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Martin Vlcek  

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  • Virtusa Should Continue Outgrowing The Industry As It Moves Toward Integrated Projects And Recurring Revenue
     • Tue, Mar. 24 VRTU 2 Comments

    Summary

    • The robust sales and EPS growth are poised to continue, as secular trends of companies looking for efficiencies and additional sales growth continue.
    • Virtusa is increasingly seeing larger, more comprehensive deals with a longer duration, showing a gradual shift toward an even stronger and more comprehensive services offering.
    • The industry expertise in several verticals and differentiated platforming approach will continue to provide a competitive advantage and growth opportunities.
    • Due to these strengths and solid execution, it is very likely that Virtusa will keep growing above industry growth rates.
    • The company is currently slightly undervalued given its expected growth and offers a~10% near-term upside and further 15% to 20% annually.
  • Artisan Partners: Renewed AUM Growth And Past Stock Price Pressures Create A Buying Opportunity
     • Wed, Mar. 18 APAM 3 Comments

    Summary

    • The Q3 2014 temporary top in AUM pressured APAM’s stock price in the past couple of months.
    • However, the most recent monthly stats show renewed AUM growth and stable margins.
    • The March secondary stock offering worth ~5% of the stock’s market cap is causing some more selling pressure.
    • This recent weakness should be viewed as a solid buying opportunity for long-term investors with double-digit upside within two years.
    • Regular forward annual dividend yield stands at an attractive 5.3%.
  • Will Berkshire Outperform The S&P 500 In The Future?
    Mon, Mar. 16 BRK.B, BRK.A 18 Comments

    Summary

    • Berkshire has outperformed the S&P 500 in almost every 5-year period in the past.
    • But the outperformance has been shrinking due to several factors.
    • Thanks to many factors which I describe, I believe the conglomerate will be able to outperform the S&P 500 in the future by a surprisingly solid margin.
  • Seadrill's Interesting Use Of Swaps Boosts Income And Lending Capacity
    Mon, Mar. 16 SDRL 47 Comments

    Summary

    • Seadrill uses two swaps to boost income and increase its lending capacity.
    • In effect, the company is long its own stock and the stock of another offshore driller, Sevan Drilling.
    • The bullish swaps, in addition to the CEO’s recent insider purchases, show the company’s long-term bullish bias.
    • If the main reason for the Sevan Drilling swaps is to increase borrowing capacity, the swap may not be a bullish sign. The company may have simply needed the loan.
    • I am long Seadrill although I am selling covered calls at least for a couple of months as the oil market situation may be volatile.
  • Here's How To Play Oil, But Not Play With Fire
    Wed, Mar. 11 BHI, SDRL, USO 2 Comments

    Summary

    • WTI oil will probably stay volatile and gyrate around $50 until at least June.
    • However, in the long run, I am moderately bullish on oil.
    • I present several strategies to improving your risk/reward profile, which takes advantage of the weaker near-term and stronger long-term oil price outlook, as well as the oil futures curve shape.
    • Two different hedging approaches are introduced to alleviate some of the directional risk and the risk of a total loss in some of the riskier oil stocks.
    • The presented strategy should deliver similar or better results at a lower volatility and lower maximum drawdown.
  • Chicago Bridge And Iron: Will There Be More Negative News?
    Mon, Feb. 16 CBI 63 Comments

    Summary

    • CBI is attractively priced already and should deliver solid returns over the full cycle.
    • However, I see several risks that I would like to discuss in this article.
    • I prefer to wait for one more negative news shock before buying.
    • A price drop below $30 would offer a better margin of safety.
  • Applied Industrial Technologies Offers A Solid Buying Opportunity Again
       • Tue, Feb. 10 AIT Comment!

