Today - Tuesday, February 9, 2016
- Declaring the company to be in the early stages of a "long-tailed enterprise HR implementation cycle," Mitsubishi UFJ's Stephen Bersey has launched coverage on Workday (WDAY +2.5%) with an Overweight rating and $60 target.
- Bersey: "[H]uman resources (HR) has been an area of IT neglect within the enterprise application market, and that has created a large market opportunity for cloud-based vendors." He's also upbeat on the long-term potential of Workday's cloud financials offerings, while cautioning HR products will remain the main near-term growth driver. "[T]he value of the financials end-market could be greater than that of the HR market and that this opportunity is not fully reflected in the stock’s value.”
- Workday is bouncing a little after having dropped 24% over the prior two trading days thanks to a tech rout in which cloud software firms were among the hardest-hit names. FQ4 results arrive on the afternoon of Feb. 29.
- Three months ago: Wedbush downgrades Workday post-earnings on Oracle fears; others defend
- Four months ago: Stephens upgrades Workday, expects more financials traction
Monday, February 8, 2016
- Believing the company will deliver a strong Q4 report and calling its planned $100M+ acquisition of fellow mobile accessory maker Mophie "highly advantageous," Northland Securities has upgraded Zagg (ZAGG +2.7%) to Outperform. Shares are higher on a day most stocks aren't.
- Wunderlich's Rommel Dionsio talked up the Mophie deal last week, and forecast Zagg will now deliver 2016 revenue of $449M and EPS of $0.85 (compares with prior estimates of $261M and $0.76). Dionsio: "[B]oth companies utilize engineering and production resources in China, along with a global network of distribution facilities, which can be integrated. Furthermore, an improved technology platform can enhance and accelerate future product development efforts ... ZAGG has significantly grown its retail network in Europe and Asia the past several quarters, and can potentially market mophie’s product line through these new global retail partners."
- Zagg is paying $100M up-front for Mophie, along with "the amount by which 5X Adjusted EBITDA exceeds $100 million over a 12-month earn-out period." The deal is expected to close in Q1.
- Andrew Left, head of Citron Research (much better known for its short positions than its long positions), has told CNBC he took a long position in LinkedIn (LNKD +2.7%) on Friday, after shares nosedived due to the professional social networking leader's soft Q1/2016 guidance.
- Left: "Only buy stocks that you are willing to buy lower. That is the lesson. I am happy (with the drop) ... There are great companies that I couldn't own for years because of their price, and now I finally have a chance to be an investor. LinkedIn is one of them."
- LinkedIn is higher in spite of a 2% Nasdaq drop. Shares are still down 42% from last Thursday's close.
- Prior LinkedIn coverage
- Prior Citron Research coverage
Thursday, February 4, 2016
Wednesday, February 3, 2016
- Chairman/CEO Stephen Luczo has disclosed he bought 175K Seagate (STX +6.7%) shares yesterday at $30.43, and another 25K later in the day at $28.36. His stake now stands at 1.63M shares.
- Also: Philip Brace, head of Seagate's Cloud Systems & Electronic Solutions Group, bought 5K shares at $29.10. His stake stands at 14,930 shares.
- The hard drive giant is up 14% since beating FQ2 estimates and issuing better-than-feared (though below-consensus) FQ3 guidance last Friday. Benchmark upgraded on Monday.
- Bank of America (BAC -3.7%) has been especially punished in this year's selloff, losing 24% of its value vs. about a 13% drop in the XLF. Even though a rising rate scenario once again appears to be off the table, writes David Reilly, the stock trading at less than 60% of book value has priced in too dire of an outcome.
- On last week's earnings call, the bank said it could lose $700M over the next nine quarters if oil stays at $30 per barrel, and Bernstein's John McDonald estimates losses in a stressed scenario in excess of current reserves of $1.2B - equal to just 0.5% of tangible common equity, or roughly 5% of what the bank should earn this year.
- As for rates, even with a 10-year yield of just 1.75% one year ago, the bank had a NIM of 2.17% - it can still make money.
- With weak returns and a need for even more aggressive cost-cutting, BofA probably deserves to sell at a discount to book value, acknowledges Reilly, but 40% is just too much.
- A catalyst? Should the valuation remain this low much longer, activists are likely to boost the pressure on CEO Brian Moynihan, including calling for a potentially value-creating breakup.
- Believing estimates and investor sentiment are set to improve, Goldman's Toshiya Hari has added Applied Materials (AMAT +1%) to his firm's Conviction Buy list, and set a $22 target.
- Hari: "The blocking of its merger with Tokyo Electron by the Department of Justice and cuts to capex in the logic/foundry segment made 2015 a challenging year for AMAT ... Looking ahead, we believe 1) signs of a recovery in the order environment (i.e., primarily at the foundries), 2) further confirmation of market share gains and 3) an inflection in gross margins in 2H16, should all contribute towards higher estimates and a re-rating of the stock."
- CLSA upgraded Applied last month. Given the company's reporting history, FQ1 results will likely arrive later in February.
Tuesday, February 2, 2016
- Roth Capital's Brian Alger has launched coverage on Mellanox (MLNX +3.7%) with a Buy rating and $60 target. He praises the company for having an end-to-end line on InfiniBand/Ethernet connectivity offerings, and declares it well-positioned to outpace peers.
- The call comes less than a week after Mellanox rallied in response to a Q4 beat and strong Q1 guidance. Shares are at their highest levels since October, and about $5 removed from a 52-week high of $52.77 (set in June).
Monday, February 1, 2016
- Down 19% on Friday after missing FQ3 sales estimates (while beating on EPS) and reporting a 25% Y/Y software license/hardware revenue drop, Quality Systems (NASDAQ:QSII) is recovering a chunk of its losses today.
- On its earnings call (transcript), the healthcare hardware/software provider blamed its FQ3 performance on "hospital unit sales as well as choppiness of the ambulatory software license sales and the impact on related professional service revenues and maintenance," along with a $1.6M software revenue deferral.
