MARKET CURRENTS
real-time news and commentary for investors
MARKET CURRENTS
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Today - Tuesday, June 18, 2013
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6:07 PM Red Hat (RHT +2.1%) rallied ahead of tomorrow's FQ1 report after SA Pro contributor/former hedge fund analyst Josh Burwick offered a bull case, and Piper made cautiously optimistic remarks. Burwick argues fears about the impact of Amazon Web Services on Red Hat are overblown, that slowing billings growth is offset by major growth in unbilled revenue, and that newly-announced OpenStack cloud infrastructure and app platform offerings should fare well. Piper says checks indicate FQ1 billings could be light, but adds Red Hat will make up for it in FQ2, and sees shares bottoming in the $40s. Comment!
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11:50 AM Newfield Exploration (NFX +3.6%) is upgraded to Buy from Hold with a $29 price target at Stifel Nicolaus, which cites an upcoming increased proved NAV from expected ~$1.15B in H2 international asset sales, upside to 2013 guidance (possibly with Q2 results), and delivery of growth showing up from its domestic core areas. Comment!
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11:35 AM KBR (KBR +1.6%) shares move higher following positive comments by Deutsche Bank, which notes the energy engineering services company's "significant advantage" given its ability to compete from a vertically integrated position in liquefied natural gas, and sees upside potential from new wins for its ammonia business. Comment!
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9:58 AM Premier Exhibitions (PRXI +11.8%) races higher, boosted by the announcement of a buyback authorization and SA Pro's nonpareil special situations aficionado Whopper Investments arguing the stock is trading well below a very conservative estimate of breakup value (article embargoed until tomorrow morning). Comment!
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8:58 AM Goldman Sachs removes Williams Cos. (WMB) from its Conviction Buy List and lowers its price target to $40 from $45, and cuts Williams Partners (WPZ) to Neutral from Buy with a $52 price target, down from $58. Goldman believes last week's explosion at the Geismar chemical plant adds material risk to near-term growth of both WMB and WPZ, putting dividend growth targets at risk. WMB -1.9% premarket. Comment!
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Monday, June 17, 2013
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6:59 PM Oracle (ORCL) has the potential to support a quarterly dividend at least twice as high as its current $0.06/share (0.7% yield), argues RBC's Matthew Hedberg. Hedberg points out Oracle, whose board will be free to consider a hike in August, only paid out 9% of its free cash flow in FY12, 1/3 of a peer group average of 27%. On the other hand, buybacks consumed 45% of free cash flow, a little above the peer group's 41%. Meanwhile, Jefferies' Ross MacMillan foresees Oracle reporting an in-line FQ4 on Thursday, with FQ3 order push-outs and a server refresh offsetting IT spending weakness. (Goldman) 2 Comments
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3:20 PM J.P. Morgan turns a bit more positive on mining stocks (XME), moving to Neutral from Underweight on the sector as miners cut capex and the sector's relative price/book ratio is back to 2009 lows. While the firm remains skeptical that free cash flow yield could turn positive again in 2014, it says the market could give the sector the benefit of the doubt for a while. Sector favorites: RIO, GLCNF.PK. Comment!
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2:44 PM Cray (CRAY +4%) rallies towards $20 after SA Pro contributor Vince Martin argues a high near-term multiples (Cray trades at 33x 2013E EPS) obscure a strong balance sheet ($6.72/share in cash at the end of Q1), and the potential for EPS to grow strongly in the coming years. Martin expects slowing opex growth to translate into operating leverage, and new storage and (via Cray's YarcData unit) big data/analytics applications to allow Cray to break its historical dependence on U.S. government supercomputer orders. Comment!
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12:56 PM More from Zulauf at Barron's: Taking issue with the gathering consensus of a stronger economy and the Fed pulling back, Zulauf suggests bond yields (TLT, TBT) may have stopped rising and could be set to fall. In conjunction with that view, noncyclical names (XLU, XLV) could be set for a comeback at the expense of cyclical sectors (XLV, XLB, XLE). Comment!
