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  • Alliance Grain Traders Still Pulsing With Opportunity
       • May. 6, 2014 AGXXF 2 Comments

    Summary

    • Pulse processing volumes have been strong, and the Canadian crop is looking good.
    • The pulse-derived ingredients business offers 2x to 5x better EBITDA margin, but large companies like ADM are already in the market.
    • Crop harvesting and processing is an inherently low-margin business, but Alliance shares look priced to generate double-digit returns.
  • Life In The Slow Layne
       • May. 6, 2014 LAYN 1 Comment

    Summary

    • Layne Christensen delivers yet another earnings miss.
    • Municipal water infrastructure spending is recovering quite slowly, and mineral exploration activity is evaporating.
    • Management must show that it has improved its bidding discipline and can generate better operating margins if the shares are to head meaningfully higher.
  • Uncertainties Weighing A Little Too Heavily On MetLife
       • May. 6, 2014 MET 3 Comments

    Summary

    • Poor weather and greater severity in life insurance claims led to MetLife's first quarter miss.
    • MetLife has busy reconfiguring its business away from variable annuities and towards protection-oriented business and growing emerging markets.
    • MetLife could be as much as 25% undervalued today, due in part to ongoing uncertainties regarding the new regulatory environment for insurance companies.
  • A Slower Recovery Threatens Manitowoc's Ambitious Multiple
       • May. 6, 2014 MTW Comment!

    Summary

    • Crane sales came in well short of expectations, fueling a sell-off in the shares.
    • Orders and commentary from Terex and Kobelco suggest the recovery in crane demand is coming, but maybe a little slower than expected.
    • Manitowoc doesn't look cheap, but better crane results could fuel a momentum trade later this year.
  • BorgWarner Among The Best-In-Class In Auto Parts
       • May. 6, 2014 BWA 2 Comments

    Summary

    • Double-digit growth in engines and drivetrain makes BorgWarner one of the best growth stories in auto parts.
    • Rising standards for fuel efficiency and emissions play directly into BorgWarner's core capabilities.
    • BorgWarner has long been a popular stock, and growth expectations are pretty steep.
  • ON Semiconductor Coming Along
       • May. 5, 2014 ONNN Comment!

    Summary

    • ON's first quarter revenue was a bit light, but margins were quite strong despite another setback in the SANYO business.
    • ON generates close to 50% of its revenue from the attractive auto and industrial markets, but large competitors like Linear have targeted these markets too.
    • Margin leverage is the most powerful tool ON has to earn a higher valuation and the shares do still appear undervalued.
  • Portfolio Recovery Grinding Through A Lull
       • May. 2, 2014 PRAA 2 Comments

    Summary

    • Portfolio Recovery technically met revenue expectations for the quarter, but cash collections were weak.
    • Upfront expenses tied to a larger legal collections effort, and the Aktiv acquisition pressured margins, profits, and returns.
    • Portfolio Recovery is dealing with a constrained supply of paper in the U.S., but the long-term potential of the company will be significantly expanded by the Aktiv deal.
  • FEMSA Muddling Through Better Than Most
       • May. 2, 2014 FMX 2 Comments

    Summary

    • FEMSA surpassed revenue and EBITDA expectations in the first quarter, and delivered a very strong performance relative to other Mexican retailers.
    • New taxes and lower employment has slowed the Mexican economy, but job growth and consumer confidence appear to be rebounding.
    • FEMSA shares can support a $100 fair value on the basis of reliable cash flows from Coca-Cola FEMSA, growth at OXXO, and new business ventures.
  • Wright Medical Continuing To Gain Share In A Growth Market
       • May. 2, 2014 WMGI 1 Comment

    Summary

    • Wright Medical continues to gain share in the lower extremities market, growing 8% to 10% a year.
    • Management will be maintaining its focus on improved sales productivity and better margins throughout 2014.
    • Wright Medical isn't exactly cheap on a stand-alone basis, but the company's strong share in lower extremities should make it a credible M&A target.
  • For Accuray, Lumpy Progress Is Still Progress
       • May. 2, 2014 ARAY 4 Comments

    Summary

    • Accuray reported much better revenue and margins than expected for the fiscal third quarter.
    • Net orders were weaker than expected, underlining the volatility of the business and management's lack of visibility into near-term order flow.
    • Accuray continues to make progress on product development, marketing strategy, and financial management, supporting a double-digit price target.
  • ACE Still The Place For Reasonable Insurance Returns
       • May. 1, 2014 ACE 4 Comments

    Summary

    • ACE delivered yet another earnings beat through a combination of good core underwriting, reserve developments, and low cat losses.
    • Some P&C markets are seeing rate pressure, but ACE's global footprint and more specialty focus allows the company to generate better premium growth.
    • Current business likely won't be as profitable as recent past years, but the Street is likely underestimating the long-term value of ACE's business.
  • BRF Still In The Early Stages Of A Major Transformation
       • May. 1, 2014 BRFS Comment!

