Today - Wednesday, December 4, 2013
3:59 PMAg sector strong as RBC starts Mosaic, Agrium at Outperform
- Fertilizer equities are higher following new coverage from RBC Capital, which prefers Mosaic (MOS +3.2%) and Agrium (AGU +2.4%) in the sector.
- MOS and AGU are rated Outperform thanks to to a recent trend toward "improving demand in the potash and phosphate markets" and an expectation for "substantial" returns to holders over the next few years; MOS' solid position in the phosphate market could better position it if others are interested in its potash assets.
- Potash (POT +1.3%), CF Industries (CF +10.7%) and Intrepid Potash (IPI +2.4%) are each started with Hold ratings.
- Also impacting the ag names is news that CF is working with investment banks about creating an MLP.
- ETFs: MOO, CROP, PAGG, VEGI.
3:29 PMAccess Midstream -4% after secondary offering, Wunderlich starts at Hold
- Access Midstream Partners (ACMP -3.9%) is lower after the pipeline company priced its 6M-unit secondary public offering at $51.45 each, a 4.7% discount to yesterday's closing price.
- Separately, Wunderlich initiated coverage of ACMP with a Hold rating and a $56 price target; while the firm views ACMP's business model as best in class with limited downside risk and top-tier distribution growth, it believes these factors are adequately reflected in the current valuation.
2:59 PMCiena rallies on bullish FBR note, peers/suppliers also up
- FBR's Scott Thompson thinks Ciena (CIEN +7%) will deliver a beat-and-raise FQ4 report on Dec. 12, and sees the telecom equipment vendor benefiting from carrier adoption of network architectures that feature "more intelligence and flexibility at the optical layer."
- Thompson sees carriers building more advanced metro optical networks, replete with data centers that enable services such as content caching, app hosting, and advanced mobile messaging. He points to a recent optical switching deal between Verizon and Ciena as an example of how the latter benefits from this trend, and sees a similar deal with AT&T arriving soon.
- At the same time, he cautions optical gross margins "could be under pressure," thanks to aggressive pricing from Infinera (INFN +2%), lengthy deployment times, and the adoption of software-defined networking controllers (CYNI is among the companies providing them) that remove some intelligence from the optical layer.
- Ciena flew higher three months ago following its FQ3 report. The company reported solid demand for its integrated Ethernet switching/optical networking hardware, which now accounts for 56% of revenue.
- Infinera is following Ciena higher, and so are Finisar (FNSR +5.2%), JDS Uniphase (JDSU +3.1%), Fabrinet (FN +1.8%), and AppliedMicro (AMCC +3.9%).
1:49 PMMorgan Stanley cuts Accenture and NetApp, ups Western Digital and Brocade
- Citing the impact of faster-than-expected cloud computing adoption, Morgan Stanley's Katy Huberty has downgraded Accenture (ACN -1.9%) and NetApp (NTAP -0.9%) to Equal Weight. Meanwhile, citing more favorable risk/reward, Huberty has upgraded Western Digital (WDC +2.8%) to Overweight and Brocade (BRCD +0.5%) to Equal Weight.
- Concerns about the impact of cloud services on sales of IT outsourcing services such as Accenture's, and enterprise storage hardware such as NetApp's, have been around for some time. Recent numbers (I, II) provided by the companies, and by peers such as IBM and EMC, haven't done much to soothe those fears. Synergy Research recently estimated sales of cloud infrastructure (IaaS) and app platform (PaaS) services rose 46% Y/Y in Q3.
- Accenture now trades at 15x estimated FY14 (ends Aug. '14) EPS exc. net cash, and NetApp trades at just 10x estimated FY14 (ends April '14) EPS exc. net cash.
- Western Digital, whose hard drive sales have been pressured by PC weakness and SSD adoption, recently began shipping its first helium drives (they're lighter, denser, and more power-efficient than traditional drives), in part to better meet the needs of Web/cloud companies.