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12:47 PM Bullish on gold miners (GDX), Felix Zulauf - at the Barron's mid-year roundtable - suggests a speculative trade is in order given the beating the sector has taken. A purchase of December $30 calls partially financed with the sale of December $40 calls could be a 3 or 4-bagger with a moderate bounce in the index. 1 Comment
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12:32 PM BofA/Merrill starts Ubiquiti (UBNT +6.4%) with a Buy and $21 PT. The firm touts the cost and scalability advantages of Ubiquiti's wireless transmission systems (aimed to a large extent at emerging markets) over "traditional high-touch, high-cost solutions," and the expansion of the company's product line to include "routers, point-to-point wireless, and ... enterprise solutions." Shares had been slumping recently after ripping higher earlier this spring thanks to a Q1 beat and strong Q2 guidance. 1 Comment
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12:15 PM SolarCity (SCTY -0.5%) underperforms as Copperfield Research takes aim, arguing the solar panel installer/electricity seller is "nothing more than a hybrid of a specialty finance company and an engineering & construction company." Among other things, Copperfield asserts SolarCity "materially inflated" its net present value (NPV) via questionable assumptions, and notes the company has been investigated by the IRS and U.S. Treasury Inspector General for possibly overstating the market value of its systems. The firm assigns SolarCity a value of $11.38, or 2x its estimated NPV book value. (full report) 7 Comments
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11:57 AM Hornbeck Offshore (HOS +5.7%) is upgraded to Overweight from Neutral with a $66 price target (from $60) at J.P. Morgan, which believes HOS has plenty of room to run despite gaining more than 50% YTD. The firm sees confidence building in the earnings and free cash flow prospects of the $1.2B newbuild program of 24 high-capacity, high-spec vessels, whose first delivery is expected later this month. Comment!
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10:29 AM Petrobras (PBR +1.8%) is upgraded to Buy from Hold at Jefferies, citing encouraging progress in its upstream division which adds confidence that its ambitious production targets can be achieved. On Friday, PBR said it brought in a partner for its African operations and sold its stake in some small-scale hydroelectric plants, part of a plan to raise $9.9B from asset sales to fund new investments. Comment!
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10:17 AM ChannelAdvisor (ECOM +5.4%) jumps on underwriter coverage day 4 weeks after delivering a strong IPO; Goldman, Raymond Janes, Pac Crest, and Needham have all launched coverage on the provider of e-commerce advertising/product listing services with bullish ratings. Goldman praises ChannelAdvisor's "accelerating growth, and argues its scale (it handles $3.5B/year in gross merchandise volume and 100M SKUs) and industry fragmentation allow it to benefit from network effects. Comment!
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9:49 AM Pioneer Natural Resources (PXD +3.6%) lifts higher at the open as BAML raises its price target for the shares to $200 from $165, saying it continues to be struck by the sheer scale of PXD's resource potential. Notable Calls' take: FBR got the ball rolling with its $220 target a month ago, but this is the first tier-1 blessing. 4 Comments
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9:23 AM AMD +4.6% after Barron's praises the chipmaker, arguing its SeaMicro server platform unit will help grow its share of an x86 server market where 96% of all hardware uses Intel's (INTC) CPUs (per IDC). SeaMicro, acquired in 2012, has developed innovative tech (.pdf) for linking hundreds of CPUs in a dense, low-power fabric that's well-suited for the "hyperscale" architectures embraced by Web/cloud firms, among others. The unit uses both AMD Opteron and Intel Atom CPUs, will eventually support ARM-based chips, and wants to license its tech to server OEMs. SeaMicro says it convinced Intel to supply it with Atom CPUs instead of costlier Xeon parts by arguing it "would sell [4x] as many Atom chips as Xeon chips, and that Intel would make [1.7x] the revenue as they would have with Xeon." 2 Comments
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Sunday, June 16, 2013
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10:00 AM My bid for Berkshire (BRK.A, BRK.B) would be about 20% lower than the current price, says Michael Price in an outstanding presentation on the process of value investing. GE has 1K tax lawyers figuring out taxes in 100 different countries, says Price, but Berkshire (also operating in 100 countries) has 20 people in the entire home office ... "I don't know how that works?" Unlike a lot of large companies, Berkshire gives little light on its pension liabilities. "There are lots of questions that will come up in the next 5 years there." The video also sheds a good deal more color on two Price longs: Hospira (HSP) and Hess (HES). 20 Comments
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Saturday, June 15, 2013
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9:55 AM More than half of bond ETFs saw price price declines greater than their drop in NAV last month, according to Morningstar. The MUB's 3.1% fall compares to a 1.3% dip in NAV - not peanuts considering the fund's 2.8% annual yield. Similar patterns were seen in other muni funds like CXA and ITM as well as in junk bond ETFs like HYG, but was not evident in TIPS (TIP) trackers or broad fixed-income ETFs like AGG and BND. 2 Comments
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8:25 AM Forget talk of a dividend bubble; it's a "golden age" for dividends, ClearBridge's Hersh Cohen believes. Dividend stocks got extended in this year's run-up, not overpriced, he says. Besides, while price is important, "investors lose sight that their income can double in nine years" with dividend payers. Hersh can still find nicely priced examples, particularly in energy, such as Chevron (CVX), Shell (RDS.A) and Total (TOT). 6 Comments
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