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Stephen Simpson, CFA  

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  • Cameron's Parting Shot Before The Deluge
       • Mon, Feb. 2 CAM Comment!

    Summary

    • Cameron delivered good margin leverage in the fourth quarter, but orders are plunging as lower oil prices lead to much lower exploration, drilling and production budgets for 2015.
    • Cameron has used innovation to gain share in DPS and OneSubsea still offers a lot of upside potential for the subsea operations, but it is going to take time.
    • An EV/EBITDA multiple in line with historical averages can support a mid-$50's fair value, but investors shouldn't ignore the risk of further cuts to EBITDA estimates as 2015 develops.
  • Broadcom Staying On-Script And Still Undervalued
       • Sat, Jan. 31 BRCM 1 Comment

    Summary

    • Broadcom's fourth quarter revenue and gross margin were a bit better than expected, while slightly higher operating expenses didn't spoil the end result.
    • The company unveiled a host of new products at CES, including products for Ultra HD TV, dongle-based over-the-top services, home WiFi, and autos.
    • Mid-single digit FCF growth can support a fair value above $45.
  • Little Clarity, But Ample Concerns, With Oshkosh
       • Fri, Jan. 30 OSK Comment!

    Summary

    • Oshkosh reports much better than expected margins and strong orders, but Access is largely carrying the business at this point.
    • Greater penetration of Access equipment into emerging markets could become a significant driver in the future, but the biggest near-term driver is a potential multibillion-dollar defense award this summer.
    • There is a wider than normal range of outcomes for Oshkosh depending on the outlook for construction and winning/not winning the defense contract.
    • A fair value of $50 argues for upside from these levels, but the downside risk is substantial.
  • Stryker Offers Good Core Growth, But Not As Much Value
       • Fri, Jan. 30 SYK 5 Comments

    Summary

    • Stryker's fourth quarter earnings were impacted by forex, but overall organic growth was fine and growth was strong outside of major joint recon.
    • Management has made it clear that M&A is on its to-do list, but I'm not sure the widely-speculated bid for Smith & Nephew is the best use of capital.
    • Stryker seems more or less fairly valued today and offers investors leverage to one of the better large-cap med-tech growth stories.
  • Patience With EMC Has Yet To Pay Off
    Editors' Pick • Fri, Jan. 30 EMC 15 Comments

    Summary

    • EMC's fourth quarter was on target, but guidance for the next year included forex headwinds, VCE dilution, and not much optimism on high-end storage systems.
    • Management continues to push VMware as integral to the company's needs in its evolution toward developing increasing integrated products that go beyond its legacy storage capabilities.
    • EMC shares continue to look undervalued on the basis of mid-single digit FCF growth, but EMC management must demonstrate that its targeted growth businesses are indeed growing as expected.
  • Worries About Europe And Energy Seem To Weigh On Parker-Hannifin
       • Fri, Jan. 30 PH 5 Comments

    Summary

    • Parker-Hannifin reported a mixed set of numbers with in-line revenue growth, better corporate expense reductions, but disappointing segment earnings and lower guidance.
    • Parker-Hannifin's exposure to oil/gas seems very manageable, but widespread weakness in Europe is a bigger threat despite an improving commercial aerospace outlook.
    • If Parker-Hannifin can grow at a mid-single digit rate, the shares look undervalued today.
  • Poor Pipeline Productivity Has Left Roche More Vulnerable
       • Thu, Jan. 29 RHHBY 3 Comments

    Summary

    • Core sales were better than expected in the quarter, but Roche's margins were weaker than expected and the recent shift in the currency markets has created a meaningful currency headwind.
    • R&D remains a contentious point, as Roche's oncology efforts look very strong but the company's efforts outside of oncology have produced numerous recent disappointments.
    • Roche shares look fairly valued and the company really needs to reassure investors that it is on the right track with its R&D/pipeline.
  • Dover Dealing With A Very Different Reality
       • Thu, Jan. 29 DOV 2 Comments