12:38 PMNGL Energy started with a Buy rating at Wunderlich
- NGL Energy Partners (NGL) is initiated with a Buy rating and $37 price target at Wunderlich, which believes units offer an attractive balance of current yield and double-digit distribution growth with the potential for further valuation expansion.
- Since its 2011 IPO, NGL has announced ~$2.9B of acquisitions, significantly exceeding its initial targets and creating a unique and more diversified platform that remains well positioned for growth.
- The firm believes NGL will remain active and continue delivering strong results, with its distribution estimates equating to a five-year CAGR of ~10% through FY 2018.
11:47 AMONEOK target price raised to $63 at Goldman
- Goldman Sachs raises its price target for ONEOK (OKE +0.1%) to $63 but maintains its Neutral rating, believing much of the good news which has pushed units up 39% since announcing the spinoff of its gas utility business already is priced in; however, the firm thinks OKE's 2015-16 dividend growth guidance of 10% looks conservative.
- Further OKE outperformance will depend on better results at its underlying MLP, ONEOK Partners (OKS -0.3%), Goldman says, seeing 6%-8% average annual distribution growth over the next several years; upside for OKS could come from additional Bakken gathering and processing opportunities.
9:57 AMChanos: CGI one of "largest short positions"
- James Chanos counts CGI Group (GIB -1.6%) among his "largest short positions," NewsWeek reports. In a 10-page client memo, Chanos cited declining cash flow, falling new business bookings, questionable accounting practices, and the "PR mess" surrounding Healthcare.gov as reasons for his position.
- An increasing amount of investors are on board the short train: although 1.7% of shares outstanding were shorted as of Nov. 15 on the NYSE, 29.9M shares in Toronto had been sold short (almost 11% of shares outstanding), FactSet data shows.
Tuesday, December 3, 2013
7:07 PMBofA: 2014 looks good for refiners HollyFrontier, Valero and Tesoro
- BofA Merrill Lynch makes a positive case for leading refiners HollyFrontier (HFC), Valero (VLO) and Tesoro (TSO), believing the rebound in crude spreads signals the early stages of crude saturation on the U.S. Gulf coast and introduces a new layer of seasonal margin volatility that plays to the benefit of the sector.
- The firm upgrades HFC to Buy from Neutral with a $60 price target, up from $51, after HFC has lagged the early seasonal rebound in the U.S. refining sector that has accompanied the expansion in crude differentials.
- VLO is BofA's top pick in the sector; poised to complete a second MLP, VLO can unlock $5-$9/share of value in the stock, the firm says.
- The firm likes TSO's west coast crude advantage and accelerated spending at its MLP.
3:38 PMBarclays: Continental Resources' growth advantage sustainable for years
- Continental Resources (CLR -0.3%) is initiated with an Overweight rating and $138 target price at Barclays, which believes CLR's growth advantage likely will be sustained for many years.
- The firm forecasts growth rates of ~20% annually beyond 2015 vs. a peer-group average of 5%-10%, but despite premium growth, CLR shares trade at a modest 9% premium on 2015 and 20%-plus discount on 2018 estimates.
2:12 PMMicron rallies as Needham issues Buy rating, predicts margin growth
- Needham's Rajvindra Gill has launched coverage on Micron (MU +1.8%) with a Buy and $30 PT, while asserting the DRAM/NAND flash vendor could see its gross margin eventually rise to 40% from a current ~30%.
- Gill points out rising estimates (aided by the Elpida deal) have led Micron's forward P/E (based on FY15 estimates) to fall to 9 from a July level of 15, in spite of the ongoing rally seen by its shares. He argues Micron should trade at 12x-14x EPS and 3x-4x its tangible book value.
- Echoing David Einhorn and others, Gill declares the newly consolidated DRAM industry is "entering a period of rationality that will focus on [ROIC] as opposed to market share or survival." He also expects the lion's share of DRAM and NAND capex to be directed towards technology upgrades rather than capacity investments. Micron set a market-pleasing FY14 capex budget of $2.6B-$3.2B in July.
