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  • 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 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 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 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 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 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 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 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 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 04:56 PM | 3 Likes Like |Link to Comment
  • DTS Inc.: A Mundane Business, With Exciting Profits [View article]
    The patents within DTS' patent portfolio have a range of expiration dates through 2030. While some do expire in 2015, DTS consistently files new patents on its newest generation technologies to ensure that any one patent expiration does not drive down the company's revenues.
    Aug 23 04:46 PM | 5 Likes Like |Link to Comment
  • Flextronics: Solid Free Cash Flow Deployment And Cost Controls To Drive Further Upside [View article]
    Although Motorola was a 10% customer in the quarter, it remains to be seen whether or not this will be the case for fiscal 2014 as a whole.
    May 15 10:01 PM | Likes Like |Link to Comment
  • Lifetime Brands: A Mundane Company, With Exciting Profit Potential [View article]
    Like most consumer oriented companies, LCUT's brands and trademarks and customer relationships have a certain value under GAAP, which is carried under the goodwill & intangibles section of its balance sheet. Under GAAP, the value of said assets is then amortized based on the "useful life" of those assets.
    May 5 02:44 PM | Likes Like |Link to Comment
  • Lifetime Brands: A Mundane Company, With Exciting Profit Potential [View article]
    LCUT sold off on Q1 earnings that came in below consensus, as the company absorbed its acquisitions into its infrastructure, leading to elevated SG&A costs. But, gross margins expanded once again year-over-year, and the company's previous full-year forecast (as outlines above) was reaffirmed. 2014 will be a year of integration and transition for the company, and we do not believe that the results of a single quarter are telling of the company's full-year potential.
    May 4 05:52 PM | Likes Like |Link to Comment
  • American Airlines Group: As The Integration Continues, Solid Upside Ahead [View article]
    As to your question on RASM, here are the Q1 figures for the 4 national airlines (we formatted it as best we could to fit the comments section) (taken from each airlines Q1 2014 earnings release)
    Q1 2014 Q1 2013
    American RASM $0.1577 $0.1524
    Delta RASM $0.1424 $0.1380
    United RASM $0.1520 $0.1520
    Southwest RASM $0.1367 $0.1326

    American holds the highest RASM of the four national airlines, and while the comparison to Southwest may not be fully valid given their mostly domestic focus, American is clearly holdings its own versus Delta and United in terms of RASM. The revenue synergies management forecasted were based on their internal calculations of the incremental opportunities within combining American's network with that of US Airways. For the most part, the two companies operated complementary networks, and as they combine into one network, there will likely be more opportunity for them to sell passengers on connecting within the combined network. Given that there has been only one quarter of full merged operations, we believe that investors will need to wait until Q2 or Q3, when weather is less of a factor, to get a better sense of the merged company's revenue potential. That being said, the results for Q1 were positive, and we think American is on the right track.

    Given that the comp set represents the entire domestic airline industry (aside from Virgin Americana and Frontier, which are private), we think it is a valid comparison. This represents the collective view of the market on what the airline industry is currently worth, and not only does American trade at a discount to the entire industry, it trades at a discount to its own legacy/national peer group, which operate in a similar manner to American, and have similar balance sheets (aside from Southwest. Investors can decide to pair a long position in AAL with a short position in another airline if they wish, but that is not our position at this time.
    Apr 29 11:26 AM | Likes Like |Link to Comment
  • Volaris: The Spirit Airlines Of Mexico Is Poised To Soar [View article]
    Several things went wrong, and we are in the process of crafting an update piece on these issues. The core of the issue resides in the Mexican economy and airline environment, as well as volatility in the peso, which has adverse effects on US investors. Volaris' Q1 results, which were released today, showcase these issues. The company posted a loss for the quarter, and while the push out of Easter into the 2nd quarter played a key role (given that Easter week is one of Mexico's busiest travel periods), industry pressures played a role. While VLRS displayed solid cost controls, it was not enough to mitigate the larger issues at play. That being said, Volaris is continuing to execute on its strategy, and we believe that in time, share will recover.
    Apr 29 09:18 AM | Likes Like |Link to Comment