Friday, December 6, 2013
4:51 PMJPMorgan, Berenberg see Nokia improving IP monetization
- JPMorgan's Sandeep Deshpande, who started coverage on Nokia (NOK +1.9%) today with an Overweight and €8 PT today, thinks the company would be worth €15/share if it could raise its mobile device royalty rate to 1%. Berenberg's Adnaan Ahmad predicts Nokia's rate "should gradually inflate to 0.75% over time as it renegotiates existing deals and aggressively monetises its IPR pool."
- Qualcomm, which has profited far more than any company from mobile IP licensing, often receives royalty rates in the 4%-5% range, though certain firms have negotiated lower fees via cross-licensing deals.
- The sale of Nokia's phone unit to Microsoft frees the company to become more aggressive in its efforts to license its ~30K patents, since it now only needs cross-licensing deals for infrastructure gear. Thanks to the sale, Deshpande thinks there could be opportunities to unravel cross-licensing deals with firms whose IP Nokia no longer needs (such as Apple).
- He adds a recent U.K. injunction scored by Nokia in its patent battle against HTC could have big implications, since it suggests an OEM's use of baseband chips supplied by Qualcomm (a Nokia licensee) doesn't mean it's protected from having to separately pay Nokia.
3:54 PMChart Industries -7% after cautious comments from William Blair
- Consensus earnings estimates for Chart Industries (GTLS -7.1%) are likely to drop, William Blair says after meeting with management; the firm sees slower China activity, uncertainty in biomedical, and issues concerning large heat exchanger projects pressuring gross margins in 2014.
- The firm keeps a Market Perform rating on the stock and believes GTLS remains well positioned longer term.
3:30 PMGolar LNG Partners -6.2% but still seen positively after expected deal
- Golar LNG Partners (GMLP -6.2%) is defended at Clarkson Capital, which reiterates its Outperform rating and $38 price target after GMLP reveals plans to offer 5.1M units; parent Golar LNG (GLNG +0.4%) will sell 3.4M GMLP units as part of the offering.
- The acquisition of the Golar Igloo from GLNG was expected before the vessel begins service on a five-year contract to Kuwait National Petroleum in March 2014, the firm says; the transaction value is in-line with expectations, and the firm believes GMLP has solid distribution growth potential and strong unit coverage.
2:49 PMRBC pessimistic on Agnico-Eagle Mines but upgrades Franco-Nevada
- Agnico-Eagle Mines (AEM -0.2%) is downgraded to Sector Perform from Outperform with a $31 target price, down from $38, at RBC Capital, the result of lower financial estimates generated by the firm's reduced long-term gold price assumption from $1,400 to $1,300/oz.
- The firm forecasts negative free cash flow at AEM in 2014 and believes the market will need to see capital and operating guidance before it re-rates shares higher.
- Meanwhile, RBC upgrades Franco-Nevada (FNV -0.2%) to Outperform with a $53 target, up from $43, citing operating royalties and new feasibility and development stage gold assets (Brucejack, Golden Meadows, Kirkland Lake, ABX royalty portfolio), which the firm says have the potential to add 8%-12% in annual revenue.
2:27 PMInvestor sentiment in big oil stocks may rise, HSBC says
- Big oil has remained out of favor with investors, but the companies’ robust underlying cash flows aren't being recognized, and investor sentiment may shift next year, HSBC says as it tags Royal Dutch Shell (RDS.A +2.8%) and BP (BP +0.8%) with Overweight ratings.
- The sector is under-owned by large institutional investors that hold stocks for the long term, so “it may not need too much of a shift in sentiment towards the sector to prompt increased weightings,” HSBC adds.
- Shell is a "good buy-and-hold stock for long-term investors, particularly those with a cautious market outlook,” the firm says, while BP is "close to the end of [its] rehabilitation period."
1:50 PMCitrix outperforms as Stifel hikes PT; VMware also rallying
- Stifel's Brad Reback has raised his Citrix (CTXS +2.4%) PT to $74 from $70, while reiterating a Buy. Citrix has topped $60, and virtualization archrival VMware (VMW +2.9%) has rallied above $86.
- Reback's talks with Citrix's IR chief strengthened his belief the company's "uneven performance" (highlighted by its Q3 warning) is only due to sales execution and cyclical (rather than secular) headwinds. He also declares Amazon's WorkSpaces cloud PC virtualization service "more of a side-show than a meaningful enterprise threat, especially over the near-to-medium term."
- Both Citrix and VMware sold off when WorkSpaces was first announced. Though Reback disagreed, several analysts argued WorkSpaces could be a long-term threat, as its feature set grows.
- Reback likes the fact Citrix only trades at 10.8x his 2014 free cash flow estimate of $876.4M, and sees demand for Citrix's mobile software and the latest version of its XenDesktop PC virtualization platform acting as potential catalysts.
12:01 PMPandora slides, Albert Fried sees Spotify affecting royalty talks
- A day after giving up its morning gains in response to a report that Spotify plans to offer limited mobile access to its library on an ad-supported basis, Pandora (P -2.5%) is selling off on an up day for equities. A note from Albert Fried's Rich Tullo could be playing a role.
- Tullo, who downgraded Pandora to Underweight last month prior to its FQ3 report, isn't worried about the competitive threat posed by Spotify's new service, given Pandora has held its own against Spotify thus far and "the ease of use case of the Pandora platform defends Pandora’s market share."
