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Matt Blecker, CFA  

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  • Rayonier Advanced Materials Is A Lucrative Investment Opportunity In The Making [View article]
    Although many people assume cigarette smoking is in secular decline, the evidence shows it is still growing slowly globally.

    According to the AMA, the number of cigarettes smoked globally increased from 5 billion in 1980 to 6.25 billion in 2012, and the number of smokers jumped from 721 million to 1 billion.

    Much of the growth has come from emerging markets.

    While this is not an industry that is growing quickly, it is far from one in secular decline.

    Debt reduction, solid customer relationships, increased manufacturing capacity, strong R & D, and a cheap stock price relative to potential FCF/earnings power, should bode well for RYAM shares long-term. A lot of negatives, like increased competition, are already priced in.
    Feb 11, 2015. 11:07 PM | 2 Likes Like |Link to Comment
  • Rayonier Advanced Materials Is A Lucrative Investment Opportunity In The Making [View article]
    P
    Feb 11, 2015. 10:53 PM | Likes Like |Link to Comment
  • General Motors 4% higher on positive results [View news story]
    Correct! Has always been done that way. Some people just have an agenda against GM and fail to look at the facts.
    Feb 4, 2015. 03:02 PM | 2 Likes Like |Link to Comment
  • General Motors 4% higher on positive results [View news story]
    Not interesting. Normal reporting. The key is to make sure dealerships do not have too much excess inventory. Despite hysteria from certain other websites, GM's inventory at dealerships is normal and has been for some time.
    Feb 4, 2015. 08:27 AM | 4 Likes Like |Link to Comment
  • GM sued for $6-10B over faulty ignition switches [View news story]
    That's one opinion. How about the millions of cars sold worldwide? Does the opinion of those folks count?
    Mar 16, 2014. 04:09 PM | 1 Like Like |Link to Comment
  • GM sued for $6-10B over faulty ignition switches [View news story]
    Irrelevant. They sell 12-13% of consumer autos worldwide. That's not changing anytime soon. Just like the issues with Toyota a few years ago, HP 1-2 years ago, BAC 3 years ago, this shall pass.
    Mar 16, 2014. 04:06 PM | 3 Likes Like |Link to Comment
  • GM sued for $6-10B over faulty ignition switches [View news story]
    Poor quality? Please provide evidence. Sales are solid in the US and the company is #1 in China. Apparently, millions of people like GM's "poor quality" cars.

    Given some time, this shall pass.
    Mar 16, 2014. 10:28 AM | 4 Likes Like |Link to Comment
  • GM sued for $6-10B over faulty ignition switches [View news story]
    Despite some bailout funds, GM did go through the bankruptcy process.
    Mar 16, 2014. 10:25 AM | 2 Likes Like |Link to Comment
  • GM sued for $6-10B over faulty ignition switches [View news story]
    While the deaths are a tragedy and those responsible should be held accountable, if one thinks long-term and removes emotion, this could be a good buying opportunity.

    Most lawsuits are settled and paid over many years. Even if GM is liable for several billion dollars, they have more than enough liquidity to pay with a strong balance sheet with well over $30 billion in cash and investments. They also bring in solid free cash flow. Operations in the USA are performing well, market share in Asia is terrific, the loses in Europe have narrowed considerably, and the financing operation is adding value. The company is also in much better shape with their pension liabilities.

    Given the low multiple of potential earnings, much of this is already priced in to the stock.
    Mar 16, 2014. 08:04 AM | 2 Likes Like |Link to Comment
  • Pres. Obama's climate plan was mostly upbeat for natural gas (GAZ, UNG), and shares of gas companies such as Chesapeake (CHK) and Cabot (COG) rose. But included in the fine print is an "interagency methane strategy" that could prompt new regulations after closer looks at the scope of leaks from gas wells, pipelines and plants. Methane, a key gas component, is 25x as potent a greenhouse gas as carbon dioxide. [View news story]
    Another Clinton for President? Probably. Despite her having the same foreign policy stances as Dick Cheney, as she voted for both wars, all funding, is for drones and enhanced interrogation, and was as vocally supportive of the Iraq War as anyone. Yet she is up big in all National polls and Cheney is the most hated man in the country. Go figure. It will be interesting to see how the anti-war folks from 2003-2004 spin their support for Clinton. As we all know it has to do with the D after her name.

    Of course a Senator on the Armed Services Committee who is a former First Lady may not have as superior information as Cheney (sarcasm).

