety: The market incorrectly assigns a negative value to the company's developed land.
    • Board and management have a long-term view and are shareholder-friendly.
  • Wayfair's Slow Growth Won't Be Able To Uphold Its Ultra High Valuation
    PRO Top Idea W Wed, Mar. 25, 5:00 AM Radiant Research 19 Comments

    Summary

    • Given Wayfair's recent IPO, excitement has caused it to have a very high valuation which will likely correct post lock-up expiration on 3/31/15.
    • Traffic analysis of Wayfair.com shows that traffic is no longer growing significantly, and might be actually declining, which suggests growth expectations will disappoint.
    • Peer e-commerce firm Zulily, has been decimated after high expectations disappointed. Wayfair has a similar business model – could it become ZU’s horror film sequel?
    • Right now is the opportune moment to sell or short Wayfair since it’s up 60% year to date and its lockup expiration is next week.
  • Gray Television: Another Shade Of Gray
    PRO Top Idea GTN Tue, Mar. 24, 5:00 AM Lord Baltimore 6 Comments

    Summary

    • Retrans fee hikes have been surprisingly strong, which has boosted Gray's share price, but network reverse comp hikes are being underestimated by the company and investors.
    • TV ad sales have been sluggish. Now that the economy has recovered from the Great Recession, TV ad sales may be showing signs of "glacial melt" due to digital encroachment.
    • We are short (and have been short-term wrong), but remain so with a $9 one-year target price.
  • TimkenSteel: Deteriorating Fundamentals Create Short Opportunity
    PRO Top Idea TMST Tue, Mar. 24, 5:00 AM Westpark 3 Comments

    Summary

    • TimkenSteel is facing a prolonged period of downward pricing pressure due to the supply/demand dynamics of the steel market.
    • Dividend and share repurchase will not be covered by cash from operations in 2015, forcing the company to increase leverage above internal targets.
    • Exposure to the exploration aspect of Oil & Gas drilling leaves the company very exposed to declines in the North American rig count.
    • The company is trading at a significant premium to peers, but looks cheap when initially screened due to lofty sell-side expectations.
    • Return characteristics of an LBO do not look attractive, making a takeover less likely in my opinion.
  • Wheelock & Co.: A Very Cheap Stub
    PRO Top Idea WHLKY Sat, Mar. 21, 5:00 AM Alpha Gen Capital 3 Comments

    Summary

    • Wheelock shares are trading substantially below the value of the two publicly traded underlying equity positions and the development company.
    • The recent restructuring of Cheung Kong, another large Chinese real estate conglomerate also trading at a discount to NAV, could provide the template for Wheelock.
    • The development company has accumulated a large land bank in premier areas of the city which you are getting for free when you buy the shares.
    • The development company is also starting to harvest significant properties in the next two years which should boost cash flow and the dividend payout.
  • Essex Rental: Technical Default Masks Massive Value; Triple-Digit Returns Possible
    PRO Top Idea ESSX Fri, Mar. 20, 5:00 AM Terrier Investing 42 Comments

    Summary

    • ESSX trades at under $0.80 per share, with an appraised orderly liquidation value of over $5/share. Going concern value could be significantly higher if/when crawler utilization improves.
    • Given the debt load, the situation is not without risk, but the current enterprise value is below the company's borrowing capacity as assessed by conservative lenders.
    • The valuation discount seems too extreme; investors could see triple-digit upside over the next year or two.
  • Sina/Weibo Relative Valuations Present Huge Arbitrage Opportunity
    PRO Top Idea SINA, WB Thu, Mar. 19, 5:00 AM CVC Research 42 Comments

    Summary

    • We estimate the value of Sina's stake in Weibo, plus the cash and investments on its balance sheet, is worth over $50/share, or 55% upside from SINA's current share price.
    • Sina's stake in US-listed Weibo alone is worth over $28/share to SINA shareholders. Net cash and investments are worth another $22+/share.
    • SINA management has been taking advantage of its ample balance sheet and this market inefficiency by aggressively buying back its stock, a fact that has gone largely overlooked by analysts.
    • We lay out a relatively simple long/short pair trade in SINA/WB to capture this arbitrage opportunity.
  • Outerwall - The Company Everyone Loves To Hate
    PRO Top Idea OUTR Thu, Mar. 19, 5:00 AM Wilson Wang 40 Comments

