Today - Sunday, March 29, 2015
- Optical component industry consolidation "was a common topic of discussion among investors and companies" at the industry's recent OFC conference, reports Piper's Troy Jensen. "The reasons for consolidation are well known and center on operational expense savings, a more rational pricing environment, and more complete product lines."
- One deal that's viewed as especially likely: A Finisar (NASDAQ:FNSR) purchase of JDS Uniphase's (NASDAQ:JDSU) optical component/laser unit (CCOP), currently set to be spun off as Lumentum Holdings in Q3. Activist Sandell Asset Management has been urging JDS to sell CCOP, which had FY14 (ended June '14) revenue of $794M (+7% Y/Y). Jefferies' James Kisner thinks a deal could happen, but not before the spinoff occurs.
- Jensen on industry consolidation in general: "The question isn't really an if, but more of the urgency of potential sellers and buyers and also at what price a deal would take place. In general, our feeling is that investors were slightly more anxious for a deal, while companies we spoke with sensed the need for consolidation, but were less anxious."
- The industry has already seen a decent amount of M&A. In addition to CCOP, smaller component vendors Oclaro (OCLR - $213M market cap), Alliance Fiber (AFOP - $308M market cap), Applied Optoelectronics (AAOI - $196M market cap), and NeoPhotonics (NPTN - $217M market cap) could be targeted. NeoPhotonics has soared since delivering a big Q4 beat (fueled by strong 100G component demand) on March 3.
- Angie's List (NASDAQ:ANGI) has halted a major expansion of its Indianapolis HQ, citing the recent passage of Indiana's Religious Freedom Restoration Act (viewed by critics as providing legal cover for discriminating against gays and lesbians).
- CEO Bill Oesterle: "We are putting the 'Ford Building Project' on hold until we fully understand the implications of the freedom restoration act on our employees, both current and future ... Angie's List is open to all and discriminates against none and we are hugely disappointed in what this bill represents." Angie's "will begin reviewing alternatives for the expansion of its headquarters immediately."
- Last October, Angie's said it planned to spend $40M by 2019 (and more than $10M in 2015) on an HQ expansion that includes the purchase of a former Ford manufacturing plant. The local services marketplace added it expects to have 2,800 workers by 2019; it had 1,852 as of the end of 2014, up 13% Y/Y.
- "We were a little bit surprised [by the criticism] because we had raised a significant amount of venture capital. Clearly that was being spent on growing the business pretty rapidly," says BOX CEO Aaron Levie in a talk with TechCrunch, defending his company's huge pre-IPO spending against its many critics. "We were coming off a year of over 100 percent growth, so the investments were working."
- For many quarters prior to Box's IPO, the company's sales/marketing spend was single-handedly bigger than its revenue. In the January quarter, it was still 88% of revenue on a GAAP basis; Box has guided for its FY16 (ends Jan. '16) non-GAAP op. loss to be equal to 50%-52% of revenue.
- Regarding future spending plans, Levie names content management, collaboration, and security as areas Box plans to focus R&D investments on. The company recently launched an enterprise key management (EKM) service that lets clients control the encryption of data stored on Box's cloud storage/file-sharing platform.
- Levie asserts the service (in addition to providing a new revenue stream) allows Box to meet the security needs of companies in healthcare, financial services, and other heavily-regulated industries that were previously nervous about putting their data on Box's servers. That might also hold for international companies worried about U.S. government requests.
- Box closed on Friday 31% above its $14 IPO price, but 9% below an opening price of $20.20. Shares trade for 9x trailing billings, and perhaps (given recent growth rates) 6-7x forward billings.
- Previously: Levie makes long-term case for Box following IPO
- With shares of "mature" networking hardware vendors such as Cisco having performed better in 2014, Guggenheim Securities' Ryan Hutchinson thinks investors "should revisit growth companies, around which sentiment has been negative."
- Hutchinson, who just launched coverage on the industry, argues tech trends favor smaller, faster-growing, firms with differentiated products, and thinks the recent acquisitions of Riverbed and Aruba Networks kickstarted a new wave of M&A. "New technologies, architectures, and delivery models are disrupting traditional business models ... These include cloud computing, software-defined architectures, network function virtualization, white-box hardware, and open-source software ... We are neutral on the data networking and communications space ... but there are hidden gems to be found; we recommend secular share gainers."
- His top picks are application delivery controller leader/security upstart F5 (FFIV - $130 target), carrier/enterprise Wi-Fi vendor Ruckus (RKUS - $15 target), and DNS/IP address management hardware vendor Infoblox (BLOX - $30 target).
- Hutchinson argues F5's "stable core ADC growth and strong cash flow generation, combined with expansion into adjacent service provider and security verticals should drive the stock price higher." He adds there's more room for F5 to gain ADC share due to Cisco's exit, and considers shares inexpensive at 11x forward free cash flow.