    Summary

    • BRF outperformed on EBITDA and operating profits as the company begins comprehensive initiatives to improve margins, market share, and growth.
    • Processed foods are only 22% of export revenue, but growing, and BRF continues to take control of overseas distribution assets.
    • Still priced for double-digit annual returns, BRF shares are an interesting play on an emerging market leader transitioning from a commodity-based model to a global branded approach.
  • Silicon Labs Still Looking For A Transition To Drive New Growth
       • May. 1, 2014 SLAB Comment!

    Summary

    • Silicon Labs came in a little weak on margins and guided down for the next quarter.
    • The Internet of Things is a big opportunity for the company (an addressable market 10x its trailing revenue), but there are numerous potential microcontroller rivals.
    • Silicon Labs seems undervalued on both cash flow and margins, but seems to have above-average growth potential over the next two to three years.
  • Is AGCO Corp. Washed Out Enough To Own?
       • May. 1, 2014 AGCO 6 Comments

    Summary

    • AGCO delivered significantly better first-quarter results, but guidance for the next quarter was not strong and management confirmed a lack of visibility later into the year.
    • Ongoing share losses in Brazil should be a cause for concern.
    • Diversifying the business further into niche equipment markets makes more sense than going head-to-head with Deere and CNH.
  • NCR Corp. Still Undervalued, But Not Helping Its Cause
       • May. 1, 2014 NCR 8 Comments

    Summary

    • NCR reported decent first quarter results, but guided lower on softer orders in the faster-growing retail and hospitality businesses.
    • Banks continue to shift towards more automation and more software-based services, but spending growth is slow to materialize.
    • NCR's opportunities in retail/hospitality and a higher software mix are well-understood, but orders and margins need to materialize if the stock is to reach the $40s.
  • Oshkosh Leveraged To A U.S. Construction Recovery
       • Apr. 30, 2014 OSK Comment!

    Summary

    • Good demand in Access offset some weakness in Commercial and Fire/Emergency vehicles.
    • Oshkosh is still highly leveraged to a North American construction recovery.
    • A lot rides on Oshkosh winning a major defense vehicle award in 2015, but activist investors may prompt value-creating moves before then.
  • Eaton Offering Middling Performance And Middling Value
       • Apr. 30, 2014 ETN Comment!

    Summary

    • Eaton's operating performance in the first quarter was okay, but guidance still suggests some uncertainty about end market growth.
    • Aerospace, hydraulics, and vehicle component markets are looking solid, while industrial is a little iffier.
    • Eaton's valuation already seems to incorporate some pretty significant margin improvements over the next five years.
  • Cummins Revving Up For The Next Truck Cycle
       • Apr. 30, 2014 CMI 4 Comments

    Summary

    • Cummins beat revenue and profit estimates on strong engine and component sales.
    • Truck orders are growing well in both North America and Europe.
    • Cummins shares don't immediately jump out as cheap, but the shares have a history of outperforming as its end-markets improve.
  • Orbital Sciences And Alliant Techsystems Look Like A True Win-Win
       • Apr. 30, 2014 OA 11 Comments

    Summary

    • Alliant Techsystems and Orbital Sciences are merging to create a strong player in satellites, space systems, and missile-based defense technologies.
    • Alliant is paying fair value for Orbital, but can still earn a positive net return by virtue of revenue and cost synergies.
    • Together, the two companies will be a more formidable rival to Lockheed, Boeing, and other large players in aerospace and defense.
  • ABB Gets Fried By Its High Voltage Business
       • Apr. 30, 2014 ABB 5 Comments

    Summary

    • ABB logs a major disappointment as its high voltage businesses seriously underperform.
    • Automation and Low Voltage continue to offer relatively good performance and prospects into 2014.
    • Management will need to make a better case that the high voltage operations are worth turning around, but the stock seems undervalued below the mid-$20s.
  • Smart Deals And Smurfit Synergies Can Still Help Rock-Tenn
       • Apr. 30, 2014 RKT Comment!