    Summary

    • Continued share buybacks at depressed prices.
    • Management's commitment to share buybacks.
    • 1-year PT - $90.
  • Activision Blizzard: Priced For Perfection, With Headwinds Coming
    PRO Top Idea ATVI Thu, Mar. 19, 5:00 AM Vince Martin 11 Comments

    Summary

    • ATVI has gone from a 10-12x P/E stock to a current valuation near 20x 2015 guidance.
    • The massive repurchase of Vivendi's stake has hidden the fact that the net income has been flat for five years.
    • With the market assuming perfect execution and lowballed guidance, any slip in Q2 numbers could lead the stock down sharply.
  • Despite Recent Strong Gains, There's A Lot More Upside In Panoramic Resources
    PRO Top Idea PANRF Thu, Mar. 19, 5:00 AM Da Shi Research 1 Comment

    Summary

    • Panoramic has re-rated 56% since mid December, when I highlighted the 20% plus cash flow yield the company offered to investors in 2015 and 2016.
    • Since then, Panoramic has announced a potentially significant new discovery within its Lanfranchi Mine, potentially extending it 3 years beyond late 2016 and further de-risked its other exploration projects.
    • The next 3-6 months of resource definition drilling will be a tipping point for Panoramic, with the stock likely to increase 129% as these additional reserves and resources are booked.
    • PAN should also see a re-rating in its share price as its current short mine life discount is removed, which alone should increase to the share price some 74%.
    • Even ignoring the strongly encouraging exploration drill results recently, the company's existing reserve base is already sufficient to deliver an investor today a payback period of around 2.5 years.
  • Rogers Communications: Undervalued Canadian Large-Cap Cable Co. With 40% Upside
    PRO Top Idea RCI Tue, Mar. 17, 5:00 AM Nilanjan Roy 41 Comments

    Summary

    • The astonishing amount of wireless data usage in Canada and its forecasted growth is hastening the rollout of 4G LTE network infrastructure in Canada.
    • RCI is well positioned to leverage this behavioral shift in consumer psyche through quality spectrum assets, strong cable network and coveted media assets.
    • RCI is trading at a forward EV / EBITDA of 7.8x as compared to the national carrier average of 8.6x.
    • This discount is unsustainable and stems from myopic market perceptions regarding recent loss in subscribers, high leverage and the uncertainty around the rise of a 4th national carrier.
    • DCF suggests fair value of CAD 60 per share, 40% return over current price plus dividend yield of 4.3%. Worst case scenario capped at 8% downside (excl. 4.3% dividend yield).
  • Grupo Televisa: A Good Time To Look South For Opportunity
    PRO Top Idea TV Tue, Mar. 17, 5:00 AM Lord Baltimore 5 Comments

    Summary

    • Investor sentiment towards Televisa appears tempered by 2014 challenges related to a soft economy and regulatory issues which muted growth in Televisa's revenues. We expect growth to accelerate in 2015.
    • The prospect of a Univision IPO could highlight Televisa's 37% stake. An IPO appears increasingly likely based on recent comments from Televisa and Univision.
    • Despite being among the most vertically integrated media and entertainment companies in the world Televisa trades at a discount to other media leaders.
  • Bancolombia: Buy This Fast-Growing Bank At 5-Year Lows
    PRO Top Idea CIB Sat, Mar. 14, 5:00 AM Ian Bezek 93 Comments

    Summary

    • Mr. Market has castigated both Colombia (the nation) and Bancolombia (its largest listed company) due to oil's decline.
    • The market overreacted grossly. Colombia is still growing strongly, and Bancolombia will rebound rapidly when investors return.
    • Colombia's banking sector will continue to grow exponentially in coming decades.
    • Bancolombia could offer investors 20-50x returns over the coming decades, unfathomable upside is possible.
    • Buying Bancolombia at this 5-year low offers fantastic reward set against merely moderate risk for the patient long-term investor.
  • Rovi: Multiple Catalysts, 29% Upside Using Conservative Assumptions
    PRO Top Idea ROVI Fri, Mar. 13, 5:00 AM KL Investment Partners 9 Comments