- QSII added it anticipates "continued short-term choppiness in quarterly revenues," and promised it will "continue to monitor and manage our expenses proactively to help ensure we achieve a robust bottom line result."
- Declaring shares oversold after they nosedived last week due to a gross margin miss and light FQ3 EPS guidance, Needham's Alex Henderson EXTR)+to+Buy/11263979.html" target="_blank">has upgraded Extreme Networks (EXTR) to Buy. His target is $3.75.
- Henderson: ""We believe Extreme is making the right decisions, demonstrating improvements in its go-to-market strategy, finishing significant investments in training and service capabilities, and is now poised to pivot top growth. You wouldn't know it from the recent stock action, though --- down over 30% post a pretty good quarter and solid top-line guide. In addition, we estimate Extreme will generate $0.50-0.75 in cash to go with the $0.23 already on the balance sheet."
- He adds this growth positions the networking hardware firm to trade at an enterprise value/EPS multiple of just 5.5x by the end of 2017. "We think the stock can and will rebound as these stronger trends and trajectories become increasingly evident. Accordingly, we upgrade EXTR to Buy and set a target price that simply has EXTR rebounding to the recent levels."
- EXTR +1.5% premarket to $2.80.
Sunday, January 31, 2016
- Investors don’t normally equate small-cap stocks with big dividends, but there are a growing number of cash-rich, mature small-cap companies that pay healthy dividends.
- Roger Vogel, head of the value equity group at Silvercrest Asset Management Group, says he's finding plenty of good dividend plays in small-caps.
- His picks include: Douglas Dynamics (NYSE:PLOW), Lancaster Colony (NASDAQ:LANC), Horace Mann Educators (NYSE:HMN), Physicians Realty Trust (NYSE:DOC), Knoll (NYSE:KNL), MSA Safety (NYSE:MSA), and G&K Services (NASDAQ:GK).
- "One cautionary note: Even though many small-cap companies have dividends, their growth is slowing, as is the case for payouts of larger companies. In a tougher economic environment, smaller companies have fewer shock absorbers than big firms."
- Source: Barron's
- Barron’s is bullish on small-cap water-pump specialist Franklin Electric (NASDAQ:FELE) which manufactures systems that pump fresh and waste water for housing, agriculture, and oil & gas.
- Shares have been hit by decreased demand from the energy sector, a strong dollar (60% of FELE’s business is international), and wet weather (which decreases demand for its pumps).
- FELE is down 40% from its 2013 high. Its fundamentals remain solid, and planned cost-cuts in 2016 could lead to an earnings rebound.
- Related: My Top Electrical Equipment Stocks For 2016 (Jan. 7)
- Related: Dividend Growth Stock Overview: Franklin Electric Company (Nov. 11)
- Shares of Ctrip (NASDAQ:CTRP), the dominant online travel agency in China, are down 20% since November.
- Despite weakness in the Chinese economy, travel spending rose 19% in 2015 and could triple by 2020.
- Ctrip should be able to boost profit margins having completed the Qunar rollup; previously the two had been engaged in a margin-squeezing price war.
- While the Chinese already book most of their flights online, only a quarter of hotel reservations are made online, which Ctrip can exploit.
- Shares could rise 30% in the coming year.
- Source: Barron’s
- Barron’s says it’s a good time to bet on the big banks after a rocky start to the year.
- The 10 biggest U.S. banks are trading for 8x-12x 2016 estimated earnings; the S&P 500 trades at 16x.
- Exposure to distressed U.S. energy companies is manageable.
- While leading Democratic presidential candidates are pushing for a breakup of the biggest banks, that possible eventuality could be a positive since many trade below their sum-of-parts.
- The following banks all have 20% upside: Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), BB&T (NYSE:BBT), PNC (NYSE:PNC), Suntrust (NYSE:STI), U.S. Bancorp (NYSE:USB).
Barron’s also mentions Citizens Financial (NYSE:CFG) and Region’s Financial (NYSE:RF) favorably.
Friday, January 29, 2016
- The best-performing U.S. stock over the past 30 years is one that few have heard of: Balchem (NASDAQ:BCPC), a New York-based maker of flavorings, fumigating gases and nutritional additives for animal feed.
- Since the end of 1985, Balchem has gained an average of 26.2%/year - a total gain of 107,099% - vs.10.3% for the S&P 500.
- But with flattening profitability and shares at a lavish 27x earnings, Balchem looks expensive for now, WSJ's Jason Zweig writes.
- Over the past 30 years, 44 U.S. stocks generated cumulative total returns of 10,000% or more; the 10 behind Balchem are HD, AMGN, NKE, UNH, DHR, OTCPK:ATCD, KSU, JKHY, AAPL and MO.
- Just days after carrying out a 1:9 reverse split, Authentidate (ADAT -19.9%) has tumbled below $3.50. The healthcare software firm's market cap now stands at only ~$20M.
- The apparent culprit: A column from TheStreetSweeper's Sonya Colberg that takes aim at Authentidate's revenue pressures, history of losses, and capital-raising efforts, as well as the promotional activity of major shareholder Lazarus management. The final line to Colberg's column: "This is probably the worst company TheStreetSweeper has ever covered and we see no value whatsoever to owning a security like this."
- SA author Mark Lin offered a more bullish view in December 2014.
- With shares having gone into earnings just $1.54 above a 52-week low of $64.04, NetSuite (NYSE:N) rallied after beating Q4 estimates and guiding on its earnings call (transcript) for 2016 revenue of $950M-$970M (+28-31% Y/Y) and EPS of $0.40-$0.45 vs. a consensus of $959.5M and $0.35.
- Q1 guidance is light: Revenue of $212M-$214M and EPS of $0.02-$0.03 vs. a consensus of $216.6M and $0.08. NetSuite suggested macro uncertainty affected its guidance.
