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Stephen Simpson, CFA  

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  • Norcraft Executing Its Model To Good Effect
     • Today, 7:34 AM NCFT Comment!

    Summary

    • Norcraft's ongoing focus on higher-margin opportunities within the higher-margin dealer channel is serving the company well as mix improvements offset the volume consequences and boost margins.
    • Under-utilized capacity can support further margin improvements and the company's excellent progress in reducing SG&A spending opens the doors for value-adding M&A within a still-fragmented industry.
    • Norcraft still appears a little undervalued by DCF and still offers worthwhile leverage to the remodeling market.
  • Core-Mark's Attractive Opportunity Reflected In The Share Price
     • Yesterday, 4:46 PM CORE 1 Comment

    Summary

    • Core-Mark has continued to post solid mid-single digit revenue growth as C-stores add more food items to their in-store assortments and take advantage of Core-Mark's logistical and IT offerings.
    • The Rite Aid relationship has blossomed quickly, and has room to growth further, and could point toward sizable new addressable markets beyond the C-store channel.
    • Core-Mark's shares have outperformed and now carry a pretty demanding double-digit forward EV/EBITDA multiple. Mid-single digit revenue growth and margin leverage can support double-digit growth, but valuation isn't undemanding.
  • Stage Stores Taking A More Realistic Approach
     • Yesterday, 12:10 PM SSI Comment!

    Summary

    • Stage Stores has seen same-store sales rebound, but traffic is still soft and the company doesn't generate much revenue from e-commerce/direct-to-consumer efforts.
    • Management is hoping that increasing the number of cosmetics counters, adding better home goods assortments, and improving store-level merchandising will support a lasting improvement in margins.
    • Stage Stores could trade into the mid-$20's on low single-digit comp growth and sustained improvement in margins, but today's valuation already anticipates this at least to some extent.
  • Ahead Of Major Launches, GenMark Diagnostics Still Has Some Value
     • Yesterday, 7:00 AM GNMK Comment!

    Summary

    • GenMark has completed the development of its next-gen ePlex system, and looks to have this new molecular diagnostics system on the market in the EU and the U.S. before year-end.
    • The ePlex, and subsequent assay development, brings over $2 billion of annual testing revenue into play for GenMark, with simplicity, speed, and accuracy being major selling points.
    • If the company can follow a Cepheid-like trajectory, a high-teens EV/revenue-based fair value doesn't seem unreasonable today, and still offers worthwhile upside for aggressive investors.
  • Pacific Biosciences Still Trying To Claw Out Its Own Niche
     • Tue, Mar. 24 PACB 2 Comments

    Summary

    • PacBio has logged two straight quarters of double-digit system orders and a new chemistry has improved read lengths and per-machine consumables consumption.
    • With no new PacBio instruments on the horizon, the market is worrying about the potential of 10X Genomics to make a real splash with its long read length technology.
    • PacBio has the best current technology for generate long read lengths and the potential of its technology supports a $8/share fair value, but orders and utilization must continue to improve.
  • More Of The Same From Microsemi ... And That's Just Fine
     • Tue, Mar. 24 MSCC 1 Comment

    Summary

    • Microsemi management makes bullish comments at its analyst day regarding growing backlogs, organic growth opportunities, and progress towards 60% gross margins and 30% operating margins.
    • The acquisition of Vitesse is a quintessentially Microsemi-type of deal that should add valuable Ethernet capabilities and open new growth markets like industrial IoT.
    • Microsemi's cash flow and margin outlook support a fair value range of $36 to $39, leaving the company as a relatively rare undervalued growth opportunity in semiconductors.
  • These Are Tougher Times For Brazil, But BRF Still Offers A Bright Future
     • Fri, Mar. 20 BRFS 2 Comments

    Summary

    • A struggling domestic market and a weaker currency have impacted the ADRs of this leading Brazilian food company.
    • BRF's basic business plan is sound, with management looking to shore up its leading market share in Brazil while expanding its branded business in high-potential emerging markets.
    • Fair value for BRF shares seems to be in the low-to-mid $20's, but near-term worries about Brazil's economy are overshadowing the long-term potential of this consumer-leveraged emerging markets food company.
  • AGT Food And Ingredients Is An Underappreciated New Growth Story
     • Thu, Mar. 19 AGXXF Comment!