    Summary

    • License renewals in 2015 and 2016 expected to increase annual revenues by approximately 25%; incremental annual costs for additional revenue will be minimal.
    • Activist investor has contacted the company.
    • Short-term short-selling pressure on the stock by convertible arbitrage funds.
    • ~37% operating margin; ~30% free cash flow/sales; shareholder friendly management actively buying back shares with strong free cash flow.
    • 29% upside based on a discounted cash flow; trading 9% lower than lowest sell side target.
  • Monsanto: A Very Compelling Long Opportunity Rarely Seen In Large Caps
    PRO Top Idea MON Fri, Mar. 13, 5:00 AM Alpha Gen Capital 157 Comments

    Summary

    • We think the shares of Monsanto represent a compelling long opportunity with strong demographic and secular tailwinds and a massive competitive moat that is unrivaled.
    • The possibility of Eastern European expansion could present a large opportunity within Ukraine and possibly to other former Soviet Republics.
    • The recent launch of Intacta is in its third year, which is typically the largest adoption year. A large ramp in revenue is expected.
    • The Climate Corporation (Precision Farming) acquisition two years ago represents a massive call option with the potential of a $20B revenue opportunity.
  • Inotek: Tepid IPO Only Postpones Existential Threat And Significantly Delays Product Launch
    PRO Top Idea ITEK Fri, Mar. 13, 5:00 AM Northern Fundamentals Comment!

    Summary

    • Inotek Pharmaceutical is developing a new class of medication to treat glaucoma.
    • Initial SEC S-1 filing indicated a target maximum of $132 Million to be raised, the actual IPO raised far less than the initial goal.
    • A very tepid IPO on February 17, 2015 raised a net ~$53 Million with the overallotment so far not exercised.
    • Significant secondary offerings (likely $50M+) will be needed to fund ongoing product development.
    • Details on the efficacy of Inotek's lead product trabodenoson leave little to be enthusiastic about.
  • Nordic American Tankers Offers Tremendous Potential Upside
    PRO Top Idea NAT Thu, Mar. 12, 5:00 AM J Mintzmyer 77 Comments

    Summary

    • The oil tanker market has struggled since 2011, but is now showing strong signs of resurgence.
    • Despite market improvement, NAT has barely moved, likely due to limited and negative coverage.
    • Long-term data suggests 2011-2014 was the trough of the cyclical oil tanker market.
    • NAT has 50-100% of near-term share price upside based on current market fundamentals alone.
    • Near-term catalysts including a likely huge dividend increase in May and oil volatility should continue to promote share price upside.
  • Zulily: Reset Expectations On This Growth Story Create Substantial Opportunity
    PRO Top Idea ZU Wed, Mar. 11, 5:00 AM Money Investor 15 Comments

    Summary

    • E-commerce flash sales leader continues to be a phenomenal growth story with a massive addressable market.
    • Stock is 80% off its highs post IPO and 40% below its IPO price.
    • Valuation, cash hoard, and FCF generating ability, and reset expectations make this a top pick.
  • Resonant: All Hopes Gone After Q4 Announcement, 50% Downside
    PRO Top Idea RESN Wed, Mar. 11, 5:00 AM New Capital 42 Comments

    Summary

    • Resonant has no revenues, no developed products and no customers after three years of operations. Only one new questionable potential customer has been secured.
    • The majority of the investor base is retail, and the share price has tripled on the back of articles proclaiming RESN as a must-have acquisition for SkyWorks.
    • Neither venture capitalists nor institutional nor trade investors have shown any interest in putting money in Resonant's "promising" technology.
    • Any hopes of successfully monetizing its products (or Resonant being acquired) have been completely destroyed with the company's announcement of not being able to meet the required design specifications.
    • At least 50% downside, with clear catalysts. The latest announcement about a "second customer" is a promotional non-event.
  • Keryx: The Company That Saves More Money Than Its Market Cap
    PRO Top Idea KERX Wed, Mar. 11, 5:00 AM Early Retiree 13 Comments