- Margin improvements are expected to be driven not only by supply controls, but by a NAND mix shift towards SSDs and cost cuts at Elpida.
- Also: 1) Digitimes reports SK Hynix (HXSCL), still dealing with the fallout from a massive fire at a Chinese fab, is unable to meet demand from its PC OEM clients. 2) DRAMeXchange reports PC DRAM contract prices ticked higher in 2H November, and are likely to be flat or up in December.
11:47 AMClayton Williams +5.5% on Global Hunter upgrade
- Clayton Williams Energy (CWEI +5.5%) is upgraded to Buy from Neutral with a $100 price target, raised from $82, at Global Hunter, which cites CWEI's core position in the Permian's Southern Delaware Wolfcamp play.
- The firm's belief is that the euphoria that swept over the Central/Northern Midland Basin in 2013 will soon emerge as a major theme in the Southern Delaware Basin, which could prove a sizable catalyst for CWEI.
- CWEI also has emerged as a top M&A target for companies looking to break into the Permian or expand upon a current position given the upside potential and attractive valuation, the firm adds.
10:36 AMPioneer Natural Resources upgraded to Buy at Global Hunter
- Pioneer Natural Resources (PXD +1.4%) to upgraded to Buy from Neutral with a $235 target price, up from $207, at Global Hunter, which cites multiple, consistent results across a wide swath of PXD's 600K gross acres in central and northern Midland, and foresees a substantial upward revision of PXD's resource potential at year-end.
- The firm also thinks management understands that PXD's NAV story has lost a bit of its luster - shares are down ~20% since Q3 earnings - and is eager to demonstrate that the company is poised to transition into manufacturing mode.
10:26 AMBofA/Merrill upgrades Fortinet, says CFO/COO departure not a concern
- BofA/Merrill has upgraded Fortinet (FTNT +1.5%) to Buy, and raised its PT to $24. Following a talk with management, the firm buys into Fortinet's assertion the pending departure of CFO/COO Ahmad Rubaie is due to personal reasons rather than any financial issues.
- It also thinks Fortinet will take much less time to name a new CFO than the seven months the company took to hire Rubaie following the departure of Ken Goldman.
- Stifel is also defending Fortinet, arguing the company UTM hardware leader's M&A value and $5/share in net cash/investments translate into a favorable risk/reward.
9:57 AMStatoil upgraded at Bernstein, shares +1.2%
- Statoil (STO +1.2%) is upgraded to Outperform from Market Perform with a $26.50 price target, up from $23, at Bernstein, after having been one of the firm's least favorite companies in recent years based on its analysis of decline rates, real maintenance capex levels and costs which it believed were headed only one way.
- But the firm now sees enough evidence that costs should improve more than expected and maintenance capex will be less; operating expense per boe has been stable for the last few quarters and capex should follow, thus improving optically weak free cash flow.
8:58 AMDevon Energy upgraded to Buy at Argus
- Devon Energy (DVN) is upgraded to Buy from Hold with a $70 price target at Argus, citing DVN's planned acquisition of Eagle Ford acreage from GeoSouthern Energy which will accelerate the shift in the production mix toward higher-margin oil production and away from lower-margin natural gas.
- The firm also views the Crosstex merger as a positive development that will unlock shareholder value and provide DVN with capital that may be invested in upstream assets.
- Shares appear attractively valued at 14.1x the firm's 2013 EPS estimate and at 10.8x its 2014 EPS estimate, vs. a five-year historical average of 10.7x-13x.
- DVN +0.6% premarket.
