Despite a difficult comparison in most geographies from a year ago, 
Anheuser-Busch InBev BUD reported solid first-quarter results. We are reiterating our EUR 116 and USD 126 fair value estimates for the ordinary shares and ADRs, respectively, and we believe the shares are undervalued. Despite the continued challenges in some core emerging markets, these results show that AB InBev has pricing power in markets in which it has a strong presence in premium beer, and this supports our wide economic moat and stable moat trend ratings. First-quarter revenue growth was 6.3%, a sequential slowdown from the 7.6% growth recorded in the fourth quarter, but impressive given that A-B InBev was cycling some trade inventory build-up in the US a year ago and a strong quarter in some other markets. This strong top line performance was driven mostly by price/mix. Both Brazil and China recorded a double digit price/mix effect, although volumes in Brazil were still a little soft, down 0.2%. We think a strong Chinese New Year contributed to the the 4.7% volume growth, and we expect this to normalize to the low single digits for the remainder of the year. Budweiser is driving growth globally, with volume up 6.2%, with support from Corona (up 2.7%). This performance is favorable not just for A-B InBev, but for those brewers best-placed to exploit premiumisation in emerging markets, and we believe this augurs favorably for Ambev. For the entire note, click here.
Philip Gorham, CFA, FRM
Following GlaxoSmithKline's GSK in-line first quarter and better-than-expected long-term guidance, we are holding firm to our fair value estimate of $47/GBX 1,510 (ADR/local). At current market prices, the stock looks fairly valued and carries a high but shaky dividend yield. We continue to support the company's wide moat rating, but following the Novartis transaction, we believe the moat source is partly shifting from patents toward brand power, as Glaxo's relative entrenchment in consumer health care has grown. Included in the quarterly results was optimistic long-term guidance (2016-20) of low- to mid-single-digit top-line growth and mid- to high-single-digit bottom-line growth, which runs ahead of our expectations of 2% and 3%, respective ly. We plan to keep our lower projections, largely based on a pessimistic outlook for Glaxo's respiratory franchise (25% of sales), which fell 9% year over year in the quarter largely due to a 23% price decline in the U.S. The lost high-margin U.S. sales have an amplified impact on the bottom line. We see the respiratory franchise as the key impediment to meeting this new guidance, due to the combination of continued slow launches from Glaxo's next-generation respiratory drugs, aggressive payers, increasing competition from AstraZeneca and other drug companies, and likely generic Advair in 2017 in the U.S. For the entire note, click here.
Damien Conover, CFA
Ambev ABEV made a strong start to the year as first quarter earnings beat our--and consensus--estimates. The beat came from a strong top-line performance, with double-digit pricing in the Brazil Beer and Latin America South segments. This demonstrates that Ambev's pricing power--the main source of our wide economic moat rating--is intact. With volumes and mix fairly anemic, however, Ambev is not yet firing on all cylinders, and we expect mix to be a more significant driver as the macroeconomic picture improves in Brazil. We are reiterating our fair value estimates of BRL 19 and $6 for the ordinary shares and ADRs, respectively, as well as our wide economic moat and stable trend ratings. Despite facing a strong first quarter last year, Ambev delivered excellent revenue growth in the first quarter of 2015. Growth was driven almost entirely by price increases, as Ambev passed through double-digit price increases in the Brazil (up 11%) and Latin America South (up 30%) segments. Unsurprisingly, given the inflationary environment, volume growth remained soft, rising just 0.4%. Although this is below our estimate of the medium-term secular volume growth rate of over 2%, it indicates that the price increases are being absorbed by the consumer. Although management pointed to double-digit growth in premium beer sales, the mix impact across key geographies appeared to be fairly flat in the first quarter. This was reflected in margins in the first quarter. For the entire note, click here.