    Summary

    • Much has been said about Keryx and its phosphate binder Auryxia, but the most important argument has been missing in the discussions so far.
    • In fact, scientific studies have shown that using the drug could lead to enormous potential savings.
    • The sum of these savings could easily surpass the company's current market cap - annually.
    • This clear indicator of undervaluation is further supported by the likely prescription growth trajectory and additional foreign sales opportunities.
    • I believe that Keryx could easily double over the next 2-3 years.
  • Noranda Income Fund: Get Paid To Wait For A Win-Win
    PRO Top Idea NNDIF Tue, Mar. 10, 5:00 AM Extract Capital 18 Comments

    Summary

    • NIF, an entity designed to provide stable dividends to shareholders, has been oversold due to newly added cautionary language about the end of the supply agreement between Glencore and NIF.
    • As a going concern, NIF is valued today at C$5.12 per share, a 73.0% a premium to the current share price.
    • In an unlikely conservative liquidation scenario, NIF is valued today at C$3.55 per share, a 19.9% premium to the current share price excluding the value of the smelter or land.
  • Tredegar: The Trough Is In
    PRO Top Idea TG Tue, Mar. 10, 5:00 AM Implied Value Comment!

    Summary

    • Tredegar has experienced years of stagnant growth, despite spending $339 million on growth capex and acquisitions.
    • Failing to meet management's stated targets, the shares lagged in 2014.
    • Earnings, however, are set to recover in 2015 as: 1) the new flexible packaging line ramps up; and 2) nonresidential construction continues to pick up steam.
    • Multiple avenues are available to unlock value, including: 1) spin-off or sale of the company's Film or Aluminum business; 2) sale of the entire company; 3) a more aggressive capital return program.
  • TransCanada: Blue-Chip Canadian Pipeline Company At A Depressed Valuation
    PRO Top Idea TRP Tue, Mar. 10, 5:00 AM Thomas Lott 35 Comments

    Summary

    • TransCanada stock has dropped significantly in the past few months, despite a business model largely insulated from commodity price risk.
    • The company intends to grow EBITDA by 8-10% per year through 2020.
    • Despite its growth potential and solid business model, TRP trades at a 25% discount to its peer group.
  • Avolon: Growing, Underfollowed Business At Steep Discount To Comps, 40%+ Upside
    PRO Top Idea AVOL Fri, Mar. 6, 5:00 AM Jeremy Raper 16 Comments

    Summary

    • AVOL, a medium-sized aircraft leasing company, is under-followed and unappreciated, despite a young, high-quality fleet and strong growth prospects.
    • Recent Q4 results solidly beat expectations and FY15 guidance was good, with top line growth expected to continue apace and adjusted RoEs rising to mid-teens in FY15.
    • AVOL is rapidly growing its fleet, and with average age already at a best-in-industry 2.5 years, there is a substantial margin of safety built into the stock at current levels.
    • If we were to value the stock in line with its closest peers, AVOL would trade closer to $28 (40% upside). The downside looks limited, given its young fleet and conservative valuation.
  • Top Retail Play 2015: Regardless Of Style, Ann Inc. Will Fit Your Portfolio
    PRO Top Idea ANN Thu, Mar. 5, 5:00 AM Justin Hess 4 Comments

    Summary

    • ANN has traded below peers due to an ineffective promotional strategy, depressed operating margins, and macro headwinds.
    • The company has temporarily avoided a takeover through its partnership with Golden Gate Capital and focus on internal initiatives to drive margin expansion.
    • Recent calls for a sale of the company from Red Alder and Engine Capital target a fair value range of $50-55, which is in line with DCF and relative valuation.
    • Whether through internal initiatives or acquisition, investors should see upsized returns from ANN over the next 6-12 months (+35-50%).
  • SemiLEDs Remains A Terminal Short
    PRO Top Idea LEDS Wed, Mar. 4, 5:00 AM Vince Martin 10 Comments

    Summary

    • Negative gross margin and significant cash burn should lead the stock to zero.
    • Modest revenue improvements seem likely to be 'too little, too late' in a highly competitive industry.
    • Recent equity sale could be a monkey wrench for shorts, but seems unlikely to alter LEDS' trajectory.
  • SandRidge Energy: What Happens Once The Cash Pile Runs Out?
    PRO Top Idea SD Wed, Mar. 4, 5:00 AM Richard Zeits 90 Comments