    Summary

    • AGT's transformation into a higher-margin ingredients company is moving along at an encouraging pace and the ingredients business is already consistently generating double-digit EBTIDA margins.
    • Agreements with Cargill and Ingredion provide immediate credibility and much-needed marketing and distribution support, while the company's sizable existing capacity provides value-additive conversion opportunities.
    • Widespread adoption of more pulse-derived ingredients is not guaranteed, but the potential for meaningful incremental margin improvement supports a fair value in the high C$20's to low C$30's.
  • Old Dominion's Performance Argues For Paying Up For Quality
     • Wed, Mar. 18 ODFL 2 Comments

    Summary

    • Old Dominion has continued to log strong volume growth with good cost discipline and margin leverage.
    • Ongoing investments in equipment, IT, and other infrastructure reduces the FCF leverage but supports the case for strong ongoing EBITDA growth.
    • Although economically-sensitive, Old Dominion doesn't seem overpriced if the economy stays relatively healthy.
  • Can NuVasive 2.0 Take The Shares To New Highs?
     • Fri, Mar. 13 NUVA 1 Comment

    Summary

    • NuVasive is not just focused on growth, but on profitable growth with its NuVasive 2.0 plan targeting multiple paths to operating margins in the 20%'s.
    • Growing penetration of minimally-invasive approaches in spine surgery and share growth outside the U.S. can continue to support above-market growth for NuVasive.
    • NuVasive shares can trade into the $50's, but there isn't a large margin of safety if growth or margin leverage disappoint.
  • ON Semiconductor Talking The Talk, But Still Has To Walk The Walk
     • Thu, Mar. 12 ONNN 2 Comments

    Summary

    • ON Semiconductor has been reducing operating costs, but gross margins remain volatile and under pressure from the disappointing Sanyo acquisition.
    • Management is looking for growth in industrial/building automation and increased technology adoption in the auto sector to support above-average revenue growth and higher margins.
    • ONNN's relative outperformance has reduced the appeal of the shares, though there is still upside if management can hit aggressive margin leverage targets.
  • Atmel Still Needs To Execute Better
     • Wed, Mar. 11 ATML 3 Comments

    Summary

    • Atmel hasn't impressed the Street lately with its growth or guidance, as legacy businesses have seen some headwinds.
    • Atmel has worked to build up its IoT capabilities, acquiring multiple connectivity technologies to augment its strong position in low-power MCU.
    • Atmel's MCU assets could attract a buyer, but standalone success is going to demand a higher and more consistent level of management execution.
  • IoT Continues To Support The Silicon Labs Story
     • Wed, Mar. 11 SLAB 1 Comment

    Summary

    • Silicon Labs is looking to leverage its capabilities in MCUs, sensors, and connectivity to take share in the multibillion-dollar emerging Internet of Things market.
    • NXPI's acquisition of Freescale bulks up its MCU and IoT capabilities and other large chip companies may be looking to M&A to enhance their IoT leverage.
    • Silicon Labs seems to be trading within 10% of fair value, but is a name worth tracking due to its above-average growth potential.
  • Headwaters Sending Better Results Downstream
       • Fri, Feb. 13 HW 3 Comments

    Summary

    • Headwaters continues to post strong volume growth and leverage that into better than expected margins.
    • Investors may be worried about the company's Texas exposure, but lower oil prices are an overall benefit and the company's Texas business may not be so sensitive in the short-term.
    • A 12x EBITDA multiple can support a fair value of $18.50 and the company's recent performance suggests additional upside to EBITDA is a valid possibility.
  • Advanced Energy Industries Powering Up
       • Thu, Feb. 12 AEIS Comment!

    Summary

    • AEIS is seeing good demand for its power supplies in front-end semi equipment and is looking to 3D NAND and 3D packaging as near-term growth opportunities.
    • The solar inverter business is seeing growing operating losses as weak industry pricing cancels out the company's progress with product quality and market share.
    • FV for AEIS shares seems to be in the range of $25 to $30, but the company is leveraged to increasing semi equipment orders in 2015.
  • Natural Grocers' Comps Recovering, But Can It Last?
       • Wed, Feb. 11 NGVC 2 Comments

    Summary

    • Natural Grocers delivered a needed beat on same-store comps, as the company looks to put competitive challenges in 2014 behind it.
    • Natural Grocers has built less than 10% of its potential store base and is sticking with a very focused concept, but online and in-store threats abound in the organic/natural market.
    • Natural Grocers should be able to fund its expansion from operating cash flow in about three years, while high teens revenue growth and mid-single digit margins support a $33 FV.
  • Check Point Software Still On Point
       • Wed, Feb. 11 CHKP 1 Comment

    Summary

    • Software blades continue to show strong growth, while Check Point continues to do very well at the margin line.
    • Increased spending could boost long-term revenue growth, as could an increased willingness to use M&A to augment the company's next-gen offerings.
    • Check Point is likely never going to be a growth leader, but the company offers a solid growth/value mix and can still make sense as a core tech holding.
  • Carpenter Technology Feeling The Pain Before The Gain
       • Wed, Feb. 11 CRS Comment!

