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Rash Menaria
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Here are a couple of my original ideas: Small Cap Tech Rediff (REDF): Recommended buy at less than $2 in August 2010. Within 1.5 months of my recommendation it touched $6. It is currently trading at $9.39. More
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  • Top Tech gainers from Friday and what to expect now

    Following are the four major tech gainers from Friday:

    Company Name


    % Gain

    VASCO Data Security



    PROS Holdings



    Majesco Entertainment







    Here are some of the specifics about these stocks, and what to expect from them going forward:

    VDSI was up 8.29% on Friday. VDSI’s business fundamentals are headed in the right direction. In February, company reported its backlog (primarily Banking end market) at $56 mn (FY10 year-end) which was the largest year-end backlog in the company’s history. Going forward Vasco’s end markets (primarily banking) are expected to see continued improvement in demand. Recent acquisition of DigiNotar and opportunities that leverage embedded Intel technologies are expected to incrementally benefit the company going forward. The shares are expected to outperform in near to medium term.

    PROS Holdings was up 7.76% on Friday. PROS Holdings, Inc. is a provider of pricing and margin optimization software. Its software products provide customers gain insight into their pricing strategies, identify detrimental pricing practices, scientifically segment their customers and markets to optimize their pricing decision-making and improve their business processes and financial performance. On March 4th, company held its analyst day where it highlighted improving business momentum.  PROS is looking to extend its market opportunity to the SMB market through its SaaS offering in coming quarters. SMB offers 2x market potential as compared to large enterprises. Further, enterprise penetration is still just 3-5% of total Addressable market of $20 bn. This implies a good upside potential for Pros Holdings in the long term. It’s a good growth story to go long on.

    Majesco Entertainment was up 7.26% on Friday. The Company provides interactive entertainment products primarily in the United States and Europe. It offers video game software for interactive entertainment hardware platforms and PCs, as well as other digital entertainment products. The stock is up 60% after it reported its earnings on March 8th. The company blew past analyst estimates driven by the sales of its new brand Zumba Fitness. Zumba Fitness was released on three major gaming platforms and it sold over one million units from its launch date through the end of F1Q.  The company raised FY:11 guidance for revenue to $100 - 110 million from $85 – 90 million, and for EPS to $0.20 – 0.25 from $0.06 – 0.10.  Zumba now is the second mega-brand and it will help in diversifying the sales base and leverage expenses. Although stock has gone up significantly, the fundamentals still are headed in the right direction and one can use any pullback to go long on the stock.

    Ener1 was up 7% on Friday. Ener1 reported 4Q10 results of $33.1mn/($0.08) vs. consensus estimates of and $24.5mn/($0.10). Revenue upside was a result of the recognition of $11.3mn in grid revenue. EV end market continues to struggle and battery shipments to Think Global was halted in January due to excess inventory at Think. Think is company’s main EV customer and 48% owned subsidiary of Ener1. Although, improved Grid revenues will offset EV revenues to some extent going forward and margins in Grid business is better than EV business, Ener1’s EBITDA breakeven inflection point is likely pushed-out into mid-2012 due to sales issues at Think. Investors are suggested to book profit on any rise in this one.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: VDSI, COOL, PRO, HEV
    Mar 14 4:41 AM | Link | 1 Comment
  • Terex (NYSE: TEX) : Finally the action time
    Terex fundamentals are showing good signs of improvements. Stock has just started reacting to it and its an excellent time to buy. The company has 4 segments Aerial Work Platform (NYSE:AWP), Material Processing, Construction and Cranes. Following are the main fundamental catalysts for the stock: 

    AWP segment: (According to my checks) Quoting activity has increased significantly during the quarter. Orders would start coming to backlog in 4Q of current year.

    This is a business with 30%+ incremental margins (model a bit higher for initial years) and any return back in this business is good enough sign to bring the catalytic investors back.

