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  • Carnival: Declining Fuel Costs To Lift Profits In 2015 And Beyond [View article]
    If you were to look back to Carnival's valuations over the past decade or so, the company spent much of that time frame commanding multiples that were out of line with the company's actual growth. Like many other companies in the market, Carnival was valued on what was in hindsight a very unrealistic and unsustainable view of the economy. And while Carnival does have some structural advantages that it can (and is) taking advantage of, such as tame capacity growth, there is only so much that the company can do in the face of economic weakness. Carnival's multiples contracted sharply during the recession, and while they've recovered somewhat since then, they have yet to reclaim their historical levels.
    Feb 4, 2015. 05:04 PM | 1 Like Like |Link to Comment
  • RF Micro Devices: As The Transformation To Qorvo Nears Completion, Continued Exposure Is Warranted [View article]
    This is more an issue of semantics than anything else. Technically, the terms of the merger agreement call for RF Micro shares to first be exchanged 1:1 for shares of Qorvo, and once the exchange of RF Micro and TriQuint stock occurs, Qorvo will execute a 1-for-4 reverse split of the stock.
    Dec 27, 2014. 12:44 AM | Likes Like |Link to Comment
  • QLogic: A Logical Buy For 2015 [View article]
    Prasad Rampalli spent most of his tech career at Intel & EMC, and over the years he was there, he gained a reputation as a long-term strategist (more on his background can be found here There is more work to be done in righting QLogic, but the initial results over the past 8 months have been promising. As to the "game changer" aspect, that is more difficult to quantify. As a company, we do not believe that QLogic currently needs a CEO that is a transformative innovator. What the company needs is a CEO that is able to balance the company's presence in both FC and Ethernet, and keep a lid on costs as QLogic works through its structural change in gross margins. When the transition is complete, perhaps that will be the time to focus more on longer-term innovation and strategy. Regarding revenue splits, QLogic does not explicitly quantify the breakdown of Ethernet vs. FC sales, but the company is moving more and more towards Ethernet, as evidenced by its gross margins.
    Oct 23, 2014. 08:00 PM | Likes Like |Link to Comment
  • QLogic: A Logical Buy For 2015 [View article]
    Conceptually a deal between the two makes sense, QLogic would cement its control of the FC market and bulk up in Ethernet even more. But because the two companies together control pretty much the entire FC market, we doubt that any such deal would pass anti-trust scrutiny.
    Oct 22, 2014. 03:25 PM | Likes Like |Link to Comment
  • Check Point Software Technologies: Calling Activists As Cash Balances Continue To Increase [View article]
    Net cash was calculated by taking the cash CHKP reported on its balance sheet at the end of Q2, and dividing it by their outstanding shares. As the company has no debt, net cash and cash are the same amount.
    Oct 22, 2014. 03:23 PM | 1 Like Like |Link to Comment
  • QLogic: A Logical Buy For 2015 [View article]
    Sentiment can often hinder stock performance over a longer timeframe than it should. The last few years have seen the FC market stagnate, and QLogic's leading position within it hasn't helped, even if overall performance has been better than the FC market would otherwise suggest. And for some, the fact that the company's gross margins are declining is an issue, even if expense discipline has mostly countered that as more and more sales come from the Ethernet market.
    Oct 22, 2014. 11:19 AM | Likes Like |Link to Comment
  • Check Point Software Technologies: Calling Activists As Cash Balances Continue To Increase [View article]
    Check Point is not as acquisitive as some of its peers are, but the company has done deals in the past. Probably the most notable deal is one that the company did not complete, which was its 2006 offer to acquire Sourcefire for $225 million; the deal fell apart due to national security concerns raised by CFIUS. Other key acquisitions include ZoneAlarm in 2003, which gave the company its consumer unit, and Nokia's security appliance division in 2009.
    Oct 20, 2014. 07:28 PM | Likes Like |Link to Comment
  • Bed Bath & Beyond: Gains To Come Beyond 2014 [View article]
    Several good points raised here, so we will attempt to address them in the order listed above:

    1. Let us then examine BBBY on the basis of free cash flow. Based on the figures above, BBBY free cash flow accounted for 9.42% of TTM sales, a number that is still well above its peer group. TTM FCF at Pier 1 equals just 1% of sales, and at Williams-Sonoma the figure is 4.86%, and neither Restoration Hardware or The Container store posted positive free cash flow over the last 12 months.

    2. For investors, what matters is the deployment of free cash flow, which already takes into account the dollars that the company has spent on improving its operations, either through increased technology investments that show up in its income statement, or on capital expenditures that lower free cash flow. Free cash flow itself is just that, cash that the company is free to use on activities that go beyond operating or improving its business. For BBBY, its free cash flow can be used in one of several ways: buybacks, dividends, acquisitions, or debt reduction. Given that the market does not appear to be pressing for an acquisition or debt reduction, that leaves the company with dividends and buybacks as a means of deploying its free cash flow. We do not believe that BBBY is deliberately slowing down its pace of investments to prop of FCF; in the first half of the year, total capital expenditures rose almost 20% year-over-year to over $156 million.