Philip Gorham, CFA, FRM
Imperial Tobacco's ITYBY first-half results put the firm on track to meet our forecasts for full-year underlying performance. We are raising our fair value estimates to GBX 3,000 from 2,900 for the ordinary shares and to $92 from $90 for the ADRs to account for the time value of money since our last update. These results demonstrate that Imperial is holding its own against larger competitors British American Tobacco and Philip Morris International and support our belief that Imperial is a strong business with sustainable competitive advantages. Our wide economic moat and stable moat trend ratings remain in place. Reported revenue fell 4%, slightly below our forecast and a sequential deceleration after an above-par first quarter. Foreign exchange had a negative 7 % impact on revenue, a headwind that could continue in the second half of the year as a result of the recent strengthening of the British pound against several currencies. Volume declined 3% excluding Iraq and after adjusting for the effects of last year's stock optimization program, a slightly slower rate than the industry, and modestly better than the 3.6% decline reported by British American in the same period. Including Iraq, however, volumes declined 5%. With the business chugging along as expected, investors' attention is likely to switch to Imperial's pending acquisitions of cigarette brands from Reynolds American and blu e-cigarettes from Lorillard. For the entire note, click here.
Philip Gorham, CFA, FRM
Telenor TELNY reported strong first-quarter results and we expect to increase our fair value estimate by about 15%. There is no change to our moat rating. Reported revenue increased 19.3% versus our full-year projection of 7.7%. However, the biggest difference is currency-related as the Norwegian krone depreciated against most Asian currencies. On an organic basis the firm's revenue increased 8%. The big surprise was Myanmar where we expected its subscriber base to double to 6.8 million subscribers during the year, but it almost achieved that in one quarter adding almost 3 million customers to 6.4 million. We expect to significantly increase our projections for this country. India also showed solid subscriber growth with its wireless customer base improving 26.1 % to 38.5 million. We were a bit disappointed with subscriber gains in many other markets during the quarter, but this was more than offset by strong wireless data revenue gains. In Norway, Telenor's largest market by revenue, its wireless base declined slightly during the quarter, but had 9% average revenue per user growth as the median data usage more than doubled. ARPUs increased in other countries as well due to higher data usage. We are very pleased with these results as a big theme of our higher revenue expectations for European telecom operators is that higher data usage can be monetized allowing revenues to grow. For the entire note, click here.
Allan C. Nichols, CFA
Swisscom reported mixed first-quarter results with solid revenue growth, but weak margins. We are maintaining our fair value estimate and moat rating. The firm's reported revenue grew 2.6% year over year versus our full-year projection of a decline of 2.1%. We have expected the strengthening of the Swiss franc to cause revenue from its Fastweb business in Italy to decline after translating its revenues to francs. However, revenue growth was sufficient in the quarter to more than offset this headwind. Despite this result, management didn't change its full year guidance. In Switzerland, Swisscom saw good subscriber growth with its wireless base up 2% to 6.6 million, broadband base gaining 4.1% to 2.7 million and pay television base jumping 14.2% to 1.2 million. We continue to be impressed with the firm's ability to grow its customer base despite increased competition from Liberty Global and already having 59% wireless market share. We don't see a reason for this trend to change. At Fastweb its broadband base grew 7.1% to 2.1 million, which offset most of the currency impact on revenue. However, we don't think this is sustainable for the whole year. Additionally, the growth against increased competition both in Switzerland and Italy came at the cost of margins. Swisscom's EBITDA margin was only 36.3% versus our full-year projection of 37.8%. While we anticipate adjusting our model, we think higher revenue growth will be offset by lower margins. For the entire note, click here.
Allan C. Nichols, CFA
CenturyLink's CTL first-quarter revenue was at the low end of management's expectations, primarily as a result of weak equipment sales. The firm remains confident in its full-year revenue forecast, but hitting this target will require significant improvement in growth in the back half of 2015. Management expects the recent salesforce reorganization will begin bearing fruit soon and the cloud business will finally show signs of turning around shortly. Select price increases and a slowdown in carrier migrations from copper to fiber circuits should also provide a lift. We believe there is a risk that execution in the enterprise services market disappoints over the balance of the year, leaving the firm short of our expectations. However, our view of CenturyLink's long-term potential is unchanged, and we don't plan to change our fair value estimate or moat rating. With the stock selling off over the past three months, the shares are starting to look interesting, though we'd still wait for a larger margin of safety before investing. Revenue decreased 1.9% year over year, slightly better than the performance of the prior quarter. Equipment sales continue to cause reported growth to bounce around, as this business is lumpy by nature. Looking past equipment sales, CenturyLink's performance remains mediocre. Strategic services growth has decelerated steadily over the past year, dropping to 1.7% year over year during the quarter. For the entire note, click here.