- He is, however, worried Spotify's willingness to pay higher royalty rates to artists will affect Pandora's 2014 negotiations with recording rights organization SoundExchange (responsible for a huge portion of Pandora's royalty payments).
- Tullo: "We think 2014 will be a tough year for Pandora from a news flow perspective ... artists may be going into the negotiation from the position that Pandora needs to pay 4x to 10x more per performance."
- Pandora recently gave up on trying to get the Internet Radio Fairness Act passed, and said it would focus on lobbying the Copyright Royalty Board for rate changes.
11:56 AMPrecision Drilling +4.3%, recouping some losses after two upgrades
- Precision Drilling (PDS +4.3%) recovers nearly half of yesterday's steep loss, as Jefferies and Raymond James issue support for the stock.
- Jefferies upgrades its rating to Buy from Hold with an $11 price target, as the firm remains impressed by U.S. drilling share gains and expects next week's 2014 capex announcement to include additional newbuild awards.
- RJ upgrades shares to Outperform from Market Perform with an $11.50 target, as PDS is now the lowest valued contract driller in its coverage group, and yesterday's drop presents a "provocative entry point" for investors.
11:19 AMEnergy takeover talk focuses on Northern Oil & Gas, Approach Resources
- There's ample reason to expect some consolidation among the patchwork quilt of small U.S. exploration and production companies drilling for oil, Barron's writes, focusing on two stocks that could rise at least 50%.
- A buyer could pay up for Northern Oil & Gas' (NOG -3.7%) cash flow, broad acreage holdings, and its knowledge of multiple operators in the Bakken Shale; using NOG's enterprise value of ~$1.5B, it trades at just 5.4x trailing EBITDA, while larger Bakken peers are trading at ~9x.
- Another attractive buyout candidate is Approach Resources (AREX +0.4%), which owns some of the cheapest reserves in the Permian Basin; AREX's assets likely are worth a good deal more given the rich price recently paid by Sinochem for a 40% stake in Permian player Pioneer Natural.
10:33 AMThompson Creek balance sheet worries are overdone, RBC says
- Solvency concerns have helped push Thompson Creek (TC +1.4%) shares more than 20% lower in recent days, but RBC Capital is telling clients the concerns are overblown.
- RBC's analysis suggests TC will not run into liquidity problems unless copper prices fall below $2.50/lb. and the ramp-up at the Mt. Milligan project is much more difficult than expected and takes longer than 15 months.
- The firm maintains its Sector Perform rating and $3.50 price target on the stock.
6:29 AMParker Hannifin gets two-notch upgrade
- Goldman does an about-face on Parker Hannifin (PH), upgrading shares to Buy from Sell with a 12-month price target of $135 (current $116.51).
- "We now view PH as one of the most attractive stocks in our space for several reasons: (1) de-risked FY14 EPS, which implies 1-1.5% organic growth at 30% incremental margins; (2) improving orders; and (3) selfhelp/IP acceleration likely to drive coverage-leading FY15 EPS growth. In addition, we believe PH’s solid FCF generation can support mid-teens dividend growth (attractive to yield investors) and fuel either more M&A or buyback."
- "Where we were wrong on the Sell? In short, we waited one quarter too long to upgrade PH."
5:27 AMBrean downgrades Bonanza Creek Energy, sees more upside in PDCE, SYRG
- Brean downgrades Bonanza Creek Energy (BCEI) to Hold from Buy.
- "Attractive, linear growth and long-lived inventory make this a solid story, but we find the upside in PDC Energy (PDCE) and Synergy Resources (SYRG) as more compelling at this point despite richer multiples."
- NBL analyst meeting on December 18th might give reason to revisit NAV assumptions.
4:35 AMUlta Salon: Weak guidance might be an opportunity
- Analysts pull back on Ulta Salon (ULTA) following yesterday's weak Q3 and uninspiring guidance, but differ on ULTA's long-term prospects:
- Piper: "We are downgrading shares of ULTA to Neutral from Overweight based on the following considerations: 1) management indicated that they are suspending their prior target of mid-teens% operating margins; 2) management lowered their square footage growth assumptions to 15% versus their prior range of 15%-20% growth; 3) management has adapted a more muted outlook for EPS growth next year and now expects to see low-20s% growth compared to 25% previously."
- Goldman: "ULTA’s 3Q results revealed two layers of unanticipated challenges. (1) An incrementally-promotional environment challenged 3Q results, and has continued into 4Q. (2) New CEO Mary Dillon is assessing the company’s investment priorities, which involve incremental commitments to supply chain and marketing. These factors led the firm to fall slightly short of 3Q consensus (though within guidance); lower 4Q guidance; direct 2014 initial EPS toward low-20% growth, below the prior long-run guidance of 25-30%; and, “suspend” long-term mid-teens EBIT margin guidance... We still see a strong growth concept, with strong ROI, albeit with murkier near-term visibility. The company appears to be assessing the magnitude of the investment necessary to optimize digital marketing, labor, and supply chain; resolving these questions in coming months should enhance clarity on profit potential."
- Wells Fargo: "We believe the pullback in ULTA’s shares (down 17% after-market) due to disappointing guidance is a buying opportunity for this high-quality growth story. We believe the recent traffic slowdown will prove to be temporary, related to a share shift to cold-weather apparel categories in October and November (which saw pent-up demand after two warm winters) and to gifting/promotional holiday categories during holiday. ULTA’s inventories are well managed and have minimal markdown risk."