    3. The goals of a share buyback program are to reduce the number of shares outstanding, which serves to both increase the company's share price as a buyer (the company) actively acquires shares, and boost EPS as the number of outstanding shares is reduced. A debt-funded buyback program would inherently lead to lower cash flows, but usually increases EPS, as is the case here. For BBBY, its buyback program has been augmented by debt to boost EPS, which is also an important metric for investors. And furthermore, there does not appear to be much concern in the markets with BBBY's balance sheet; net debt stands at ~$120 million, and the company's free cash flows could be diverted to debt reduction should the need to do so arise.

    4. Our price target for BBBY was calculated based on defining a target price-to-cash flow multiple for the company, as outlined in the peer comparison section.

    5. Our argument that BBBY has a solid track record was based on the company's 20-year returns, naturally there are periods of time in which shares have underperformed the S&P 500, just as there are times that shares have outperformed. We could point to the fact that over the past 3 months shares have materially outperformed the S&P 500 by almost 1,500 basis points, but that single metric reveals little about BBBY's long-term performance. The question is, what is an acceptable length of time to gauge a company's long-term track record? In our view, 20 years is an acceptable length of time, but different methodologies will yield different conclusions.
    Sep 29, 2014. 11:36 PM | 3 Likes Like |Link to Comment
  • Arris Group: Finding Profits In Your Cable Box [View article]
    It's important to keep in mind growth relative to those peers as well. Ericsson, for example, trades at an EV/EBITDA premium to ARRS despite having much lower EBITDA growth. Same goes for SeaChange as well. We are believers in the long-term potential of SeaChange, but do believe that ARRS stands out in relation to its peers. It is true that on certain metrics one given company may comp more favorably, but in the aggregate, we do believe that ARRS is priced below its fair value relative to peers.
    Sep 9, 2014. 11:50 PM | Likes Like |Link to Comment
  • Arris Group: Finding Profits In Your Cable Box [View article]
    Yes, the 17% is based on non-GAAP numbers. As for ROE over time, it was 11.33% in 2012, and 10.88% in 2011
    Sep 5, 2014. 12:11 PM | Likes Like |Link to Comment
  • Arris Group: Finding Profits In Your Cable Box [View article]
    ROE for 2013 stood at ~17%, and assuming that 2014 trends continue, ROE should improve this year. As for ARRS' moat, it lies primarily in the company's technology. Set-top boxes, while subject to commodititzaion, are not as commoditzed as they appear to be. Service providers are constantly seeking to differentiate themselves to customers, and one way is through their set-top boxes and the features they offer. While subscribers themselves may view them as one size fits all, ARRS service provider customers do not, and that is what matters. Second, the company is not simply a provider of set-top boxes. It has a host of other product lines that are less open to commoditization, and these should not be forgotten, even if they are less well-known than ARRS' set-top box division.
    Sep 3, 2014. 07:40 PM | Likes Like |Link to Comment
  • Arris Group: Finding Profits In Your Cable Box [View article]
    That P/E ratio is based on trailing GAAP figures, which are weighed down by charges tied to integrating Motorola into Arris.
    Sep 3, 2014. 02:56 PM | Likes Like |Link to Comment
  • DTS Inc.: A Mundane Business, With Exciting Profits [View article]
    DVD players themselves have largely been removed from DTS' revenue base; the entire home AV category continues to shrink as a percent of the company's revenue. And the company's position in Blu-ray is tremendously aided by the inclusion of its technology in the Xbox One and PS4. Processing power is increasing not only on phones and tablets, but on consoles as well, and there will always be a place for them within the overall consumer entertainment space. As for smartphones, 7 of the top ten mobile OEM's build phones with DTS tehcnology, so the company already has a presence within the sector.
    Aug 24, 2014. 02:20 PM | 2 Likes Like |Link to Comment
  • Infinera: As Optical Networking Grows, So Too Does The Upside [View article]
    Scaling into INFN may be a worthwile idea, but the purpose of this article was not to dictate how (or if) investors should buy INFN. That decision is up to each individual investor, depending on their own risk tolerances and/or portfolio needs.
    Aug 23, 2014. 04:57 PM | Likes Like |Link to Comment
  • DTS Inc.: A Mundane Business, With Exciting Profits [View article]
    Our comment that DTS' business is mundane is not meant to be a sign that it is a reason for the stock's historical underperformance of that specific time frame. The key driver for DTS' fall is that the company's historical financial performance was not supportive of such a high stock price. When shares of DTS peaked at $50 in January 2011, that represented a multiple of ~34x 2011 forward EPS (, which at the time was not cheap relative to the stock's forward earnings growth. We do not see shares of DTS being worth that much given its present growth rates and where peers are trading at. But on the other hand, the slide below $15 was also excessive.
    Aug 23, 2014. 04:56 PM | 3 Likes Like |Link to Comment