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  • The Going's Getting Tougher, But ABB Is Still Going
       • Dec. 19, 2014 ABB 4 Comments

    Summary

    • Sluggish economic trends in Europe and falling oil prices have the sell-side fretting about ABB's ability to meet expectations in 2015.
    • Strong order growth would seem to support management's growth outlook and expectations for the Power Products and Power Systems businesses look pretty washed out.
    • With sentiment against the stock, ABB management is in "show me" mode, but the stock's price today doesn't seem to fairly value relatively modest growth and margin improvement assumptions.
  • Despite A Share Price Slide, Commercial Vehicle's Plan Remains On Track
       • Dec. 19, 2014 CVGI Comment!

    Summary

    • Investors have sold CVGI shares since the summer, as larger concerns about commercial vehicle suppliers intermingle with disappointments from the company's mid-September Analyst Day.
    • Investors seem to be disappointed in guidance calling for 2015 and 2016 to be years of investment and self-improvement rather than years of significant margin improvement and growth.
    • Tying a meaningful portion of the growth plan to agriculture may seem risky, but CVGI's market share targets are actually not so ambitious.
    • CVGI is liable to remain a volatile name given its ongoing turnaround/restructuring efforts and its reliance on cyclical markets, but the shares have value past $9.
  • Philips Looks To Long-Time Laggard Volcano To Perk Up Its Healthcare Biz
       • Dec. 19, 2014 VOLC, PHG 2 Comments

    Summary

    • Philips is paying 3.0x sales to add a procedure-driven seller of cardiology disposables that should offer logical synergies with Philips' existing cardiology imaging and navigation business.
    • Volcano has seen sales growth stagnate on weaker procedure volumes, intensifying competition, and management's strategic missteps.
    • Philips' offer is a fair balance between the potential of the integration businesses and the challenges Volcano was facing as a standalone entity.
  • Better Priorities Leading To Better Outcomes For Broadcom
       • Dec. 18, 2014 BRCM 10 Comments

    Summary

    • Broadcom is turning away from a focus on revenue growth and toward a focus on profitable growth that earns a premium on the cost of capital.
    • New networking products should preserve the company's lead in switching and supply good growth, while handset connectivity risks may be overstated.
    • Turning away from M&A may lead to lower growth expectations and competition will remain fierce but low-to-mid single-digit FCF growth can support a target in the mid-$40s.
  • Lundbeck Continues To Fight To Stand Out
       • Dec. 18, 2014 HLUYY Comment!

    Summary

    • Positive data on drugs like Brintellix and brexpiprazole have been overshadowed by slow marketing ramps and the departure of the CEO for an ethics violation.
    • 2015 will be a critical year for Lundbeck in establishing the viability of Brintellix and other drugs like Northera, as well as getting brexpiprazole to market.
    • The loss of the CEO and significant expecting marketing spending in 2015 ups the risk, but Lundbeck shares could still return 25% to 40% if the launches gain traction.
  • Cyclacel Now An Exercise In Futility
       • Dec. 18, 2014 CYCC 12 Comments

    Summary

    • The data and safety monitoring board for the Phase III SEAMLESS study has informed the company that sapacitabine is unlikely to show an efficacy benefit in treating elderly AML patients.
    • Continuing the SEAMLESS study is a questionable use of capital and Cyclacel's remaining pipeline doesn't inspire confidence.
    • The slim chances of sapacitabine in AML and MDS are outweighed by the prospects that immuno-oncology drugs will prove more effective.
    • At this point, Cyclacel is just a low-quality broken biotech with only speculative trading value.
  • Ghosts Of Business Problems Past Visit Accuray Again
       • Dec. 17, 2014 ARAY 6 Comments

    Summary

    • Lack of communication with the Street set Accuray up for a very disappointing order report, as older orders age out of the book.
    • Management has made meaningful progress with the sales effort, including an exclusive relationship with Premier, and the introduction of a multi-leaf collimator should spur orders in fiscal 2H'15.
    • SBRT appears to offer meaningful advantages over IMRT/IGRT in certain cancer cases, and harnessing increased adoption of SBRT could take Accuray to $1 billion in revenue down the line.
  • Manitex Still Hopes To Grow Past The Crane Wreck
       • Dec. 17, 2014 MNTX Comment!