    Summary

    • Sales are up 19% Y/Y, boosted by acquisitions. EPS is up 18% Y/Y. But organic sales growth is much more muted at 4.5% Y/Y.
    • The brutal impact of the rapidly strengthening U.S. dollar can be illustrated by AIT’s Canadian sales, 8.6% of 10.2% sales growth erased by the exchange rate.
    • Lack of organic growth opportunities due to dependence on underlying growth of industries by its customers is a long-term Achilles heel for AIT.
    • However, AIT is improving the efficiency of takeovers and integration of acquired companies, and it has further financial room to keep growing through acquisitions.
    • AIT’s intrinsic value estimate of $48.50 offers a ~13% upside within a year plus a ~2.50% dividend yield.
  • Electronics For Imaging's January Dip Offers A Solid Buying Opportunity
       • Wed, Feb. 4 EFII 2 Comments

    Summary

    • The recent convertible loan increased EFII's cash to $600M, or 33% of market cap, while the company still keeps throwing off positive FCF.
    • This abundance of cash signals higher share buybacks and possible increased acquisition activity in the near future.
    • Recent core sales slowdown signals currency headwinds from the strong dollar, which were extremely strong and could permanently lower organic sales growth rates if the dollar remains strong.
    • The recent dip offers a solid buying opportunity with a ~30% upside within 12 months with a price target of ~$48.20 per share.
    • Competitiveness in China is one of my long-term concerns.
  • Extreme Networks Offers A Solid Buying Opportunity
       • Tue, Feb. 3 EXTR 6 Comments

    Summary

    • Revenue growth continues to be a problem but services show excellent growth.
    • E-Rate subsidy revenues will not truly kick in before Q3 2015. Lenovo’s integration of IBM’s X86 business also might cause delays and disruptions.
    • Markets’ expectations are currently set very low. EXTR’s price implies zero sales growth in the long run.
    • The low expectations create a solid buying opportunity in the short run with a ~23% conservative upside within the next 12 months.
    • However, long-term strategic outlook for EXTR remains very uncertain as competition is very tough and in most cases benefits from a larger size.
  • Digi International Has A Potential To Be Stronger In M2M And SaaS
       • Fri, Jan. 30 DGII Comment!

    Summary

    • The new CEO brings an excellent track record, sharp focus and expertise in telematics and SaaS, which could unlock significant growth potential in the long run.
    • The overall M2M and SaaS markets offer growth potential of more than 20% annually while Digi has barely grown revenues in the past years, so there is a big gap.
    • In the next several quarters, focus will be on simplification, restructuring, refocusing on core activities, improving profitability and buying back shares.
    • Later in 2015 and 2016, Digi should focus on unlocking full growth potential and also probably on acquisitions, utilizing its cash pile worth more than 40% of market cap.
    • Valuation reveals there is still a solid 15% upside potential within 12 months despite the 30% rally off the December lows following the new CEO announcement.
  • Update: II-VI Margin Improvement Continues But Sales Growth Remains Mediocre
    Thu, Jan. 29 IIVI Comment!

    Summary

    • IIVI beat on earnings while delivering in line sales and raising its margin improvement guidance. Stock performed well. However, sales growth is still tepid and remains my long-term concern.
    • Margin improvement rates should not be extrapolated too far into the future. Organic sales growth will be hard to achieve without cutting into margins again or without further acquisitions.
    • I confirm my long thesis and raise my target price from $18 to $19, offering a ~17% upside within 18 months. However, downside needs to be protected.
  • Electro Rent's 6% Dividend Yield Is Enticing. But What Are The Risks?
       • Tue, Jan. 27 ELRC 4 Comments

    Summary

    • While sales have stabilized and started growing, their quality is lower as margins have been falling significantly Y/Y.
    • Data products are the bright spot with solid long-term growth potential and ELRC should focus more on this area. But they still account for less than 10% of total revenues.
    • Dividend payout ratio is 100% now, and there are fears the dividend is not sustainable.
    • Keysight’s potential risk of non-renewal of the reseller deal in May poses a threat to ELRC’s sales, margins and dividend.
    • My recommendation is to buy a third of the planned ELRC position now but wait for Keysight renewal and signs of a margin bottom before buying the rest.
  • Super Micro Computer Has The Potential To Become The Next IBM Or HP
       • Sat, Jan. 24 SMCI 19 Comments

