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Stephen Simpson, CFA

 
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  • With Cyclacel, The Waiting Is The Hardest Part
       • Sat, Aug. 23 CYCC 6 Comments

    Summary

    • Cyclacel shares have weakened as investors have avoided riskier biotechs, and perhaps due to some worries about potential competitive drugs sponsored by larger companies in pharma/biotech.
    • A decision to launch a Phase IIb study in r-MDS was contrary to expectations of a pivotal study, but this more conservative move may be the right one.
    • Even at a lower estimated fair value of $5, Cyclacel appears to incorporate very low expectations for clinical trial success.
  • Can 'Blocking And Tackling' Lead Accuray Higher?
       • Sat, Aug. 23 ARAY 1 Comment

    Summary

    • Accuray delivered strong product revenue growth and a good rebound in orders to end its fiscal year.
    • Gross margins were weaker than expected, but management guidance was consistent with expectations and a growing library of clinical data and the launch of the MLC should support order growth.
    • Accuray still looks significantly undervalued on a DCF and EV/revenue basis, but establishing consistent double-digit revenue growth may be the key to generating investor interest.
  • Concerns About The Utica Weighing On PDC Energy's Share Price
       • Sat, Aug. 23 PDCE 5 Comments

    Summary

    • Downspacing results from PDC Energy's Wattenberg acreage, where the company is the third-largest landholder, continue to support solid value and IRRs.
    • Results from the Utica remain mixed and this large (54K acres) acreage position is still a "show me story" for PDC Energy.
    • Even though the Utica accounts for around 20% of value, skepticism seems to be weighing down the shares, which I believe are worth between $63 and $76 today.
  • Competition And Momentum Weighing On Clovis Oncology
       • Sat, Aug. 23 CLVS Comment!

    Summary

    • Analysts and investors have started fretting that AstraZeneca's drug will be a stronger potential rival to Clovis's lead drug rociletinib.
    • Rociletinib still looks like an efficacious drug, but hyperglycemia may be a limiting factor and there's still not much data on rucaparib or lucitanib.
    • I estimate a fair value of $75 for Clovis, with more than $37/share in value for rociletinib.
  • It's Getting Harder To Give Axiall The Benefit Of The Doubt
       • Fri, Aug. 22 AXLL Comment!

    Summary

    • PVC prices haven't increased as much as analysts hoped, while ethylene prices have been quite strong throughout 2014.
    • Building an ethylene cracker is a reasonable long-term move, but Axiall's execution has left something to be desired and more companies are moving into chloralkali.
    • Axiall shares appear to be trading for less than half of asset replacement value, while a 6.5x multiple to 2015 EBITDA suggests a $47.50 fair value.
  • Abraxas Petroleum Running All-Out
       • Fri, Aug. 22 AXAS 5 Comments

    Summary

    • Abraxas has been significantly accelerating its drilling program and the drilling results have largely continued to come in ahead of expectations.
    • Management has a lot on its plate, with its Canadian and PRB acreage up for sale and a desire to acquire more acreage in the Eagle Ford (and Bakken).
    • NAV and EV/EBITDA suggest a fair value between $6 and $7, and Abraxas offers not only strong near-term production growth, but a clean balance sheet that creates acquisition flexibility.
  • A New Rayonier, But The Same Old Problem
       • Fri, Aug. 22 RYN 10 Comments

    Summary

    • Like Plum Creek and Weyerhaeuser, weak timberland operating conditions are leading to disappointing results and lower guidance.
    • Rayonier is now a timber pure-play, with timberlands in the South/Southeast U.S., Pacific Northwest and New Zealand, as well as acreage set aside for higher-value real estate sales.
    • Fair value calculations using an EV/EBITDA and NAV approach fall between $31.50 and $32.50, suggesting pretty modest potential for a company in an unfavored sector.
  • Even In Sight Of The 52-Week High, Bonanza Creek Can Go Further
       • Thu, Aug. 21 BCEI 2 Comments

    Summary

    • Bonanza Creek Energy has significantly increased its net acreage position, while ongoing drilling results increase the potential value of that acreage.
    • The company's eastern acreage may be more prospective for the Codell formation than previously thought and newer 28-stage wells are showing very low decline rates.
    • Bonanza Creek has been a strong performer this year, more than tripling the EPX index, and still appears to have double-digit upside from here.
  • ArcelorMittal Down, But Not Out
       • Thu, Aug. 21 MT 5 Comments