5:35 AMLook for institutional buying in Apple - UBS
- UBS upgrades Apple (AAPL) to Buy from Neutral, bumps target to $650 from $540
- "While Apple's stock has improved, institutional ownership has not recovered. It peaked at about 73% in April 2012 and has fallen to under 64%. Our sense speaking with investors is that many are now equal or underweight Apple relative to their benchmark, which could result in new money supporting the stock. Apple fits the value description and with potential double-digit EPS growth in F14 could show up again as a growth story."
- "We think one or more of the following could boost the stock in the next year: i) the gross margin should be flat to up with iPad margins stabilizing and warranty accruals less of an incremental; ii) the imminent support of China Mobile (CHL) along with NTT DoCoMo (DCM) could aid the seasonally weak summer quarters; iii) the hire of Angela Ahrendts may provide an inspirational face to the company; and iv) new products should begin to renew faith in innovation, including wearables and iBeacon."
- AAPL +1.1% premarket to $557.26
Monday, December 2, 2013
12:59 PMWestar shares rise as Goldman upgrades to Buy
- Westar Energy (WR +1.7%) is upgraded to Buy from Neutral at Goldman Sachs, which sees ~13% total return upside potential with its $34 price target vs. small/mid-cap regulated utility peers at 4%.
- As environmental projects on coal plants wind down in 2015, free cash flow and dividends should improve significantly, often the main driver of share price outperformance within utilities, the firm says.
- Goldman maintains its 2013 outlook but modestly slightly raises estimates for 2014, '15 and '16 on lower costs and remains above consensus by 2%-4% on average.
12:56 PMSeeking Alpha moves stocks
- Tonix Pharmaceuticals (TNXP +8.3%) continues a big run after SA Pro's Joe Springer argues its TNX-102 SL drug for treatment of fibromyalgia and Post Traumatic Stress Disorder makes the stock one of the most undervalued in the market and a potential multi-bagger.
- Management's "Celgene Contingency" attitude might prevent a quick takeover by a potential marketing partner, but that may be to the long-term benefit of shareholders, says Springer, reminding Celgene also fended away offers and a decade later is a $60B company.
11:58 AMMarathon Petroleum +4.6% on Deutsche Bank upgrade
- Marathon Petroleum (MPC +4.6%) is upgraded to Buy from Hold with a $108 price target, up from $80, at Deutsche Bank going into its analyst day, citing favorable exposure to discounted crudes, strong product export portfolio, operational excellence, and best-in-class logistics system.
- MPC is acquisitive, a potential bidder for Hess' major retail network, and the market could fret about excess spending in the event it overpays.
- Simmons also upgraded MPC and Alon USA Energy (ALJ +2.8%).
Saturday, November 30, 2013
9:42 AMGundlach: Time to buy interest rate risk
- "People are absolutely freaking out about interest-rate risk," says Jeff Gundlach, sitting down with Robert Shiller to size up the investment landscape. Ever the contrarian, Gundlach suggests last year's 1.4% low in the 10-year Treasury yield could still get taken out. The catalyst? "You never know until after the fact; otherwise, it would be priced in the market. But there is no inflation."
- The see "freaking out" in a picture, check out the price charts of the mortgage REITs, particularly the two proxies for riding the long end of the curve - Annaly (NLY) and American Capital Agency (AGNC). Gundlach: "You can take advantage of pockets of opportunity in what people don't want ... If you're willing to take the interest-rate [risk], you can get yields of 11% in the agency mortgage market."
- Constructive on housing (but not homebuilders), Gundlach is also bullish on non-agency mortgage paper, calling it the cheapest sector in fixed income on a risk-adjusted basis. Fans of also beaten-up non-agency mREITs like American Capital Mortgage (MTGE), MFA Financial, Dynex (DX), and Two Harbors (TWO) may want to take notice.
- Mortgage REIT ETFs: REM, MORT, MORL
- Long-duration Treasury ETFs: TBT, TLT, TMV, TBF, EDV, TTT, TMF, TLH, ZROZ, SBND, DLBS, VGLT, UBT, TLO, LBND, TENZ, TYBS, DLBL