Michael Hodel, CFA
Fiserv's FISV first-quarter results contained no major surprises, but showed that this wide-moat franchise continues to perform well. Revenue grew 4% year over year, with results slightly hampered by the strong dollar and a relatively low level of termination fees. Adjusted for currency effects, Fiserv's growth rate was in line with first-quarter results at closest peer FIS. Management expects growth to accelerate a bit in the back half of the year as it moves past more difficult comps and growth in the payments segment picks up. Fiserv is now growing at a rate close to what we expect longer term. While the company has opportunities to generate growth through new product offerings going forward, we think the maturity of the banking industry puts a realistic ceiling on Fiserv's growth prospects. Operating margins, adjusted for one-time expenses and purchase amortization, improved to 31.1% from 29.6% last year. We're pleased with the meaningful jump, but this level of margin improvement is unsustainable, in our view. We think management's target of at least 50 basis points in margin improvement for the full year is realistic, though, and we think the company can maintain modest margin improvements at roughly this level over time, given the scalability of the business. We maintain our fair value estimate and moat rating. During the quarter, Fiserv repurchased 3.8 million shares, or about 1.5% of outstanding shares, at an average price of $76. For the entire note, click here.
Brett Horn
Electronic Arts EA posted another strong quarter to end fiscal 2015, as fourth-quarter results exceed consensus projections. We do not foresee changing our narrow moat rating at this time but may raise our fair value estimate after updating our model. Non-GAAP net revenue of $896 million (down 2% year over year) came in above consensus of $852 million and guidance of $830 million, driven by the strong performance of Battlefield Hardline and catalog titles. Total revenue from consoles decreased 2% year over year to $542 million as the transition to a new generation of gaming consoles did not offset weaker prior-generation console revenue. PC game revenue fell 17% year over year to $172 million and mobile gaming sales grew 22% to $152 million as the shift to the freemium model continued. Non-GAAP operating margin fell to 18%, down sharply from 23% in the year-ago quarter as the company spent on marketing for Battlefield Hardline. Non-GAAP earnings per share came in at $0.39, ahead of management's guidance of $0.22 and consensus of $0.26. EA announced its 2016 console release schedule, which contained very few surprises. The company moved its PGA golf to fiscal second quarter, where it will be joined by the annual editions of FIFA, Madden, and NHL. The major releases for the fiscal third quarter will be Star Wars Battlefront and a new Need For Speed game. The company also announced fiscal 2016 guidance of $4.4 billion in non-GAAP revenue and $2.75 in non-GAAP EPS.
Peter Wahlstrom, CFA
Western Union's WU shares are trading up based on rumors that the company may be involved in early-stage talks to acquire its closest rival, MoneyGram. While we would generally prefer Western Union to avoid acquisitions, this potential deal would be additive to the company's moat if completed, in our view. We think the primary basis of Western Union's wide moat is scale, and the power of scale in the industry is shown by the fact that Western Union has operating margins about twice the level of any other competitor in the industry. Acquiring MoneyGram would lead to a material boost in volume and further this advantage. We think MoneyGram also might be amenable to a deal, as it is suffering from the loss of Wal-Mart's domestic channel business and its private equity partners have shown signs in the past that they are looking for an exit. Antitrust concerns could be a material obstacle, as Western Union and MoneyGram are the two leading players in the industry. In our view, regulators' concerns would hinge on how they define the market. Using the World Bank's estimate of global cross-border remittances, we estimate that Western Union and MoneyGram combined have less than 20% market share, a level that might not prompt much concern. But we believe the World Bank data includes a substantial portion of remittances that are not served by the money transfer industry, and the companies' effective share is considerably higher. For the entire note, click here.
