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Carnival: Reiterating Price Target After A Strong Start To 2015
- Almost 40% drop in fuel expenses has led to a strong start in fiscal 2015 for Carnival.
- Bookings remain healthy across Carnival's global markets, guidance remains strong.
- Success of Wi-Fi at Sea program in driving customer satisfaction and onboard spend should not be overlooked.
- 40% growth in the Chinese cruise market will benefit Carnival, given its leading position within the market.
- Reiterate price target of $59.71, equivalent to 25% upside.
Kulicke & Soffa Industries: A Bloated Balance Sheet Masks True Value
- KLIC's balance sheet is pristine, but bloated with cash; even when accounting for repatriation-related taxes, over 33% of the company's market capitalization is in cash.
- Management has gone on record in saying that Q2 2015 guidance is conservative.
- Ongoing recovery in revenues and profits highlights modest multiples; KLIC trades at less than 6x fiscal 2015 EBITDA, and less than 8.5x EPS.
- Situation is ripe for the involvement of activist investors; one has already called for share repurchases.
- Lack of sell-side coverage and perceived hoarding of cash are among factors that have led to a depressed valuation.
HealthEquity: Raising Price Target After A Banner Year, More Upside To Come As Health Reform Continues
- Raising price target to $28.17 after a strong finish to fiscal 2015.
- Industry data suggests that HealthEquity is continuing to take market share within the HSA industry.
- While King vs. Burwell may present a headline risk, the role of HSA's in the U.S. healthcare system is unlikely to be affected.
- EBITDA margins continue to climb as the company continues to scale the business.
- Fiscal 2016 guidance may prove to be conservative.
Sanmina: Sitting In The Sweet Spot Of Contract Manufacturing
- Dramatic increase in opportunities to deploy capital are being overlooked by the market.
- Dramatic declines in net debt have led to steep falls in interest expenses and increased financial flexibility.
- Margin gap relative to peers continues to narrow, will all but disappear by fiscal 2016.
- Price target of $29.06 may seem low, but it fails to account for optionality provided by share repurchases or further M&A.
- Management focus is likely to shift in 2015 from deleveraging to deploying capital.
QLogic: Restructuring And Share Gains Continue, Further Upside In 2015
- 32% return since our initial October 2014 recommendation, well above the returns of the S&P 500.
- No evidence yet that the acquisition of Emulex by Avago will be a negative for QLogic.
- Continued market share gains in Q3.
- Analyst day in May will likely act as a catalyst for shares.
- Raising price target to $16.45 from $14.30.
Carnival: Declining Fuel Costs To Lift Profits In 2015 And Beyond
- Far too little has been written about the benefits of lower oil prices to the global cruise industry, which is led by Carnival.
- Carnival is the market leader within the cruise industry on both a global basis and in the industry's most important growth market: China.
- Carnival has the industry's strongest balance sheet on a net-debt-to-EBITDA basis.
- Growth in yields set to continue into 2015 alongside double-digit falls in fuel expenses.
- Assuming current oil market conditions continue, pressure will likely increase on Carnival to restructure/abandon its fuel derivative portfolio, upside potential of this move not currently in forward estimates.
TiVo: A Forgotten Business, A Solid Opportunity
- Despite record levels of revenue, subscribers, EBITDA, and record margins, TiVo has largely been forgotten by the market.
- With over 40% of the company's market cap in net cash, ample room for further capital deployment.
- Shares trade at an almost 30% discount to peers on an EV/EBITDA basis, despite superior EBITDA growth.
- Clear path to further service revenue growth and a return to positive net TiVo-owned subscriber additions.
RF Micro Devices: As The Transformation To Qorvo Nears Completion, Continued Exposure Is Warranted
- Despite a 200% return since our initial recommendation, continued exposure to RF Micro is warranted.
- Sustained increases in gross margin and tight cost controls have led to triple digit operating income and EPS growth.
- Nearly 100% increase in fiscal 2015 consensus EPS estimates over the past 10 months has dampened the rise in RF Micro's 2015 P/E multiple.
- The global transition to 4G LTE technology remains in the early stages, with ample room for further growth.
- As RF Micro transforms into Qorvo, continued exposure to the shares is warranted.
Air Canada: Despite Triple-Digit Returns, Undervaluation Remains
- Despite returning over 100% since our initial February 2014 write-up, shares of Air Canada continue to offer an asymmetric risk-reward proposition.
- Continued progress on the company's restructuring is apparent in Air Canada's Q3 results, with rising revenues and expanding margins.
- Landmark contract with pilots provides long-term cost certainty and peace between management and the company's most important labor constituency.
- Dramatic increases in estimates have helped suppress multiple expansion at Air Canada since our February write-up.
DTS: Strong Audio Trends Continue, Lifting Price Target
- Although shares have returned almost 44% in under three months, further upside remains.