    Summary

    • SMCI keeps rapidly gaining market share and growing sales organically at over 40% Y/Y.
    • Sales growth is driven by the U.S. market with ~60% Y/Y growth, while big competitors like IBM or HP struggle to grow.
    • SMCI keeps outgrowing even its smaller peers, but it lacks growth in China so far, which is the biggest future growth opportunity.
    • Already strong secular tailwinds of cloud computing and Big Data may further accelerate.
    • The valuation looks rich, but SMCI is very cheap if you consider the growth rates. I see further upside potential towards the $47-$49 region.
  • Federal Signal Has Significant FCF Generation Potential Following Rapid Debt Repayment
       • Fri, Jan. 23 FSS Comment!

    Summary

    • While long-term sales growth is limited roughly to U.S. GDP growth rates, the markets are underestimating future FCF potential after debt repayment and margin improvement.
    • Most FSS sales could be considered non-cyclical, giving some downside protection in case the economic cycle turns ugly.
    • Relatively high share of domestic sales and natural hedges protect FSS from most of the negative impact of strengthening U.S. dollar and weaker global economy.
    • Very low debt levels protect FSS from potential corporate credit tightening and offers great potential for higher future shareholder value generation.
    • At ~$17.75 intrinsic value, FSS is undervalued and also very inexpensive relative to the general market. FSS offers a ~18% upside within a year and further 10% per year thereafter.
  • The Oil Obituary? Be Careful As The Quick And Easy Money Has Been Made
    Mon, Jan. 12 BHI, BP, RDS.A 10 Comments

    Summary

    • There are several major risks to the short oil thesis from current price levels. The risk/reward of shorting oil is becoming less favorable.
    • With oil trading around a strong $50 psychological price point, brace for more volatility.
    • Iran and Venezuela smell their chance and are desperately trying to hold the $50 line.
    • If OPEC learns from Mario Draghi, the "whatever it takes" rhetoric from dissenting OPEC members could do wonders to the oil price.
    • A sudden reversal of the long U.S. dollar currency trades could cause a sharp oil price reversal.
  • Magic Software: Markets Not Pricing In Any Growth, Creating A Great Buying Opportunity
       • Dec. 9, 2014 MGIC Comment!

    Summary

    • Thanks to several market and stock-specific factors, Magic’s stock retreated ~30% this year from the February peak.
    • The market now prices in virtually zero future EPS and FCF growth beyond 2015.
    • This view is unduly pessimistic given Magic’s growth potential from industry tailwinds, cross-selling and acquisitions.
    • Magic’s upcoming acquisition activity should serve as a strong catalyst within the next three months. The new significant institutional buyer could signal a change in sentiment.
    • My DCF-based valuation is ~$9.50 per share, providing a ~40% upside with a positive risk/reward based on relatively low downside due to strong recurring sales.
  • The Real Reason Saudis Didn't Cut Oil Production
    Dec. 1, 2014 DWSN, GLF, SDRL 258 Comments

    Summary

    • There have been plenty of explanations why OPEC didn’t cut production quotas.
    • Most of them make sense. But they fail to explain the whole strategic long-term picture.
    • There is a rarely mentioned strategic reason why - counterintuitively - oil prices falling and staying low in 2015 is in the best long-term interest of most oil exporters.
    • Moreover, the current status threatens OPEC’s influence over oil prices. OPEC will need to reform and include virtually all major oil producers in quota negotiations. Otherwise, OPEC will become irrelevant.
    • There is also an unexpected historical parallel for the current oil slump.
  • Update: Several Positive Developments For AECOM Technology
    Nov. 28, 2014 ACM 2 Comments

    Summary

    • David Einhorn's Greenlight Capital established a new medium-sized position in AECOM, his fund's Q3 SEC filings revealed. Recent analyst upgrades are also helping the stock, which continues to perform well.
    • AECOM's Q3 earnings also showed some signs of strength as organic backlog increased. Profitability should benefit from the integration of recent large acquisitions.
    • I reiterate my long thesis and confirm my target price of $36, providing for a ~8% upside within a year, as strong backlog should translate into growing sales and FCF.
  • Update: National Healthcare Posted Solid Comparable Q3 Income While Revenue Jumped
    Nov. 21, 2014 NHC Comment!