    Summary

    • Carpenter posted a significant segment income miss in the fiscal second quarter and declining energy demand is going to make the costs of the Athens facility ramp-up more obvious.
    • Carpenter is looking more like a post-2016 commercial aviation story, with a lot of margin and FCF leverage riding on the company's ability to sell a richer mix of alloys.
    • The shares look pretty fairly valued on a short-term basis, but looking ahead to the commercial aviation ramp (2017) and discounting back suggests more interesting potential for patient shareholders.
  • ABB Facing Power Outages In Multiple End Markets
       • Tue, Feb. 10 ABB 14 Comments

    Summary

    • ABB misses on revenue, earnings, and orders as weakening end-markets take their toll on this power and automation conglomerate.
    • Between oil/gas, mining, and utilities, about 50% of ABB's revenue by end market is under stress and weakness in Europe and emerging markets could pressure factory automation demand.
    • ABB has become a contrarian call with few bullish sell-side analysts supporting the shares; a high single-digit FCF growth forecast still supports a mid-$20's fair value.
  • Multi-Color Showing Better Margins With Improving Growth
       • Tue, Feb. 10 LABL Comment!

    Summary

    • Multi-Color delivered another quarter of 5% organic revenue growth and better-than-expected gross margin.
    • Further expansion into the healthcare vertical offers the potential of higher margins, but continuing to focus on personal/home care and wine/spirits could support a company almost twice today's size.
    • I believe a price in the high $50's is reasonable, with further upside possible if organic growth stays above 4% and the company delivers even more operating leverage.
  • Alaska Air Thriving In More Crowded Skies
       • Tue, Feb. 10 ALK 5 Comments

    Summary

    • Delta's aggressive expansion into Seattle is pressuring revenue, but Alaska Air is still delivering a good mix of capacity and revenue growth coupled with improving margins.
    • Revenue enhancement efforts should offset some of the ongoing RASM pressure from Delta, while lower fuel prices could support more cash going back to shareholders.
    • If airlines truly have found a more responsible "new normal", a long-term cash flow fair value in the $70's is reasonable and corroborated by a 5.5x EV/EBITDAR multiple.
  • The Wait Drags On With Ultratech
       • Tue, Feb. 10 UTEK 1 Comment

    Summary

    • Ultratech showed some gross margin progress in the fourth quarter, but LSA orders are still slow to arrive and investors are getting jittery about the entire 14nm/16nm situation.
    • 3D advanced packaging, inspection, and HBLEDs could all become important long-term opportunities, but the stock's 12-18 month performance rests on seeing LSA orders materialize over the next three quarters.
    • The long-awaited arrival of LSA orders could support a share price in the high $20's (or higher), but the low $20's is probably the limit until orders are in hand.
  • Although Undervalued, Lundbeck Likely Stuck Until New Drugs Start Ramping
       • Mon, Feb. 9 HLUYY Comment!

    Summary

    • Lundbeck continues to post lackluster sales for critical new products like Brintellix and Abilify Maintena.
    • A better label would provide a significant boost to the company's sales efforts, but the FDA is historically stingy with these.
    • Lundbeck's fair value sits in the mid-$20's, but the shares are likely to remain stuck unless and until new drugs like Brintellix, Abilify Maintena, and Northera show exciting growth.
  • Weatherford Fixing Its Credibility Gap, But Now Market Conditions Weigh Heavily
       • Sat, Feb. 7 WFT Comment!