- Strong Q3 results and raised 2014 guidance show that DTS is continuing to execute well.
- Weakness in internal controls has been remedied.
- A series of new licensing agreements and acquisitions have further expanded the DTS ecosystem.
Investment Technology Group: A Profitable Investment In The Global Capital Markets
- Despite a 3-decade presence on Wall Street, few investors are likely to have heard of ITG.
- ITG has a clean balance sheet, with over 16% of its market capitalization in net cash.
- Increasingly diverse revenue base, from both a geographic and business perspective is helping drive double-digit growth in operating profits and EPS.
- Management has a solid track record of returning capital to shareholders; since 2009, over 20% of shares have been repurchased.
Polycom: As The Recovery Continues, Share Gains To Come
- Ahead of a return to revenue growth in 2015, Polycom continues to restructure its operations, leading to expanding operating margins and double-digit EBIT growth.
- Balance sheet remains solid, with over 20% of the company's market capitalization in net cash.
- Latest market share figures show that Polycom is gaining share, further gains likely in Q3 2014.
- Despite further restructuring potential, shares continue to trade at modest multiples.
Infinera: Raising Price Target As Performance And Potential Grow
- Solid Q3 results and Q4 guidance demonstrate that Infinera is navigating uncertainty in the networking sector.
- Continued cost discipline and long-term gross margin expansion is positioning the company for 2015 EPS growth approaching 100%.
- Growing cash balances, with potential for capital deployment in 2015.
- Raising price target to $15 as solid execution and guidance warrant upward revisions to multiple.
QLogic: A Logical Buy For 2015
- Despite clear signs of progress in its turnaround, shares of QLogic remain undervalued on both an absolute and relative basis.
- Signs of stabilization in the Fibre Channel market and continued growth in Ethernet sales have allowed the company to expand its market share.
- Despite gross margin pressures, tight cost controls have helped minimize the impact to operating margins.
- Pristine, debt-free balance sheet, with almost 30% of market capitalization in cash.
Check Point Software Technologies: Calling Activists As Cash Balances Continue To Increase
- Check Point's balance sheet is bloated with cash, with net cash & investments amounting to almost a third of the company's market capitalization.
- The company's operating margins and cash flow generation are higher than any of its competitors, including Microsoft.
- Combination of steady, but uninspiring revenue and EPS growth and continued growth in cash balances has created an attractive entry point for activist investors.
- Check Point has a long track record of share buybacks; since 2006 the company has bought back over 20% of its shares.
HealthEquity: A Niche Pure Play On Healthcare Reform
- HealthEquity offers investors a unique and focused opportunity to profit from the ongoing implementation of the Affordable Care Act.
- Solid market position and product offerings have led to double-digit revenue and profit growth.
- Scalable business model has resulted in expanding EBITDA margins, with further increases to occur in the next several years.
- Pullback from post-IPO highs offers an attractive entry point for long-term investors.
Ambarella: Finding Gains Beyond GoPro
- A focus on the company's relationship with GoPro has obscured the growth potential of Ambarella's other segments.
- The company is leveraged to multiple global trends that are driving the adoption of newer and more complex cameras, and the chips that power them.
- Continued improvements in operating leverage are flowing through to the bottom line, driving double-digit EPS growth.
- Volatility in shares of GoPro can be used to initiate positions if they lead to a decline in shares of Ambarella.
Bed Bath & Beyond: Gains To Come Beyond 2014
- Despite double-digit cash flow growth, shares of Bed Bath & Beyond trade well below its retail peers.
- Headline results have been pressured by internal investments, which are set to begin yielding dividends in 2015.
- As a percent of sales, Bed Bath & Beyond generates far more operating cash flow than any of its direct peers.
- The company has a long-term track record of returning capital to shareholders, with over a third of the company's shares bought back in the past decade.
Best Buy: A Solid Buy As The Recovery Continues
- Shares undervalued on both an absolute and relative basis as the retailer's turnaround continues.
- Despite negative headlines, balance sheet remains clean, with over $4 per share in net cash & investments.
- The Renew Blue restructuring plan is yielding double-digit growth in operating income and EPS.
Qantas: Investing In The Recovery Of Australia's Leading Airline
- Qantas' underlying fiscal 2014 performance is stronger than headlines suggest.
- Erroneous narratives that its issues have been profitable for Virgin Australia has dampened sentiment.
- Balance sheet is stronger than headlines suggest, with ample liquidity.
- Industry-leading loyalty program is undervalued by investors.
- Changes in Australian government policy have opened door to new foreign investors.
Arris Group: Finding Profits In Your Cable Box
- The acquisition of Motorola Home has been very successful, resulting in double-digit growth in operating income and EPS.
- Post-earnings selloff on unfounded concerns surrounding bookings has created an attractive entry point.
- Continued balance sheet deleveraging will lead to increased ability to return capital to shareholders.
