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Alexander Grano
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I am a intermediate investor with 3 years of trading experience with both Stocks and Mutual Funds. I primarily focus on long term investments that have strong potential to grow overtime.
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  • Pepsico: An In-Depth Analysis Of A Multi-Faceted Company

    Pepsico is an American based multinational food and beverage corporation headquartered in , New York. It is involved in the manufacturing, marketing and distribution of grain-based snack foods, beverages, and other products. PepsiCo was formed in 1965 with the merger of the Pepsicola Company and FritoLay, Inc and became a publicly traded company on May 1, 1990. The company has since expanded from its namesake product Pepsi to a broader array of food and beverage brands, the largest of which include an acquisition of Tropicana in 1998 and a merger with Quaker Oats in 2001-which added the Gatorade brand to its portfolio.

    As of January 2012, 22 of PepsiCo's product lines generated retail sales exceeding $1 billion each and the company's products were distributed across more than 200 countries, resulting in annual net revenues of $43.3 billion. Based on net revenue, PepsiCo is the second largest food & beverage company in the world. Within North America, PepsiCo is ranked (based upon net revenue ) as the largest food and beverage business. Indra Nooyi has served as the Chief Executive Officer of PepsiCo since 2006, and as of 2011 the company employed approximately 297,000 people worldwide. The company's beverage distribution and bottling is conducted by PepsiCo as well as by licensed bottlers in certain regions.

    Since its IPO on March 1, 1990, when it went public for $9.63 per share, the stock price has increased to $79.24 as of Friday March 22, 2013. Its all-time of $79.79 was reached on January 10, 2008. As 0f March 22, 2013 the stock is $0.63 away from its all time high and is up significantly from its IPO price. Given the evident strength in the stock I would advise holding on to any existing shares and, should there be any pullbacks, buy more shares.

    Historically, Pepsico stock has not been extraordinarily volatile. Below is a Volatility Analysis Chart. This chart illustrates Pepsi's historical best and worst returns for periods of 3,6, and 9 months as well as volatility, and average return for those periods.

     

     

     
     

     

    Volatility and Returns for PEPSICO INC

    March 22, 2013

     

     

     

     

    Volatility Analysis

      

    BEST RETURN

    3 Month Best Return

    11.39%

    6 Month Best Return

    11.37%

    9 Month Best Return

    17.18%

       
      

    WORST RETURN

    3 Month Worst Return

    -6.62%

    6 Month Worst Return

    -2.21%

    9 Month Worst Return

    4.95%

       
      

    OVERALL VOLATILITY

    3 Month Volatility

    18.01%

    6 Month Volatility

    13.58%

    9 Month Volatility

    12.24%

       
      

    AVERAGE RETURNS

    3 Month Average Return

    3.73%

    6 Month Average Return

    4.81%

    9 Month Average Return

    11.23%

      

    Source: http://portfolio.marketocracy.com/

    As is evident in the chart, Pepsico stock is relatively stable and has a low beta of .47. Also attractive is its dividend yield of $2.15 per share (2.73%) which makes it fairly attractive to investors looking for a stock which has a healthy dividend.

     

    Disclosure: I am long PEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: long-ideas
    Mar 25 10:46 AM | Link | Comment!
  • Investing: Simplicity Is Key

    Infoblox (BLOX), which debued in the market in 2012 has exposure to almost every secular theme in technology, all exept a sky-high multiple. Excluding a dip late which was the result of a lockup expiration, the stock has been mired in a narrow $18-23 range. The stock trades at 3.7x EV to 2013 revenue, not a hefty multiple for a dominant software player in a sector ready to inflect. On a relative basis, BLOX trades at a discount to every comparable small-mid cap software company with similar growth. Infoblox has several disadvantages including lack of analyst coverage, no direct comparables, and confusion as to what area of technology they really occupy. Infoblox is a beneficiary of every major secular technology theme: cloud, virtualization, IPV6, network security, SDN, proliferation of connected devices, and BYOD. However, the company isnt an exact fit in any of those catagories. Infoblox is the second act for senior NetScreen management who executed phenomenally well before selling out to Juniper (JNPR) after extracting a hefty premium. With lockups behind them and network automation increasingly gaining acceptance, now is the perfect time to own BLOX ahead of the inflection. My price target is $30 or 35% upside over the next 6-9 months.

    Chart forInfoblox Inc. (<a href=

    What does Infoblox Do Exactly?

