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Stephen Simpson, CFA

 
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  • Reality Has (Slowly) Caught Up With First Horizon Shares
     • Today, 6:50 PM FHN Comment!

    Summary

    • Persistently undervalued, First Horizon shares have done relatively better in response to ongoing progress with core expense reductions and steady credit quality improvement.
    • Expanding into North Carolina is a reasonable move in pursuit of growth, and additional small deals in the Mid-Atlantic region wouldn't be surprising.
    • First Horizon looks only slightly undervalued today, but better progress with cost reductions could drive better results and forecasts.
  • Energy's Fall Creates An Opportunity At Prosperity Bancshares
     • Today, 1:34 PM PB Comment!

    Summary

    • Prosperity continues to operate a lucrative model, with very modest core NIM erosion, good expense control, and decent loan growth.
    • Energy credits are already a quarter of the non-performing assets, but Prosperity has ample margin of safety and can use energy troubles as a buying opportunity.
    • Prosperity looks only slightly undervalued, but these shares don't often sell cheap.
  • Is The Latest Stumble An Opportunity At Altera?
     • Today, 12:39 PM ALTR 2 Comments

    Summary

    • Altera and Xilinx have both sold off on tougher near-term prospects for telecom spending and pushouts of their 14nm/16nm development timelines.
    • Arria and MAX 10 products could outperform, but investors are likely to be more concerned about the prospects of underwhelming growth in telecom throughout 2015.
    • Altera has traded in a band between $30 and $40 for several years and it will likely require the Street being convinced about 14nm/16nm superiority to drive a breakout.
  • Without A Bigger Discount, Maxim Not So Interesting Today
     • Today, 9:51 AM MXIM 1 Comment

    Summary

    • Maxim got a boost from Samsung this quarter, but a bigger shift toward industrial and auto markets is still a long-term story.
    • Generating meaningful margin leverage is going to be more challenging in a highly competitive analog market with slowing underlying growth, but integrated products and cost cuts should help.
    • Maxim's decent run since mid-2014 has mopped up the undervaluation and these shares look more or less fairly valued assuming slightly better-than-average growth relative to the sector.
  • Intuitive Surgical Set To Regain Momentum In 2015
     • Yesterday, 1:00 PM ISRG 3 Comments

    Summary

    • Fourth quarter results exceeded expectations as sequential system placement growth has returned and procedure growth continues at a (barely) double-digit pace.
    • An improving U.S. hospital capex environment and a greater overseas sales effort bode well for placements in 2015.
    • Ongoing utilization growth outside of prostatectomy, hysterectomy, and gall bladder procedures is vital if the shares are to continue to outperform.
  • Good Execution Continuing To Boost UnitedHealth
     • Sat, Jan. 24 UNH 2 Comments

    Summary

    • UnitedHealth continues to see declining commercial membership, but overall revenue and margin performance was a little better than expected.
    • Optum remains a key asset for the company, particularly as its risk-pricing capabilities should serve the company well as its expands its involvement in state exchanges.
    • I don't believe UnitedHealth shares are strikingly cheap, but the company has a history of outperforming guidance and offers above-average quality.
  • Despite Some Challenging Markets, Microsemi Continues To Move Forward
     • Sat, Jan. 24 MSCC 9 Comments

    Summary

    • The communication and satellite markets didn't help Microsemi this quarter, but the company still met revenue growth expectations and exceeded Street margin targets.
    • FPGA, mixed signal, and timing products remain the most probable growth drivers, while discrete remains a margin and cash flow leverage opportunity.
    • With a fair value in the low $30's and multiple long-term drivers for better results, Microsemi shares continue to look attractively undervalued.
  • BB&T Breaks From The Pack Again
     • Sat, Jan. 24 BBT 2 Comments

    Summary

    • BB&T exceeds expectations with less NIM erosion, more fee income, and slightly lower expenses.
    • BB&T is not buying growth in its Susquehanna Bancshares deal, but it is acquiring a leverageable asset with credible cost synergy potential.
    • BB&T remains undervalued on the basis of a long-term ROE of 12%, with further M&A likely if regulators prove cooperative in closing the Susquehanna deal.
  • Fifth Third Looks Undervalued, But Not Without Some Reasons
     • Fri, Jan. 23 FITB 3 Comments