Brett Horn
Vestas reported good first-quarter results with revenue growth of 18% compared with the first quarter of 2014 and adjusted EBIT margin of 5.2%. Approximately EUR 150 million of the revenue increase was due to translation effects, mainly from the appreciation of the U.S. dollar. Adjusted EBIT in the quarter almost doubled, driven mainly by higher volume, favorable project mix margins, and translation impact. In our note from February, following full-year 2014 results, we indicated that we viewed management's guidance for 2015 as very conservative, and very likely to be raised during the year. As expected, Vestas upgraded the 2015 guidance on revenue from minimum EUR 6.5 billion to at least EUR 7.5 billion, and EBIT margin guidance before special items from minimum 7% to at least 8.5%. We expect revenue to rise from EUR 6.9 billion in 2014 to E UR 7.2 billion in 2015. We share management's view that the 2014 EBIT level of 10.2% is not sustainable as parts of cost control are not repeatable. However, Vestas will benefit from the increasing attribution of high-margin service revenue (a 21% EBIT margin in the first quarter), stable pricing of order intake, and operational leverage due to higher U.S. extended PTC-related sales activity, so we expect margins above 9% in 2015. We maintain our no-moat rating and fair value estimate of DKK 272 per share. For the entire note, click here.
Jeffrey Vonk, CEFA
TIM Participacoes TSU reported mixed first-quarter results, with weak revenue but good margins. We are leaving our fair value estimate and moat rating unchanged for now. Reported revenue fell 3.3% year over year versus our full-year projection of 1% growth. Mobile termination rate cuts continue to overwhelm other results. TIM's wireless subscriber base increased 2.5% to 75.7 million, but this was offset by average revenue per user falling 5.5% due to MTR cuts. While we expected MTR cuts to continue to pressure revenue, we thought data usage would help offset it. However, the firm has extended an offer to not count WhatsApp usage against customer data usage. WhatsApp usage has caused a huge decline in SMS revenue, and we had anticipated that such usage would push up data demand and in turn cause more customers to pay for larger data buckets, but this isn't occurring because of the marketing campaign. Over time we expect greater data usage will drive higher revenue growth, but it appears that will be delayed. TIM is doing a better job than we anticipated at controlling costs. While the quarter's EBITDA margin of 29.5% isn't that far above our full-year projection of 29.3%, the first quarter historically has one of the lowest margins of the year, so we expect better margins for the year will mostly offset the delay in revenue growth. We continue to think the shares are somewhat undervalued.
Allan C. Nichols, CFA
Alstom reported good full-year results with revenue of EUR 6.2 billion, up 8% year over year on a reported basis and up 7% organically. The firm booked a record of EUR 10 billion of orders, up by more than 60% compared with last year. The intake was boosted by a EUR 4 billion rail contract in South Africa for 600 trains and corresponding maintenance over 18 years. Operating margin improved 50 basis points thanks to sales growth, sound project executions, and cost control, and despite ramp-up costs of new platforms. However, group net income was affected by a number of exceptional items, in particular the agreement with the U.S. Department of Justice and some asset write-offs in Russia. The results were in line with our expectations and showed the underlying strength of the business, in our view. We maintain our no-moat rating and EUR 31 fair value estimate. In June 2014, Alstom agreed to sell its power generation business to General Electric to focus on transportation. In the context of the sale, thermal power, renewable power, and grid activities have been classified as discontinued operations and not included in orders and Alstom's guidance for the current year and midterm. The project between Alstom and GE is moving ahead and thus we expect a closing in the coming months. For the entire note, click here.
Jeffrey Vonk, CEFA
Lamar Advertising LAMR posted better-than-expected sales growth and expense control in its first quarter, and while management didn't change its full-year guidance, the team noted that it is trending toward the high end of the previously provided range. This is obviously an encouraging start to the year, but we're quick to note that the first quarter is the smallest quarter in terms of cash flow generation, and we caution investors against blindly extrapolating the strong results into the future. There is no change to our narrow moat rating or $52 fair value estimate at this point, and we view the shares as modestly overvalued. First-quarter revenue came in at $302.5 million, up 6.2% year over year, led by particular strength in the local markets (up 6.7%). We w ere pleasantly surprised by the level of cost control exhibited during the quarter, and total EBITDA margin expanded more than 200 basis points to 39.2%. As investors shift to view Lamar in its new real estate investment trust structure, adjusted funds from operations increased 34% year over year to nearly $79 million, or $0.82 per share. Management reiterated its full-year AFFO guidance of $4.34-$4.45 per share and noted that it is currently tracking to the high end of this range. The business environment appears to be relatively steady, but management acknowledged that there is still some uncertainty when looking into the fourth quarter, where the company has more difficult compares. For the entire note, click here.