    Summary

    • By the end of Q1 2015, SandRidge will have essentially exhausted its entire enormous cash pile. The company's drilling carries have also run out.
    • With its 2015 capital spending curtailed, SandRidge's oil production is expected to decline steeply. Cash flow will contract. Additional funding will be needed as working capital shrinks.
    • The ratio of Total Debt-to-trailing EBITDA may climb to ~6:1 by year-end 2015.
    • Oil production decline will likely extend into 2016, even if the oil price recovers to the $100 per barrel range.
    • Despite the significant decline since last summer, at $1.82 per share, the stock's risk/reward appears skewed strongly to the downside.
  • Fairchild Semiconductor: Ignored And Unloved Cash Flow/Buyback Story With 50%+ Upside
    PRO Top Idea FCS Wed, Mar. 4, 5:00 AM Dane Capital Management, LLC 19 Comments

    Summary

    • Transformative shift in manufacturing strategy will result in $110M ($1/share) greater FCF exit 2015 run-rate than at year-end 2013.
    • Fairchild has the most aggressive share repurchase program in the semiconductor industry with 100%+ of FCF used for buybacks in 2014 (8% of outstanding) and the same planned for 2015.
    • Despite the aforementioned facts, shares are unloved by the sell-side and not owned by high profile hedge funds. With its $2bn+ market cap this can be owned by large funds.
    • The semiconductor sector is rapidly consolidating. With its exceptional free cash flow and net cash position, Fairchild is extremely attractive. In a sale scenario, we believe FCS would fetch $30+.
    • With ~10% FCF yield, FCS shares are compelling. At current prices the company could repurchase 35% of its shares over 4 years - we don't expect the opportunity to persist.
  • Bail From TrueCar Before This Lemon Gets Totaled
    PRO Top Idea TRUE Tue, Mar. 3, 5:00 AM The Friendly Bear 56 Comments

    Summary

    • TrueCar is a low quality lead gen business that is poised to plummet – we see 85% downside.
    • Business momentum has meaningfully decelerated since the company went public.
    • Mounting competitive forces will hinder TRUE’s ability to maintain pricing and expand into new verticals.
    • The CEO was recently at a conference and provided investment/expense guidance that potentially contradicts guidance from the earnings call and which suggests a guide down may occur in 2015.
    • In our view, TrueCar management appears to be hyper-focused on supporting TRUE’s stock price and their tone on the 4Q call was troubling.
  • Control4: No Control Of Its Destiny
    PRO Top Idea CTRL Tue, Mar. 3, 5:00 AM Howie Man 10 Comments

    Summary

    • Structurally flawed business model and sells a single technology product that is rapidly falling into obsolescence.
    • Facing insurmountable competitive headwinds following Apple, Google, Samsung, Microsoft and others’ entrance into home automation in 2014.
    • Produces an uncompetitive, antiquated hardware product, an overstated market potential, marginal IP, generates no recurring revenue and deserves a significantly lower multiple.
  • Philips: Company Breakup Will Unlock Value For Shareholders
    PRO Top Idea PHG Tue, Mar. 3, 5:00 AM Matthew Dow 14 Comments

    Summary

    • Philips remains a well-respected brand with market-leading positions in many segments of Healthcare, Consumer Products, and Lighting.
    • The company had a challenging 2014, which has overshadowed major positives.
    • The stock is undervalued on an SOTP valuation, and the pending company break-up should unlock this value near term.
    • Improving margins and cash flow make the stock also attractive for dividend growth investors.
  • Green Brick: Top Opportunity To Profit From The Complicated And Under-Followed Structure
    PRO Top Idea GRBK Tue, Mar. 3, 5:00 AM Stanislav Ermilov 5 Comments

    Summary

    • Complex reverse-merger deal generated significant tax benefits and created well-hidden opportunity.
    • Highly attractive business model and operating markets create great growth prospects.
    • Estimated breakup value at 15% below current price offers strong margin of safety.
    • Control and backing of David Einhorn and large management shareholding should support effective growth.
  • RCS Capital: Misunderstood With Tremendous Upside
    PRO Top Idea RCAP Thu, Feb. 26, 5:00 AM TheBaron Investing 15 Comments