    But of course by 2016 the public will believe she never supported the Iraq War just as Bill never signed DOMA and was always in favor of gay marriage.
    Jun 29, 2013. 10:59 AM | 7 Likes Like |Link to Comment
  • Microsoft (MSFT): FQ3 EPS of $0.72 beats by $0.04. Revenue of $20.49B misses by $71M. Shares +1.7% AH. (PR[View news story]
    Wow. MSFT is a machine. PC decline may not affect them as much as INTC. Businesses can still upgrade their operating system without upgrading their machines. Same goes for office. Businesses can upgrade Office or buy more licenses withouth upgrading their machines. Also server software, cloud products, and even the Entertainment and Devices segment look like they are performing pretty well. Mobile success is definitely not a certainty but the company certainly has a chance to be the #3 operating system behind iOS and Android.

    The financial results are just incredible. Nearly $8.50 in net cash plus investments before a repatriation adjustment. That is just about 30% of the current market cap based on today's closing price. And the company is on pace to generate well over $3 of free cash flow per share, actually about $3.20 in FCF per share.

    Even if you adjust for repatriation (difference between MSFT's effective rate and the US Federal Statutory rate) there is still about $7 in net cash plus investments. Using a stock price around $29 and assuming $3.20 in FCF for fiscal 2013, puts the current price to FCF at less than 7. Is it a stretch to say based on the results and the firm's financial position that the stock is deserving of a higher multiple?
    Apr 18, 2013. 04:31 PM | 5 Likes Like |Link to Comment
  • Intel Valued As Though New Technologies Will Bust, But I Disagree [View article]
    Thats a good point but the trend does not show huge growth. Data Center operating income has been flat to slightly down.

    Below is commentary from the 2012 Annual Report:

    "Operating income decreased by $27 million in 2012 compared to 2011 as $360 million of higher gross margin was more than offset by $387 million of higher operating expenses."

    Now the firm says excess capacity charges.

    Whatever the reasons, the big growth area of Intel has been flat since 2011. Most of the time I think company results are more important than what the executives say.

    In your article you assume Intel will generate $13 billion of annual operating income from PCs and $8 billion from the Data Center Group by 2016.

    Might that not be a stretch? YOY PC revenue was down 28%. And demand for PCs is plummeting. I am not saying PCs are dead. But consumer cannibalization and businesses upgrading much less frequently can have a huge impact on Intel's bottom line. PC demand is on pace to be at 2008 levels. Possibly the discontinuation of servicing Windows XP will help Intel in 2014 but so far it has not. No one really knows what the trough might be for PC sales. It might be 300 million per year. But it might be 250 million or 150 million.

    The $13 billion you project is on pace to be $10 billion this year if you pro-rate this year based on last year. The first quarter seasonality reason does not apply. If Intel were able to generate the same operating income from the PC segment in Q2,3, and 4 of 2012 as they did in Q1, they would have generated almost $14 billion of operating income. They generated only $13 because demand for PCs fell sharply.

    What concerns me about 2013's first quarter PC demand is that I thought some of the weak PC demand last year was due to the soft macro environment and weak IT spending in general. But now some IT spending has picked up and PC demand is even weaker. We are also only one year away from when Microsoft stops servicing XP and that hasn't helped. The "growth in emerging markets theory" also does not hold up. For example, web traffic in India on mobile devices has now surpassed web traffic on PCs.

    The way things are going it would not surprise me to see PC operating income for Intel at $7 or $8 billion by 2016. Eventually it will stop falling. You are right about that. We just do not know when.

    And why has Data Center operating income been flat to slightly down since 2011? You project $8 billion. And no doubt Intel will do well in this segment the next few years. But it looks like higher revenue is being offset by higher expenses. It is certainly realistic to think that Intel might only generate $5 billion from the Data Center segment in 2016 as they have since 2011. There are no signs of operating income increasing to $8 billion, only the words of company executives. The numbers show the expenses have been higher the past year plus.

    All other Intel segments combined are on pace to lose a few billion dollars again. Perhaps this will turn around. But even if Intel gains 20% share as you project of the mobile and tablet app processor markets, the profitability would just be enough to offset the current losses from all the other segments.

    But with Qualcomm and Samsung currently dominating the market, reaching 20% will not be easy.

    This is why I can easily see earnings flat to slightly down over the next three years.

    For earnings to be $3 or more you would need PC operating income to remain flat from Q1 2013 on, Data Center operating income to grow as you projected to $8 billion, and Intel to gain 50% share of the mobile and tablet markets. 50% would more than offset the current losses from the other segments (ex PC and Data Center).
    Apr 18, 2013. 02:57 PM | 1 Like Like |Link to Comment
  • Intel Valued As Though New Technologies Will Bust, But I Disagree [View article]
    Correction from the comment above:

    The Data Center segment, which is supposed to be the company's growth segment, is on pace to have operating income down slightly. 2012 was also slighty worse than 2011 in terms of operating income in dollars. This segment is on pace to generate slightly less than $5 billion of operating income this year, but lets go with $5 billion to be a little generous.