    Summary

    • Rock-Tenn saw a bigger-than-expected and bigger-than-peer impact from weather in the March quarter.
    • There are concerns that years of relatively good times have corrugated packaging and containerboard packaging ready to slide from here.
    • Rock-Tenn's shares seem to already factor in a lot of bad news, suggesting upside from here if industry conditions don't fall out of bed.
  • Roper Delivers A Best-In-Class Performance
       • Apr. 30, 2014 ROP 3 Comments

    Summary

    • Roper's organic revenue growth puts it near the top of industrial conglomerates for the first quarter, with strong profit growth as well.
    • Roper doesn't seem to have any notably lagging businesses, and the company is looking to add to its portfolio with M&A.
    • Priced to generate annual returns in the high single digits, Roper looks like a solid prospect for a recovering global economy.
  • AtriCure Making Progress, But Can It Maximize Value On Its Own?
       • Apr. 29, 2014 ATRC 5 Comments

    Summary

    • AtriCure continues to quietly build up its surgical ablation business, with double-digit revenue growth in the U.S.
    • Acquiring Estech improve the IP and competitive positioning in surgical ablation.
    • AtriCure's small share in AF explains some of the valuation discount, but not enough to say this isn't an undervalued growth stock.
  • At Basic Energy Services, Sentiment Has Changed Faster Than The Business
       • Apr. 29, 2014 BAS Comment!

    Summary

    • Basic Energy came in comfortably ahead of initial estimates as both pricing and activity levels improved.
    • Wall Street's reaction to management's revenue growth guidance suggests high expectations are baked into the shares.
    • Basic Energy's leverage to the Permian may not be as great as hoped, but the company is still poised to benefit from better land drilling activity levels.
  • Superior Energy Services Needs U.S. Land To Turn
       • Apr. 29, 2014 SPN Comment!

    Summary

    • For the fifth time in a row, Superior's revenue missed the average sell-side target.
    • Margins are improving nicely as better cost control comes into play.
    • Superior is leveraged to two improving markets (North American land and deepwater Gulf of Mexico), but management needs to improve its overall returns to earn a better multiple.
  • Old Dominion Continues To Take Share
       • Apr. 29, 2014 ODFL 2 Comments

    Summary

    • Low double-digit tonnage growth suggests still more share gains for this top-5 less-than-truckload carrier.
    • Old Dominion continues to find ways to improve upon an industry-leading operating ratio.
    • High service levels constitute something of an economic moat in a brutally competitive industry.
  • Another 'Is What It Is' Quarter From Microsemi
       • Apr. 26, 2014 MSCC 2 Comments

    Summary

    • Microsemi hit its marks for the fiscal second quarter, but a small cut to revenue expectations for the next quarter matters more than a margin boost.
    • Synchronization/timing and FPGAs remain large addressable multiyear growth opportunities for Microsemi.
    • Microsemi looks undervalued on the basis of margins and FCF growth, but it's longer-cycle nature runs counter to what chip investors typically want.
  • For Ultratech The Story Remains 'Ready, Set... Wait!'
       • Apr. 26, 2014 UTEK 1 Comment

    Summary

    • Ultratech posted another revenue miss and guided down for the second quarter, but maintained full-year expectations.
    • Amidst worries of competitive losses to DNS and others, management noted a meaningful turn in LSA tool quoting activity.
    • Success with its LSA technology in 14nm/16nm processes could take the shares into the $30s.
  • Is There Enough Gas In The Tank To Take CB&I Back Up?
       • Apr. 25, 2014 CBI 15 Comments

    Summary

    • CB&I missed on revenue and margins, with under-utilization at Fabrication a major contributor.
    • Orders continue to roll in as CB&I has established itself as a go-to engineering company in the LNG space.
    • Bears are pushing an "end is nigh" story on major petrochemical and LNG orders, creating the risk that shares will weaken as orders pass the peak.
  • Allied World Delivers A Good Underwriting Result, Spiked With Reserves And Investments
       • Apr. 25, 2014 AWH Comment!

    Summary

    • Positive reserve developments and investment earnings boosted results well ahead of expectations.
    • Core underwriting profitability was stronger than expected on good expense leverage.
    • Rates are not great, particularly overseas, but Allied World should stay ahead of claims inflation and loss trends remain basically positive.
  • Can Fortinet Deliver A One-Two Punch Of Growth With Higher Margins?
       • Apr. 25, 2014 FTNT Comment!

    Summary

    • Higher marketing spending does appear to be delivering better sales momentum, as revenue rose 24% in the first quarter.
    • New firewall and APT appliances offer strong performance for the high-end market.
    • Better leveraging the money spent on sales and marketing is vital to both higher margins and a better valuation.
  • Noise Over DCBs Clouds An Otherwise Okay Quarter At Bard
       • Apr. 25, 2014 BCR Comment!

    Summary

    • Bard's earnings were basically okay, but an organic sales growth rate of 3% won't impress many investors.
    • Management confused the market with its comments on drug-coated balloons, as comparability with the Medtronic trial data will be challenging.
    • Bard has spent a lot of money to improve its growth profile, but it will likely take another 12 months to see the benefits.