    Summary

    • Weatherford's fourth quarter results weren't so impressive relative to the Big Three, though the company has delivered on asset sales and cost improvement initiatives.
    • With activity levels plunging in North America in 2015, a credit downgrade has emerged as a risk factor but Weatherford's counter-cyclical businesses may be underrated by the market.
    • The long-term benefits of Weatherford's improvements support a fair value in the range of $14 to $15 but higher oil prices and spot-free execution are the real catalysts to watch.
  • Has All The Bad News Been Baked Into RPC's Price?
       • Fri, Feb. 6 RES 2 Comments

    Summary

    • RPC is looking to add 15% more pressure pumping capacity in Q1'2015, but management is seeing push back on pricing and is uncertain on the length/depth of the downturn.
    • RPC is an uncommonly high-quality small-cap service provider with strong full-cycle returns on capital, very manageable debt, and a focus on basins with more durable economics.
    • What I believe to be conservative assumptions supports a fair value in the mid-teens today, but riskier names will offer more upside in a recovery scenario.
  • Realistic Expectations And Improving Performance At Eaton
       • Fri, Feb. 6 ETN 1 Comment

    Summary

    • Eaton generated good core revenue growth in the fourth quarter, with better than expected margin leverage at the segment profit level.
    • Worries about the company's exposure to weak off-highway vehicles are understandable, but markets like commercial vehicles, aerospace, non-residential construction, LED lighting, and automation all offer growth potential.
    • Eaton needs to improve its returns on capital, but the shares look like a solid long-term prospect at today's price.
  • Lenovo's Strong Operating Results Likely Won't Quiet The Doubters Yet
       • Thu, Feb. 5 LNVGY 8 Comments

    Summary

    • Lenovo surpassed sell-side revenue and margin estimates in the fiscal third quarter.
    • Management is going to be focusing on reducing costs in the server business acquired from IBM, while the Motorola deal is about cost, sales, and IP leverage.
    • Lenovo shares should trade in the low-to-mid $30s on the basis of the company's FCF and ROE, but expect ongoing volatility and debate over server/phone share and margins.
  • Universal Stainless & Alloy Products Looking To Ride An Improving Mix And Strong Aerospace
       • Thu, Feb. 5 USAP Comment!

    Summary

    • USAP leveraged a more than 20% improvement in its realized ASP into more than 30% yoy revenue growth in the fourth quarter.
    • Aerospace demand will remain the most significant end market and growth in next-gen engine demand and higher VIM sales should more than offset weakness in oil/gas end markets.
    • USAP shares look 20% undervalued today and could do even better if management succeeds in selling a richer mix of premium alloys.
  • Steel Dynamics May Have Underappreciated Growth Qualities
       • Wed, Feb. 4 STLD 3 Comments

    Summary

    • Steel Dynamics met its lowered fourth quarter expectations, but ongoing issues with the Mesabi Nugget venture mitigate better results in Fabrication.
    • Steel Dynamics has a chance to generate meaningful growth through its rail and Fabrication operations, but the company is vulnerable to steel imports and ongoing pressure on prices.
    • An argument can be made that Steel Dynamics should trade into the mid-$20's, but the market is going to need to see real progress in rail and input costs first.
  • New Headwinds For Nucor, But Still Some Value
       • Wed, Feb. 4 NUE Comment!

    Summary

    • Nucor's fourth quarter results were better than expected, as lower costs boosted margins despite real pressure from imports.
    • Non-residential construction looks set for a better 2015, and represents more than 50% of Nucor's shipments, but oil prices and the strength of the dollar are potential headwinds.
    • Nucor's efforts to control input costs add to the quality of the stock, and the shares seem undervalued today, but significant revisions to estimates are not at all uncommon.
  • This Atlas Doesn't Shrug, But Atlas Copco Still Not Cheap
       • Tue, Feb. 3 ATLKY Comment!

    Summary

    • Atlas Copco is maintaining good margins, and a pretty robust valuation, despite weak organic growth.
    • New compressor products should boost this important business, but a recovery in mining and civil engineering would be most helpful.
    • Atlas Copco looks pretty generously valued today, as mid-teens FCF margins and an 8% revenue growth rate are needed to support a $30 target for the ADRs.
  • Will 2015 Be A Real Growth Year For PCTEL?
       • Tue, Feb. 3 PCTI Comment!

    Summary

    • PCTEL has continued to post uninspiring overall growth as competition in antennas and lower demand for small cells has taken its toll.
    • China Mobile is targeting major growth in TD-LTE subs for 2015 and PCTEL's scanning receivers serve a real need for TD-LTE network test equipment.
    • High single digit revenue growth and operating margins in the high single digits can support a $10 fair value today; better margins can support even more.