Peter Wahlstrom, CFA
We are reaffirming our $73 per share fair value estimate, no economic moat, and stable moat trend ratings after SolarCity SCTY reported first-quarter results. Key metrics for megawatts installed, cost per watt, and net retained value were in line with our expectations. Seasonality, particularly due to the fluctuations in northeast installations, creates difficulties with quarterly comparisons, but we believe SolarCity is well positioned to meet management's 2015 goals. SolarCity installed 153 MW in the quarter, above management's 145 MW quarterly forecast. Installations were up sharply from the same year-ago quarter but below fourth-quarter installations of 176 MW. We view full-year installation targets of 920 MW-1,000 MW as achievable. Total costs rose to $2.95 per watt, up from $2.86 per watt at year-end as per-unit costs were spread over fewer installations. We expect per-watt sales and general and administrative costs to decline as installations pick up in the remainder of the year. We continue to have confidence in management's ability to meet its 2017 cost goal of $2.50 per watt. Net retained value, management's forecast of net cash flows attributed to shareholders after debt, rose $300 million to $2.7 billion in the quarter. Management projected an unleveraged 11% IRR for deployments based on $0.13/kWh customer rates, 2.2% annual rate escalation, and 0.5% solar panel production decline. For the entire note, click here.
Andrew Bischof, CFA
Myriad Genetics MYGN reported third-quarter earnings that fell slightly behind our expectations due to harsh weather on the East Coast and some seasonal pressure from the reset of higher-deductible plans. The formal comment period for Prolaris reimbursement was also extended to the end of April, prompting the firm to again cut its fiscal-year revenue projections from $730 million-740 million to $720 million-$722 million. This revision isn't material enough to move the needle on our $34 fair value estimate, and our narrow moat and negative trend ratings remain intact. Harsh winter weather in the Northeast created a $4 million headwind for hereditary cancer testing, contributing to a 1.6% decline in total sales in the third fiscal quarter. In addition, myRisk sale s were largely flat on a sequential basis as the company pared back expansion to finish installing informatics capacity, though the test still represented 58% of the firm's hereditary cancer samples. However, management did not observe material market share erosion from the second to third quarter. Myriad's studies displaying the inaccuracy of public databases used by competitors reinforce our confidence that it will be difficult to match its testing accuracy in the near future. BRACAnalysis CDx also performed particularly well in light of AstraZeneca's recent approval of olaparib, with ovarian cancer sample volume increasing 40% on a sequential basis. For the entire note, click here.
Karen Andersen, CFA
Weight Watchers' WTW first-quarter update largely continued recent trends, with cost-prevention efforts overshadowed by recruitment struggles and a lack of visibility regarding its ability to adapt to changing consumer views about weight loss. As we've previously stated, we think management has correctly identified that consumers now see weight management as a component of a more holistic approach to health and wellness, and view technology initiatives--including live chat and API functionality--as ways to evolve the Weight Watchers platform into a more complete solution. Nevertheless, the quarter provided little evidence to ease our concerns about the brand's diminished pricing power. Management noted that it saw some success with its "Lose 10 Pounds on Us" and other promotions, but that these efforts had not led to sustained recruitment growth. In our view, this suggests that more aggressive promotions or price cuts will be necessary to attract members amid a more competitive health and wellness landscape and validates our pricing power concerns, the impetus for removing our narrow moat rating. We plan a modest reduction to our $10 fair value estimate based on greater-than-anticipated foreign exchange headwinds, lack of visibility about changes for the winter 2016 recruitment season, and uncertainty about the firm's health care pipeline (though management has been pleased with early Humana partnership results). For the entire note, click here.