    Summary

    • Sales jumped 11.5% Y/Y, a slightly slower growth rate than last quarter but still very robust. Comparable income increased 5.1% Y/Y.
    • The long thesis continues to perform very well on continued facility expansion and comparable growth.
    • I reiterate my long thesis and my target price of $70, providing for a ~15% upside within a year.
  • Update: Evolution Petroleum Posted Weak Q3 Results, But Will Be Able To Invest In Future Growth Again
    Nov. 19, 2014 EPM Comment!

    Summary

    • Although Q3 results were weak as revenue and EPS fell Y/Y and sequentially, the major positive news was that starting November, EPM will have higher share on the Delhi field.
    • After strong 2013 performance, the stock weakened in 2014, in line with the oil & gas industry’s weakness, exacerbated by the recent oil price slump. The stock now yields ~4.56% in dividends.
    • I reiterate my long thesis based on the expected FCF growth from the Delhi field. My target price of $11 offers a 26% upside within a year.
  • Update: CGG's Numbers Improve Sequentially Despite Ongoing Tough Market Conditions
    Nov. 19, 2014 CGG Comment!

    Summary

    • Despite a difficult environment, CGG reported resilient Q3 results, as sequential numbers improved on flat sales. However, the oil and gas industry is not out of the woods yet.
    • After a further dive in October, the stock staged a sharp rebound following the Q3 results. CGG continues to be a long-term bet for very patient investors.
    • I reiterate my long thesis as CGG continues to adjust to market conditions. I keep my target price at $16, providing a very solid 90% upside potential within several years.
  • Update: Multi-Fineline Electronix Returned To Profitability On Strong Q3 Sales Growth
    Nov. 15, 2014 MFLX Comment!

    Summary

    • Sales were at the higher end of the company’s range while gross margin exceeded guidance range as the company returned to profitability.
    • The stock has been falling, in line with most semiconductor small-caps but recently rebounded on positive results as restructuring seems to be working.
    • I reiterate my long thesis based on the company’s return to positive EPS. I keep my target price at $15, providing an excellent 39% upside. Downside should be protected.
  • Update: NICE Systems Blows Past Q3 Sales And EPS Targets On Accelerated Growth
    Nov. 13, 2014 NICE Comment!

    Summary

    • NICE Systems delivered revenue and EPS above its guidance range. Revenue jumped 9% Y/Y, non-GAAP EPS grew 13% and GAAP EPS turned strongly positive after a small loss last year.
    • The new strategy of higher focus, stronger growth and improved profitability has started delivering very strong results and the stock price has been responding positively.
    • I reiterate my long thesis and raise my target price to $50 for a ~10% upside after an already strong price run-up.
  • Update: Echelon Refocuses On Industrial Internet Of Things As Sales Drop Continues In Q3
    Nov. 13, 2014 ELON 2 Comments

    Summary

    • With the sale of the Grid business this quarter, Echelon is now focused entirely on the emerging opportunities in the Industrial Internet of Things (IIoT).
    • There is more growth potential but also more concentration risk. Margins are starting to improve but sales continue to fall Y/Y, albeit at a slower rate.
    • Echelon’s stock continued to fall and until I see a clear sign of a sustainable top-line growth, I continue to recommend staying on the sidelines.
  • Update: Gaiam Posts Very Strong Organic Sales Growth While Gaiam TV Spin-Off Is Pending
    Nov. 12, 2014 GAIA 12 Comments

    Summary

    • Top line grew 14.2% organically Y/Y while margins continued to improve. Adjusted net loss remained roughly flat Y/Y on investment in the rapidly-growing Gaiam TV which grew 107% Y/Y.
    • The long thesis continues to work well as the company continues to focus on core areas of wellness and yoga while divesting other assets that unlock shareholder value.
    • I reiterate my long thesis and raise my target to $9 based on strong top line growth and pending Gaiam TV spin-off.
  • Update: Houston Wire & Cable Reported Continued Sales Growth In Q3 Despite Headwinds
    Nov. 11, 2014 HWCC Comment!

