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Stephen Simpson, CFA  

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  • 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 24 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 6 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 6 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.
  • The New And Improved Alcoa Showing Its Mettle
    Tue, Jan. 13 AA 1 Comment

    Summary

    • Alcoa beats expectations once again, helped by ongoing reductions in its smelting and refining costs.
    • Next quarter's guidance for the downstream operations was weaker than expected, but the automotive and aerospace OEM markets are meaningful higher-margin growth opportunities over the next five years.
    • Alcoa still looks undervalued using a long-term average multiple, but commodity price risk is still relevant to half of the business.
  • M&A Could Add Even More Pop To SABMiller
       • Tue, Jan. 13 SBMRY Comment!

    Summary

    • 2015 is likely to see even more rumor, speculation, and actual deals in the beer space as global players seek scale, operating leverage, and exposure to volume growth markets.
    • SABMiller is seeing a lull in organic volume growth, but the company is well-placed to benefit from long-term consumer spending growth in Asia, Africa, and Latin America.
    • SABMiller seems fairly valued today on its own merits (assuming mid-single digit revenue growth and further FCF leverage), but M&A activity could drive more value either as buyer or seller.
  • Global Payments Continues To Acquire And Process Growth
       • Tue, Jan. 13 GPN Comment!

    Summary

    • Global Payments has been delivering quarters ahead of Street expectations, as direct sales, integrated payment solutions, and solid share in several foreign markets deliver better growth.
    • With rivals like First Data and Vantiv, integrated payments will be no less competitive a market, but it does offer much better margins than the conventional ISO business.
    • Global Payments seems fairly valued today unless/until the company can prove that it can maintain a higher base level of revenue growth and/or more margin leverage.
  • Orders, Revenue, And Margins Continue To Expand At Hurco
       • Mon, Jan. 12 HURC 4 Comments

    Summary

    • Hurco delivers double-digit growth in revenue and orders, complemented by good margin leverage.
    • U.S. manufacturing activity appears to be improving, but the health of the German manufacturing sector is looking less robust.
    • Mid-single digit revenue growth and modest FCF leverage can support a fair value in the mid-$40s.
  • AngioDynamics Still Looking For Inflection
       • Sat, Jan. 10 ANGO Comment!

    Summary

    • AngioDynamics posted a respectable fiscal second quarter, but overall revenue growth still needs to accelerate from here.
    • BioFlo and AngioVac are the company's best opportunities for driving incremental growth, but it is going to take time to build the businesses in the face of large competitors.
    • AngioDynamics doesn't really work from a DCF perspective without high single-digit revenue growth, but an EV/revenue approach is more forgiving and supports a fair value above $21.
  • Strong Soy And A Deep Pipeline Supports Monsanto
       • Sat, Jan. 10 MON 1 Comment

    Summary

    • Monsanto started the fiscal year off strong, but concerns remain that weak pricing will reduce corn and soy acreage.
    • Looking past the next couple of years, Monsanto has a deep pipeline that should generate the yield/productivity improvements necessary to maintain strong pricing.
    • Competition is a risk in Latin America, but 6% long-term revenue growth can support a fair value in the mid-$120's.
  • Amidst Macro Worries, MTN Group Can Still Outperform
       • Fri, Jan. 9 MTNOY 4 Comments

    Summary

    • MTN Group shares have underperformed on worries about regulation in Nigeria, competition in South Africa, and more general concerns about currency, macroeconomics, and politics.
    • MTN Group is responding with more intelligent pricing/promotion activity in South Africa, patience in Nigeria and Iran, and a more concerted effort to cut costs and promote value-added services.
    • Long-term revenue growth of 7% can support a fair value of $21 with forex movements a key unknown.
  • Neurocrine Biosciences Starts A Data-Rich Year On The Right Foot
       • Fri, Jan. 9 NBIX Comment!

    Summary

    • AbbVie announces positive efficacy data from Neurocrine's Elagolix in a Phase III study of endometriosis-related pain.
    • Investors will have to wait a bit, but additional data releases in 2015 on Elagolix in uterine fibroids and the SOLSTICE endometriosis study are coming.
    • Additional data on '854 in tardive dyskinesia and Tourettes can add meaningful per-share value.
    • Neurocrine isn't cheap on the basis of my current assumptions, but additional positive news could add over $10/share to the fair value.
  • MSC Industrial Continues To Skid
       • Fri, Jan. 9 MSM 3 Comments

    Summary

    • MSC Industrial underwhelms with fiscal first quarter results and disappoints with guidance for the next quarter.
    • With executive departures, ongoing downward revisions, and unimpressive results from the large CCSG acquisition, management needs to reestablish credibility and restore faith in the long-term growth strategy.
    • MSC Industrial shares do still appear to be undervalued, but that value cannot withstand ongoing "miss and lower" quarters.
  • Turkcell: Twists And Turns Continue
       • Wed, Jan. 7 TKC Comment!