- Q4 details: Calculated billings (revenue + change in deferred revenue) rose 28% Y/Y in Q4 to $256.8M, above revenue of $206.2M (+31% Y/Y) but reflecting a slowdown in growth from Q3's 36%. CFO Ronald Gill indicated forex had a 200 bps impact on billings growth.
Spending remained aggressive: Sales/marketing spend rose 32% Y/Y to $95.2M, and R&D spend 36% to $28.7M. Average deal size rose 10% Y/Y, and a record number of $1M+ deals were signed.
- Canaccord upgraded NetSuite to Buy today, while maintaining a $100 target. The firm cited strong demand, a favorable valuation, and expected op. margin growth.
- NetSuite's Q4 results, earnings release
- Citing the company's recent selloff and the strength of its U.S. construction payment management (CPM) software business, Northland Securities' Jeff Houston has upgraded Textura (NYSE:TXTR) to Outperform. His target remains $25.
- Textura closed yesterday just $1.09 above a 52-week low of $14.11 (set on Jan. 15). Q4 results are expected in the coming weeks.
- Six months ago: Northland starts coverage on Textura with Outperform rating, $40 target
- Believing shares are at attractive levels following Thursday's 15.4% post-earnings drop, Bernstein's Pierre Ferragu has upgraded Juniper (NYSE:JNPR) to Outperform. His target is $31.
- Ferragu argues Juniper's light Q1 guidance (heavily responsible for the plunge) is due to management's caution in the face of macro uncertainty. He sees service provider sales (65% of revenue) benefiting from late-cycle capex and isn't worried about Juniper's pending CFO change, given a transition has been planned for some time.
- JNPR +1.6% premarket to $22.82.
- Firm initiates coverage with a Buy rating and target price of SG$0.37 (implied upside 33%).
- "At 0.3X full-year 2016 price/book, the stock is at a quarter of its average valuation in the last decade. Concerns such as the credit rating downgrade and accounting issues appear priced in."
- Shares have lost 75% of their value in the past year. At its current price, Noble is 21% below its 2008 low, from which it subsequently rose 520%.
Thursday, January 28, 2016
- SolarCity (NASDAQ:SCTY) is a standout on a good morning for both the Nasdaq (up 1.1%) and energy-related names - WTI crude is up 7.7% to $34.77/barrel amid growing hopes of Saudi/Russian oil production cuts.
- The gains come on a day California's PUC is expected to vote on a final net metering rate plan (previous) for the state's solar installations; California remains by far SolarCity's biggest market. Greentech Media: "So far, we’ve seen little sign that commissioners are going to reconsider the key solar-friendly points of last month’s proposed decision -- namely, retaining retail-rate compensation for customers' surplus solar power and rejecting additional fees for net-metered solar systems." Unlike with December's Nevada PUC ruling, local utilities aren't happy with the California proposal.
- Roth Capital has reiterated a Buy rating and $65 target on SolarCity today, arguing risk/reward is favorable following a major early-2016 decline. The firm cautions it doesn't think SolarCity will be "out of the woods" until the California net metering decision arrives.
- Q4 results are due on the afternoon of Feb. 9. SolarCity plunged three months ago in response to the 2015/2016 installation guidance given with its Q3 results. Since then, post-2016 expectations have grown thanks to the ITC extension.
Wednesday, January 27, 2016
- Citing several factors, Susquehanna's Mehdi Hosseini has upgraded Super Micro (SMCI +2.6%) to Positive, and hiked his target by $5 to $33.
- Hosseini thinks expectations have been reset following a rough 2015, notes consensus FY16/FY17 estimates are below Super Micro's forecast for 20%+ sales growth, sees data center revenue exposure growing to ~25-30% in FY17 from ~18% in FY15, believes next-gen storage solutions and exposure to upstarts such as Nutanix will act as a growth driver, praises Super Micro's "platform agnostic" business model, and thinks a server product cycle (due this summer) related to Intel's 14nm Broadwell CPU architecture will provide a minor 2016 lift.
- He also thinks the accounting issues that hurt Super Micro in 2015 are behind the company. "We acknowledge that macro-related downside risk exists, but we argue that SMCI's exposure to the secular trends noted above in a de-risked 'platform-agnostic' manner positions the company favorably moving forward."
- The upgrade comes two weeks after Super Micro soared in response to an FQ2 guidance hike. Official FQ2 results (should be accompanied by FQ3 guidance) are due tomorrow afternoon.
- Believing the environment for online travel firms is "becoming less favorable," Goldman's Heath Terry has downgraded TripAdvisor (TRIP -2.1%) to Sell ahead of the company's Feb. 11 Q4 report, and cut his target by $9 to $59.
- Terry, who has also downgraded Priceline (NASDAQ:PCLN) to Neutral, argues high hotel occupancy and average daily rates serve to "crowd out leisure travelers," that rising online booking penetration rates leave less room for share gains, and that competition is growing from alternative accommodation providers (read: Airbnb) and traditional traffic sources (e.g. Google).
- Regarding TripAdvisor in particular, Terry is worried about valuation, slowing revenue growth, and near-term monetization headwinds caused by Instant Booking adoption. "While we believe a cost per acquisition based model like [Instant Booking] has the potential to generate incremental revenue for TripAdvisor over time, the lack of broad coverage, terms negotiated during a period of unprecedented supplier leverage, and conversion rate challenges from the dual track results consumers are presented with are likely to drive slowing revenue growth in the interim ... That said, we believe as a traffic asset TripAdvisor could be an attractive M&A target to larger OTAs."
- Yesterday: TripAdvisor strikes Instant Booking deal with Starwood
Tuesday, January 26, 2016
- With Twitter's (TWTR -0.1%) market cap now near $11B and the company's major executive shakeup raising questions about its turnaround, Cantor's Youssef Squali thinks potential acquirers could start lining up.
