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A.M. Castle Has Laid Everything On The Table
- The quarter was likely the nadir in sentiment and poor news as management appears to have put everything on the table in order to move forward with a blank slate.
- Shares are undervalued based on the buyout of Metals USA last year.
- Activist shareholders are likely monitoring the results which will provide downside protection to the share price.
KCG Holdings Continues To Hide Under The Radar
- Low sell-side coverage has allowed the turnaround and upside in KCG to slip under-the-radar.
- The firm has massively de-levered aided by significant debt repayment with interest expenses falling by half in the last three quarters.
- The firm has several growth catalysts, both near and medium-term, including the potential on winning a piece of the Schwab business and expansion into European banks.
Dillard's: A Break In Share Price Momentum Means More Downside Ahead
- The shares have risen substantially from the 2008 lows but the company has not realized any revenue growth over that time period.
- The company's earnings growth has largely come from margin expansion and share buybacks, both of which appear unsustainable.
- The second quarter earnings recently released appear to have broken what was a momentum stock and will likely create a rush to the exits.
WebMD: The Doctor Is Out
- Massive growth in competition appears likely to knock the company's growth rate down significantly. This includes long rumored big players like Google.
- Shift towards mobile page views cutting into deferred revenue.
- Executive turnover likely causing strategic issues and raises several red flags.
- Margin improvement initiatives are likely played out with further improvement unlikely.
Amdocs Still Has Room To Run
- While domestic and European markets have matured, with low-single digit growth, emerging markets are picking up the slack and becoming the growth engine of the company.
- An okay quarter with several new wins, but only small backlog growth.
- The company's financial strength, with $7.40 per share in cash and a strong buyback program, has rewarded shareholders.
Global Cash Access Holdings: Ka-Ching! Ka-Ching!
- High barrier to entry business model with strong recurring revenue streams being priced as a commodity business.
- New technology and product refresh cycle boosting margins and revenues.
- Push into international markets will likely be a massive revenue generator over the next several years.
Furmanite: An Emerging Global Powerhouse With Upside Of 78%
- Long-term secular tailwinds from the oil and gas renaissance in the US are likely to boost revenue growth in coming years substantially.
- The firm recently completed a five-year transition from a largely franchised organizational structure to a global powerhouse.
- After several acquisitions, the firm has folded in a portfolio of new offerings and now has a turnkey one-stop solution.
Entropic Communications: Business Model Appear Broken With Significant Uncertainty As To The Future
- Shares sold off following the second quarter earnings release as the company guided down third quarter results further.
- Design wins have been scaled back with recent wins at Comcast and Time Warner being talked back in terms of potential.
- Second quarter results disappointed and further color surrounding restructuring plans appear to point to a more threatening situation as cash burn accelerates.
Nova Measurements: Secular Bull Story For Optical Metrology Provides Upside Of 30% Or More
- Nova stands to benefit from the secular shift towards Optical Metrology within the semiconductor space.
- The company is breaking out of a niche market into a broader supplier of both integrated and stand-alone solutions.
- Nova owns the market and is in the process of introducing newer technology while growing ancillary revenue streams, mostly within software.
Marten Transport: Mispricing In The Industry Provides Strong Upside
- Marten is one of the premier niche transport operators in the business with top-notch management and very efficient operations.
- The company is now a much more diverse enterprise with "three fingers of growth" and a very broad revenue base.
- Further expansion into Southern California with their recent acquisition and into Western Mexico will likely push down operating cost ratios further and increase profitability as route density increases.
KBR Inc.: Deepening Pessimism And Increased Bidding Costs Point To Possible Bottom
- Recent class action suit has beaten down the shares providing a decent entry opportunity.
- CEO replacement has also caused near-term anxiety.
- Operational improvement plan likely will boost margins and improve efficiency of the firm.
- Quarterly results and legacy issues have pummeled the share price boosting the pessimism level to elevated proportions.
Pitney Bowes: Risk-Reward Opportunity Decidedly Negative
- Longs are banking on their much smaller, digital marketing business offsetting the physical mail decline.
- Cost cutting has largely been played out with very little additional benefit likely achievable.
- Cash flow is in terminal decline with free cash flow decidedly negative putting pressure on the company's investment grade credit rating.
Tree.com: When Investors Ignore, You Win!
- The return to lower lending standards and secondary financing including second lien mortgages like HELOCs should benefit TREE strongly.
- Investors are expecting a decline in volumes as interest rise which is counter to what we think as lenders increase lead generation usage in order to offset refinancing declines.
- New products, including many in the non-mortgage space, continues to enhance the company's growth trajectory.
Chipotle: One Overstuffed Burrito
- Rising threats from food inflation, labor and occupancy costs, contradict the assumption of ever expanding restaurant margins.
- Competition is heating up in the space where once Chipotle had free reign over the fast casual Mexican food category.
- Focus on throughput (productivity), which has likely reached a ceiling in the near term, could degrade quality over time.
Comverse Inc: The Transition To Positive Free Cash Flow Is Upon Us
- Former spin-off and orphan stock that has had many passed transgressions. Largely misunderstood accounting issues cloud the firms true operating performance.
- New management and activist shareholder appear motivated to shed significant operating expenses and expand margins closer to peer average.
- New product offerings appear poised to leverage existing install base while appealing to a whole new market of potential clients due to the easy install process and SaaS model.
- Valuation points to an asymmetric return profile with our bear-case scenario showing just 8% downside.
Equinix: Expensive As Investors Front-Run The REIT Conversion Ignoring Threats
- Declining top line growth and gross margins are pressuring the valuation.
- REIT conversion largely priced into the stock.
- Increasing competition and churn in the business likely to further slow growth.
