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  • Allana Potash Continues To Drift Amidst Ag Malaise
       • Sep. 13, 2014 ALLRF 11 Comments

    Summary

    • Allana shares continue to drift lower, despite a strong and engaged strategic partner in Israel Chemicals.
    • If efforts to increase royalties and taxes on resources produced in Israel stick, Allana's Ethiopian Danakhil project may become even more valuable to ICL.
    • Allana still needs to secure project financing, but these very risky shares look undervalued below $0.80/ADR.
  • Vectura Group Following A Familiar Path
       • Sep. 13, 2014 VEGPF 2 Comments

    Summary

    • Vectura Group isn't well-known, but it has a broad and deep portfolio of patents and technology for the formulation, manufacture, and administration of respiratory drugs.
    • Novartis's Ultibro and Seebri are selling well in the EU and Ultibro could become a blockbuster in the U.S., generating meaningful royalty revenue for Vectura.
    • Vectura may choose to use its impending free cash flow generation to transition toward a specialty pharma model where it keeps drugs in-house for proprietary development and commercialization.
  • F5 Networks Executing Well And Building Out The TAM
       • Sep. 12, 2014 FFIV 1 Comment

    Summary

    • The ADC market has been looking better, but F5 is really getting a boost from customer adoption of its add-on security products.
    • Expanded security offerings could add billions to F5's addressable market, but I wouldn't ignore the company's growing suite of products aimed at service providers looking to upgrade/support their data services.
    • The valuation isn't a compelling bargain today, but the growth potential makes it worth following in case the shares slide.
  • Colfax Still Enjoying The Fruits Of Superior Growth Potential
       • Sep. 12, 2014 CFX 3 Comments

    Summary

    • Despite another miss in the second quarter, the Street is still on board with Colfax's significant margin improvement/leverage opportunities.
    • Welding end-markets seem to be in recovery and the gas handling business is doing well, but weakness in power gen and oil/gas could still be a short-term challenge for fluid handling.
    • Colfax offers excellent near-term and long-term growth potential, which the Street will richly reward, but a lot of those rewards seem to already be factored into the stock price.
  • Microsemi Puts Cash To Work In M&A And Buybacks
       • Sep. 12, 2014 MSCC 1 Comment

    Summary

    • Microsemi acquires Centellax, a small semiconductor company with MMIC technology that can help Microsemi's development of higher-margin high-performance chips.
    • Microsemi confirms above-average sequential growth in a weaker quarter for chip companies and announces a $100M share buyback.
    • Trading more than 20% below my fair value estimate, Microsemi continues to look like a relative bargain in the chip space.
  • Will Gamesa Move From Survive To Thrive?
       • Sep. 12, 2014 GCTAY 1 Comment

    Summary

    • Gamesa has been rebuilding credibility with solid performance on orders, revenue, and margins - everything the analysts say they want to see.
    • I have my concerns that Gamesa's extended austerity program has put the company behind in terms of R&D, but a recent JV with Areva will help the offshore business.
    • Gamesa looks fairly valued today unless you believe the company can generate double-digit long-term revenue growth and/or double-digit FCF margins.
  • Layne Christensen Bumping Along The Bottom
       • Sep. 12, 2014 LAYN Comment!

    Summary

    • Layne Christensen continues to miss sell-side revenue and EBITDA expectations, though the Water Resources business was stronger than expected on improving water drilling activity in California.
    • Margin improvement potential remains large and LAYN is well-placed for a recovery in municipal water infrastructure spending, but the company needs a new CEO and must win higher-margin contracts.
    • Discounted cash flow suggests a mid-teens fair value while EV/EBITDA based on current and long-term EBITDA bracket a range between the low and high teens.
  • Arch Capital Getting Attractive As Its Markets Get Less So
       • Sep. 11, 2014 ACGL Comment!