- Squali: "With over 300M MAUs and a unique global offering of one-to-all broadcasting platform, we see a lot of value in TWTR for both technology and media companies alike ... There is no concentration of share ownership and no super-voting structure, with the top 3 shareholders owning 6.4%, 5.1%, and 5.0%, respectively." He sees Google, Facebook, Microsoft, Fox, Disney, Comcast, and Time Warner as potential bidders.
- Separately, GoPro (GPRO -1.9%) has announced its cameras will be able to stream footage in real-time via Twitter's Periscope livestreaming platform. The feature, which could be popular for sports broadcasting, is currently supported by Hero4 Black and Silver cameras (they feature built-in Wi-Fi/Bluetooth) connected to iPhones. It arrives shortly after Twitter began embedding Periscope broadcasts within its user Timelines.
- Yesterday: Twitter closes near $17 following departures
Monday, January 25, 2016
- Believing Intel (INTC -0.2%) under-shipped end-market demand for all of 2015, and that this "adds potential upside to estimates as the PC supply chain replenishes processor inventories," Macquarie's Deepon Nag has upgraded the chip giant to Outperform. His target remains $35.
- Nag also argues Intel's dividend (3.5% forward yield based on an increased quarterly dividend of $0.26/share) provides downside protection should a global downturn arrive. The upgrade comes less than two weeks after Intel tumbled in the wake of a Q4 beat - slowing server CPU growth and cautious commentary about Chinese/Asian demand weighed on shares.
- Intel's desktop and notebook CPU volumes respectively fell 9% and 10% Y/Y in Q4; ASP increases of 9% and 6% limited the revenue impact. IDC and Gartner respectively estimate PC shipments fell 10.6% and 8.3% Y/Y in Q4; IDC's figure improves by ~600 bps if one counts detachable tablet shipments.
- Mizuho upgraded Intel shortly before earnings. Nomura upgraded in December.
- Liking NCR's valuation following its recent selloff, Northcoast Research's Kartik Mehta has upgraded the point-of-sale hardware/software provider to Buy ahead of its Feb. 9 Q4 report. His target is $26.
- NCR had dropped 16% in 2016 as of Friday's close. Shares currently go for just 7.3x a 2016 EPS consensus of $2.94. The company had ~$17/share in net debt at the end of September; since then Blackstone has invested $820M via convertible preferred stock.
Saturday, January 23, 2016
- Madison Square Garden (NYSE:MSG) is the owner of the greatest sports arena in the world, says Mario Gabelli (somebody get this man a ticket to The Palestra), but it's far more, with sports franchises like the Knicks Rangers, and Liberty, and properties like L.A.'s Forum and the Chicago Theatre.
- The current market cap is $3.8B, it has $1.5B of net cash, and has committed to buy back $500M of stock. The sports teams alone, says Gabelli, could be worth $1.7B.
- He takes note of the "construction renaissance" from West 34th Street south along the High Line, and discussions about the renovation of Penn Station (over which sits Madison Square Garden). The air rights over Madison Square Garden may be worth as much as $500M, figures Gabelli, and the company is looking at ways to monetize this.
- The combination of cash flows, asset values, and buybacks has Gabelli estimating the company is worth $200-$300 per share vs. yesterday's close of $151.
Friday, January 22, 2016
- Citing low valuations, Longbow Research's Shawn Harrison has upgraded IT product/chip distributors Arrow Electronics (ARW +5.2%) and Avnet (AVT +3.4%) to Buy, while respectively setting $63 and $48 targets.
- Avnet's FQ2 (calendar Q4) report arrives on the morning of Jan. 28. Arrow hasn't set an earnings date, but (given its history) should report over the next few weeks.
- Avnet currently trades for just 7.7x an FY17 (ends June '17) EPS consensus of $5.06. Arrow trades for 7.7x a 2016 EPS consensus of $6.46.
- A day after Janney upgraded SunPower (NASDAQ:SPWR) to Buy, Barclays' Jon Windham has upgraded to Overweight, while hiking his target by $6 to $32 and predicting U.S. solar demand (due to benefit from the recent ITC extension) will remain strong through 2020.
- Coverage has been launched on Sunrun (NASDAQ:RUN) with an Overweight rating and $12 target. Larger rival SolarCity (up 4.9%) has been started with an Overweight rating and $49target.
- Though still down strongly in 2016, SunPower and Sunrun have each risen over 20% from respective Wednesday intraday lows of $19.68 and $6.94. The Nasdaq is up 2.3% today.
- Ahead of Alibaba's (BABA +1.6%) Jan. 28 FQ3 report, Evercore's Ken Sena (Buy rating, target cut by $6 to $88) reports a survey of 1K Alibaba shoppers and 1K sellers found recent Chinese stock market volatility hasn't significantly impacted the company. He adds Evercore's macro team's work suggests Chinese macro datapoints aren't collapsing.
- Surveyed Alibaba sellers reported seeing a Q/Q improvement in volumes and strong ROI, albeit with some pressure for ad spend. Surveyed consumers reported a continued willingness to spend on Alibaba, with higher promotions a motivating factor.
- Also: Sellers reported 15.7% Y/Y average GMV growth in calendar Q4, up from 13.8% in Q3, and 82% said Alibaba provided the highest ROI among Chinese e-commerce platforms. Nonetheless, Sena is slightly lowering his estimates on account of macro caution.
- Meanwhile, ITG Research reports Alibaba's FQ3 GMV is tracking above expectations (source: Notable Calls). Alibaba is up moderately on a morning the Nasdaq is up 2%, and the S&P 1.6%. Shares are down 12% in 2016.
- Believing U.S. solar demand will remain strong through 2020, Barclays' Jon Windhan has launched coverage on SolarCity (NASDAQ:SCTY) with an Overweight rating and $49 target.
- Meanwhile, SolarCity says it has finished its fifth solar asset securitization, and its first securitization of distributed solar loan assets. The deal involves a $185M private placement ($2.89 per watt of solar generation capacity) featuring a 5.81% blended yield, and a 2022 anticipated payment date. S&P has rated the debt BBB (lower medium grade).
