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Bill Maurer
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I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have... More
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  • Intel's Altera Pullback Means 3.00% Annual Yield

    Shares of chip giant Intel (NASDAQ:INTC) have not performed well since the company announced its acquisition of Altera (NASDAQ:ALTR). Intel has lost almost 8% of its value in the past week and a half, with those losses slightly limited by Wednesday's rise. Given the pullback, shares now yield over 3.00% on an annual basis, and I think this provides an attractive entry point for the stock.

    I believe that there are two reasons for the pullback. The first is the cost of the deal, which is around $13 billion or so when you factor in Altera's cash position. Some believe this cost is way too high for a company that had less than $2 billion in revenues last year and net income of less than $475 million. Since Intel expects to finance the deal with a large chunk of debt, the recent rise in interest rates is a worry. The 30-Year US Treasury bond has seen its yield rise by 36 basis points in June, which will increase Intel's borrowing costs. With a market cap currently of $151 billion, Intel could have otherwise used that amount of debt to buyback a significant portion of shares and boost EPS by about 15 cents.

    The other item here is that Intel analysts have continued to cut their revenue estimates. Since April 14th, the average forecast for this year has declined from $55.69 billion to $55.37 billion. Analysts expect a nearly 1% decline in revenues this year, compared to Intel's latest guidance for "approximately flat" revenues. In fact, analysts are now below the $13.2 billion revenue guidance midpoint for Q2 that management detailed at the Q1 report. Intel had a large revenue warning during the first quarter, and a challenging currency environment was one reason why. However, the dollar currency index has weakened by about 4% since Intel's report. Results might improve just a little bit if the dollar stays where it is. As estimates continue to decline, it makes it easier for Intel to beat going forward.

    Intel pays out a $0.96 annual dividend currently. With shares pulling back by almost $3 since the Altera deal was announced, the dividend yield has jumped. In the chart below, you can see Intel's yield up against large cap tech peers Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Cisco Systems (NASDAQ:CSCO), and Qualcomm (NASDAQ:QCOM).

    Apple has the lowest yield of the group, but the tech giant has a major buyback program that was increased in April. At this point, Intel leads Cisco by 9 basis points for the highest yield. With bond yields jumping, investors looking for dividend income need to appreciate where Intel is. Additionally, should Intel raise its dividend in early 2016, investors could yield even more over the next twelve months. Microsoft is expected to raise its dividend later this year, while the other names have done so already.

    Intel's results should improve as the year progresses, with the launch of Windows 10 hopefully helping the PC space in the second half. The company is working to reduce its reliance on the PC business, however, with the Data Center Group showing the most growth at present. Intel also hopes that the Internet of Things space continues to boom. The company kicks of plenty of free cash flow each year, which allows the solid dividend to be paid and a few billion worth of shares to be repurchased. 2016 could be a solid growth year, especially if the Altera deal is completed.

    Intel shares have pulled back a bit since the Altera deal was announced, which means the stock is now yielding over 3.00% on an annual basis. I believe that the decline is due to fear over the deal's cost, which increases as rates rise, and the continued decrease in analyst estimates. However, currency issues have improved since Intel's Q1 report, which could benefit the business. For investors looking for dividend income in the large cap tech space, Intel is your best bet currently.

    Jun 11 12:01 PM | Link | 2 Comments
  • SolarCity Short Interest Jumps After Earnings

    One item I love to follow is short interest, as it often details how investors are feeling about a particular stock. In the past couple of years, we've seen a substantial rise in short interest for SolarCity (NASDAQ:SCTY). This pattern continued with the most recent data, showing another new high for short interest in the stock. Today, I'll discuss the latest numbers, and detail why I think more bearish bets are being placed against this stock.

    The first data point I have for SolarCity short interest is from March 2013, at which point just over 2.53 million shares were short. Since then, we have seen a massive explosion, as seen in the chart below. At the latest update from NASDAQ, more than 21.25 million shares were short. That's a rise of more than 738% in just 26 months.

    (Note: last data point on chart is for settlement date of 5/15/15)

    Even in the past twelve months, short interest is up by almost 85% in this name. Based on Yahoo! Finance's float number of about 48 million shares, we now have more than 44% of the stock's float short, a tremendous number. It is certainly possible that some of these short positions are convertible bond holders that are hedging, but to see almost half of the stock's float short is nearly unheard of.