Safe Bulkers: Best-In-Class Shipper Poised To Gain As TC Rates Rebound
- Decline in expected growth of fleet expansion over the next few years bodes well for shippers pricing power.
- Demand for higher quality coal in China to ease poor air quality is likely to drive cap rates.
- Decline in iron ore prices below $125 per metric ton favors imports over Chinese domestic production.
- Downside is protected from liquidation value of the fleet.
Ocwen Financial: Wells Fargo Deal Resolution Will Mean Significant Upside
- Hold on MSR deal has irrationally suppressed the share price despite continued strong organic growth.
- Surge in home prices over the last two years could potentially create another flood of foreclosures.
- Home price increases have created large gains on the held portfolio which could be liquidated for large gains.
- OASIS securitization program lowers cost of capital adding to competitive advantage.
- Use of burgeoning free cash flow likely to propel share buyback program.
IPC The Hospitalist: Exactly The Cure For What Ails Your Portfolio
- Strong secular growth story in small, niche health care space.
- Justice Department lawsuit is overhyped and has unfairly punished the share price.
- Confusion surrounding seasonality of net physician adds.
- Long-term, the hospitalist field appears greatly needed due to a dearth of primary care physicians entering the field.
EZCORP: Reset Of Expectations And New Management Focus Provide Significant Upside
- Stabilization of gold prices should stabilize the operating of the business.
- Increases in consumer and producer price indexes could mean future gold price increases.
- Inventory levels should clear as they offload their load of new retail jewelry through their online channel.
- Slower store growth and acquisition integration should lower their operating expenses by 5-8% over the next two years.
MeadWestvaco: Ride Along Starboard For Profit
- Hedge Fund activism was recently confirmed in the shares with Starboard Value LP taking a 5.6% stake in the company.
- Capital spending projects are rolling off improving margins and free cash flow.
- Margins are already improving with current valuation expecting no further improvement.
- Second quarter margins should benefit from weather effect turnaround and improved pricing power offsetting input inflation.
8x8: Virtual Office With Real Potential On Sale Now
- Infonetics Research 2014 Scorecard results show 8x8 as the clear market leader.
- Build-out of their indirect sales channel should maintain or accelerate subscriber growth.
- Acquisition of Voicenet creates meaningful international foothold and start of expansion.
Himax: Cut Through The Hype And Look At The Facts
- Google rumors are a sideshow as the wearables story is much larger than one player.
- Innolux headwind subsiding.
- Mobile and tablet tailwinds likely to accelerate in the back half of '14 and throughout '15.
- Valuation is ridiculously cheap and assumes no growth from two of the company's four segments.
Fleetmatics: A Reset Of Expectations Creates Significant Upside Potential
- New REVEAL+ product set to ramp up sales.
- Inside sales model is a strong competitive advantage.
- Large and growing database could become a large asset creating optionality.
- Geographic expansion should start creating meaningful unit growth in the second half of this year and especially in 2015.
Manning & Napier: An Inflection Point In Its Business Has Been Reached
- Push into DC plan space, including corporate restructuring.
- New products coming up on three-year anniversaries.
- Margins can expand and grow above the industry average.
- 2100 Xenon acquisition brings it into the fast-growing alternatives space.
- Performance of flagship products set to roll off poor performance from three years ago.
Barrett Business Services: Growing Pains Have Subsided Leaving Large Upside Potential
- ACA and other regulatory expenses are pushing small businesses to PEOs.
- Large proportion of revenue recurring making the cash flow stream more stable.
- Expansion of both its geographic footprint and their margins means substantial future growth potential.
- Rebound in CA employment provides significant tailwind to the business.
- Stock unfairly being hit due to their lower forecasted revenue from dumping low-margin clients.
Biglari Holdings: Sum Of The Parts Indicates Strong Upside
- Compensation plan a sideshow for the real value.
- Company is diversifying away from restaurant operations with new acquisitions.
- Cracker Barrel proxy rejection sent shares lower but his initiatives to enhance shareholder value continue to be implemented.
- Most importantly, the ownership structure clouds the real underlying value of the conglomerate firm.
Och Ziff: On A Path To Becoming A Mega Firm
- SEC probes have depressed share price presenting great long-term opportunity.
- Inflows remain on track and star manager likely to be a big draw of new assets throughout the rest of the year.
- Valuation remains very compelling with asymmetric risk-reward potential.
Iron Mountain: REIT Conversion And Emerging Markets Fuel Upside Of 40%
- Growth channels change the profile and trajectory of the firm, improving valuation.
- REIT conversion provides solid return to shareholders and reduces risk profile.
- International operations poised to boost growth trajectory.
- The death of tape vaulting is overplayed and offset by cloud services IRM offers.
Ally Financial: Transition Near Completion, Will Lead To Core Focus And Strong Upside
- Once US Treasury is paid off, the company will have more flexibility to grow Ally Bank and enhance profitability.
- Regulation normalization and net interest margin expansion will drive returns on equity to double digits over the next several years.
- The focus on the core business reducing non-interest expenses will help expand operating margins.
- Moving from captive to market-driven financing firm increases the flexibility to grow market share.
- Ratings upgrade and flexibility should reduce interest expense and improve profitability.
Hemisphere Media Group: A Value Unlocking Story With 30+% Upside
- Large exposure to fast growing cable segment.
- Election year booms.
- Unfairly hit by Puerto Rico troubles.
- Expected to be quickly ramped up and sold.
1347 Property Insurance Holdings: An IPO Left For Dead With Upside Of 50%-100%
- National property insurers continue to reduce their exposure to Louisiana and other coastal markets.
- Premiums have skyrocketed in certain states allowing Maison to cherry-pick high margin policies.
- The volatile insurance climate as it pertains to more weather losses has been overrated and biased by Katrina.
- Lower reinsurance rates should be a nice tailwind in the near-to-medium term.