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Update: Premiere Global Services Q3 Earnings - Sales Growth Continues, Boosted By Acquisitions
- Premiere Global's Q3 revenue grew 7.5% Y/Y and non-GAAP EPS rose 10% Y/Y to $0.22. However, GAAP EPS dropped from $0.10 to $0.06, primarily on acquisition-related costs.
- My long thesis has delivered a ~17% return since the original call in 2013 on continued rapid acquisition-boosted growth.
- I confirm my long thesis but lower the target price to $14, back closer to my original valuation, due to a tougher macroeconomic environment. This target still provides a ~25% upside.
Update: Group 1 Automotive Q3 Earnings - A Strong Beat Propels The Stock 14% Higher
- Group 1 Automotive delivered strong numbers, helped by a ~10% share count reduction. Sales, unit sales and margins strongly expanded in most markets while Brazil remains weak.
- As expected, GPI continued its expansion of the dealership network. However, the weakness in Brazil lasted longer than expected. Therefore, the stock returned just 10% in a year.
- I confirm my long thesis and the $89 target price within 12 months, providing a ~7.5% upside. However, downside must be protected due to auto cycle peak potentially being close.
Update: Euronet Worldwide Q3 Earnings - Strong Beat As Wal-Mart Deal And HiFX Acquisition Pay Off
- Euronet delivered stellar Q3 results which exceeded management’s expectations. Organic growth boosted by an acquisition delivered a very strong and balanced performance across all three segments.
- My thesis of the continued EEFT growth keeps delivering excellent returns, as the stock has gained ~50% in the last 15 months.
- I reiterate my long thesis and the $60 target price within 12 months. EEFT continues to be one of my high-conviction long-term picks.
Update: Acacia Research Q3 Earnings - Revenue Expected To Rise On A Very Strong Pipeline Of Trials
- For the nine months of 2014, revenues are down ~13.5% and GAAP loss more than doubled to $1.04 per share. All other patent-related parameters are still deteriorating as well.
- However, sequentially, revenue surged and ACTG has a strong pipeline of trials scheduled for the first half of 2015 which should deliver higher revenues in 2015.
- The stock provided single-digit returns in the past year but I reiterate my long thesis on rising revenue. My target price remains ~$19, offering a ~22% upside within 12 months.
Fairchild Semiconductor Buying Back 10% Of Its Shares In 2014
- While achieving an impressive Non-GAAP FCF margins rebound toward the record 12% and delivering shareholder value through strong share buybacks, the top line growth still has been lagging.
- There are signs the semiconductor industry may be bracing for a cyclical slowdown or at least a seasonal lull as customers minimize year-end inventories slightly more than other years.
- Thanks to proactive right-sizing, inventory buffers and higher share of outsourced production, margins should be more resilient in the next down cycle.
- Fairchild expects to repurchase more than 10% of its shares outstanding in 2014 and to continue returning 100% of its excess FCF in 2015 to shareholders.
- Fairchild’s stock offers a roughly 13% upside within 12 months with a $15 target price. Potential semiconductor industry slowdown and peak margins represent the main downside risks.
Update: Super Micro Computer Q3 Earnings - Industry Growth Outperformance And Margin Expansion Continues
- SMCI posted another stellar quarter of rising sales and expanding margins. Both revenue growth and margin expansion rate seem to be slowing but the outlook is solid.
- My long thesis continues to deliver strong returns. The stock is up ~123% in exactly a year. SMCI continues to gain market share through rapid in-house R&D and first-to-market strategy.
- I continue to be very bullish on SMCI in the long run. I see 20% upside within a year with a $35 target price. But be prepared for downside volatility.
Update: Electronics For Imaging Q3 Earnings - New VUTEk Printers And Inks Drive Stellar Growth
- EFII posted strong sales and EPS growth of 11% and 10% respectively Y/Y. All segments and regions are firing on all cylinders, except for the Chinese construction market.
- The stock has been trading in a wide sideways range so it delivered just ~10% returns this year. However, the current weakness presents a solid buying opportunity.
- I continue to be very bullish on EFII and its $1B sales target by the end of 2016. My target price remains at ~$48 and offers a ~17% upside.
Update: Owens Corning Q3 Earnings - Momentum Continues In Insulation And Composites But Roofing Pricing Weak
- Revenue and EPS rose Y/Y but sales missed estimates slightly. Insulation and composites businesses delivered strong performance in Q3 but roofing delivered only thanks to lower pricing and margins.
- September sell-off didn’t spare Owens Corning and offered a nice entry point below $30. As expected, the roofing troubles continue but are priced in if the housing sector doesn't worsen.