- He notes Ruckus is the #2 U.S service provider Wi-Fi vendor behind Cisco, and will be #3 in enterprise Wi-Fi once the HP/Aruba deal closes. [W]e believe RKUS is well positioned for organic growth and total addressable market (TAM) expansion with new product additions; becoming an increasingly attractive takeover target."
- Infoblox is expected to benefit from new management, a rebuilt DDI appliance pipeline, and growing security attach rates. "[W]e believe BLOX is successfully executing on its transformation from a 'nice to have' to a line item in IT budgets; we believe the company can generate growth at or above 20%."
- Previously: F5 bulls eye security, mobile growth after sales miss
- Previously: Deutsche upgrades Infoblox, sees a cloud play
- Russia, Australia, Denmark and the Netherlands have now become the latest countries to join the China-led Asian Infrastructure Investment Bank despite misgivings in Washington.
- China has set a March 31 deadline to become a founding member of the bank, which is seen as a significant setback to U.S. efforts to extend its influence in the region and balance China's growing financial clout and assertiveness.
- At least 35 countries will join the AIIB by the deadline, the bank's interim chief, Jin Liqun, said last Sunday.
- Previously: AIIB steadily gains more members (Mar. 27 2015)
- Previously: Australia poised to join AIIB (Mar. 25 2015)
- Previously: AIIB gains more steam (Mar. 22 2015)
- Argentina's securities regulator has suspended Citibank Argentina from conducting local market operations due to Citigroup's (NYSE:C) deal with holdout creditors who are embroiled in a legal battle with the South American nation.
- Economy Minister Axel Kicillof said on Wednesday the accord, in which Judge Thomas Griesa allowed the bank to process two debt payments in order to facilitate a smooth exit from its Argentine custodian business, violated local laws.
- Previously: New court order allows Citi to process Argentine bond payments (Mar. 23 2015)
- Barrick Gold (NYSE:ABX) Chairman John Thornton received almost $13M in total compensation last year, up from $9.5M in 2013, raising more questions of executive pay at the world's largest gold miner.
- In yet another challenging year, Barrick's shares dropped around 35% last year, amid continued weakness in bullion prices and major write downs on the value of its assets.
- Thornton's compensation was also greater than the $7.3M and $4.5M awarded respectively to the company's joint chief executive officers, Jim Gowans and Kelvin Dushnisky.
- Best Buy (NYSE:BBY) plans to close some stores and consolidate its operations in Canada, in a move that will hurt its earnings by $0.10-$0.20 this year.
- Costing about $200M-$280M in restructuring charges, Best Buy said it will close 66 of its Future Shop stores in Canada and convert 65 of them into Best Buy outlets.
- The retailer also announced plans to spend $160M to improve its Canadian online operations, increase staffing at its remaining stores, and launch a range of home appliances.
Saturday, March 28, 2015
- Barron's notes shares of JPMorgan (NYSE:JPM) trade at just 10x earnings, one of the lowest P/E ratios among big U.S. banks.
- At just 12x 2016 estimated earnings, shares could approach $80 next year - a 30% gain, still a steep discount to the S&Ps 500's P/E ratio of 16x.
- The stock yields 3%, tops among its peers.
- Barron's says investors haven't yet recognized that JPM has built several market-leading companies, including the country's No. 1 credit-card company; the No. 1 investment bank; the top private bank; and the third-largest asset manager. CLSA analyst Mike Mayo, a onetime skeptic who turned bullish in late 2014, carries a Buy rating and $70 price target. "In addition to a discounted valuation, JPMorgan has adapted to the changing landscape, grown its market share, and reinvested back in the business," another analyst says.
- Previously: JPMorgan holds on to top investment banking spot, (Mar. 27)
- Previously: Gasparino: Sizable cuts coming at JPMorgan investment and commercial banks (Mar. 19)
- Previously: JPMorgan formally authorizes $6.4B buyback, boosted dividend next quarter (Mar. 17)
- The rush by the casino industry into REIT conversions could have a damaging long-term impact, warn casino industry analysts.
- The "quick-buck" mentality to eliminate debt through the REIT play sets aside the difficulty down the road to get separate companies with different objectives to agree on needed capital expenditures on properties.
- Buy-and-hold investors could get burned if REIT-touched casino properties lag peers due to the dueling C-suites.
- A REIT cloud hangs over Pinnacle Entertainment (NYSE:PNK), Boyd Gaming (NYSE:BYD), MGM Resorts (NYSE:MGM), and Caesars Entertainment (NASDAQ:CZR) - while Gaming and Leisure Properties (NASDAQ:GLPI) already pulled the trigger.
- The number of companies with the worst below-investment grade debt ratings has jumped to a two-year high of 184 firms, with the oil price rout pushing a record 25 U.S. energy producers onto this month's list at Moody’s.
- The oil-and-gas and oil services companies listed account for a record 13.6% of the total of stressed companies rated B3 - six notches into junk territory - with a negative outlook for future ratings changes or lower; historically, oil firms have averaged ~8% of the firms on the list.