    Summary

    • Fifth Third reported lackluster net interest income as the net interest margin remains under pressure from the rate environment and competition in the bank's lending markets.
    • Fifth Third has structured its operations to pursue growth in middle-market commercial lending while leveraging a well-established Midwestern retail banking base.
    • These shares look 15% to 20% undervalued today, but Fifth Third is looking at a tough 2015 and this has become a "show me" story for Wall Street.
  • U.S. Bancorp's Steady Excellence Worth A Premium
     • Fri, Jan. 23 USB 3 Comments

    Summary

    • U.S. Bancorp offset higher costs with better net interest margin performance, while continuing to grow the loan book at a high single-digit rate.
    • U.S. Bancorp isn't especially levered to higher interest rates, but the company continues to generate substantial profits and returns from its fee-based businesses.
    • A 17% long-term ROE supports a fair value of $45 today, making U.S. Bancorp a worthwhile consideration for more conservative investors who value the bank's predictability more than absolute growth.
  • F5 Shares Spin Out On Weakness In Product Sales
     • Fri, Jan. 23 FFIV 2 Comments

    Summary

    • F5 shares are getting punished on a disappointing result in product sales and weakness in guidance for the next quarter.
    • The preeminent concern around F5 remains whether or not the company can offset a slowing market by selling more value-added products and services like security.
    • I believe F5 shares are undervalued on the basis of high single-digit revenue and FCF long-term growth rates, but additional misses will call those estimates into question.
  • PNC Financial Running A More Cautious, Steady Long-Term Plan
     • Thu, Jan. 22 PNC 5 Comments

    Summary

    • In a generally disappointing quarter so far for bank earnings, PNC reported a fairly good quarter, with better results in revenue and core expenses.
    • PNC has not positioned its balance sheet to exploit a quick jump in rates, and near-term income growth is more tied to fee and loan growth and expense leverage.
    • The company remains undervalued on the basis of a long-term ROE of 11.5%.
  • PrivateBancorp Already Priced For Big Things
     • Thu, Jan. 22 PVTB Comment!

    Summary

    • Underperformance in the fourth quarter is likely to be just a bump along an otherwise lucrative path to mid-teens ROEs.
    • Loans are still growing at a double-digit annual rate, and PrivateBancorp is positioned to really benefit if/when rates increase.
    • Banking growth stocks typically get premium multiples, and the company is already priced in line with mid-teens growth expectations.
  • Amicus Therapeutics Has Driven Value Through The Clinic
     • Wed, Jan. 21 FOLD 4 Comments

    Summary

    • The European '012 study significantly upgrades the outlook for migalastat, as it indicates sufficient efficacy and good cardiac/renal data in Fabry's patients with amenable mutations.
    • The future of migalastat in combo therapies is still uncertain, as are the Pompe and MPS-1 programs, but successful clinical trials can unlock substantial value.
    • Amicus shares look undervalued below $11 and migalastat alone could be worth more than $15/share if clinical trials and marketing efforts go well.
  • Trial Data Add Little Clarity And Much Confusion To Conatus
     • Wed, Jan. 21 CNAT 6 Comments

    Summary

    • Phase II data on emricasan were noisy and inconclusive, but there are some reasons to believe that doses of 50mg and higher could be worth further study.
    • Enrolling only one-third of the intended patients and collecting seven days of data (versus 28) raises questions regarding management's ability to run studies and the difficulty of the ACLF indication.
    • Cutting back the odds of success and revenue opportunity for emricasan in ACLF cuts the fair value further, but still offers upside from today's level.
  • Johnson & Johnson Finding Growth A Little Harder Now
    Wed, Jan. 21 JNJ 4 Comments

    Summary

    • Johnson & Johnson posts a broad-based miss, with weakness in pharma undermining margins and devices still struggling to log meaningful revenue momentum.
    • Johnson & Johnson's robust cash generation can support ongoing dealmaking to augment the long-term prospects of the drug and device businesses.
    • Should healthcare stocks pull back, or the market overreact to what is likely to be a tougher stretch in JNJ's drug business, these shares would be an attractive long-term buy.
  • Growth Still The Heart Of Middleby's Story
     • Tue, Jan. 20 MIDD 7 Comments

