Following is the list of top tech gainers from yesterday (Mar 1):
Ballard Power Systems
Here are some of the specifics about these stocks, and what to expect from them going forward:
Sonus Networks jumped 33% after posting solid Q4 earnings. It reported revenues of $83.0mn (vs. consensus expectation of $65.1 mn) and EPS of $0.04 (vs. consensus expectation of 1 cent loss). Management indicated that strong December quarter sales likely reflected order push-outs from the September quarter, as well as orders pulled in from the March quarter. While SONS’ new NBS 5200 SBC platform posted some early traction in the quarter, one has to wait for a more meaningful trend to draw any conclusion. Legacy Media GW business continued its secular decline. SONS’ cash balance and the prospect of SONS’ being acquired should continue to provide a downside cushion to shares. However, its stock price has already gone up 33% and the March quarter might be affected negatively due to orders pulled in the December quarter. Therefore, it’s prudent to book profits if one already has a long position.
CIBER was up 12.63% yesterday. According to Sidoti analyst Brian Kinstlinger, it is a compelling turnaround story to go long on. It has underperformed its peer group in recent years, as the business was facing glaring problems and little action was taken to correct them. However, in April 2010, long-time CEO Mac Slingerland resigned and founder Bobby Stevenson was replaced as non-executive chairman. In July 2010, veteran IT executive Dave Peterschmidt became CBR’s CEO; he has taken a lot of corrective steps in the right direction to improve the company. For example:
- Integration of 35 regional offices: Formerly, Ciber resembled a holding company, with each unit run separately and communication between them sparse. The company is now consolidated into three delivery centers and two additional regional sales offices. In this integration process, support staff was eliminated, and Ciber began to run like an integrated global services company.
- Revision of compensation structure for CBR salesmen and regional managers: Earlier, compensation packages for CBR salesmen and regional managers were 80% salary/20% bonus. Sales, not profitability, determined the bonus. Thus, contracts with poor economics and payment terms were actually encouraged by higher compensation, eroding CBR’s margins to an industry-low 2.7% in 2009. The new structure is 50% salary/50% bonus, based on sales and profitability. Sales below a 30% gross margin generate no bonus, and the bonus scales up according to the gross profit margin. Moreover, a committee pre-approves each contract valued at more than $1 million to ensure standard terms. These changes are expected to improve CBR’s gross profit and cash collections, which suffered for years.
Going forward, a lot more positives are expected. For example:
- Currently, offshore outsourcing services represent only 5% of Ciber’s business. Going forward, it is likely to get more emphasis leading to improved profitability. (Note: Consultants in India generate twice as many profits as their domestic counterparts.)
- Further, recent management change is also likely to spark a review of each business, and non-core businesses are likely to be divested. This could trim CBR’s debt load by $40-50 million. Furthermore, better terms on cash collections will increase free cash flow generation.
Netscout Systems (up 5% yesterday) is another good stock to go long on. It is well positioned for a solid organic growth driven by secular long-term trends, like growth in wireless data, multimedia traffic, data center consolidation, virtualization and cloud computing. Its integrated IP-packet flow appliance -- with application packet flow analysis and deep packet forensics -- is a competitive differentiator, which should enable market share gains versus more narrowly focused competitors.
Ballard Power Systems was up 5% yesterday. Last week it hosted its analyst day in New York City with management and many key customers and partners highlighting increased momentum for the company. Management has successfully reinvented the company through a tough transition in 2007 through early 2010. The company is now focused on four key markets: Backup power, fuel cell buses, materials handling and distributed generation.
Ballard continues to aggressively target cost reductions while targeting higher margin opportunities such as buses, which are expected to drive results in 2011. With a 12-month order book at $35 million and continued market tailwinds, the 30% y/y revenue growth guidance appears conservative.
While somewhat speculative in nature, Ballard Power provides a good opportunity to invest in the proliferation of fuel cell technology in various end markets over the long term, with the key areas of focus on near-term commercial markets, including backup/supplemental power, materials handling, and distributed generation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.