    Summary

    • Institutional support helps solidify RCAP's potential upside.
    • RCAP's main asset is largely untouched by the recent turmoil.
    • Returning to fair value suggests upside potential greater than 100%.
    • Emotions, not fundamentals, have punished this company.
  • QAD Inc. - Overlooked Enterprise Software Name With 100% Upside
    PRO Top Idea QADA, QADB Tue, Feb. 24, 5:00 AM CVC Research 12 Comments

    Summary

    • QAD Inc. is a nearly $300M annual revenue ERP software vendor to manufacturing companies worldwide.
    • QAD has shown consistent, if not exciting, growth through its history and is solidly profitable and free cash flow-positive.
    • The company now has a rapidly growing Cloud business; as this continues to gain scale, it should drive a higher multiple for the stock.
    • A reasonable sum of the parts suggests a fair value of nearly $40/share, or almost 100% upside.
    • Recent sell-side coverage launches mean this company will not fly under the radar at an absurdly cheap valuation of just 1x Sales for much longer.
  • Linn Energy: In Need Of A $100 Oil And $4.50 Natural Gas
    PRO Top Idea LINE, LNCO Tue, Feb. 24, 5:00 AM Richard Zeits 101 Comments

    Summary

    • Linn's capital spending and distributions will be effectively funded by derivative settlements in 2015, assuming the current strip pricing.
    • In the longer term, I estimate that a maintenance capital spending of $1.3-1.4 billion per year would be required to sustain production.
    • The reported year-end PV-10 value disappoints, raising renewed valuation concerns.
    • A long-term commodity price assumption of ~$100+ per barrel for WTI and ~$4.50+ per MMBtu Henry Hub appear to be required to justify the current price.
    • The units' risk/reward profile appears skewed to the downside.
  • Hudson Global - Selling At 30% Less Than Activists' Cost Basis And Offers Significant Upside
    PRO Top Idea HSON Sat, Feb. 21, 5:00 AM Derek Capo 42 Comments

    Summary

    • Lone Star Value Management's cost basis is at around $3.50; stock is now at $2.30.
    • Valuation is 0.07x EV to sales; 55% of market cap is in cash.
    • Initiatives are underway to make the company consistently profitable by 2nd half of 2015.
    • Cost cutting and product shift is catalyst to move the stock meaningfully higher.
    • Price target is for $9 to $11 by late 2015 to 2016.
  • Luxottica: Competition Will Reduce Profitability, 30% Downside
    PRO Top Idea LUX Fri, Feb. 20, 5:00 AM Weighing Machine 16 Comments

    Summary

    • As a near-monopoly, Luxottica has demonstrated fast growth, improving operating margins, and a high return on equity.
    • However, an upstart with a unique business model is making an aggressive push into the eyewear business, undercutting Luxottica's prices by 70+%.
    • Trading at 28x 2015 estimated earnings, Luxottica seems priced to perfection. Should operating profit growth slow, the author sees 30% downside.
  • Chesapeake Granite Wash Trust: Oil Volumes Disappoint; Recent Rally Creates Downside Risk
    PRO Top Idea CHKR Thu, Feb. 19, 5:00 AM Richard Zeits 9 Comments

    Summary

    • Q4 2014 oil volumes came in substantially below my estimate, indicating continued weakness in well performance. There is a risk of a downward reserve revision in the year-end 2014 report.
    • Oil over-hedging enhances distributions through Q3 2015. The subordination mechanism may remain in place through Q2 2017. Once protections expire, distributions will contract sharply.
    • I estimate the distribution to decline 60-70% within 2 years (depending on commodity prices).
    • The Trust's current $8.19 per unit price reflects ~$110 per barrel WTI and $4.50/MMBtu Henry Hub (based on the illustrative scenarios outlined in this note).
    • At the current price, the risk-reward profile is skewed to the downside, in my opinion.
  • Beadell Resources: The Hidden Value Of Tucano Is About To Be Unlocked
    PRO Top Idea BDREF Thu, Feb. 19, 5:00 AM The Investment Doctor 4 Comments