    Summary

    • Middleby is developing multiple potential long-term growth drivers, with an ongoing core focus on labor and cost reduction for restaurant customers.
    • Whether or not the company can break out of a long-standing margin range is a key driver to future value.
    • A mid-teens FCF margin can support today's price (with 10% long-term revenue growth), but a breakout above that level would make the stock much more exciting.
  • Bank Of The Ozarks Continues To Execute
     • Tue, Jan. 20 OZRK 1 Comment

    Summary

    • Bank of the Ozarks saw some NIM compression, but continues to post excellent loan growth and credit quality.
    • Exiting a loss sharing agreement and acquiring Intervest should improve the company's near-term profit prospects, but NIM pressure is likely to continue in 2015.
    • Bank of the Ozarks doesn't look cheap by conventional ROE and ROTE-based methodologies, but the bank's growth could still support a higher price.
  • Bank Of America's Core Ops Showing Some Progress
    Tue, Jan. 20 BAC 5 Comments

    Summary

    • Bank of America missed revenue expectations by a wide margin, but the miss was largely driven by an accounting adjustment and weak trading results; core results looked alright.
    • Management has done a good job of reducing expenses and has positioned the balance sheet to be highly sensitive to future rate increases.
    • Based on a sub-10% long-term ROE and a near term ROTE just above 10%, Bank of America's fair value seems to lie around $17.50 to $18.00.
  • Citigroup On The Right Track, But It's Not A Fast Lane
    Mon, Jan. 19 C 4 Comments

    Summary

    • Citi underwhelmed relative to expectations on balance sheet contraction and higher expenses, but core lending and NIM trends aren't bad.
    • Management is continuing to slim down by selling off units that don't meet management's long-term profit goals, but Citi's uncommon emerging market exposure could offer a long-term boost to growth.
    • Citi offers a wider spread of bull-base-bear outcomes, with a fair value of $60 possible if ROTE can go above 9% soon.
  • Is It Time To Start Thinking Recovery For Komatsu?
     • Sat, Jan. 17 KMTUY 3 Comments

    Summary

    • Weakness in Chinese construction equipment demand continues, but Komatsu's revenue and margins are holding up relatively well on a strong parts and services contribution.
    • Komatsu continues to focus on internally-driven innovation, including more efficient and environmentally-friendly engines and automated construction and mining equipment.
    • A fair value in the low-to-mid $20's seems reasonable for Komatsu's ADRs, but management's guidance will likely set the tone for the next six months.
  • Look Past A Sales Transition To Novadaq's Future
     • Fri, Jan. 16 NVDQ Comment!

    Summary

    • Novadaq negotiated an early exit from its LifeCell marketing agreement and has been busy adding new partners, including overseas distributors and a marketing partnership for a complementary allograft tissue product.
    • 2015 growth is going to be negatively impacted by the sales transition, but the clinical data continues to support widespread adoption of Novadaq's technology.
    • Novadaq should trade into the high teens, but the execution risks and relatively long timeline to significant profits will make this stock more volatile than average.
  • Clouds Still Mar Sunshine Heart's Outlook
     • Fri, Jan. 16 SSH 22 Comments

    Summary

    • Sunshine's update on fourth quarter trial enrollment was positive on balance, but patient and center recruitment still remains frustratingly slow in the U.S. and Europe.
    • Sunshine doesn't have the financial resources to resolve the reimbursement issues that are hampering enrollment, but the FDA may grant permission for an interim analysis that could accelerate approval.
    • The apparent efficacy of Sunshine's C-Pulse could make it (and the shares) a real winner in the market, but there are still major challenges remaining in trial recruitment and commercialization.
  • Linear Technology's Opportunities, And Challenges, Remain The Same
     • Fri, Jan. 16 LLTC 1 Comment

    Summary

    • Linear answered a weak December quarter with stronger guidance for the March quarter.
    • Innovation in the industrial and automotive verticals should pay dividends in the coming years, but management has to convince the Street that it can generate better operating margins.
    • Sandwiched between a DCF-based fair value in the low $40's and a margin-driven EV/revenue-based fair value in the low $50's, Linear seems fairly priced.
  • AtriCure Is Successfully Using Marketing And Training To Drive Revenue
     • Thu, Jan. 15 ATRC Comment!