    Summary

    • Arch's specialty-oriented insurance premiums seem to be hanging in there, but underwriting margins are shrinking and a shift in reinsurance underwriting will increase losses.
    • Mortgage insurance and a new sidecar create growth opportunities for Arch, but there is a real risk that investors shun the sector as pricing troughs.
    • Fair value of $59/share seems reasonable if you believe Arch Capital will maintain double-digit long-term ROEs, but the near term could be tougher than expected.
  • Triangle Petroleum's Presentation, Not Performance, Seems To Be The Issue
       • Sep. 11, 2014 TPLM 5 Comments

    Summary

    • Triangle Petroleum generated better revenue and profits in the quarter, as better completions boosted production, good service demand fueled RockPile, and operating costs remain under control.
    • The Street seems to taken exception to management not boosting production guidance, not offering up well IP rates, and not accelerating the timeline for a possible separation of RockPile.
    • The sell-off after the call created a small window of opportunity, but with my fair value estimates in the range of $12-$13/share, Triangle isn't among the cheapest E&P stocks.
  • 'Good Enough' Is Good Enough From ABB's Capital Markets Day
       • Sep. 11, 2014 ABB 2 Comments

    Summary

    • ABB used its Capital Markets Day to highlight progress in improving and restructuring the power business, arguing that the problems caused by solar and offshore wind are largely over.
    • ABB's strong automation operations aren't going to get any major changes, though selective acquisitions in areas like valves seem likely.
    • A $4 billion buyback program should improve sentiment, while management's long-term outlook is consistent with the model I use to calculate a $26 fair value.
  • HD Supply Outgrowing Its Markets At An Accelerating Rate
       • Sep. 10, 2014 HDS Comment!

    Summary

    • HD Supply beat expectations and delivered what management believes was a 600bp better result than its underlying markets.
    • The company remains highly leveraged to recoveries in construction and infrastructure spending and while residential building activity is iffy, non-residential construction and municipal spending are coming back.
    • HD Supply doesn't look cheap, but the EV/EBITDA isn't out of line with its peer group and the stock will likely find support so long as growth momentum looks good.
  • Hoya Corp. Managing For Growth And Margins
       • Sep. 10, 2014 HOCPY Comment!

    Summary

    • Management has moved pretty aggressively to manage margins in its lower-growth IT opportunities.
    • Life Care will likely be the engine of growth and management is looking to use its balance sheet to acquire more scale.
    • Hoya Corp. shares look pretty fairly valued today, but a sizable value-adding M&A transaction and further excellence in execution could support a higher target.
  • MTN Group Doing Pretty Well Despite Operating Challenges
       • Sep. 10, 2014 MTNOY 2 Comments

    Summary

    • MTN Group continues to have some issues in South Africa and Nigeria, but has been outperforming analyst expectations in those countries and seems to have a better plan going forward.
    • The sale of its Nigerian towers will generate cash, but management is likely to remain picky about deploying capital into M&A or new markets.
    • MTN Group shares aren't cheap today, but management can look to 3G and data services to drive upside to current expectations.
  • Wabtec Is High-Priced And High-Quality In Equal Measure
       • Sep. 10, 2014 WAB 3 Comments

    Summary

    • Wabtec's recent acquisitions reflect a long-term commitment to growing its business outside the U.S. and expanding its offerings of electrical components and aftermarket products.
    • Overseas growth seems to be requiring more working capital, but I expect this to level off and the company's operating margin leverage potential is still meaningful.
    • Upgrades and expansions to both freight rail and transit rail systems can support double-digit growth for at least a decade, but a great deal is already expected from Wabtec.
  • Arcos Dorados Hits Bottom, Finds A Shovel
       • Sep. 9, 2014 ARCO 5 Comments

    Summary

    • Continued erosion in Brazilian same-store sales, stubborn costs, and increasing competition are sapping Arcos Dorados' key market.
    • Weakness in Venezuela, Argentina, and Mexico are only making a bad situation worse, and Arcos Dorados looks increasingly squeezed between a weak balance sheet and capex commitments to McDonald's.
    • Valuing Arcos Dorados at $7/share (8x 12-month EBITDA) may be harsh and DCF suggests more than 35% upside, but management needs to earn back the benefit of the doubt.
  • Copa Holdings Seeing Turbulence, But Still A Top-Notch Airline
       • Sep. 9, 2014 CPA 3 Comments

    Summary

    • A significant capacity reduction in Venezuela will minimize Copa's currency risk, but eliminate some of Copa's highest-margin business.
    • The capacity shuffle seems to be hitting revenue, but Copa should be able to still generate industry-leading margins even with a much smaller Venezuela business.
    • Assuming that half of Copa's Venezuela cash is lost, the shares still look undervalued below $140.
  • Belle International Fairly Popular Despite Some Core Weakness
       • Sep. 9, 2014 BELLY Comment!