    So why is short interest increasing at such a rapid rate? Well, I have to believe that this bearishness is due to the company's results not being tremendously good. In early May, SolarCity's first quarter results beat estimates, but those estimates had come way down due to weak Q1 guidance. This new round of shorts coming in were probably bolstered by weak Q2 guidance, detailed in this SA market current. As a result of this light guidance, we've seen estimates for the current quarter, 2015, and 2016 come down, seen below.

    *2016 revenue growth rate based on 2015 estimate on that day. View all current estimates here.

    In the first quarter of 2015, revenue growth was a paltry 6.2%. Analysts are expecting SolarCity to really ramp things up as the year progresses, calling for nearly 48% top line growth in Q2 and 107% in Q3. I think the increase in short interest has to do with investors not believing the company can achieve these lofty forecasts. Losses are also piling up, with the Q1 2015 loss nearly double that from a year earlier. SolarCity has already lost $640 million on a GAAP basis in the past three years.

    SolarCity's short interest hit a new high in mid-May at more than 21 million shares. Investors have continued to place more and more bearish bets against the name, with about 44% of the stock's float now short. In the end, I think this is due to the company's results being poor, forcing analyst estimates to come down. A ton of losses are also not helping, which may force the company to need more funds down the road. If the company cannot meet such aggressive growth targets, I wouldn't be surprised if short interest rises further.

    Tags: SCTY, long-ideas
    Jun 02 4:12 PM | Link | Comment!
  • BlackBerry: This Isn't A True Buyback

    After the bell on Thursday, BlackBerry (NASDAQ:BBRY) announced a plan to purchase some shares of its common stock. When investors here news like this, the term "buyback" is thrown around, and many news headlines during the afternoon have that word in the title. While the company is buying some shares, this isn't a true buyback, so I'll detail why investors should avoid celebrating this news.

    First of all, CEO John Chen states explicitly that the plan is only in place to offset dilution from employee share purchase plans and proposed amendments to the company's equity incentive plan. At the annual meeting next month, management will present a new proposal to increase the number of shares under the equity incentive plan. In fact, the press release states that if the proposal is not approved, BlackBerry will not proceed with the equity incentive plan. This type of plan is basically what Apple (NASDAQ:AAPL) initially did with its $10 billion buyback. Apple's initial intent was to cover dilution from items like executive options. Later on, Apple boosted its plan in order to reduce its share count, and its buyback is now up to a planned $140 billion.

    The second item to think about is improving earnings per share. One of the keys of Apple's repurchase plan is that the diluted share count has come down tremendously, which has helped to boost the earnings per share number. Right now, BlackBerry is not profitable, so there is no help to earnings per share. In fact, when a company loses money, reducing the share count actually makes the EPS number worse. Think about this hypothetical example. If a company has a $100 million loss and 100 million shares, it loses $1 per share. If the company has just 90 million shares, it loses $1.11 per share.

    Another item to think about is that BlackBerry has a large amount of convertible debt on the balance sheet. If all of that debt is converted, 125 million shares are added to the company's total at $10 a share. That would represent about 19% dilution based on the most recent quarterly data. Thus, the convertible debt is 10 times the size of the 12 million shares BlackBerry aims to repurchase.

    There are two options with the convertible debt. First, the company could repay the debt, and then the size of its roughly $3 billion or so in cash drops significantly. On the other hand, if the shares were converted, the cash balance stays. However, then the company would need to buyback those shares to get the share count down. With BlackBerry trading near $10.50 in Thursday's after-hours session, it would be buying them back at a price roughly 5% above where it converted them. If shares rally further, the process gets even worse.

    Additionally, I don't think now is the time for BlackBerry to launch a true buyback program. The company still has not shown a revenue bottom yet, with the business still in the midst of its large transitional period. In fact, we continue to see analyst revenue estimates for all periods decline. Just as an example, here's a chart of the analyst estimate average for the current fiscal Q1, which ends on May 30th. Dollar values are in millions.

    In the end, investors should ignore the word "buyback" when it comes to BlackBerry. The company is only purchasing a small number of shares to offset dilution, which might not happen anyway if a new equity incentive plan is not approved. This type of plan shouldn't really impact shares, and it won't help the EPS number because BlackBerry is losing money. Overall, the 12 million shares the company could purchase are dwarfed by the large amount of convertible debt that could lead to large dilution. BlackBerry shares rose a couple of percent in the after-hours session on Thursday, but I really don't see this news worth that kind of move.

    May 21 6:15 PM | Link | 4 Comments
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