    Summary

    • ArcelorMittal management bit the bullet and lowered guidance for the year in the face of ongoing weakness in iron ore prices.
    • The global construction recovery remains frustratingly slow and opportunities to raise steel prices may be more limited in the second half, putting more stress on a volume recovery.
    • ArcelorMittal continues to look too cheap at about 5.5x forward EBITDA.
  • Nektar Therapeutics Has More To Give
       • Thu, Aug. 21 NKTR 8 Comments

    Summary

    • Investors should know within a month whether the FDA will approve Movantik, Nektar's opioid-induced constipation drug partnered with AstraZeneca that has $1B+ potential.
    • Phase III results from the BEACON study of NKTR-102 should come in the first half of 2015, while Nektar continues to develop two other promising oncology and pain compounds.
    • The risk of clinical failure is always present with biotechs, but Nektar shares can support a $16 fair value today and possibly more as regulatory and clinical developments unlock value.
  • Should Investors Press Their Luck With Fortuna Silver?
       • Thu, Aug. 21 FSM 2 Comments

    Summary

    • Fortuna Silver has done a good job of expanding production and reducing operating costs, making it one of the more attractive silver mining companies on an AISC basis.
    • Drilling results from Trinidad North continue to support the notion that this is a high-quality expansion opportunity that can extend the useful life of San Jose.
    • Fortuna Silver doesn't look cheap on an NAV basis, but reserve additions from Trinidad North and further capacity expansions could drive more value in the coming year.
  • Some, But Not Enough, Progress At Kinross Gold
       • Thu, Aug. 21 KGC 6 Comments

    Summary

    • Cost and capital discipline are helping, but Kinross still sits at the high end of the cost curve for large gold miners.
    • A go/no-go decision on Tasiast awaits in 2015, and investors are worried about what may happen to the company's valuable Russian assets in the meantime.
    • Excluding an expansion at Tasiast, Kinross looks more or less fairly valued today, but does offer much less development risk (and a better EV/EBITDA value) than most miners.
  • Risk And Reward Seem Pretty Balanced At Seattle Genetics
       • Tue, Aug. 19 SGEN 3 Comments

    Summary

    • Amidst some safety and competition concerns, Seattle Genetics is gearing up for an important clinical update - the Phase III results of the AETHERA study in post-transplant patients.
    • Label extensions could nearly triple the value of Adcetris, with follow-on studies offering important risk reduction events.
    • About three-quarters of my estimate of Seattle Genetics' value is tied to Adcetris, but early-stage pipeline compounds do have some exciting potential.
  • 2 More Positive Steps For Cameron International
       • Tue, Aug. 19 CAM 2 Comments

    Summary

    • The OneSubsea joint venture expands to include an alliance with Helix Energy Solutions, creating more exposure to the fast-growing offshore well intervention market opportunity.
    • Selling the centrifugal compression business to Ingersoll Rand generates a good cash haul for further buybacks and largely completes management's non-operating to-do list.
    • Cameron is not especially cheap right now, but continuing to execute can lead to upside to 2015 numbers.
  • CareFusion's Strong Share Isn't Quite Enough
       • Tue, Aug. 19 CFN Comment!

    Summary

    • CareFusion saw significant margin pressures in 2014 from an acquisition, delayed Pyxis ES installations, and higher-infusion capital equipment sales.
    • The margin trends that hurt the company in 2014 should improve in 2015, and management is on the prowl for growth-oriented acquisitions.
    • CareFusion could have some upside on an EV/revenue basis, but the discounted cash flow picture isn't as rosy unless the company can generate better sales momentum and margins.
  • Baytex Energy Is Following A Good Plan
       • Tue, Aug. 19 BTE 3 Comments

