Jeremy Johnson, CFA

Jeremy Johnson, CFA
Contributor since: 2011
Increasing the distribution isn't going to help the stock price. They already pay out more than their free cash flow.
Everyone does not know this. And please don't reference studies without quoting them. Your first assertion is just false, option plans are dividend adjusted, it does not help to buy back stock versus paying a dividend.
When the company buys back stock, you own more of the company afterword. How is this not equally beneficial to you then getting a dividend? If you really believed in the company you would be reinvesting your dividend anyways, or is it because you have a better use for the money? Then sell your stock and buy something else. Share buybacks are done at the top of the market because that is when cash flows are best, if a company relied more on dividends they would be raising them the most at the top of the market and may run the danger of having to cut them in a downturn or starve their business of cash to pay it. Exxon bought back tons of stock in 2008-2010 which coincidentally probably saved it from ever getting very cheap. It amazes me how people can believe that $5 billion can disappear into the aether if its a stock buyback, but is God's gift to man if it is directly put in their brokerage account.
You can't prove that and shouldn't assume it. Maybe it was true 10 or 20 years ago, but who knows today. Behavior changes based on information and patients and doctors around the world all have the same information today. Also, it is clear that there were people in that study with abnormal CA19-9. You can quantify what you are saying with data: LN+ and CA19-9>N and those were present in the study.
People are living longer with PC for a simple reason, they are being slammed with erlotinib, cisplatin/oxaliplatin, nab-paclitaxel, leucovorin and irinotecan more than they ever were 10 or 15 years ago in salvage. The only thing NGL-0805 is definitely going to prove is that the SoC MOS is higher today than ever before.
Are you trying to argue that share buybacks and dividends are not equivalent?
Your math is not helpful to explain JASPAC-01s 25.9 MOS. We don't know the CA 19-9 levels from that study. However, we do know that some part of the group had elevated CA 19-9 from page 116:
http://bit.ly/1vTbWqL
All this subgroup analysis applied to the Phase II is not statistically significant and yet it continues to be trotted out. 11 people in Phase II had high level of CA 19-9 and now because 3 more of them survived longer than expected the product is a likely to be effective? The case for owning this stock should no be built around extrapolations from the phase II.
I drive in one regularly as well as lots of the competitor cars, the fit and finish of the interior is a step below high end BMW, Range Rover etc, maybe two steps (in fact certainly two steps below). The screen is pretty cool though if you are into that sort of thing. Personally would not like it, but recognize that many many people do.
The best thing about the car though is the driving experience in city driving. It's quiet, has good torque and no engine vibration. However, in really hot environments some that goes away because the A/C is not as good as a top end ICE car (and is loud and vibrates).
The P2 study was too small to draw any conclusions from -- full stop. And the company has been highly selective in the data it presents from the study. They point to correlations where it helps them and drop them just as fast when they turn against them. The high dose groups survival has converged with the low dose, I can't recall how I inferred this, but it seemed pretty clear and yet the company stopped publishing any data on this. I GUARANTEE if the data was good for their story they would publish it. Again though, doesn't matter because it is based on 26 patients, if 3 people catch lucky breaks it skews the data badly.
The 1 year survival in the S-1 arm of JASPAC-01, the most recent Pancreatic study with a large population, was over 93% with 200 patients. S-1 is just a 5-FU prodrug, nothing special. Depending on genetics, 5-FU, Gem or S-1 could produce these results, so it could be with the 26 people in the high dose in P2, you had the people with the right genetics for the chemo agents being used. It's just random chance.
By the way the Gem arm of JASPAC-01 with LN+ of 62% had 25.9 median survival and 3 YR of 39 or 40% (just looking at the graph). That is right on top of P2. I'm not going to argue patient populations -- its just going to get lost in the noise of having a small population in the P2, you are talking about analyzing the results of *3* additional survivors based on the difference in LN+ (assuming LN+ 20pp higher and 2x survival rate of not being LN+).
I also find it interesting that the CFO was kicked to the curb. Maybe he wasn't comfortable with the selective disclosure.
I didn't say anything about them losing market share historically. The worry is that in software new entrants can come quickly and establish rapid market share gains. Happens all the time, the usual response is for the dominant player in the industry to just buy any new competitor. That is why free cash flow looks so great at so many tech companies until you look at the acquisition line. Right now, Amdocs appears to have this under control, but in the future that can change. Picking stocks is not as easy as buying anything with a FCF / Capitalization ratio greater than the market.
Went through pretty much all the analysis you have done myself some months ago but I see two issues. First is the treatment group: it is only 69 patients, so we are trying to extrapolate an improvement versus base line when we could just be looking at statistical noise. It is just a matter of 3 people living longer than expected which could be accounting for the difference.
Second is the control arm. In JASPAC-01 which is the most recent large trial the median survival in the Gem arm was 25.9.
http://bit.ly/1z9lJch
LN+ was 62% in that trial, a bit below RTOG and I can't find a 19-9 number.