    Putting aside the plethora of acronyms (DDI, DNS, DHCP, IPAM), Infoblox's appliance(s) at its core provides control and automation of the network while ensuring continuous uptime. Let's break down the components of DDI- DHCP (D), DNS , and IPAM (I). The first "D" stands for the DHCP server that manages and provisions IP addresses and configuration data needed to connect a device to the network. Without a DHCP server, an organization would need to manually maintain IP addresses, a tedious task. The second "D" in DDI stands for DNS server, the phonebook for the IP network. When a user types a website address into their browser, e.g. www.amazon.com, the DNS server translates or "resolves" the website into an IP address, i.e. 172.16.251.2. It would be pretty hard to remember all these numbers, so thanks to the DNS server you only need to remember the company name. The "I" in DDI stands for IPAM or IP address management. The IPAM allows the network administrator to maintain and control the IP addresses in an automated, real time manner minus worksheets. These three services comprising DDI are critical services that allow companies to automate the control of the network without disruption.

    Size and Complexity Makes Manual Management Untenable

    Organizations have spent countless billions of dollars upgrading their network hardware (e.g. Cisco (CSCO) and JNPR switches and routers) while maintaining an outdated network management system consisting of manual processes and overtaxed infrastructure. With an ever increasing amount of networked devices such as smartphones and tablets today, never mind the future of WiFi-enabled automobiles and hospital rooms, it's shocking that 75% of enterprises manage IP addresses manually via spreadsheets.

    That manual process may be workable now, but as more companies develop private and public clouds and machine to machine communication takes off, it will be untenable. According to Cisco, by 2017, there will be 8.6 billion handheld/mobile devices and 1.7 billion machine to machine connections. The medical profession is networking more devices in order to remotely monitor and track patients. Pacific Crest estimates that a typical hospital room now has 30 IP addresses and growing. The auto industry is equipping cars with IPV6 connections for "smart" transportation networks. The US D.O.T. established the Intelligent Transportation System whereby exterior sensors communicate via their IPV6 connections in order to reduce traffic congestion, cut down on fuel consumption and reduce pollution.

    The additional network complexity comes from the IPV4 to IPV6 transition. As we run out of IPV4 addresses, IPV6 connections roll out. IPV6 increases the IP address size from 32 to 128 bits making it virtually impossible to handle without an automated solution like Infoblox. Many thought IPV4 addresses would be exhausted by now but NAT has extended the life line of IPV4 for a few years. Companies are starting to roll out IPV6 systems and others will need to future proof their networks to handle the exponentially growing number of IP addresses and the eventual succession of IPV6.

    The DDI Opportunity is Infoblox to Lose

    The DDI market was estimated at $350 million in 2012 according to Infoblox. While not an IT budget expense line, DDI is becoming more top of mind with IT departments. Network down time is increasingly costly and unacceptable and companies are looking to increase efficiency wherever possible. Based on Gartner's estimates, Infoblox held 40% market share. The vast majority (i.e. 90%) of Infoblox's revenue comes from their 'Trinzic DDI' product family that enables real time network control. The other 10% of revenue is derived from their 'Net MRI' product family (introduced in 2010 following the Netcordia acquisition) that provides network change and configuration management. There is considerable potential for the fairly new 'Net MRI' product given it's only in 500 of the 6,300 customer base. Technology partners namely CSCO,FFIV, JNPR, MSFT, RVBD and VMW influence 90% of revenue. Infoblox targets larger companies who have more complex networks and already has penetrated 220 of the Fortune 500. Infoblox is competing against an internal, homegrown solution that requires a good deal of manual labor.

    According to management, they are only 20% penetrated at their existing customers, suggesting plenty of upside from natural DDI buildout and Net MRI upsell. On the last conference call, the normally conservative CEO Robert Thomas remarked:

    We believe the market is significantly underpenetrated and the need for commercial grade DDI solutions is gaining strong momentum. We are very confident that there is tremendous growth ahead for us in this market.

    Recently, due to the high profile cyber network attacks, Infoblox responded to the demand with a DNS firewall that has been getting very positive marks. Infoblox preaches ROI and the return is a quick 6 to 9 months from purchase according to most customers. Even with a weak macroeconomic backdrop, Infoblox products are resilient because of their small size (typical deal $100-200k) and ability to increase automation and efficiency while preventing ungodly network outages. According to Gartner, Infoblox and small, private company Bluecat are the only two "Strong Positive" rated companies in the DDI space.