- I reiterate my buy recommendation but adjust my target price slightly down to $36 on weaker outlook. Thanks to the lower price, Owens Corning now offers a higher ~14% upside.
KMG Chemicals: Multiple Positive Catalysts Should Propel The Stock Higher
- The legacy wood treatment segment continues to serve as an excellent cash cow, while expansion in the semiconductors business should provide mild future growth through acquisitions.
- Acquisition pace is likely to accelerate again due to a successfully integrated previous acquisition, lower and cheaper debt as well as better information systems.
- The heavy restructuring is expected to start bearing fruit over the upcoming quarters.
- Intrinsic value estimate of $19.50 per share implies ~18% upside within a year.
Update: GulfMark Offshore Q3 Earnings - The Management Sees Cycle Bottom Within Several Quarters
- GulfMark Offshore reported disappointing Q3 numbers and lowered its 2015 guidance on sales by 13% versus previous consensus. However, the management sees bottom in the current cycle within several quarters.
- The industry weakness continues and GLF investment requires patience, as I warned in my thesis. The stock seems to be bottoming as it quickly recouped losses after the earnings release.
- I reiterate my buy recommendation but adjust my target price down to $42 per share on weaker 2015 outlook. Thanks to the lower price, GLF offers higher upside of ~40%.
Update: Ultra Clean Holdings' Q3 Earnings Disappoint Due To GT Advanced Technologies' Bankruptcy
- UCTT disappointed the Street by losing 18 cents per share and delivering $117M in sales, up 9.2% Y/Y but lower than expected due to GTAT bankruptcy.
- As I feared, the weakness in the semiconductor industry continued, including weakness in Samsung, one of UCTT’s largest customers. Broad-market jitters and small-cap sell-off added to downside stock pressure.
- I reiterate my buy recommendation with an intrinsic value of ~$9.5 per share under the conservative scenario of flat sales growth, offering a ~25% upside within 12 months.
Update: Fairchild Semiconductor Q3 Earnings - Improved Margins And Low Tax Rate
- Fairchild reported strong results, beating on sales and adjusted EPS. Margins improved, debt decreased due to strong FCF generation.
- Last year, I advised to buy Fairchild on dips. The stock rewarded patient investors with up to 40% gains but recently fell hard along with other small-caps.
- I reiterate my buy recommendation with an intrinsic value of ~$14 to $15, offering a ~10% to 20% upside within a year as negative market and industry sentiment turn around.
Update: KMG Chemicals FQ4 Earnings: Top Line Up, Bottom Line Down
- KMG continues to restructure and incur further one-time costs. While the top line kept growing, the bottom line deteriorated Y/Y. More restructuring costs are expected for another year at least.
- As was expected by my thesis, KMG rose by up to 20% but the gains proved to be unsustainable. Long-term returns will likely remain sub-par.
- I reiterate my long thesis and the 20% short-term upside within 12 months following the dip but the downside should still be protected at 10% below the purchase price.
Global Payments Has More Upside Ahead - Buy The Dip
- GPN marches ahead with a record acquisition pace and other strategic activities which will accelerate growth, responding well to the more competitive and faster-changing environment.
- Under current conditions of the rapidly-growing and fast-changing industry, acquisitions are the best available strategy to defend the strong position and keep up with the innovation pace.
- The current industry consolidation and mobile payment startups emergence offer new opportunities for GPN to leverage its strong position by accelerating growth and innovation.
- As a result, Global Payments is still undervalued given its intrinsic value estimate is ~$83.40 per share which offers a ~15% upside within a year.
Update: Dawson Geophysical And TGC Industries Propose An All-Stock Merger
- DWSN and TGE announced a merger proposal in an all-stock deal at a 66% to 34% ownership ratio.
- While the merger makes sense economically due to industry weakness, the all-stock deal removes any quick stock pop potential which would likely happen in a cash deal.
- While the merger was not expected, it only strengthens my long thesis on both companies as the combined entity will have better competitive and financial position.
- I reiterate my target prices for a total upside of ~100% when the industry cycle peaks again.
Update: Electro Rent Q3 Mixed Earnings - Sales Revenue Up, Rental Revenue And Margins Falling
- Electro Rent reported a mixed quarter as overall revenue rose 2.8% Y/Y. While rental revenue was down 5% Y/Y, sales of equipment rose a strong 14% Y/Y. Margin mix was unfavorable.
- As was expected in my thesis, ELRC performance continued to disappoint. Thanks to the fall in the stock price, the dividend yield is now 5.7%.
- I reiterate my long ELRC thesis and the $16.70 target price within two years, offering a 20% two-year upside plus the 5.7% annual dividend yield.
Tidewater Is Trading At 75% Of Tangible Book Value But Watch Angola And Industry Oversupply
- Tidewater is trading at deep discounts using several valuation methods.