    Summary

    • Baytex's acquisition of Eagle Ford acreage diversifies the production profile and adds exposure to a high-quality growth play.
    • Further non-core asset sales seem likely, and management may yet look to acquire more acreage in the high-return Peace River and Lloydminster areas.
    • Baytex looks only slightly undervalued on an EV/EBITDA basis and not tremendously cheap on an NAV basis, but the development risk seems lower than normal for companies of this size.
  • Geely Automobile Back On The Right Road?
       • Mon, Aug. 18 GELYY 4 Comments

    Summary

    • Geely's shares have languished as a weak lineup and poor dealership network has made an already tough Chinese domestic auto market even worse.
    • Geely is unifying its brand, reducing the number of platforms and product series, and restructuring its dealership network - all of which should contribute to a stronger sales outlook.
    • If Geely can generate low teens FCF growth, the shares are significantly undervalued today but Geely must first show some improvements in unit volumes.
  • Lenovo Doing Fine On Its Own
       • Sat, Aug. 16 LNVGY 17 Comments

    Summary

    • Lenovo posted solid beats at the revenue and operating profit lines, as the global leader continues to gain share in PCs and is becoming a bigger factor in smartphones.
    • Regulators have given the IBM server deal a little more scrutiny, but both the IBM server and Google Motorola businesses appear to be stabilizing ahead of Lenovo's takeover.
    • Lenovo isn't a compelling bargain at a fair value of $30, but a history of both outperforming expectations and share price pullbacks merit a spot on watch lists.
  • Alacer Gold Still Looks Underrated Amidst Operating Risks
       • Sat, Aug. 16 ALIAF 6 Comments

    Summary

    • Alacer Gold's sulfide operations will be critical to driving the next leg of value, with higher initial capital costs offset by higher production and lower all-in costs.
    • Exploration could still add value to the heap leaching operations and there are operational/execution risks tied to the sulfide expansion project.
    • At a fair value of $2.50, Alacer does still offer upside for investors who can take the company-specific idiosyncratic risks.
  • Weak Coal Only Part Of The Natural Resource Partners Story
       • Fri, Aug. 15 NRP 2 Comments

    Summary

    • NRP still generates more than 60% of its revenue from its coal assets and operations, but the Street may not be giving fair value to its diversification efforts.
    • NRP owns a stake in a high-quality soda ash operation, aggregates, and productive oil and gas acreage that is starting to contribute real revenue.
    • If NRP can produce long-term distributable cash flow growth of 2% to 3%, a fair value above $17 seems appropriate for the units.
  • Chronic Execution Issues Still The Story At Riverbed Technology
       • Fri, Aug. 15 RVBD 2 Comments

    Summary

    • Riverbed can't seem to find the answer to chronic sales execution issues.
    • Riverbed's Steelhead, Steel Fusion, SteelApp, and SteelStore offerings have worthwhile sales upside, but the APM/NPM market looks considerably more competitive and challenging.
    • I calculate a fair value of $21 for Riverbed shares, equal to Elliott's buyout bid, and taking that bid offers much less execution risk to Riverbed shareholders.
  • Multi-Color - Better Margins, But Growth Still A Challenge
       • Tue, Aug. 12 LABL Comment!

    Summary

    • Multi-Color comes through with better revenue and better margins, but organic growth is still depressingly soft.
    • Acquisitions can add value, but Multi-Color may need to break away from its focus on the beverage industry and toward better sources of long-term growth.
    • Multi-Color has the potential to parlay mid-single digit revenue growth into double-digit free cash flow growth, but a consistent focus on execution and efficiency is required.
  • Cresud Finally Trading On Some Of Its Potential
       • Tue, Aug. 12 CRESY 6 Comments

    Summary

    • Cresud's urban real estate operations (IRSA) continue to perform well as rents, occupancy, and sales remain strong at these high-end properties.
    • Agriculture has also been doing well, but crop prices have started to retreat and Cresud's planting growth expectations are modest.
    • There is significant potential for Cresud to develop its land assets into much higher-value properties, but that's going to take time, money, and a more responsible Argentine government.
  • Weak Crop Prices Weigh On SLC Agricola
       • Tue, Aug. 12 SLCJY Comment!