- SolarCity ended Q3 with $418M in cash/short-term investments, $878M in long-term debt, $211M in solar bond debt, $796M in convertible debt, and $425M in solar asset-backed notes. Today's news may be soothing recent financing concerns - Bernstein reported last week SolarCity is mulling the direct sale of solar loans, leases, and power purchase agreements at a relatively high 7%-7.5% discount rate.
- SolarCity, hammered in recent weeks along with other solar names, has risen to $34.06 premarket. Nasdaq futures are up 1.7%, and S&P futures 1.4%.
Thursday, January 21, 2016
- Morgan Stanley's Joseph Moore (Overweight rating, $18 target) believes Micron's (NASDAQ:MU) valuation is approaching the levels seen at its 2012 bottom on a price/book, EV/sales, trailing P/E, and replacement value basis. He sees the stock having downside protection as long as Micron can manage balance sheet risks.
- Moore still thinks Micron's fundamentals will remain weak in 1H16, but considers a 2H16 recovery possible. "We think that recent spot market stability in DRAM shows that there isn't panic in the market, but we do expect further weakness to evolve short term." He also predicts Micron's cost structure will improve significantly in the coming months.
- Like many other former tech high-flyers, Micron has been clobbered in the first weeks of 2016 - shares were hit last week following Intel's earnings, and made an intraday low of $9.31 yesterday before bouncing. And like a slew of other beaten-up names, Micron is rallying today on healthy volume (35.8M shares vs. a 3-month daily average of 23.8M).
- Last month: Micron slumps after earnings/guidance; Street looks to 2016
- "We believe ADTN is well positioned to benefit from what we see as a multi-year ramp in broadband spending by [North American] carriers as they benefit from multiple phases of the [FCC] CAF 2 program, ramp of significant new programs already won and a generally more aggressive spending stance by [North American] telcos as they deal with competition from cable MSOs and Google, among others," writes Needham's Richard Valera, upgrading Adtran (ADTN +1.2%) to Buy. His target is $21, or 15x estimated 2017 EPS ex-cash.
- Valera also thinks Adtran delivered solid Q4 results on the back of North American broadband access strength, and notes the telecom equipment vendor provided bullish commentary regarding 2016 North American demand.
- Adtran briefly sold off yesterday amid a market plunge after providing cautious Q1 guidance (on its earnings call) to go with a Q4 beat. However, shares followed markets higher in the afternoon, and closed up 1.8%. They're adding to their gains today amid a 1.3% Nasdaq gain.
- Stifel and MKM upgraded Adtran two weeks ago; CAF Phase II projects and opportunities with CenturyLink and AT&T were among the factors cited.
- Stating channel check data points to strong market growth and Fitbit (NYSE:FIT) maintaining its market dominance, Raymond James' Tavis McCourt has upgraded the fitness band leader to Outperform, and set a $25 target.
- McCourt expects Fitbit's recently-unveiled Blaze smartwatch to sell well, and to boost peripherals sales via its accessory bands. He also likes Fitbit's valuation following its recent selloff, and sees one or two additional device launches this year.
- Fitbit has risen to $18.49 premarket. The upgrade comes with shares having dropped 40% in 2016 as of yesterday's close - they fell hard on Jan. 5 following the Blaze reveal and Under Armour's fitness product launch, and added to their losses as high-beta tech names tumbled amid a market rout. Q4 results are expected in the coming weeks.
- Last month: Pac Crest, Piper issue bullish pre-Christmas Fitbit notes
- Update: Some other Fitbit coverage: Stifel's Jim Duffy has cut his target by $25 to $35, while reiterating a Buy. Duffy: "With strong proof of market adoption of new products in 2016 (Blaze to launch late 1Q), we believe FIT shares could recapture multiple points in appreciation for the franchise sustainability and growth opportunities."
Wednesday, January 20, 2016
Tuesday, January 19, 2016
- Believing the company's planned cash/stock acquisition of fellow microcontroller maker Atmel (ATML +0.6%) is a "game-changer," Morgan Stanley's Craig Hettenbach has upgraded Microchip (MCHP +1.8%) to Overweight, and set a $55 target.
- Hettenbach notes an Atmel acquisition would increase Microchip's exposure to 32-bit ARM microcontrollers (a fast-growing segment), and believes a deal would be accretive by 20%.
- Last week, Atmel declared Microchip's $8.15/share offer for the company superior to Dialog Semi's existing deal to buy Atmel. Soon after that, Dialog announced it wouldn't try to one-up Microchip's offer.
- Atmel, which trades $0.20 below Microchip's offer price, has been downgraded to Equal Weight by Hattenbach. Companies set to be acquired often get upgraded/downgraded to neutral ratings.
- Microchip and Atmel's calendar Q4 reports are due in the coming weeks. Atmel cut its Q4 sales guidance six days ago.
- Believing the e-commerce software/services firm's recent selloff spells a buying opportunity given strong growth and healthy results, Morgan Stanley's Brian Essex has upgraded Shopify (NYSE:SHOP) to Overweight. His target has been cut by $3 to $34.
- MS had maintained an Equal Weight rating since June 30 (the end of Shopify's IPO underwriter quiet period). At the time, Shopify was at $31.32.
- Shares have bounced to $21.05 premarket. Q4 results arrive on the morning of Feb. 17.
- "As SWKS management has delivered the most consistent execution in the RF front-end [market] over the past several years and as we believe the RF front-end [addressable market] is poised to grow at a double-digit CAGR through 2019, we would take advantage of share price weakness to accumulate SWKS shares," writes Needham's Quinn Bolton, upgrading to Buy ahead of Skyworks' Jan. 28 FQ1 report. His target is $73.
- Bolton thinks iPhone weakness is largely priced into the stock and analyst estimates, and thus considers shares poised for a "relief rally" around earnings. He previously downgraded Skyworks to Hold in Dec. 2014, when shares were at a dividend-adjusted $73.81.