    Summary

    • Weak crane demand has sapped large OEMs like Terex and Manitowoc, as well as smaller OEMs like Manitex.
    • Manitex continues to build out the business, with the most recent transaction adding Terex's struggling ASV operations.
    • Weak oil prices threaten a major Manitex end market, but internal integration/improvement efforts can still generate value, as can a recovery in infrastructure, construction, utility, and transportation markets.
  • Lexicon Pharmaceuticals Fights On
       • Nov. 21, 2014 LXRX 4 Comments

    Summary

    • Lexicon dilutes its shareholders once again, but may have enough cash to get itself through the Phase III development of its two lead drugs.
    • A partnership for the carcinoid drug telotristat was nice to see and this drug may be overlooked by the Street, but it is unlikely to have blockbuster potential.
    • Lexicon seems undervalued, but has long struggled to reach business and clinical development milestones.
  • Microsemi Chugging Along
       • Nov. 21, 2014 MSCC Comment!

    Summary

    • Microsemi continues to generate solid financial performance at a time when many chip companies seem to be on shakier ground.
    • Exposure to recovering markets like aerospace and satellites, plus an increased focus on organic growth prospects in FPGA and timing, should serve Microsemi well in the coming years.
    • Microsemi shares still look undervalued below $30, with both revenue growth and margin improvement drivers in sight.
  • Multi-Color's One-Two Growth And Margin Punch
       • Nov. 20, 2014 LABL Comment!

    Summary

    • Multi-Color not only beat expectations again at the gross margin line, but acquisitions and organic growth are coming in better as well.
    • With modest underlying market growth and balance sheet limitations on the amount of growth to be brought in through M&A, ongoing margin improvement is key to growth and value.
    • Multi-Color shares aren't nearly the bargain they once were, but expectations are not excessive yet.
  • Short-Term Concerns Stacking Up At MSC Industrial
       • Nov. 20, 2014 MSM Comment!

    Summary

    • MSC Industrial is seeing revenue pressure from pricing and margin pressure from a slower integration of CCSG.
    • Executive departures raise questions as the company still has a lot left to do with the CCSG integration and implementation of its long-term growth initiatives.
    • Less near-term margin leverage reduces the fair value a bit, but MSC still holds significant long-term market share growth potential and solid long-term share price prospects.
  • Alnylam Pharmaceuticals Staying Ridiculously Busy
       • Nov. 7, 2014 ALNY 4 Comments

    Summary

    • Alnylam has introduced more than a half-dozen promising clinical compounds that address serious underserved diseases.
    • The open label extension study of patisiran was small, but the surprisingly strong clinical effect (reducing disease symptoms instead of merely slowing the progress) is very encouraging.
    • Alnylam shares look undervalued below $100 and future clinical data announcements can add even more value in 2015.
  • Neurocrine Biosciences Looking Forward To A Big Year
       • Nov. 6, 2014 NBIX 2 Comments

    Summary

    • Neurocrine has more than enough cash to develop its existing clinical compounds, as well as bring new ones into the clinic.
    • Positive Elagolix data in endometriosis is a key item for late this year/early next, while data in uterine fibroids and progress in Tourette's are also important for the shares.
    • Even with conservative expectations for the VMAT2 program, Neurocrine shares remain undervalued and could offer more than $10 of upside with positive data on Elagolix and '854 in 2015.
  • BRF's Operational Improvements Shining Through
       • Nov. 6, 2014 BRFS Comment!

    Summary

    • BRF beats again as management efforts to drive improved margins appear to be taking hold.
    • Selling the dairy business monetizes a serially underperforming asset, while Russia's food import ban against the West could lead to some long-term market development potential.
    • BRF shares don't look like a particular bargain today, but it is a well-run company with considerable long-term growth potential.
  • First Cash Continues To Invest For The Long Term
       • Nov. 5, 2014 FCFS Comment!