    Summary

    • Beadell Resources has been slaughtered over the last year, and the market has now (more than) priced in all negative effects.
    • The high-grade Duckhead pit isn't really empty; the Urucum Deep zone will add a lot of high-grade low-cost ounces, and the power cost will drop dramatically.
    • Two major banks have refinanced the company's debt at a very low interest rate of LIBOR +3%, another sign of strength.
    • Beadell could easily double from here, and I will average down my position shortly.
  • H&E Equipment: Exposure To Oil Is Misunderstood Presenting Strong Upside Case
    PRO Top Idea HEES Wed, Feb. 18, 5:00 AM Alpha Gen Capital 5 Comments

    Summary

    • We feel that H&E is getting unfairly hit due to perceived high exposure to the upstream oil and gas industry.
    • Actual industry exposure is actually quite low, around 12% of revenue. Even still, we think the thesis surrounding the bearish stance is overdone given oil economics.
    • Relative valuation with their main competition, United Rentals, presents a strong long case. H&E shares have fallen 55%+ while URI has only seen a 22% drop, despite higher oil exposure.
  • Tuesday Morning: A Retail Turnaround Priced For Perfection, Up To 40% Downside
    PRO Top Idea TUES Wed, Feb. 18, 5:00 AM Jeremy Raper 10 Comments

    Summary

    • TUES, a close-out retailer of home furnishings, operates a structurally low-margin business in a hyper-competitive environment.
    • A modestly successful 2-year turnaround has precipitated a beyond-frothy valuation of 29x current-year EV/EBITDA and ~15x FY16 EV/EBITDA - a level many turns above larger, more cash-generative competitors.
    • TUES' recent comp sales gains and margin improvements likely reflect the "low hanging fruit" of restructuring. Go-forward margin improvement and comp gains will be much harder to achieve.
    • With the stock priced for perfection, any misstep in execution will be punished severely. A more appropriate multiple - still at a premium to all comps - suggests ~40% downside.
  • Intersections Inc.: Company At Inflection Point Positioned For Sustainable Growth With 95% Upside
    PRO Top Idea INTX Sat, Feb. 14, 5:00 AM Erik Ritland 17 Comments

    Summary

    • Intersections Inc. primarily provides subscription based identity protection services through both direct and third party channels.
    • After years of working through regulatory setbacks stemming from the financial crisis, the company is now at an inflection point where it is positioned for sustainable profitability.
    • The market has subsequently written off INTX, leaving it at an attractive valuation with a conservative two-year price target of $7.00.
  • Forestar Group: A Land Of Opportunity As Change Appears On The Horizon
    PRO Top Idea FOR Fri, Feb. 13, 5:00 AM Nitor Capital 4 Comments

    Summary

    • Land has historically represented a very profitable investment offering consistent and stable annual appreciation.
    • Landowners such as Forestar Group sell at a significant discount to homebuilders, yet operate higher-margin businesses that can withstand significant drops in housing prices.
    • Forestar sells at a 30% discount to our conservative $20.05 estimate of NAV per share. Significant upside to NAV exists if Forestar successfully exits the energy business to focus solely on real estate development.
    • The Company can create significant shareholder value if it pays heed to the direction of the newly appointed activist-backed directors who bring credibility and real estate expertise to the board.
    • Our NAV does not include the potential value of water rights, and uses discounted valuations that reflect the potential impact that weak oil prices might have on the company's assets.
  • Continental Building Products: High FCF Yield, Asymmetric Upside Make This Our Largest Position
    PRO Top Idea CBPX Fri, Feb. 13, 5:00 AM Andrew Tang 8 Comments

    Summary

    • Continental Building Products is a ready-made LBO just starting to hit its stride.
    • We expect double-digit revenue growth, meaningful margin expansion, and significant deleveraging of the balance sheet to drive attractive equity returns going into 2015.
    • With a projected ~13% free cash flow yield and at least $80 million of debt repayment in 2015 (7% of current enterprise value), CBPX provides a nice margin of safety.
    • With the opportunity to invest in the low cost producer in - what we believe - is the early innings of the U.S. construction cycle, CBPX offers asymmetric upside.
    • Pay attention to this stock going into the Q4 print (February 23, 2015).