    Summary

    • Weaker soy, cotton, and corn prices have soured sentiment on Brazilian agriculture companies.
    • Land values continue to rise, but investors are increasingly skeptical that the pace of appreciation can be maintained.
    • Weak sentiment has pushed down SLC Agricola shares again, but the long-term value for one of Brazil's best agricultural companies looks quite attractive.
  • Lundbeck Remains A High-Risk/High-Reward Specialty Pharmaceutical Play
       • Tue, Aug. 12 HLUYY 1 Comment

    Summary

    • Lundbeck's second quarter results didn't offer much, good or bad, to sway the arguments around these shares.
    • The announced NDA filings of brexipiprazole were an unexpected positive, but the company has a lot of work to do in establishing Brintellix and Abilify Maintena in the U.S. market.
    • Lundbeck's fair value is more than 30% higher than today's level (assuming mid-single digit revenue and FCF growth), but Lundbeck must succeed in differentiating its drugs in crowded competitive markets.
  • Commercial Vehicle Starting To Show Operating Leverage
       • Tue, Aug. 12 CVGI Comment!

    Summary

    • Revenue and operating margins come in better at Commercial Vehicle as improving orders and operating efficiency kick in.
    • The company's upcoming analyst day in the fall is an opportunity for management to explain its strategy for growth outside of its traditional reliance on cyclical North Am trucks.
    • Mid-single digit revenue growth and industry-average FCF margins can support a fair value around $10.
  • For Lexicon Pharmaceuticals, No News Remains Bad News
       • Mon, Aug. 11 LXRX 4 Comments

    Summary

    • Lexicon updates investors on its second quarter results, but still has no partner to develop LX4211 in Type 2 diabetes.
    • Going solo in Type 1 diabetes is a risky move, but the company has little choice given that the value of the drug is otherwise stranded.
    • Fair value of $3.50 continues to make these shares worth consideration, but the Street will need to be convinced that the company's go-it-alone strategy can work.
  • Alnylam Pharmaceuticals Has Plenty On Its Plate
       • Sat, Aug. 9 ALNY 3 Comments

    Summary

    • Alnylam plans to provide clinical updates on four significant programs before year-end.
    • Alnylam will exceed its 5x15 target and should have at least a half-dozen human clinical trial programs underway in 2015.
    • Sentiment on biotech stocks has definitely soured, but Alnylam looks meaningfully undervalued on the basis of its lead amyloidosis programs.
  • Key Energy Services Needs To Get Its Act Together
       • Sat, Aug. 9 KEG Comment!

    Summary

    • Key Energy Services had warned of a bad quarter, and the company did indeed report weak results on an absolute and relative basis.
    • Company and client-specific issues may explain some of the underperformance, but it looks as though Key may have lost some share in markets like coiled tubing and frac stacks.
    • Leveraged to increasing workover and recompletion work, it may take time for Key's relative performance to improve but today's valuation does flag it as a potential bargain.
  • Neurocrine Biosciences Moving Ahead With '854
       • Sat, Aug. 9 NBIX Comment!

    Summary

    • Neurocrine is clear to begin its Phase III study of '854 in tardive dyskinesia later this year, with the FDA agreeing to a single 240-pt study.
    • Elagolix development remains in the capable hands of AbbVie, while management works to get a Phase II study of '854 in Tourette's underway.
    • A third promising new drug would be welcome, the two lead drugs support a fair value of $17 between them, or an overall value of about $18.50.
  • S&W Seed Company Still Building Toward Big Things
       • Fri, Aug. 8 SANW 7 Comments

    Summary

    • S&W has been boosting margins by blending proprietary and generic varieties and leveraging the cost differences between its California and Australian operations.
    • The long-term growth story remains driven by the company's forays into dormant varieties, Roundup Ready alfalfa, and varieties suited for particular markets (like the tropics).
    • If S&W can grow at a sustained mid-teens rate, a fair value of $9 is reasonable today.
  • Taseko Mines Far From Knocked Out
       • Fri, Aug. 8 TGB 4 Comments

    Summary

    • Taseko continues to face an uphill climb for approval of its New Prosperity mining project, but Gibraltar is showing better copper and molybdenum recoveries and lower costs.
    • Cash flow positive, Taseko needs to decide whether to expand Gibraltar, build the Aley mine, and/or acquire another base metal producer.
    • With a fair value of $3 based largely on a $2.50/share value for Gibraltar, Taseko still looks undervalued.