- However, despite negative offshore drilling services sentiment, the future industry outlook is very uncertain and the situation could get much worse before Tidewater stock bottoms.
- Tidewater also has company-specific risks such as high share of revenues from the troubled Angola and other politically and economically unstable regions, such as Venezuela and Brazil.
- Therefore, investors should start buying carefully with a plan to spread out the purchases in time.
- Over several years, the stock offers at least a 27% upside plus 2.5% dividends to patient investors with a current DFCF target price of $49.50 per share.
Update: RadioShack Finally Secures The Holiday Season With A Debt-Refinancing Deal
- RadioShack’s stock is up ~60% today on news that the company finally struck a long-awaited deal with Standard General. RSH now has finances to focus on the holiday season.
- While I anticipated the financial rescue, and was contrarian long RSH since the summer, the long-term future beyond this season remains very uncertain and RSH is still a speculative play.
- I remain contrarian long RSH but due to uncertain future beyond the holiday season, I recommend most investors stay on the sidelines and watch as the spectacle continues.
GulfMark Offshore: Undervalued At 80% Of Tangible Book Value
- Offshore drilling services companies have been battered by rising dollar and falling oil prices as their customers slash budgets while new vessels are still coming online.
- GulfMark is very undervalued using several valuation methods, trading at just 80% of tangible book value, a 7.7x forward P/E.
- My fair value estimate using normalized sales and FCF over a full cycle is ~$43.50 per share, offering a ~32% upside.
- However, the oil and gas services industry is likely to show more weakness before GulfMark stock finds its absolute bottom.
- So while investors should start buying now, they should plan to dollar-cost-average and be patient as rebound may take several years.
IHS: Attractive For A Few Years But Reliance On Acquisitions May Backfire
- The hefty price tag is well warranted due to strong economic moat, 75% recurring revenues, strong free cash flow leverage and more.
- Thanks to the dip, IHS offers a roughly 20% upside within the next two years and a ~$149.88 target price, but high growth is priced in. Downside should be protected.
- Recent quarterly results were not as rosy as they seemed on the surface and they reveal concerns for the longer term.
- Over the long run, IHS will need to boost its faltering organic growth, or investor growth expectations may have to adjust downward.
- Acquisition speed may hit a speed bump in a few years due to high debt, high stock market prices and acquisition risks.
Update: RadioShack On The Move Again On Standard General's SEC Filing
- RadioShack’s stock is surging today as Standard General filed a 13D form showing it still beneficially owns 9.8% of RadioShack and continues attempts to negotiate a financial rescue.
- Today’s up to 30% to 40% move up may turn out to be just another short-covering spike. I recommend watching this spectacle from the sidelines.
- I don’t see attractive long or short trade in RSH because the situation remains uncertain, the chance of survival is priced in and RSH options are prohibitively expensive.
- Naked long or short position is not recommended either due to potentially volatile stock move up or down on any definitive resolution of the current negotiations.
Update: Stantec Acquires Dessau To Complete Its Canadian Presence By Adding Quebec Province Coverage
- Stantec announced acquisition of Canadian engineering assets of Dessau which will boost revenues by roughly 8% in 2015.
- I confirm my long thesis on Stantec and reiterate my target price of $76.50 within a year. With its presence in Quebec province, Dessau is a good fit for Stantec.
- Further growth through acquisitions was expected by my thesis, but I expected the sales volume of acquisitions to be focused on the U.S. more than on Canada.
Brady Corporation Is Attractive At Multi-Year Lows
- Due to several negative factors, Brady’s stock price has been under severe pressure in 2014. It fell ~25% in the past two months alone.
- The negative factors all reported in a short time frame include a prolonged restructuring, acquisition impairments, management changes, an earnings miss and weak 2015 guidance.
- While all these concerns are legitimate, the valuation is becoming attractive and the uncertainties, and negative stock and small-cap sentiment create an attractive long-term buying opportunity.
- While there are early signs of organic growth and margin improvement, I suggest spreading out the purchases because we may see more nasty surprises as the transformation continues.
- The stock has a roughly 23% upside and pays a 3.4% dividend in order to wait for the new management to prove themselves and improve sales and profitability.
Update: Global Payments Acquires Ezi Holdings To Expand In Australia And New Zealand
- Global Payments will pay ~$270M for Ezi Holdings (Ezidebit) which focuses on recurring payment services in Australia and New Zealand.
- I confirm my long thesis and keep my target price at $80. This acquisition is expected to be mildly accretive to sales and cash earnings but slightly negative to EPS.
- Further growth through international expansion was expected by my thesis and the stock continues to perform well although it has been swinging in line with the broad market in 2014.