- Skyworks is up to $62.31 in premarket trading. Nasdaq futures are up 1.5%.
Monday, January 18, 2016
Saturday, January 16, 2016
- The group got together last Monday, meaning it had the year's ugly first week to mull over, but not the year's equally ugly second week. Jeff Gundlach is a new member and fans won't be surprised at his bearish macro outlook.
- He's been outspokenly against the Fed's tightening monetary policy and drops a few interesting points: There's only a 60-basis point difference between GDP growth rates in the U.S. and Europe - with European GDP actually trending higher while U.S. GDP tracks lower. Yet the ECB has set negative rates and is talking about boosting QE, while Fed has eliminated QE and is raising rates. More? Of 118 Fed rate hikes since about 1945, nominal GDP was above 5.5% on 112 of those occasions, and averaged 8.6%. Only twice since 1945 has the Fed boosted while GDP was below 4.5% - the last time was 1982, and the central bank had to reverse course almost immediately. Nominal GDP today looks to be headed to about 2%.
- As for stock picks, Oscar Schafer finds a number of beaten-up names. Among them is Evertec (NYSE:EVTC), which owns the transaction-processing business in Puerto Rico (it was spun out of BPOP in 2010). Suffice it to say, Evertec is being penalized by its domicile. But the company is expanding across Central and South America. Even if things don't improve in Puerto Rico, the company should do fine. If things get better there, the stock's a home run.
- His other favorites: Calpine (NYSE:CPN), CommScope Holding (NASDAQ:COMM), and NICE-Systems (NASDAQ:NICE).
Friday, January 15, 2016
Thursday, January 14, 2016
- "In our opinion, Tower is a collection of old semi foundries cobbled together from acquisitions, which produce significantly below industry average GAAP gross margins," reads the start of a 79-slide presentation from Spruce Point Capital making a bear case for TowerJazz (NASDAQ:TSEM). "Tower has a speculative business model that does not appear to make money, and appears dependent on issuing its inflated equity to finance transactions with larger industry counterparties ... Valuing Tower at between 0.5x and 0.8x 2016E revenues gets us a valuation range of approximately $3.00 - $6.00 per share (50 -75% downside)."
- In a Seeking Alpha article summarizing his firm's bear case, Spruce Point's Ben Axler notes TowerJazz's shares count has grown 34% since 2005, and that the company spends just ~15% of revenue on capex vs. the ~40% spent by other chip foundries. It argues partnerships with Micron and Panasonic "reflect a short-term business strategy designed to bolster revenue growth for short periods, which allow its partners to sunset aged product cycles," and asserts TowerJazz marks the value of its Panasonic JV at a 250%+ premium to Panasonic's valuation.
- Spruce Point also believes TowerJazz has "engaged in other questionable accounting maneuvers to give the appearance of strong Non-GAAP gross margins, profitability, and free cash flow such as: 1) Shifting COGS expenses to R&D and SG&A; 2) Changing the presentation of capex from “gross” to “net”; 3) Extending the useful life of its assets to reducing depreciation expense; 4) Excluding depreciation and amortization to present Non-GAAP results (not industry standard); 5) Haircutting its convertible and bank debt by inappropriately interpreting the accounting guidance." In addition, the firm questions the academic credentials of CEO Russell Ellwanger.
- TowerJazz has fallen below $11 on volume of 4.5M shares vs. a 3-month daily average of 499K.
- B. Riley's Sameet Sinha has downgraded YELP to Sell, and cut his target by $6 to $15. Shares have fallen to new 52-week lows.
- Sinha notes Quantcast estimates Yelp's traffic fell 13% Q/Q in Q4, a decline much larger than the 2% estimated for Q4 2014 and translating into an 8% Y/Y drop. "While management has indicated expectations for a seasonal decline in traffic in 4Q15, we believe -13% is indicative of a major problem as it implies traffic decline for the first time on a Y/Y basis." Google search algorithm changes have been weighing on Yelp's traffic for some time.
- He adds the cost of a new app install rose to $5 in Q3 from $3.30 in Q4, and thinks the trend may have continued in Q4. "This could potentially necessitate higher spend as it is a strategic imperative for YELP to develop its own sources of traffic, especially as GOOGL applies additional pressure."
- Competition from the likes of Facebook, Google, and Amazon (has been around for a while) is also mentioned. Facebook recently began prepping a searchable local services directory that leverages info and reviews on Facebook pages.
- Arguing fundamentals don't justify the company's current valuation following a 65% 2015 gain, Barclays' Blayne Curtis has downgraded Nvidia (NVDA) to Underweight, and cut his target by $2 to $23.
- Among chip stocks, Curtis is more partial to Cirrus Logic, Cavium, and Skyworks. Nvidia, buoyed in recent quarters by strong high-end GPU demand for gaming PCs, currently trades for 21x an FY17 (ends Jan. '17) EPS consensus of $1.36.
Wednesday, January 13, 2016
- MKM Partners likes videogames in its Media & Entertainment outlook for 2016 -- and of those companies, Electronic Arts (EA -3.4%) is its top pick, though it also has praise for peers Activision Blizzard (ATVI -6.1%) and Take-Two Interactive (TTWO -3.3%) in that sector.
- MKM's joining a chorus noticing EA's strong game slate for this year, and it says the company should also benefit from continuing margin expansion, "which has been fueled by steady gross margin improvement and declining operating expenses," Eric Handler writes.
- The firm thinks EA can expand EPS growth through mobile sales of its popular game platforms and deploying excess cash in a variety of ways.
- Aside from gaming, MKM also points to Imax (IMAX -3.8%), theater operator AMC Entertainment (AMC -2.4%) and Time Warner (TWX -0.7%) as picks.
- Consumer confidence is looking good in the latter stages of the business cycle, it says, and "as a result, we believe companies best positioned to outperform this year are those in the midst of positive content cycles; and operating in more economically resistant segments, particularly video games, for which we have a very bullish outlook."