- Despite year-to-date gains, shares continue to trade at modest multiples, both on an absolute and relative basis.
DTS Inc.: A Mundane Business, With Exciting Profits
- Margin-rich royalty revenues result create business with material operating leverage.
- Partnerships with majority of leading consumer electronics companies create tailwinds as network-connected electronics sales continue to grow.
- Clean balance sheet with over $2 per share in net cash.
Infinera: As Optical Networking Grows, So Too Does The Upside
- Infinera's leading position in optical transport networking is not being adequately reflected in its stock price.
- Historically erratic financial results and concerns of Infinera's position as a mid-size company have hampered its ability to command an appropriate valuation.
- Forward growth is far above that of its peers, when measured by revenue, EBITDA, and EPS, but shares do not trade at a commiserate premium.
- Clean balance sheet, with almost $2 per share in net cash and ample opportunities for capital deployment.
CUR Media: A New, And Potentially Worthy Challenger To Pandora & Spotify's Crown
- Although its streaming service has yet to launch, CUR Media offers an intriguing alternative to Pandora and Spotify.
- The company is being guided by blue-chip veterans from the entertainment industry, including the founder of MTV and the former CEO of RCA Records.
- As Spotify moves closer to an IPO, shares of CUR Media may begin to rise alongside it.
- While risky, shares of CUR Media have high potential as well; investors should consider if their portfolios can accommodate such an investment.
Flextronics: Solid Free Cash Flow Deployment And Cost Controls To Drive Further Upside
- At over 12%, Flextronics' free cash flow yield is the highest in its peer group.
- Tight cost controls are set to underpin expanding operating profit and margins.
- Flextronics has demonstrated a commitment to returning capital, having bought back almost 10% of the company in fiscal 2014 alone.
- The company's upcoming May 21 analyst and investor day will likely feature further updates on capital allocation and cost controls, which may drive further upside.
- Diversity of customer base may limit ability for short-term momentum rallies, but offers long-term stability.
American Airlines Group: As The Integration Continues, Solid Upside Ahead
- Despite leading the domestic airline industry in forward EPS growth, American sports the industry's lowest P/E multiple.
- Hundreds of millions of dollars in interest savings are set to flow through to the company's bottom line.
- American now has a lower cost structure cost than either Delta or United, yet receives little credit for it.
- Through Chapter 11, leverage has been reduced to industry-average levels.
- Conservative synergy targets create room for possible increases to the company's forecasts.
Symantec: With Activists And PE Firms Calling, The Time To Buy Is At Hand
- Recent turmoil at Symantec has created an attractive entry point.
- Hiring of JPMorgan as an advisor implies management believes activist investors and private equity firms are a threat.
- Symantec has no tools with which to defend itself against activist shareholders or private equity firms.
- Sum-of-the-parts valuation suggests sizable undervaluation.
- Analyst Day in late May and selection of permanent CEO may act as catalysts for the stock.
Lifetime Brands: A Mundane Company, With Exciting Profit Potential
- Lifetime's mundane business belies its profit potential.
- The company expanded gross margins during the key holiday quarter, alongside rising revenues and EPS.
- With insiders owning 22% of outstanding shares, capital is being deployed in an accretive fashion.
- Continued moves to enlarge brand portfolio and international presence will increase Lifetime's addressable market.
G-III Apparel Group: Unjustified Discount Belies Solid Execution And Opportunities Ahead
- G-III managed to not only grow revenues, EPS, and EBITDA in the holiday quarter, but posted rising gross margins across all segments.
- Despite solid performance in fiscal 2014, shares trade at meaningful discounts to peers.
- With management owning over 16% of outstanding shares, clear incentive to deploy capital in an accretive fashion.
Yahoo: As Alibaba Goes Public, Value Of Underlying Business Will Begin To Shine
- Net of its stakes in Alibaba, Yahoo Japan, and its cash, Yahoo's core business is being valued at less than 2x operating cash flow.
- CEO Marissa Mayer and CFO Ken Goldman have made material investments to turn Yahoo around, and they are beginning to pay off.
- Once Alibaba becomes public, investor focus will likely shift to Yahoo's core business, which is set to improve further in 2014.
UniCredit: With Dirty Laundry Now Aired, Underlying Recovery Can Come Into Focus
- Beneath the surface of a record net loss, underlying performance at UniCredit is beginning to improve.
- Continued steps to strengthen the balance sheet will further boost investor confidence.
- Sizable rally after disclosure of record net loss shows investors are pleased with management's decision to air UniCredit's "dirty laundry".
Nexstar Broadcasting Group: In 2014, Its Star Will Continue To Shine
- Sizable pullback has created an attractive entry point in NXST.
- Balance sheet is stronger than a cursory glance suggests.
- Dividend increase in early 2014 suggests confidence in future cash flows.