    Material Processing:

    Continues to be very strong. Company expects to make it a $1.6 bn business by 2013 and right way to model it is a linear increase. Not commenting on 2013 target but for this year the sequential rate of increase has thus far continued and again y most of the sell side no.s are underestimating it.

    Stabilizing crane business:

    Rough terrain cranes are seeing ramp up in RFPs in Middle East and Russia after bouncing along the bottom for so long. Slow drift down in larger cranes is likely to be offset fully by this. Overall crane business which has concerned investors for so long has finally bottomed.

    Book to bill

    4Q would be a step up as far as book to bill is concerned (thanks to AWP booking) however 3Q is not likely to disappoint either.

    Better than expected results for the second half.

    Thanks to the strong trends Terex is likely to do better than breakeven at operating profit level for the 2010. Not sure if they would guide to it explicitly on 3Q con call/investor day but I think it would be pretty much obvious by their tone.

    Am surprised some of the sell side guys still have negative EPS projection for fourth Quarter.

    Replacement cycle

    According to both CAT & TEX management, this is the widely misunderstood fact among most sell side and buy side guys. (Even those who say they understand it, are actually missing the magnitude). Caterpillar in all probability is going to positively surprise on preliminary 2011 guidance (at 3Q con. call) thanks to the replacement demand. That will bode well for Terex.

    What to expect of the share price?

    Terex is down 21% from April end peak while Caterpillar is scaling 52 week high. Caterpillar is already seeing positive trends for sometime now, while for Terex the real inflection has started occurring just now- so ideally Terex should be seeing better upside.

    The stock is likely to cross its 52 weeks high on the back of these positive catalysts. Given the recent buying interest in the stock I would be surprised if does wait for actual 3Q earnings release/ Investor day to go up to that level… As buy siders start getting the sense on real trends, the stock will go past $28 in next few weeks even before actual 3Q results.