- Previously: Electronic Arts +1.4% as Piper stays upbeat (Jan. 13 2016)
- Previously: Electronic Arts launches subscription service for PC gamers (Jan. 12 2016)
- Previously: Cowen: Mobile gaming points to big quarter for EA (Jan. 07 2016)
- Large-cap media stocks are set to surprise investors (positively) this earnings season, says Jefferies Group's John Janedis.
- Particularly considering the bear market in media, Q4 ad results were strong and Janedis expects that market will stay strong at least through Q2. “The stock market continues to dismiss the advertising demand on doubts related to sustainability, focusing more on sub trends and terminal values,” he says. M&A could be a catalyst in 2016 as well.
- His top picks for the sector include CBS (CBS -4.4%), Lions Gate (LGF -2.6%), Live Nation Entertainment (LYV -4.5%), Time Warner (TWX -0.6%), Twenty-First Century Fox (FOX -2.5%, FOXA -2.1%) and Viacom (VIA -1.9%, VIAB -2.2%).
- JPMorgan sees a long-term path for growth in data center REITs, with an early-stage transition progressing in infrastructure outsourcing, and it's leaning toward faster-growing firms.
- That means CyrusOne (CONE -4.2%) gets its top kudos, though it saves some praise for Digital Realty Trust (DLR -0.5%) and QTS Realty Trust (QTS -1.7%).
- "Digital Realty on January 4 issued solid 2016 guidance and we look for even better growth guidance from CyrusOne and QTS Realty Trust when they report in February," the firm said.
- Digital Realty may grow more slowly due to its size, and substantial wholesale revenue. "We like Digital Realty for its scale, stability and dividend, but the company's lower growth outlook, in our view, justifies a lower multiple for the company," JPMorgan says. "We look for low- to mid-double-digit growth rates in revenue, EBITDA, FFO and AFFO for CyrusOne and QTS in 2016 on a standalone basis."
- The firm maintains Overweight ratings on CyrusOne and QTS.
- 18 months after downgrading Qualcomm (QCOM +0.5%) on Chinese royalty concerns (shares have fallen sharply since), Susquehanna's Chris Caso has upgraded to Positive and hiked his target by $7 to $60.
- He considers the Chinese issues "mostly resolved" following last year's settlement with regulators and recent licensing deals. Caso also expects Qualcomm's Snapdragon 820 baseband/app processor (the next-gen flagship, expected to go into some Samsung Galaxy S7 models) to provide a major lift to Qualcomm's chip unit as devices containing the 820 launch in 1H16.
- Caso: "[S]ome risks still remain, given continuing government investigations, intense competition on chipsets (particularly from INTC) and the near-term slowdown at AAPL. But we feel the current stock price discounts much of this risk, and with a bias toward estimate upside this year, not to mention a 4% dividend yield and a 10% [free cash flow] yield, we think the risk/reward for the stock has once again become compelling."
- Though the Nasdaq is down 2.2%, Qualcomm is still in positive territory following the upgrade and news the company is forming a major RF filter/front-end module JV with TDK.
- Arguing a 3% dividend yield and an expected 10% FY15-FY18 EPS CAGR spells a 13% annual return profile, Morgan Stanley's Keith Weiss has upgraded Microsoft (MSFT +2.2%) to Overweight, and hiked his target by $9 to $66.
- A 7% revenue CAGR is expected from FY16-FY18, fueled by Azure, server/data center products, and Office 365. EPS growth, pressured in recent years by weak PC sales and the cloud transition (has pushed out revenue recognition and led to higher investments), is seen outpacing revenue growth with the help of buybacks, cost controls, and cloud gross margin expansion. Weiss: "Microsoft has a strong public cloud positioning, datacenter share gains, a durable Office franchise, and less risk in Windows bolsters our confidence."
- The upgrade comes ahead of Microsoft's Jan. 28 FQ2 report. Last month, Goldman upgraded to Neutral after more than two years of staying bearish.
- Update (4:26PM ET): With the Nasdaq dropping 3.4% on the day, Microsoft gave back its gains, and then some. Shares closed down 2.2%.
- Firm cites overall weak Chinese demand, and China's preference for U.S. steel over European steel.
- Downgrades ArcelorMittal (NYSE:MT) to Underperform from Hold, and new price-target of €3 from €5.50 (current price €3.27).
- Previously: ArcelorMittal downgraded at Citi, which sees prolonged down cycle for steel (Dec. 2)
- ArcelorMittal slashes profit target after Q3 loss (Nov. 6)
- Related: ArcelorMittal: Buy The Drop (Jan. 7)
- ArcelorMittal: In The Valley Of Darkness (Oct. 7)
Tuesday, January 12, 2016
- Barclays' Raimo Lenschow has upgraded CA Technologies (CA +2.2%) to Overweight ahead of its Jan. 26 FQ3 report. His target remains $33.
- In remarks echoing several other recent tech upgrades, Lenschow argues CA's recent pullback spells a buying opportunity. He also thinks shares aren't pricing in recent product and sales productivity improvements.
- With concerns about top-line pressures related to cloud competition and soft enterprise IT spend weighing (the FY16 revenue growth consensus is at -6%), CA trades for just 10.8x an FY17 (ends March '17) EPS consensus of $2.48.
- Two months ago: CA hikes dividend, launches $750M buyback, strikes $590M repurchase deal
- D.A. Davidson has upgraded Imperva (IMPV -0.3%) to Buy. Guggenheim Securities provide a similar upgrade yesterday.
- Davidson's Jack Andrews maintains a $76 target. He sees Imperva's recent selloff as a buying opportunity, and also cites growing financial leverage and strong corporate demand for internal security solutions.
- Imperva jumped in late October following a Q3 beat and strong Q4 guidance, but has more than given back its gains since amid a market selloff. FBR included Imperva on its list of favored cybersecurity plays last month.
- Q4 results arrive on the afternoon of Feb. 3.