Update: Closing My Long Thesis On RadioShack Following The Q2 Earnings Call
- RadioShack’s Q2 numbers show financial position is deteriorating faster than most expected. Stockholders' equity is now negative. Financial rescue talks have dragged on for much longer than I expected.
- This decreases the likelihood of a shareholder-friendly rescue solution. I no longer see attractive reward/risk following the Q2 call, the stock’s price appreciation, options volatility increase and more.
- Therefore, I am closing my contrarian long thesis at ~$1 per share for a 60% profit in a month. The profit was much higher using stock options, as I recommended.
Korn Ferry Beats Estimates Again But Sequential Top Line Growth Has Stalled
- Korn Ferry reported another strong quarter, beating its sales and EPS estimates.
- However, organic top line growth is clearly slowing down sequentially.
- Future growth will need to rely more on margin expansion, cost restructurings and potential acquisitions.
- Weak August jobs reports from the U.S. and Canada are a concern if the weakness proves to be more than just an outlier.
- Over the next two years, Korn Ferry’s stock has a ~20% upside with a target price of ~$37 per share if the current positive global economic cycle continues.
Update: Finisar Earnings - Delivers Solid Q2 Sales But Weaker Margins And Soft Q3 Guidance
- Sales increased 23.3% Y/Y and 7.1% Q/Q on weaker margins mainly due to unfavorable product mix. EPS fell and Q3 guidance was very light on weak telecom customer demand.
- I reiterate my long thesis. My $20 target price offers a ~13% upside within 12 months but the second half of 2014 may be volatile for the stock.
- The long thesis worked well on continued growth, delivering a total stock gain of ~60%. However, since April, this cyclical small-cap lost all gains on weak Q1 results.
TGC Industries: Buy When Others Are Selling
- Land-based seismic industry services sales and stock prices have been in a free fall due to oil and gas exploration companies’ spending cuts and project postponements.
- The sentiment is extremely negative, exacerbated by a March bankruptcy of one of TGE’s peers.
- However, TGE has strong financials and modern equipment. Seasonally strong quarters are coming, and TGE sees a pickup in demand, especially in the wireless services segment.
- TGE has a very favorable reward/risk trading below $4 per share and at 1.2x tangible book value.
- TGE has a $7.50 DFCF fair value price realizable within several years. TGE is also is cheap versus its peers.
ION Geophysical: Attractive Reward/Risk As Growth Segments Will Help Stabilize Falling Sales
- Sales from traditional, lower-margin seismic services and seismic equipment have been falling in ION and across the industry amid overcapacity, price pressures and increased competition.
- Rapid expansion of sales from high-margin, highly specialized, ocean-bottom services and software services will help ION mitigate the fall and stay relevant in the later life-cycle of E&P projects.
- Thanks to these strong growth areas, ION will perform better than most of its peers if the downturn continues, and will excel if the cycle rebounds.
- At a $7 target price, ION’s stock offers a ~105% upside within several years as the cycle improves and growth segments outweigh legacy sales.
- Despite large upside potential, downside risk should be protected as the cyclical weakness may continue.
Update: Regis Q2 Earnings - Sales Still Falling But At A Slower Rate As Turnaround Attempts Continue
- Regis' same-store sales continue sliding but at a much slower pace now. Service sales were flat while retail sales continued falling.
- I reiterate my long thesis but lower my target price to $16 per share on higher turnaround costs and longer turnaround which is still uncertain.
- My thesis correctly expected continued sales weakness but underestimated the costs and length of the turnaround which resulted in a flat stock price performance, underperforming the broad market.
CGG Offers Attractive Reward/Risk - If You See The Oil Through The Soil
- Current seismic industry sales and stock prices are in a free fall, and future visibility is very diminished due to E&P spending cuts and project postponements.
- CGG has a leading market share position in the seismic industry.
- The strong position and low operating leverage in the highest-margin seismic equipment segment will protect CGG’s margins and solvency in a downturn.
- CGG’s restructuring that is under way will align costs with lower sales and will add focus on high-margin equipment and geology/geophysics business.
- At my target price of ~$16, CGG has an 80% upside within a few years but the downside should be protected because CGG’s price could fall further on industry weakness.
Update: RadioShack Reportedly In Talks To Avoid Bankruptcy - Stock Up 60% In A Week
- Several reputable sources reported that a 10% shareholder Standard General LP is in talks with RadioShack’s management about a possible financial rescue package to avoid bankruptcy.
- I remain long RadioShack and reiterate my long thesis and a target price of $13 per share. However, until there is a real deal, the financial rescue is pure speculation.
- A potential financial rescue package and an attempt to lift debt covenants were suggested in my long thesis from three weeks ago.