    Summary

    • First Cash's U.S. store performance is still lackluster, hurt by weak gold prices, but Mexico is showing signs of steady improvement.
    • First Cash continues to leverage its healthy balance sheet and cash flows, acquiring stores in both the U.S. and Mexico.
    • This pawn lender should be capable of many years of double-digit free cash flow growth, supporting a fair value in the low $60's today.
  • Did Wright Medical Make The Right Move?
       • Oct. 30, 2014 WMGI 1 Comment

    Summary

    • Wright Medical Group announced a merger with Tornier to create a major player in the higher-growth extremities segment of orthopedics.
    • Wright Medical also announced the receipt of an approvable letter from the FDA for its much-harried orthobiologic product Augment.
    • With the potential for Wright Medical and Tornier to become a $2 billion company with leading share in upper and lower extremities, Wright Medical looks undervalued below the high $30s.
  • Neenah Paper Continues To Execute
       • Oct. 16, 2014 NP Comment!

    Summary

    • Neenah continues to outperform at a time when many of its specialty paper rivals are seeing unimpressive growth.
    • The Fine Papers business remains a solid cash cow, while M&A can add accretive and growth-oriented tuck-in products for the Technical Products segment.
    • Neenah's valuation already incorporates pretty healthy expectations, but a pullback into the $40s would definitely make these shares worth a serious look.
  • OM Group Hasn't Transformed Fast Enough
       • Oct. 15, 2014 OMG Comment!

    Summary

    • Ongoing weakness in Europe is pressuring the magnet technology business, while the battery and chemical business are facing secular headwinds of their own in defense and electronics.
    • Management's target of 2% to 3% pro forma annual sales growth is not an inspiring testament to the "new OM Group".
    • Low-single digit revenue growth can still support a fair value more than 40% above today's price, but investor interest is likely keyed to better growth and/or margins.
  • Sluggish European Demand May Be Opening A Window Into Innospec
       • Oct. 15, 2014 IOSP Comment!

    Summary

    • Weaker European demand and Russia's self-inflicted troubles are hurting volumes for the company's core Fuel Additives business.
    • Innospec continues to build up its oilfield chemicals business and is likely also looking for bolt-on deals to expand the Personal Care Performance Chemicals operation.
    • Headwinds in the energy sector, weaker European demand for fuel additives, and double-digit declines in fragrances are pressuring near-term results, but the long-term valuation is starting to look attractive.
  • The Frustrating Wait For Value Realization At PCTEL
       • Oct. 14, 2014 PCTI Comment!

    Summary

    • An ongoing restructuring of the antenna business has crimped growth and lower near-term wireless spending is a risk through the balance of the year.
    • PCTEL is exposed to antenna growth markets like precision agriculture and process automation that could support significant revenue growth, but the risk of competition is real.
    • If PCTEL can generate FCF margins in the high single digits, a fair value above $10 is reasonable, but low liquidity and a lack of coverage are near-term challenges.
  • WESCO Still Waiting
       • Oct. 14, 2014 WCC Comment!

    Summary

    • Warnings from Hubbell and Nexans aren't particularly encouraging for WESCO's near-term prospects.
    • WESCO is structured to generate strong operating leverage in upturns, but non-residential construction is on a stubbornly slow recovery trajectory.
    • WESCO shares should generate market-beating returns once North American industrial and construction spending turns around, but the prospects absent such a turnaround aren't so impressive.
  • Maxwell Down On Power, But Still Promising
       • Oct. 3, 2014 MXWL 14 Comments

    Summary

    • Maxwell shares have sold off, as Chinese hybrid bus orders have become more volatile and automotive OEM orders haven't come through as hoped.
    • Ultracapacitors still make sense in numerous applications for cars, trucks, and rail, all of which can support multiple hundreds of millions of dollars in revenue.
    • I still believe Maxwell shares are worth around $11 per share, making them worth another look after this pullback.
  • Cemig's Wild Ride Continues
       • Oct. 3, 2014 CIG 8 Comments

    Summary

    • Cemig continues to pursue legal remedies for key hydropower concessions amidst larger worries about rainfall, reservoir levels, Brazil's economy, and the Brazilian electoral cycle.
    • Cemig management is still targeting bold expense cuts in the distribution business, but the rates of return on new power projects don't look so strong.
    • Cemig looks fairly valued at $6.50/ADR, but there could be more than $4/share of upside if those hydropower concessions are retained.
  • LipoScience Rescues Some Value For Shareholders In A Sale To LabCorp
       • Sep. 26, 2014 LPDX, LH Comment!