However versus RTOG, I think SOC FOLFIRINOX in 2012-2014 timeframe could easily add 2 months, and I think Dr. Link has referenced in or around this number. I have looked at various studies and independently agree.
From the standpoint of an investor, I would have to use 23-24 months MS control to get comfortable with owning the stock.
Back to the first point, I think the 95% CI on 3 YR overall survival for NGL-0205 (Phase II) of 39% is probably 10+ points either way (it was 7 points either way for ~180 patients in JASPAC), so the 3 YR could easily be anything down to 25% and be consistent with the data statistically. So really extrapolating from the Phase II is just noise. Based on some commentary I have seen I think that this Phase II was purposefully underpowered by management so they could leave the door open for a Phase III and I believe this is common in the industry where management doesn't believe in the product.
Having said all that I think there is a good chance the final analysis will show a greater than 20% improvement, but I have serious doubts as to the 30% improvement in the second interim. I did own the stock from the low-20s to the high-20s because the valuation made sense for the risk -- since that time of course Ebola has created some noise in the name and the company avoided having to raise equity in the public markets by selling IDO -- all good things that have built real additional value in the stock but not really germane to algenpantucel. Now the value will be driven solely by this 2nd interim and I think the chances are low it will clear the bar.
I would like to see your analysis on the timing of 1st and 2nd interims updated for a 24 month control.
Thanks for the article.
Love this company, have owned it from the mid-30s. Two things give me pause: 1) customer concentration, 2) new competitors: can't recall all the names but have read about a few startups that are nibbling at small portions of their business. I don't really know their products that well, but in software I get a bit nervous that companies don't invest enough to keep their offerings current. They can do it because maybe 2-3 companies dominate the market they are in, but it leaves the door open for new entrants.
You have to trust the people you invest with -- that is they have to be credible and have character. I am not sure why anyone would trust Bartel at this stage. His management of this company has been a seriously lacking. I see from his bio, he has two masters degrees and two phds -- I think we can deduce that his priorities are elsewhere. This may be his craigslist.
To get the enterprise value or market cap of a firm with stock options outstanding you add the fair market value of the stock options, you don't multiply the number of options by the current share price.
Yes, they are all over Southern California. I was discussing with a friend yesterday, the food used to be better but they have migrated over the years solidly into the value category, at this point it is really no different then going to Del Taco or Taco Bell for the most part, but it can be a bit healthier. The menu has migrated over time though and a lot of people I see at El Pollo Loco order the prepared items as opposed to the chicken pieces.
Chipotle is a different class of restaurant. I am not sure how they do it but in some way Chipotle manages to deliver a slightly and noticeably higher quality of food for roughly the same price or just a bit more than "fast food" (outside of $1 menus which face it get pretty boring and are not very profitable). And the restaurant is much nicer inside, the employees more friendly (and more of them per customer) ... really when deciding where to eat there is never a debate between those two places with people I know.
Been eating El Pollo Loco on and off for 20 years, Chiptotle has nothing to fear from them. The chicken at El Pollo Loco is decent, but every other ingredient is at or below the level of Taco Bell.
And the only reason to go to Qdoba is to get the queso or if the line at the Chiptotle around the block is too long.
It's a perfectly viable strategy to reinvest your net income in expenses such as marketing and R&D in a business like this. In fact, you will probably be forced to by competition. The time to milk this company for cash flow or net income is not now.
But yes it is a binary outcome for this company in all likelihood, it will either be a market leader in the industry or it fall to the wayside and its valuation will follow.
I will not be the long-term investor that finds out and I suggest if anyone is not fairly knowledgeable about the intricacies of the industry and have some glimpse of the transaction level economics that they stay away.
And please, try to win your arguments on the merits rather than slandering me by comparison to a sell-side analyst that sold himself out.
Working capital was a $90 million use in 2013. If you look at the accounts the moves are not large are confined to a modest rise in A/R and a decline in customer deposits. The company should not manage the distribution around changes in working in capital. The company produces all the cash it needs and more from operations to fund the distribution. No one should have an issue with them drawing a bank loan or using excess cash to fund small changes in working capital -- some of which may be due to the prior year's acquisition.
Well I took my short-term gain a few dollars higher than the stock is today, but I still think it is an attractive valuation at the low-20s if you believe in the market they operate in. The fact they make no money is not relevant.
First off, the company does not need to raise equity or borrow to pay the distribution. It is fully covered by cash from operations. The EPS is low because of intangible amortization. Also, the company has a large credit facility if it needs money in the short-term. And really this is not a company that need access to capital markets continuously.
For the TTM period Net Income + Depr. & Amort - Capex / Distribution was 1.15x.