- The XHB's (and ITB's) roughly 10% decline during the year's first week is overdone, says Goldman, especially considering there's been little change in housing fundamentals. Plus, the risks many are worried about - the crashing oil price and China slowdown - if anything, could be a net positive for U.S. housing.
- Alas, after strong opens, the housing names are once again in the red:
- Lennar (LEN -1.4%), Hovnanian (HOV -3.2%), KB Home (KBH -3.9%), Toll Brothers (TOL -1.9%), PulteGroup (PHM -1.6%), DR. Horton (DHI -0.6%)
- Believing the company is undervalued relative to peers and that its recent selloff spells a buying opportunity, Morgan Stanley's James Faucette has upgraded Ciena (NYSE:CIEN) to Overweight. His target has been cut by $2 to $23.
- Faucette: "Many 100G metro builds are set to kick-off in 2016, with major investment lasting into 2018. We would expect Ciena's revenue and EPS growth to accelerate as this upgrade gains strength...with the macro concerns that have sent the stock down an additional 10 percent since January 1st, we now think that the stock is attractive."
- He adds improved operational efficiency could also boost Ciena's bottom line. High customer concentration - AT&T and Verizon have long accounted for a major % of sales - is seen as a risk.
- Jefferies upgraded Ciena on Dec. 21, while citing a reasonable valuation and several top-line catalysts. Shares nosedived on Dec. 10 in response to the soft FQ1/FY16 guidance accompanying Ciena's FQ4 beat.
- Believing risk/reward has improved following a rough start to 2016, Mizuho's Vijay Rakesh has upgraded Intel (INTC +2.2%) to Buy. His target is $37.
- Rakesh: "We believe while PCs may remain soft in 2016, the market declines are moderating versus 2015. On the data center side, we believe INTC continues to dominate hyperscale and cloud, driving growth against a backdrop of flattish enterprise server markets. We believe new enterprise tablet opportunities, IoT, and handsets could be incremental upside."
- Nomura upgraded Intel last month, while arguing strong Internet capex growth will act as a 2016 tailwind. Yesterday, analysts provided mixed reactions to December sales data from Taiwanese contract manufacturers (ODMs). RBC estimated the sales of four major ODMs were down 16% Y/Y, but added notebooks were a bright spot.
- Intel is higher on a morning the Nasdaq is up 1.2%. Q4 results arrive on Thursday afternoon.
Monday, January 11, 2016
- Kennedy-Wilson's (KW -2.3%) near-14% decline last week puts that stock at prices not seen since Dec. 2013, says BTIG's Mark Palmer. Funding is a key part of the company's business, so concerns capital markets might seize up would certainly spook investors, but KW just a month ago announced a new $475M revolver.
- Maybe more likely, is that a significant portion of the stock's owners are hedge funds who may be needing to raise cash or just get out of the way until things settle.
- After a 12% decline last week, Voya Financial (VOYA -1.5%) sells for just 0.57x book value ex-AOCI - no better than the valuation when the company went public in May 2013. Yet Voya has made good progress on all aspects of its strategy since then, says Palmer, including returning ample excess capital to owners. The silver lining to the cheap valuation is that it makes buybacks even more accretive to book value.
- While plenty of volatility in the shares of high-profile fintech companies are the norm, the 13.6% decline in Square (SQ +3.4%) last week was excessive even as the firm readies its initial earnings presentation.
- "We are upgrading ADI to Outperform from Market Perform as the stock has dropped to a level at which there is upside potential to our valuation range of $55-$65, based on 16-19x our [Jan. 2017 fiscal year] EPS estimate of $3.43," says Wells Fargo.
- The firm is nonetheless cutting its estimates for the January-October period on a belief there's near-term risk for the iPhone supply chain. Like various other iPhone suppliers, Analog Devices (ADI +2.5%), whose ICs enable the iPhone 6S/6S+'s 3D Touch functionality, has been stung by reports of iPhone-related order cuts; two suppliers (Qorvo and Cirrus Logic) warned on Thursday, and another (Dialog Semi) last month.
- Last Friday: TI, ADI reportedly decide against acquiring Maxim
Friday, January 8, 2016
- A day after Adtran (ADTN +5.8%) outperformed on an MKM upgrade, both Adtran and telecom access network hardware peer Calix (CALX +8.4%) have received upgrades to Buy from Stifel. The firm's targets are respectively $21 and $10.
- Stifel sees Adtran benefiting from CAF Phase II projects with several partners and "largely stable revenue" from Deutsche Telekom and Latin American carriers. MKM argued yesterday CAF Phase II orders and projects with CenturyLink and AT&T would provide a lift.
- Calix cratered in late October due to the soft Q4 guidance provided with a Q3 beat - cautious budgeting by carriers was blamed. Shares closed yesterday $0.64 above a 52-week low of $6.30.
- These income favorites are known for having had a tough time of it in 2015, in part thanks to worries about rising interest rates. MKM's Jonathan Krinsky, however, notes REITs have been relatively outperforming the S&P 500 for months and have just broken out to nine-month highs versus the broader market.
- Krinsky's a technician, so he's staying with the trend and recommending going long REITs (NYSEARCA:IYR) versus the S&P 500.
- Turning to individual REIT sectors and names, he's overweight apartments (AIV, AVB, ESS, EQR, MAA), UDR), storage (CUBE, EXR, PSA, SSS), and shopping malls (KIM, MAC, FRT, REG, IRM).
- He's equal weight data centers (buys: CONE, DCT, QTS, sells: EGP), diversified (buys: AMT, CCI, DLR, DRE, PSB, sells: EQIX, LPT, STAG, VNO, WY, WPC).
- He's underweight office property (buys: EQC, sells: HPP, FSP, GOV, KRC, OFC, PKY, SLG), hotels (sells: AHT, FCH, HPT, HST), mREITs (sells: ARR, STWD, RSO, buy: ABR), healthcare (sells: HCP, MPW, OHI, VTR, buys: DOC, HR, HTA)
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