    Summary

    • Belle has followed up its first-ever negative same-store sales comp in footwear with what looks to be a third straight quarter of sales contraction.
    • Sportswear is growing nicely, but offers much lower margins to Belle.
    • Belle management still has a lot of work to do with its online offerings; top-line growth has been good, but management has not pushed online-to-offline integration to its full potential.
  • China Resources Enterprise Languishing Over Short-Term Concerns
       • Sep. 9, 2014 CRHKY Comment!

    Summary

    • The market did not CRE management's updates concerning the Tesco JV, nor the beer business, as near-term growth expectations have come down substantially.
    • CRE still has a lot to gain from improving the Tesco stores and benefiting from Tesco's expertise in e-commerce and private label, while the beer business continues to gain share.
    • CRE shares are likely stuck absent an improvement in same-store sales, which may be difficult in the current macro environment. Even so, the shares hold good long-term potential.
  • BB&T Makes A Solid Acquisition, Needs To Impress At Its Investor Day
       • Sep. 9, 2014 BBT 3 Comments

    Summary

    • BB&T has acquired 41 more Texas branches and $2.3 billion in deposits from Citi at a reasonable price, with significant branch productivity upside.
    • BB&T's upcoming Investor Day (Sept 11) is a chance for management to reassure the Street regarding its cost-cutting goals and plans to improve loan growth, and clarify priorities for capital.
    • BB&T still looks undervalued on a long-term ROE assumption of 12.5% and further branch acquisitions can augment the company's growth potential.
  • Is Roche At Risk Of Losing Its Way?
       • Sep. 9, 2014 RHHBY 3 Comments

    Summary

    • Roche has seen Art Levinson, former CEO of Genentech, leave the board as his company Calico signs a major partnership with AbbVie.
    • Roche has been making some odd M&A decisions of late (including a seeming lack of conviction about abandoning or doubling down in sequencing) and has seen top-notch talent go elsewhere.
    • In a generally expensive sector, Roche screens as a decent investment option but the company needs to add more pharma experience to its board and strengthen its non-oncology business.
  • Is Now The Time For Essex Rental?
       • Sep. 8, 2014 ESSX Comment!

    Summary

    • Essex Rental has languished as weak non-residential construction activity has undermined demand for the company's cranes.
    • Management is trying to be more customer-friendly, while upgrading its fleet and expanding its distribution opportunities.
    • The ABI and Dodge Momentum Index are pointing to increasing non-residential construction activity, and I believe Essex can leverage that into near-term 10% revenue growth and 20% EBITDA growth.
  • Synergy Pharmaceuticals Could Be A Diamond In The Rough
       • Sep. 8, 2014 SGYP 5 Comments

    Summary

    • Synergy's lead drug plecanatide appears just as effective as Ironwood's Linzess, but with a notably better side effect profile.
    • The market for prescription drugs to treat constipation appears underdeveloped today, but could be worth $3 billion by the end of the decade.
    • Synergy needs cash (and later on, most likely a marketing partner or an acquirer), but the market seems to be undervaluing the company to a meaningful extent.
  • Occidental Has A Good Plan, And Some Value Left
    Sep. 8, 2014 OXY 1 Comment

    Summary

    • Occidental Petroleum is in the midst of extensive restructuring efforts that will place its high-potential Permian acreage in a front-and-center position going forward.
    • After the restructuring, Occidental should be able to generation mid-single digit annual production growth (better than many large producers), with returns on capital employed climbing above the mid-teens.
    • Occidental looks at least 10% undervalued on the basis of EV/DACF, EV/EBITDAX, discounted cash flow, and NAV, and also offers a decent dividend.
  • Hurco Delivers Once Again
       • Sep. 6, 2014 HURC 4 Comments

    Summary

    • Strong demand in Europe leads to double-digit revenue growth for this small machine tool company.
    • The possibility of adding 3D printing capabilities to machine tools is legitimately exciting, but will likely take time to materialize into real revenue.
    • Valuing Hurco on the assumption that it can maintain double-digit operating margins for the long term risks being too bullish, but the underlying fundamentals still suggest more upside here.
  • Finisar Taking Its Lumps
       • Sep. 6, 2014 FNSR Comment!