    Infoblox Is Not Management's First Rodeo

    CEO and CFO of Infoblox's prior management experience was atNetScreen where they executed remarkably well before selling out to Juniper for a very full valuation. CEO Robert Thomas and CFO Remo Canessa took NetScreen public in early 2002 at $16 per share. The company had a history of conservative guidance and consistently upsiding and raising guidance in a very consistent manner. Two years after the IPO, NetScreen sold out to Juniper for $4 billion, a 57% premium to where the stock was trading the prior session. (Note it was "only" a 35% premium given it was a stock for stock deal and JNPR's stock sold off hard on the announcement.) Don't be surprised if management seriously evaluates takeout offers after the DDI inflection point is well past, i.e. sometime in 2014/2015.

    Numbers Too Low

    Top line growth has accelerated the last two quarters to 26% and 32% year over year, yet the Street has modeled the company's conservative guidance of mid twenty percent growth for FQ3 and FQ4. The William Blair analyst took investors to see management recently and came away noting that they "expect a beat and raise April quarter" given the recent strong trends. Visibility is excellent as 75% of revenue is derived from existing customers. Management is using its NetScreen playbook of guiding conservatively and providing consistent upside. Management is ramping its internal investment especially in sales and marketing while maintaining a depressed 7% operating margin. Management plans to expand operating margin to 18-22% by FY'15 (July).

    As a result of robust growth in the burgeoning DDI industry, management is correct in focusing on driving top line growth. I expect top line to accelerate into the 30%+ range as DDI becomes less of an evangelical sale and more of a focus by IT departments. Sell-side analysts are modeling a sharp deceleration from high twenty to thirty percent y/y growth to mid teens in 2014, which makes little sense. Looks like management has the Street set up perfectly with conservative numbers they can beat and raise for the next 4-6 quarters.

    Valuation

    Infoblox has nearly $200 million in net cash, around $4 per share. Currently the stock trades at 3.7x Enterprise Value to 2013 revenue. For a peer group, I would use solid mid teens y/y top line growth, small-mid cap software companies such as: Sourcefire (FIRE) at 5.8x EV/'13 revenue, Fortinet (FTNT) at 5.9x, Jive Software (JIVE) at 7.5x, and QlikView (QLIK) at 4.8x. Note BLOX trades at a sharp discount to all these companies despite arguably superior competitive positioning and faster growth ahead. Two companies who BLOX resembles earlier in their histories are SolarWinds (SWI) and ServiceNow (NOW), both IT management software companies, who trade at 13x and 14.2x EV to '13 revenue. (Note I am not arguing for this type of valuation, just pointing it out.)

    Bottom line, whether because it's covered by few analysts or because it's a more technical niche, the stock trades at a discount to every small-mid cap software peer. Now that insider lockup windows have passed, I think BLOX stock will move to $30 or 5x EV to '13 revenue (that is way too low) in 6-9 months, representing 35% upside, as they continue to post mid twenty to 30% top line growth. Don't be surprised if management resorts to the NetScreen strategy when the DDI space takes off.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Business relationship disclosure: This is my take on an existing Seeking Alpha Article. It was not written by me.

    Tags: CSCO, D, FFIV, FIRE, FTNT, I, JIVE, JNPR, MSFT, NOW, QLIK, RVBD, SWI, VMW, BLOX
    Mar 20 9:02 PM | Link | Comment!
  • Facebook And EBay: 2 Online Kings Compared

    Facebook Inc. (FB) and eBay Inc. (EBAY) are two leading online companies, with strong growth, receiving positive analysts' calls recently. Both stocks will be analyzed fundamentally and technically in this article. Investing strategies will also be reviewed.

    Facebook Inc.

    FB was up 0.23% and closed at $26.55 on March 19, 2013. FB had been trading in the range of $17.55-$45 in the past 52 weeks. FB has a market cap of $63.25B.

    On March 19, 2013, JMP Securities initiated coverage on FB with a market perform rating. Analysts currently have a mean target price of $33.44 and a median target price of $34.00, suggesting 25.95%-28.06 upside potential. Analysts, on average, are estimating an EPS of $0.13 with revenue of $1.45B for the current quarter ending in March 2013. For 2013, analysts are predicting an EPS of $0.57 with revenue of $6.66B, which is 30.90% higher than 2012.

    Facebook on Tuesday announced "Lookalike Audiences," a new feature for advertisers. The company claims the new targeting technique offers lower cost per checkout, lower cost per acquisition, larger purchase size, as well as faster and increased return on investment.

    Fundamentally, despite the recent pullback, FB's valuation remains unreasonably high with P/E of 2655 and P/FCF of 167.76. However, if FB can achieve its estimated long-term annual EPS growth of 29.04% for the next 5 years, the valuation will become more justified. On the positive end, FB has a total cash of $9.63B with a total debt of $2.36B. FB generates a positive operating cash flow of $1.61B with a levered free cash flow of $412.38M.