APU is really in two businesses, one is retail propane to homeowners, the other is cylinder exchange. The first does have long-term challenges, but the second I believe continues to grow. It is not worth installing natural gas just have a BBQ. Cylinder exchange also occurs to industrial users, if I remember correctly. It is really the cylinder exchange business that gives APU the margins it has.
There is one other company people can look at which is Suburban Propane (SPH). It is not involved in the cylinder exchange market, but is quite large.
Ferrellgas and AmeriGas are currently fighting the FTC over a collusion charge involving Wal-Mart -- this probably is a bigger near term risk than anything else.
I think this is the beginning of a good entry point if you like this market space. About 1.5x next quarter revenue annualized sales when adding back the cash.
The company's cash burn is quite low and probably 100% discretionary.
Wouldn't want the company to make money at this stage, they would just end up getting run over by competitors that were willing to fund growth at a faster rate.
If you don't like the space, obviously there is really no good entry point.
Doesn't matter how expensive it is, the 50 mtpa from AUS will come to market regardless. I think the returns on those projects may be a bit subpar, but the gas will flow one way or another. The variable costs of production are tiny. This is a lot of supply for the LNG market to absorb and could impact the market for years with lower prices on the spot market.
This is not an argument against holding Cheniere by the way. It is only to say the market some future projects expect may not be there.
Also the transportation benefit is not negligible. The additional cost of shipping from the US as opposed to Australia is not much more than the all in wholesale gas price in the US currently. If spot Asia normalizes to spot Europe when Australia comes online, the transport fee will mean 25% extra cost when trying to sew up a new LNG project based in the US.
Production declines are due to cheap gas, the production increase was producers living off the capital they raised when prices were higher and also capital raised from dumb and strategic money.
You would see a huge linear supply response as you moved from 4 to 5 to 6 dollar gas. The gas comes out of the ground so fast in these fracked wells, the projects are practically self financing.
Everyone worries about the decline rates so much and in the long term it may be problem, but in the short term the high decline rates are a major positive. Your project payouts are measured in years instead of decades as with for example an oil sands project.
But the easy money has been made on the drilling side (which is largely a land game). Now it is finding ways to arb $5-6 gas against more expensive energy, either gas on the international market (spot LNG is $19 -- might be able to make some money there?) or against crude by converting heavy vehicles to natgas, for example.
Australia will start bringing on a massive amount of LNG in 2014-17 from many discrete projects (BG, Cheveron, Inpex, Santos, Origin). Up to 55 mtpa will come out of these projects while the global market was 240 mtpa in 2012. Australian production is much more of a threat to the viability of U.S. gas on international markets that the sustainability of shale fields. There is also another 50 mtpa of projects outside of Australia...
Would Brando buy IBM or Amazon?
You're right, I missed about 150 Rite-Aid stores.
Mondelez is worth far more than $35. Keep your hands off my global chocolate and biscuit business while trying to divest your burning soda platform Pepsi.
I think they could refresh their REIT bucket soon (along with other measures).
It is something like 5% or 10% withholding. You get a credit toward US taxes.
Changes in accounts receivable is not material for REITs.
A REIT does not have to report FFO which seems to be what you are suggesting and it has no bearing on its tax status. REITs are only required to distribute 90% of cash net income. FFO is not even a GAAP measure. The only substansive difference between FFO and EPS is the inclusion of depreciation in the former. Because buildings have long asset lives FFO has some value to look at.
I don't think an investor has a reasonable claim to all of CHL's cash flow. For example, during the downturn the company was tapped on the shoulder to recapitalize a regional lender Shangai Pudong Development Bank (USD 6 bn), although it was done under the supposed auspices of a mobile payment partnership, I suspect this is political investment and not a financial one.
Another poster brought up the obtuse structure of the SOE called CMCC which holds spectrum assets; in relation to the holding company. The SOE has a number of rather awkward agreements with the holding company that give it favorable economics.
On the bright side, I think the dividend is extremely safe and it will grow at a nominal rate in the future, but the benefit to an investor is not like buying a 10x PE stock or in reality with all the cash CHL has (USD 65 bn equivalent), a 7x PE stock. CHL is not going to launch a $20 billion buyback like Verizon would in a similar situation.
I own some CHL, but I don't expect much out of it.
42k an hour is way too high. That's not even a sensible estimate.
Ventas and HCP have done much better than SNH the last 1, 2, 5 years.
It doesn't matter how the investment is financed.
The biggest issue by far with Amazon is determining how profitable the investments of the last 3 or so years will be over the coming few years in terms of boosting gross cash flow. You can look at how I defined gross cash flow and add it up based on TTM. Chart that across a few years and it will give you a good idea.
By the way, there was recently an article in WSJ showing the results of a study that showed focusing on gross income predicted stock prices better than net income.
I am not long Amazon because I think they are overinvesting. I don't think they will make good returns on capital on AWS (I don't even think it's a good business to be in). If they were just the best online retailer in the world, and that was all they aspired to be, I might be able to get comfortable with the valuation.