    Summary

    • Finisar shares have been weak on growing concerns about telecom capex plans and margins, and management's guidance for the next quarter will feed those fears.
    • 40G data center upgrades and 100G telecom upgrades are still valid drivers, but companies like Avago are ramping up their own competitive efforts and silicon photonics remains a long-term threat.
    • Finisar shares don't look all that cheap on a long-term DCF basis, but stabilization in the optical market could support a price in the low $20s if investors are willing
  • Mueller Water Products Showing Signs Of Real Recovery
       • Sep. 6, 2014 MWA 4 Comments

    Summary

    • Homebuilders are acquiring and developing land again, while municipalities seem to be on track to catch up with delayed/deferred water infrastructure projects.
    • With capacity utilization still below 70%, there should be meaningful untapped overhead leverage to drive margins as revenue accelerates.
    • It takes pretty aggressive assumptions to drive a fair value above 10%, but Mueller is a quality company that looks to be back on a solid recovery path.
  • Ciena Goes Back Into The Penalty Box
       • Sep. 5, 2014 CIEN 3 Comments

    Summary

    • Delayed North American carrier capex spending once again hits the telecom equipment sector and takes Ciena with it.
    • Ciena's share in DWDM continues to improve and the relationship with Ericsson appears to be helping the overseas business, while Web 2.0 and other non-telco customers offer upside.
    • Expecting more than 6% annual revenue growth and double-digit FCF margins from Ciena is hardly conservative, but the shares do seem undervalued on a DCF and EV/revenue basis.
  • Novadaq Technologies Knocked Back, But A Large Opportunity Remains
       • Sep. 5, 2014 NVDQ Comment!

    Summary

    • Underlying utilization of Novadaq's surgical imaging technology remains strong, with double-digit sequential growth.
    • Confusion over kit pricing, the mix of sold-vs-placed systems, and an increasingly contentious relationship with marketing partner LifeCell add uncertainty and risk to a stock with rich multiples.
    • Novadaq still looks meaningfully undervalued on its long-term potential, but the fate of the LifeCell relationship, timing of FDA approvals, and progress with direct sales all could create turbulence.
  • Miller Still Underfollowed And Undervalued
       • Sep. 5, 2014 MLR Comment!

    Summary

    • Miller continues to generate double-digit year-over-year revenue growth as the towing industry recovers and looks to refresh and expand fleets.
    • Miller is ramping up production in response to accelerating orders and operating expense leverage looks good, but gross margin leverage has proven to be tougher to achieve.
    • Miller is ignored by the sell-side and is too small/illiquid for much of the buy-side, but the company looks about 20% undervalued even with modest free cash flow assumptions.
  • Air Transport Group Finally Delivering
       • Sep. 4, 2014 ATSG 1 Comment

    Summary

    • Airfreight demand is picking up, improving the prospects for better utilization and yields on Air Transport's fleet.
    • Other than two leased aircraft that the company decided to purchase, capex needs should shrink to maintenance levels, creating good free cash flow in the coming years.
    • Air Transport remains a risky pick, but improving profitability and FCF support a fair value at least 15% higher and potentially significantly higher if the airfreight recovery has long legs.
  • Dana Holding Still Good, But Not So Cheap
       • Sep. 4, 2014 DAN Comment!

    Summary

    • Eroding South American markets and global off-highway demand have worried the Street, despite progress on margins and strong North American commercial vehicle demand.
    • Dana is looking for innovation to drive differentiation, better pricing, and stronger share over the long haul, while pricing, supply chain efficiencies, and other cost improvements boost margins.
    • Dana isn't a flat-out bargain today, but the shares do still appear undervalued and could catch interest if/when the markets start speculating about a recovery in off-highway and LatAm markets.
  • Ur-Energy Finally Seeing That Turn?
       • Sep. 4, 2014 URG 4 Comments

    Summary

    • The uranium market has responded to supply disruptions with a double-digit rally from the lows.
    • Ur-Energy management is being smart with its production, conserving its reserves in the hope of better long-term prices.
    • With first-quartile costs and meaningful expansion potential, Ur-Energy looks like a solid (but risky) way to play a long-awaited and oft-predicted recovery in uranium prices.