    Summary

    • AtriCure is seeing double-digit growth as increased marketing and training efforts drive more use of its surgical ablation tools and the AtriClip.
    • Clinical trials of surgical ablation (open and minimally invasive) and AtriClip (open and minimally invasive) could become powerful arguments for greater use, but not for a few years.
    • If AtriCure can drive a true inflection in the utilization of its products, leading to accelerating revenue growth in the coming years, today's price is still too low.
  • Wells Fargo Still Delivering Some Growth
    Thu, Jan. 15 WFC 2 Comments

    Summary

    • Wells Fargo managed to deliver growth in what is proving to be another tough quarter for the large banks.
    • Higher expenses are a concern, but Wells Fargo is pursuing multiple strategies to drive organic growth.
    • Wells Fargo's fair value seems to fall between $51 and $54, but long-term investors may find that the quality outweighs the more modest near-term potential.
  • Receptos Shopping For A Partner With Strong Data In Hand
     • Thu, Jan. 15 RCPT 4 Comments

    Summary

    • Early-stage clinical data has positioned '1063 as a true potential blockbuster that may address multiple sclerosis, ulcerative colitis, and Crohn's disease - all $1B+/year potential markets.
    • Investors should look for more details on the TOUCHSTONE ulcerative colitis trial in February and later in 2015.
    • Receptos could be an attractive takeover candidate, but a fair value of $140-$141 argues for its standalone merits today.
  • JPMorgan Chase Once Again Fails To Inspire
    Editors' Pick • Wed, Jan. 14 JPM 5 Comments

    Summary

    • Loan growth was nice to see, but ongoing NIM erosion and less expense leverage than hoped for set the stage for another disappointment in core operating profits.
    • Higher capital requirements may prompt management to consider a breakup, but the on-the-ground impact of these rules might not be as large as it first appears.
    • Long-term ROE and near-term ROTCE both support a fair value in the mid-$60s, though large banks may remain limited by weak near-term interest rate momentum.
  • XenoPort Prepping For Key Data In 2015
     • Wed, Jan. 14 XNPT 5 Comments

    Summary

    • XenoPort is making progress with its Horizant sales effort, but it is still an uphill climb to make this into a truly valuable product for a company of XenoPort's scale.
    • XenoPort's '829 is the real key to further upside - strong results from a Phase II psoriasis study later this year could potentially put two $15B+ markets into play.
    • Even with low odds of approval/commercialization for '829, XenoPort offers some upside today, and a successful Phase II psoriasis trial outcome could unlock significant upside.
  • Celldex Therapeutics Still Building Its Immuno-Oncology Story
     • Wed, Jan. 14 CLDX 22 Comments

    Summary

    • Celldex appears on track to file for approval of rindopepimut in EGFRVIII-positive glioblastoma, and a change to the pivotal study of glembatumumab in breast cancer shouldn't cause too much worry.
    • Celldex seems to be overlooked as a platform play in immuno-oncology, and varlilumab could factor significantly in future combo therapies.
    • A risk-adjusted assessment of Celldex's portfolio would seem to support a fair value of about $33.
  • With The Tornier Deal On Track, Wright Medical Will Be Busy
     • Wed, Jan. 14 WMGI, TRNX Comment!

    Summary

    • Wright Medical shares have underperformed after announcing its intention to merge with Tornier in a merger of near-equals.
    • The merger proxy supports the criticism that Wright Medical is paying up, but Tornier can add valuable scale, growth in upper extremities, and a better long-term platform for Augment sales.
    • Contributions from Augment are a major unknown today, but can support a fair value into the mid-$30's.
  • Ultratech's Order Outlook Is Murky At Best
     • Tue, Jan. 13 UTEK 1 Comment

    Summary

    • Ongoing delays in orders tied to the 14nm/16nm cycle have sapped Ultratech's revenue and profit outlook, as well as its credibility with the Street.
    • Order timing related to yield issues may not be the biggest problem for Ultratech, as rumors still swirl that rivals like Screen and Mattson have gained share with Ultratech customers.
    • Ultratech's fair value may be between $19 and $26, but strong orders are a must-have for the stock to head higher.