    Summary

    • Despite a dark cloud hanging over the company's oil/gas-exposed businesses, Dover reported good organic growth and better-than-expected operating margin for the fourth quarter.
    • Management has significantly lowered expectations for the Energy segment, but there may still be downside risk, and the Energy business could sap growth for at least two years.
    • Dover seems undervalued if it can grow FCF at a long-term rate of 6%, but there are enough worries here to make that more of a contrarian call.
  • Honeywell Appears To Have A Lot To Offer
       • Thu, Jan. 29 HON 7 Comments

    Summary

    • Despite worries about forex and falling oil prices, Honeywell's management isn't backing away from its goal of mid-single digit core growth.
    • Honeywell's Aerospace business can leverage growing commercial aviation builds, while a recovery in non-residential construction should boost ACS in the coming years.
    • Honeywell looks only a little bit undervalued on the basis of better than 7% long-term FCF growth, but acquisitions could add worthwhile upside.
  • Progress From Accuray, But Still No Big Turn
       • Thu, Jan. 29 ARAY Comment!

    Summary

    • Revenue growth is still lackluster, but orders appear to be stabilizing and margins should continue to improve.
    • A commercial launch of the multileaf collimator remains a major near-term event for the company, but riding the longer-term adoption curve of SRS/SBRT is the critical driver.
    • Competing against an entrenched rival like Varian is extremely challenging, but long-term mid-teens market share can support a double-digit fair value today.
  • Strong Loan Growth Not Enough For Wilshire Bancorp
       • Wed, Jan. 28 WIBC Comment!

    Summary

    • Wilshire continues to report strong lending growth, but the net interest margin continues to shrink and the bank is turning to more expensive sources of funds.
    • Expanding into new territories, diversifying the loan book, and controlling operating expenses are all legitimate long-term value drivers.
    • Wilshire shares could trade closer to $11 on the assumption of long-term mid-teens ROEs, but it will likely take higher interest rates to get investors interested in the sector.
  • 3M Delivers Once Again
    Wed, Jan. 28 MMM 6 Comments

    Summary

    • 3M's results were basically in step with Wall Street expectations, but organic growth was a little stronger than analysts seemed to expect and growth was balanced across the enterprise.
    • 3M's heavy weighting to overseas markets creates more forex pressure, but the company can still deploy capital into the M&A market and its targeted end markets are basically attractive.
    • 3M shares are no bargain at these levels and it will take organic growth of 5% or better on a sustained basis to drive significant upside.
  • Plum Creek Timber Getting A Little More Respect
       • Wed, Jan. 28 PCL 7 Comments

    Summary

    • Plum Creek reported better revenue on higher overall volumes, though overall sawlog pricing remained mixed.
    • A willingness to sell non-core timberland could create value as management can sell acreage in private deals at prices higher than those implied by the market valuation and repurchase shares.
    • Even if sawlog prices remain well below prior peaks, Plum Creek should still trade into the high $40's.
  • Multiple Headwinds Sapping First Cash Financial's Momentum
       • Wed, Jan. 28 FCFS Comment!

    Summary

    • Same-store sales continue to improve, but U.S. store performance is still lagging and currency has sapped the value of ongoing growth in the Mexican operations.
    • 2015 is shaping up to be an ugly year as currency, higher taxes, shrinking payday lending, and ongoing U.S. store adjustments sap reported growth momentum.
    • I still believe that First Cash's future cash flow growth can support a $60 fair value, but these shares could struggle in the near term given those headwinds.
  • Reality Has (Slowly) Caught Up With First Horizon Shares
       • Tue, Jan. 27 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
       • Tue, Jan. 27 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?
       • Tue, Jan. 27 ALTR 3 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
       • Tue, Jan. 27 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
       • Mon, Jan. 26 ISRG 9 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 10 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 7 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 28 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.