    Disclosure: Long TEX
    Sep 20 8:24 AM | Link | 5 Comments
  • Genuine Parts Company: Is market significantly underestimating 2Q earnings?
    Company Background:
    GPC is a $6.48 bn mkt cap distributor of automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials.
    % of revenues
    Automotive replacement parts
    Advance Auto Parts, Inc.(NYSE:AAP); O'Reilly Automotive, Inc.(NASDAQ:ORLY); AutoZone, Inc (NYSE:AZO)
    Industrial replacement parts
    Applied Industrial Technologies (NYSE:AIT) and to lesser extent Fastenal (NASDAQ:FAST), MSC Direct (NYSE:MSM). Grainger (NYSE:GWW)
    Electrical/electronics materials
    Office products
    United Stationers (USTR)
    What is that market under estimating?
    I believe market is significantly underestimating sales for 2Q 2010. Sales for 1Q2010 increased 6.4% YoY. Sell side consensus (and most of buy side) are simply extrapolating it and to arrive at 6.8% sales growth for 2Q2010. I believe they are missing the fact that trends became significantly better from March onwards:
    • March Daily Sales were up 11% YoY while Jan and Feb were up low single digits. So, if March trend continues; 2Q2010 would be much better vs. 1Q2010.
    • GPC Management mentioned at the time of its earnings call that April was going as strong as March and my checks suggest that May didn't weaken either.
    • Further auto replacement part companies (AAP, AZO) whose quarter ends after March 31 have reported significant sales pick up from March onwards continuing
    • For Industrial replacement parts segment PMI is a good indicator which has remained above 50 (signaling expansion) during current European debt crisis. Further daily sales numbers reported by companies FAST (up 21.1% in May and 18.6% in April) and GWW (up 16% in April and May) are encouraging.
    • Also comparisons for GPC are easier in 2Q as compared to 1Q (2Q2009 total revenues was down 11.78% while 1Q2009 was down 10.78%) 
    What is the bear argument and why is it flawed?
    Bears are saying that since 1Q2010 sales increase for GPC’s automotive parts business was 5.8% as compared with 7.7% increase by AAP, 7.1% increase by AZO and 6.9% increase by ORLY; hence, GPC is loosing market share and sales trends for GPC might not be as encouraging as its peers going forward.
    Table below shows the relative sales performance of GPC vs. its peers from 2006 onwards.
    Auto parts group avg. ex-GPC
    GPC automotive sales
    We can see that after performing better than its peers till 3Q2008, GPC started loosing market share to them and trend continued till 3Q2009. However, thanks to management initiatives and efforts trend started reversing from 4Q09.
    As is expected, investors biggest fear right now is what if GPC started loosing markets share again? And bears just got a chance to manipulate that fear as GPC posted 5.8% growth in 1Q10 as compared to 7.3% by its peers. Bears are arguing that GPC is loosing market share to other competitors even now. Here is why this argument is flawed:
    Automotive repair parts sales picked up significantly from March onwards. Quarter for AAP ends on April 24, 2010 while Quarter for AZO ends on May 8, 2010. Thus their quarterly numbers includes 24 and 38 days of better trends as compared to GPC. So naturally their reported numbers would be better than GPC. Further, March being up 11% for GPC clearly shows that trends at GPC are inline with its peers and exposes the hollowness of market share loss arguments.
    (Note: ORLY with significantly large acquisition like CSK is a different story with a lot of other variable; hence let’s skip it for a while.)
    GPC would be having full effect of these positive trends in 2Q numbers while in 1Q only March numbers benefited. Hence, growth for GPC’s auto business would be much more in 2Q than 1Q. Other business segments like industrials and electrical also have significantly easier comps in 2Q which would help overall sales growth YoY.
    What Bulls have and what are they missing?
    Bulls find recent improvement in automotive replacement parts sales encouraging. With other peers reporting good numbers and having positive commentary despite of recent macro crisis, bulls love this sector.  No European exposure further adds icing to the cake.
    However, their estimates are very surprising. Goldman Sachs Analyst who is the most bullish one and has GPC in Conviction Buy list is just a cent ahead of consensus in terms of EPS estimates. His estimate of 5.7% increase in sales for auto parts in 2Q as compared to 5.85% in 1Q definitely does not include significant improvement from March onwards. He is just playing safe by not deviating too much from consensus.
    Stock performance:
    Stock has performed worse than its peers declining 7% as compared to auto peers which are up 10-20%, since April 1.
    GPC’s decline is actually inline to worse than even some of its industrial MRO peers (AIT,FAST,MSM,GWW) which is surprising given the fact that its Auto parts business is really doing very well.
    What to expect:
    Sales beat and guidance raise are sure. Given recent out performance of peer group as compared to broader market, stock might easily move up again to $45-46 (from current price of $40.78) going into the earnings. Magnitude of beat is likely to decide how much stock rises above 46. (Please note very carefully auto segment numbers & outlook on earning's call).
    Risks Analysis:
    • Haven’t done channel checks for June yet. Would be doing it shortly; mail me if you would like to be updated.
    • Recent underperformance versus auto parts peers has mitigated the risk significantly and skewed risk-reward to more favorable side. If one looks at the numbers out there (particularly for auto parts business) even bulls are very conservative. Further, it’s a very stable business mix with dividend yield over 4% and has good growth prospects (both organic and inorganic).
    Please Note:
    If you would like to get more detailed analysis and financial model please email the author.
    The Author is a former buy side analyst with excellent and consistent track record of profitability covering multiple sectors. He is currently looking for a job and open to work on a completely performance based pay or on pay per idea basis. If interested in hiring him or want to take a look at more ideas please mail back at

    Disclosure: No Positions

    Disclosure: No Position
    Tags: ORLY, AAP, AZO, GPC, MSM, FAST, GWW, AIT, ESND, retail
    Jun 13 5:05 PM | Link | Comment!
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