    Technically, the MACD (12, 26, 9) is showing a slightly bearish trend, and the MACD difference continues to diverge. The momentum indicator, RSI (14), is indicating a bearish lean at 39.00. FB is currently trading below its 50-day MA of $28.86 and above its 200-day MA of $25.47, as seen from the chart below.

    (click to enlarge)

    Source: StockCharts.com

    How to Invest

    FB is not for conservative investors at this moment, and it is hard to evaluate FB from the valuation perspective. However, FB remains one of the best bet for social media trend. For bullish investors, a credit put option spread of June 22, 2013 $20/$22 put can be reviewed, which will allow investors to gain some upside credit premium or to acquire FB shares at a price below $22 upon options expiration. Investors can also review the following ETFs to gain exposure to FB:

    • Social Media Index ETF (SOCL), 14.30% weighting
    • SPDR MS Technology (MTK), 3.20% weighting
    • Nasdaq-100 Equal Weighted Index Shares (QQQE), 1.01% weighting

    eBay Inc.

    EBAY was up 1.97% and closed at $51.10 on March 19, 2013. EBAY had been trading in the range of $35.31-$57.26 in the past 52 weeks. EBAY has a market cap of $66.25B with a beta of 1.43.

    EBAY had received multiple upgrades recently. On March 19, 2013, JMP Securities initiated coverage on EBAY with a market outperform rating and a price target of $67.00. On the same day, Cantor Fitzgeraldupgraded EBAY from hold to buy with a price target of $56.00 saying the risk/reward is attractive following a 13% pullback from the multi-year high set back in February. The analyst Youssef Squali said,

    We believe that eBay's fundamentals are strong, with Marketplaces' GMV growing at least in-line with ecommerce; PayPal TPV growing mid-to-high teens; and margins showing modest improvement over the next 2-3 years, even as management continues to invest ahead of growth (point-of-sale, mobile, etc.).

    Analysts currently have a mean target price of $60.29 and a median target price of $62.00 for EBAY, suggesting 17.98%-21.33% upside potential. Analysts, on average, are estimating an EPS of $0.62 with revenue of $3.76B for the current quarter ending in March 2013. For 2013, analyst are projecting an EPS of $2.73 with revenue of $16.34B, which is 16.10% higher than 2012.

    As reported, EBAY is launching a new fee structure and incentives for sellers to remain the most competitive commerce platform next to e-commerce marketplace Amazon (AMZN). It is the first time that eBay is launching free listings for both non-stores and stores on the platform, as well as simpler pricing. The fight between EBAY and AMZN is intensifying as EBAY is offering incentives to some of Amazon's merchants to make the switch.

    Fundamentally, there are a few positive factors for EBAY:

    • Higher revenue growth (3-year average) of 17.3 (vs. the industry average of 7.5)
    • Higher operating margin of 20.5% and net margin of 18.5% (vs. the industry averages of 4.4% and 4.2%)
    • Lower debt/equity of 0.2 (vs. the average of 0.3)
    • Lower P/E of 25.2 and P/B of 3.1 (vs. the industry averages of 57.5 and 4.8)
    • EBAY has a total cash of $9.41B and a total debt of $4.52B
    • EBAY generates an operating cash flow of $3.84B with a levered free cash flow of $1.30B

    Technically, the MACD (12, 26, 9) indicator is showing a bearish trend. RSI (14) is picking up but still indicating a selling momentum at 37.57. EBAY is currently trading between its 50-day MA of $54.40 and 200-day MA of $48.60, as seen from the chart below.

    (click to enlarge)

    Source: StockCharts.com

    How to Invest

    Unlike FB, EBAY's valuation can be better analyzed. With expected14.63% long-term EPS growth for the next 5 years, there is more upside for EBAY. With a healthy balance sheet and strong cash flow, along with a wide economic moat, EBAY remains a long-term buy. For bullish investors, a credit put option spread of June 22, 2013 $45/$50 put can be reviewed. Investors can also review the following ETFs to gain exposure to EBAY:

    • Nasdaq Internet Portfolio (PNQI), 7.55% weighting
    • DJ Internet Index Fund (FDN), 6.45% weighting
    • Dow Jones U.S. Consumer Index Fund (IYC), 3.13% weighting

    Note: All prices are quoted from the closing of March 19, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

    Disclosure: I am long FB.

    Tags: FB, EBAY, Social Media
    Mar 20 6:45 PM | Link | Comment!
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