    Summary

    • Two large shareholders continue to butt heads, increasing the odds that the Turkish government will have to step in to declare an annual meeting (where dividends can be declared).
    • Actual operating results have been better than expected, with gains in higher value postpaid mobile service and mobile and fixed line broadband.
    • Turkcell doesn't seem to get its full and fair due from the market, but the behind the scenes drama means these shares aren't suitable for all investors.
  • Execution And Purchasing Increasingly Important To PRA Group
       • Tue, Jan. 6 PRAA 1 Comment

    Summary

    • PRA Group has seen its collections and purchasing activity remain lackluster, as major sellers of charged-off receivables haven't returned to the market yet.
    • PRA continues to improve its collections efficiency and credit scoring and the acquisition of Aktiv gives the company a chance to deploy capital on a much wider scale.
    • A fair value in the low $70's is still reasonable, but PRA must pick up its purchasing activity for long-term growth and ROE targets to remain credible.
  • Summer Infant Looking To Transition Back To Growth
       • Tue, Jan. 6 SUMR 6 Comments

    Summary

    • Summer Infant has reorganized its management team, its product development, and its sales approach and is looking to drive improved revenue growth and margins.
    • Summer Infant competes with large rivals that enjoy strong brand recognition, but birth rate trends appear to be improving and Summer Infant is refocusing around innovative product development.
    • A standalone value around $4 may not seem compelling, but there is the potential for financial outperformance and Summer Infant could be worth closer to $5 to a buyer.
  • 3M Is Good As Gold ... And Priced Like It
    Mon, Jan. 5 MMM 11 Comments

    Summary

    • Management remains committed to a policy of innovation-centric product development, ROIC maximization, and counter-cyclical long-term investments.
    • 3M has already plucked much of the low-hanging fruit, making it more challenging to see how management can deliver performance that is consistently above present expectations.
    • It is challenging to argue that 3M shares should trade any higher than they do, suggesting underwhelming return potential, albeit with higher-than-average quality and security.
  • Tiny Aptose Biosciences Looks Worth A Closer Look
       • Dec. 30, 2014 APTO 2 Comments

    Summary

    • Aptose has cleaned up its act and is looking to develop its lead drug APTO-253 for the underserved AML market.
    • APTO-253's mechanism of action targets a gene expressed in 90% of AML cases and is linked to a transcription factor believed to regulate cell death.
    • A safe and effective AML drug could address a market worth over $3 billion a year, but Aptose has much to prove in terms of efficacy and safety.
  • Roche Loses A Little Luster Before Year-End
       • Dec. 22, 2014 RHHBY Comment!

    Summary

    • The Phase III MARIANNE study of Kadcyla delivered a major disappointment as this would-be successor to Herceptin failed to show superior efficacy alone or in combination with Perjeta.
    • Roche also announced the end of another Alzheimer's program, casting further doubt on the company's ability to develop new drugs outside of its oncology franchise.
    • Loss of Kadcyla upside suggests Roche is fairly valued today; a decent hold for investors looking for long-term exposure to oncology, but perhaps not as compelling for new investments.
  • Alnylam Pharmaceuticals Continues To Post Encouraging Results
       • Dec. 22, 2014 ALNY 2 Comments

    Summary

    • Good safety data on revusiran and encouraging early efficacy data on AT3 add more value to the Alnylam pipeline.
    • Alnylam now has over 10 identified clinical and preclinical programs treating a range of metabolic, infectious, and rare genetic diseases.
    • Alnylam may be in the early days of establishing a technology platform on par with past biotech success stories and the shares hold value below $110.
  • Economic Worries Weigh On FEMSA
       • Dec. 20, 2014 FMX 1 Comment

    Summary

    • Weak consumer traffic has kept a lid on enthusiasm for FEMSA's OXXO convenience stores, while ongoing worries about Argentina and Venezuela weigh on Coca-Cola FEMSA.
    • FEMSA continues to manage for long-term growth, including adding more services to OXXO stores, expanding the OXXO store footprint, and bulking up new ventures like its pharmacy operations.
    • FEMSA shares look undervalued below $100, but management needs to deliver better traffic numbers from OXXO to get Wall Street's enthusiasm going again.
  • Despite A Reminder Of The Risks, Senomyx Still Has Appealing Potential
       • Dec. 20, 2014 SNMX 9 Comments

    Summary

    • PepsiCo's delay of its commercial launch of products containing Senomyx's sweetness modifier is a reminder of the challenges of transitioning from a research company to a revenue-producing company.
    • Senomyx's self-directed commercialization efforts have gotten off to a slow start, but it can take years for new products to hit the shelves.
    • 2015 will be an important year for Senomyx, as a strong Pepsi launch is vital to the prospects of the stock.