    I meant worse instead of better in the initial comment.
    Apr 18, 2013. 02:14 PM | Likes Like |Link to Comment
  • Intel Valued As Though New Technologies Will Bust, But I Disagree [View article]
    I haven't taken a position because this is very hard for me to call. I respect Tim and Ashraf's opinion and could definitely see the bull case in Intel, especially if they succeed with mobile.

    However, Intel could be a value trap. PC operating income is plummeting. The segment is on pace to do about $10 billion of operating income in fiscal 2013. Down significantly from 2012.

    The Data Center segment, which is supposed to be the company's growth segment, is on pace to have operating income down slightly. 2012 was also slighty better than 2011 in terms of operating income in dollars. This segment is on pace to generate slightly less than $5 billion of operating income this year, but lets go with $5 billion to be a little generous.

    The remaining segments lost about $3.5 billion last year and are on pace to lose at least the same this year, but lets be generous and say the remaining segments only lose $3 billion.

    Thats $12 billion of operating income. Assuming no other major issues and adjusting for a 25% tax rate gives us net income of $9 billion. Using 5 billion shares yields $1.80 in EPS down significantly from 2012 and 2012 was also down from 2011.

    It is easy to see PC operating income declining to $7 billion over the next 3-4 years if the trend continues. And Data Center operating income looks like it is staying flat not growing.

    In a previous article Ashraf suggested Intel could gain 20% of the mobile market and 20% of the tablet market by 2016. Forget about the revenue ARM gets for the design because that is negligible in the case of Intel, but lets assume he is correct. Even though this will be tough because Samsung and Qualcomm control approximately 3/4 of the app processor market. So in no way do I think it is a certainty that Intel gains 20% share in 3 years when they currently have next to nothing. But lets say they do.

    I will assume revenue of $30 per phone and $20 per tablet. The extra for each phone b/c of the wireless modem as Ashraf pointed out. And $20 ASPs for each processor as Ashraf also pointed out which seems reasonable.

    Using his numbers of 1.2 billion smartphones and lets say 400 million tablets would yield revenue of $7.2 billion from phones for Intel and and $1.6 billion from tablets. I will also be generous and use 33.3% operating margins. Thus Intel could see additional operating income under Ashraf's scenario of about $3 billion. I am rounding up total additional revenue to $9 billion.

    Well this $3 billion simply negates the losses from segments other than the PC and Data Center groups. Possibly some of these segments do better going forward b/c of one-time items, etc...but who knows as they have yet to show any profitability.

    So in 3 years we could have $7 billion of operating income from PCs, $5 billion from the Data Center Group, and the $3 billion in mobile and tablet income which is negated by the losses from the other segments. Using a share count of 4.8 billion, it is hard to see how Intel will be able to buyback more shares than this unless they take on even more debt, and adjusting for a 25% tax rate, yields EPS of $1.88. This would suggest a stock price stuck in the low to mid 20s, using a low double digit to low teens multiple, which is similar to some comps currently.

    But what if Intel doesn't succeed with mobile and is still posting losses of $3 billion in segments other than the PC and the Data Center Group? Then operating income could decline to $9 billion. Adjusting for a 25% tax rate and using the same share count above 4.8 billion yields EPS of $1.40. Using the same multiple yields a stock price in the mid to high teens.

    So is there huge downside. Not really. But the upside is certainly challenging. It would take massive success in mobile and tablet chips to really move the EPS over the next few years.

    I appreciate the discussion.
    Apr 17, 2013. 05:59 PM | 1 Like Like |Link to Comment
  • Intel (INTC): Q1 EPS of $0.40 misses by $0.01. Revenue of $12.58B (-2.5% Y/Y) misses by $30M. Expects Q2 revenue of $12.4B-$13.4B vs. $12.9B consensus. Expects "low single-digit" 2013 revenue growth, unchanged from prior guidance and compares with 0.7% consensus. Lowers 2013 capex guidance range by $1B to $11.5B-$12.5B. Shares +2.1% AH. CC at 5PM ET (webcast). (PR[View news story]
    Data Center Operating Income was down year-over-year:

    For the Quarter Ended:

    3/31/12 $1.135 billion
    3/30/13 $1.079 billion

    Revenue was up but margins are obviously lower so operating income was down. This is supposed to be the strongest segment. I do not want to make too much out of one quarter but the decline is worrisome, especially when the bulk of your operating income, derived from PCs, is absolutely cratering:

    For the Quarter Ended:

    3/31/12 $3.491 billion
    3/30/13 $2.513 billion


    Plus to make matters worse:

    1) Huge Cap Ex requirement
    2) A negligible amount of net cash compared to MSFT or AAPL or CSCO
    3) All other segments are still posting sizeable losses

    Intel's only option is to bet big on mobile. Will it work? Maybe. Maybe not.
    Apr 16, 2013. 05:28 PM | 1 Like Like |Link to Comment
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