Seeking Alpha

Martin Vlcek

 
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  • Update: Premiere Global Services Q3 Earnings - Sales Growth Continues, Boosted By Acquisitions
    Today, 11:21 AM PGI Comment!

    Summary

    • 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
    Today, 11:00 AM GPI Comment!

    Summary

    • 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
    Today, 7:42 AM EEFT 1 Comment

    Summary

    • 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
    Today, 7:02 AM ACTG Comment!

    Summary

    • 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
     • Yesterday, 11:11 AM FCS Comment!

    Summary

    • 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
    Yesterday, 9:36 AM SMCI Comment!

    Summary

    • 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
    Yesterday, 8:58 AM EFII Comment!

    Summary

    • 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
    Yesterday, 8:16 AM OC Comment!

    Summary

    • 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
     • Wed, Oct. 22 KMG Comment!

    Summary

    • 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
    Wed, Oct. 22 GLF Comment!

    Summary

    • 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
    Tue, Oct. 21 UCTT Comment!

    Summary

    • 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
    Fri, Oct. 17 FCS Comment!

    Summary

    • 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
    Tue, Oct. 14 KMG Comment!

    Summary

    • 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
     • Tue, Oct. 14 GPN Comment!

    Summary

    • 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
    Mon, Oct. 13 DWSN, TGE Comment!

    Summary

    • 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
    Mon, Oct. 6 ELRC Comment!

    Summary

    • 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
     • Fri, Oct. 3 TDW 4 Comments

    Summary

    • 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
    Fri, Oct. 3 RSH 17 Comments

    Summary

    • 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
     • Tue, Sep. 30 GLF 5 Comments

    Summary

    • 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
     • Sat, Sep. 27 IHS 2 Comments

    Summary

    • 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
    Fri, Sep. 26 RSH 10 Comments

    Summary

    • 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
    Fri, Sep. 26 STN Comment!

    Summary

    • 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
       • Mon, Sep. 22 BRC Comment!

    Summary

    • 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
    Fri, Sep. 19 GPN 2 Comments

    Summary

    • 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
    Fri, Sep. 12 RSH 5 Comments

    Summary

    • 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
       • Wed, Sep. 10 KFY Comment!

    Summary

    • 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
    Fri, Sep. 5 FNSR Comment!

    Summary

    • 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
       • Fri, Aug. 29 TGE 7 Comments

    Summary

    • 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
       • Fri, Aug. 29 IO 2 Comments

    Summary

    • 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
    Thu, Aug. 28 RGS 6 Comments

    Summary

    • 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
       • Thu, Aug. 28 CGG 1 Comment

    Summary

    • 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
    Wed, Aug. 27 RSH 40 Comments

    Summary

    • 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.