    Summary

    • LipoScience sells itself to LabCorp for $5.25 per share in cash, or less than 2x forward revenue estimates.
    • LipoScience didn't have the resources to build a commercially viable business with its LipoProfile test, but the science and benefits are sound and LabCorp can take the test much further.
    • LabCorp's offer is fair relative to LipoScience's standalone prospects, even though the deal could well be a meaningful value-builder for LabCorp down the line.
  • Everest Re Managing Through A Tough Environment
       • Sep. 26, 2014 RE 1 Comment

    Summary

    • Reinsurance rates appear to be heading down another 10% for the Jan 1 renewals.
    • Everest Re is using new products, different attachment points, and retrocessional insurance to manage risk while growing share in U.S. prop-cat reinsurance.
    • Everest Re still looks a little undervalued and is both well-managed and well-capitalized.
  • Arch Coal Still Looking For Light At The End Of The Tunnel
       • Sep. 19, 2014 ACI 13 Comments

    Summary

    • Met coal prices continue to bump along at unprofitable levels, while thermal coal demand is impaired by serious rail issues in the Powder River Basin.
    • Arch Coal has been reducing costs and has $1.25 billion in liquidity remaining, likely enough to carry it through to a 2018 debt maturity.
    • Arch Coal doesn't look like a value turnaround story on the basis of fundamentals, but a rebound in coal prices could still propel the shares higher for very aggressive investors.
  • Amidst Some Market Concerns, Brookfield Infrastructure Keeps On Keeping On
       • Sep. 19, 2014 BIP 7 Comments

    Summary

    • Growth slowed in the second quarter, but Brookfield Infrastructure is sticking with its long-term plans for FFO growth in the neighborhood of 8% to 11%.
    • Certain asset types are getting more expensive, but BIP's broad investment mandate gives management the flexibility to shift capital around and select from a deep poor of infrastructure assets.
    • An AFFO/FFO-based fair value of $42 doesn't suggest massive near-term appreciation potential, but BIP is an appealing stock for patient investors looking to leverage multiyear growth from infrastructure investments.
  • SL Green Realty Keeps Producing Value In A Hot Market
       • Sep. 19, 2014 SLG 1 Comment

    Summary

    • Strong demand for NYC office space continues to support attractive rental spreads and good occupancy rates for SL Green.
    • SL Green is increasingly looking to capital recycling as a source of potential value and is branching out a bit from its core focus on Manhattan office properties.
    • SL Green seems pretty fairly valued today, with my estimates of fair value running from about $104 to $108 per share.
  • CapitaLand Remains Undervalued Amidst Challenging Property Markets
       • Sep. 18, 2014 CLLDY Comment!

    Summary

    • Reacquiring CMA gives CapitaLand more control over a valuable collection of assets that can anchor future integrated/mixed developments.
    • The housing markets of Singapore and China are in rough shape, but CapitaLand's asset exposure is under control and the retail properties are doing pretty well.
    • CapitaLand still trades at what seems to be an excessive discount to underlying net asset value, with a long-term ROE of 9% supporting a price more than 20% higher.
  • Endo's Bid For Auxilium Makes Sense
       • Sep. 18, 2014 ENDP Comment!

    Summary

    • Endo publicly announces its desire to acquire Auxilium for $28.10 per share.
    • Auxilium is currently playing it cool, but Endo's deal offers credible sales synergy, a chance to maximize the value of Xiaflex, and good cost and tax leverage for Endo.
    • Endo has room to up its bid, but the company's deal pipeline is reportedly pretty healthy and management likely won't overpay for Auxilium.
  • Gordmans Stores Has Better Management, Will Results Reflect It?
       • Sep. 18, 2014 GMAN 2 Comments

    Summary

    • Gordmans Stores' comps have continued to erode and have taken margins with them as the company must resort to steep markdowns to move merchandise.
    • Hiring the former CEO of Stage Stores looks like a good move, but Gordmans' problems are likely going to take at least a year to fix.
    • If Gordmans can generate 2% to 4% comp growth (and 5% annual sales growth overall), these shares could move back to $6 or higher but comps are critical to margins.