    Summary

    • Despite challenging market conditions in the Maintenance, Repair & Operations segment, where sales dropped 4% Y/Y, HWCC reported 1.6% total sales growth thanks to 12% project business sales increase.
    • The stock continued to gain overall on solid performance despite tough competition and falling MRO sales, as margins and EPS remained roughly flat and stock repurchases continued.
    • I reiterate my long thesis and keep my target at $14.80 on continued solid performance and generally improving outlook.
  • Update: Exar's Turnaround Continues As Acquisition Growth Excels
    Nov. 11, 2014 EXAR Comment!

    Summary

    • Exar delivered strong acquisition-driven sales growth. Organic growth was in the low single digits Y/Y. Adjusted EPS was slightly positive but GAAP loss reached $(0.50) on one-time charges.
    • The stock continues to lag on general small-cap semiconductor segment weakness but also on continued slump in DCS segment sales, which should now be bottoming nonetheless.
    • I reiterate my long thesis based on the bottoming DCS sales and expected restructuring savings. I keep my target at $10 but downside should be protected.
  • Update: Federal Signal Reported Another Record Quarter With Rising Sales And Margins
    Nov. 9, 2014 FSS Comment!

    Summary

    • Federal Signal sales were up 5% Y/Y and adjusted EPS jumped 33%. Operating margins improved, while net debt rapidly decreased. FSS announced a new 7.7% stock repurchase plan.
    • The stock continues to perform well and is now up more than 50% since my 2013 call. However, it’s been trading range-bound for most of 2014.
    • I reiterate my long thesis and based on the strong results and improved prospects, I raise my target price from $16 to $17.
  • Update: CaesarStone's Robust Organic Growth Shows No Signs Of Slowing Down
    Nov. 8, 2014 CSTE 2 Comments

    Summary

    • CaesarStone’s stellar organic growth rates continue. The U.S. growth rate of 47% Y/Y is even slightly higher than one year ago. Canada and Australia delivered excellent results, too.
    • The stock continued to perform well and delivered ~25% returns since my June 2014 updated thesis called the dip a great buying opportunity. The U.S. manufacturing expansion is on track.
    • I reiterate my long thesis and raise my target price from $59 to $69 within 12 months on continued strong results, increased guidance and further U.S. growth room.
  • Update: Oclaro's Turnaround Shows Improvement In Q3 But The Figures Are Still Negative
    Nov. 8, 2014 OCLR 2 Comments

    Summary

    • Oclaro keeps selling assets to raise cash and streamline operations as there are signs of the turnaround starting to work. However, the improvement is slow and the numbers are still negative.
    • The stock continued to slide in line with the industry and small-caps. My long OCLR positions expired in October. I don’t plan to renew before I see a lasting turnaround.
    • I reiterate my turnaround thesis and the $2.30 target price but this has become a risky, low-conviction bet due to no downside protection available through put options.
  • Update: Delek Logistics Partners' Q3 Net Income Grows Despite Lower Sales
    Nov. 8, 2014 DKL Comment!

    Summary

    • Q3 sales were 6.3% lower Y/Y but net income grew 15.7% Y/Y, driven by higher volumes and increased margins despite lower RIN benefits.
    • The stock continued to perform very well, driven by very strong results in the previous quarter, setting a very high bar for sequential growth now and Y/Y growth in 2015.
    • I remain bullish on Delek Logistics and raise my target price slightly to $45 per unit, offering a ~10% upside plus the almost 5% distribution yield.
  • Update: ION Geophysical's Q3 Earnings Weak, Outlook Cautious
    Nov. 8, 2014 IO Comment!

    Summary

    • ION Geophysical missed badly on revenues and earnings as it reported a loss of $(0.15) per share for Q3. Rising sales in the solutions and data library were a positive.
    • IO continued to slide on further oil price weakness and industry softness. This is a long-term thesis and IO could remain weak until sentiment and industry conditions improve.
    • I confirm my long thesis and the $7 target price which should be achieved at the height of the next up cycle, in several years.