- During Q1, a dozen oil companies including Energy XXI (NASDAQ:EXXI), Midstates Petroleum (NYSE:MPO) and Halcon Resources (NYSE:HK), were added.
- If oil firms’ liquidity issues do not get fixed and they keep getting downgraded, the industry likely will see more debt defaults, Moody’s analyst Julia Chursin says.
- The total of 184 financially stressed companies is up 16% Y/Y but still far short of the 290 borrowers at the peak of the financial crisis in Q1 2009.
Friday, March 27, 2015
- Thinly-traded nano cap Adamis Pharmaceuticals (NASDAQ:ADMP) craters 35% after hours on robust volume in response to its announcement that it received a Complete Response Letter (CRL) from the FDA regarding its New Drug Application (NDA) for its lead product candidate, Epinephrine Pre-filled Syringe (PFS), for the emergency treatment of acute anaphylaxis (severe allergic reaction).
- The FDA's questions relate to the general area of Chemistry, Manufacturing and Controls (CMC) and specifically to the volume of dose delivered by the syringe, including the ability to deliver volume within the levels contained in the labeling claim.
- President and CEO Dr. Dennis J. Carlo says, "We are reviewing the CRL and plan to request a meeting with the FDA to discuss the letter, including clarifying the product delivery volume specifications. Although we expect to have more clarity with respect to timing, we believe we can satisfy all of the requests in the CRL and will work closely with the FDA to address the items raised in the CRL and finalize its review of our NDA. Adamis remains committed to bringing the epinephrine PFS to market."
- The company submitted its NDA in May of last year.
- Previously: Adamis submits NDA for adrenaline product (May 29, 2014)
- Glenn Lurie, CEO of AT&T Mobility (NYSE:T), says he's not worried about the outcome if Sprint (NYSE:S) and T-Mobile (NYSE:TMUS) -- third and fourth in the U.S. wireless market behind AT&T and Verizon (NYSE:VZ) -- decide to merge.
- "We are a very, very different company than the other three," he tells FierceWireless. "So whatever happens with them, I'm not really that concerned. I'm concerned about how we execute and how we operate."
- His No. 1 goal, Lurie says, is to reduce churn and preserve the company's current subscribers in order to upsell other services.
- Chatter continues to suggest that Sprint and T-Mobile may have to think about combining to achieve competitive scale, and in the meantime they're firing salvos in a price war that Lurie says AT&T won't join: "This industry is not commoditized at all."
- Previously: Goldman upgrades T-Mobile; DT reiterates merger wish (Jan. 20 2015)
- More from the increasingly contentious battle over Vivendi's (OTCPK:VIVHY) future: The company has written to hedge fund P. Schoenfeld Asset Management saying that if PSAM joins forces with other shareholders, it could violate French law by coordinating with other investors in excess of a 20% limit for foreign nationals outside the EU.
- Schoenfeld just responded with a statement noting its disappointment and saying "We have received a letter whose purpose seems to be to intimidate us. We consider this behavior totally unacceptable."
- PSAM requested in its newest letter that Vivendi publicly disclose its information relating to its monitoring of the 20% threshold.
- Earlier, PSAM agitated for Vivendi to sell Universal Music and to issue nearly $10B in special dividends. The fund will clash with management at the April 17 annual meeting.
- Vivendi Chairman Vincent Bolloré this week poured €632M in to boost his stake in the company to 10.2%. PSAM owns less than 1% but plans to gather support for a proxy fight.
- Vivendi finished -1.2% in Euronext Paris; ADRs down 0.2% in the U.S.
- Previously: Vivendi downgraded; Bolloré adds to stake amid activist threat (Mar. 27 2015)
- Previously: Hedge fund calls for $10B in special dividends from Vivendi (Mar. 23 2015)
- Companies made key bets on India's wireless phone industry this week -- and Idea Cellular made the biggest of all -- in a spectrum auction that drew $17.6B overall.
- Idea -- India's No. 3 wireless carrier -- spent the most among carriers, with 300B rupees ($4.8B) in bids across three different bands (900 MHz, 1800 MHz and 2.1 GHz).
- Bharti Airtel (291B rupees, or $4.65B) and Vodafone (VOD; 259.6B rupees, or $4.15B) spent nearly as much. The three dominated the auction bidding due to license renewals they had to accomplish before a December expiration. Overall, bidders focused on 4G bandwidth in order to grow more high-speed services.
- The size of the auction raised eyebrows, and Idea said it would take advantage of a government-offered deferred payment.
- In a reflection of the recent U.S. wireless auction, Bharti Airtel complained about the auction format: "We hope that in future auctions, the government will make available adequate spectrum by securing it from agencies and operators who are underutilizing this vital resource," said the company's regional CEO Gopal Vittal.
- Profitability is on the rise among Indian carriers, with 120M smartphone users in country and sliding handset prices expected to fuel further subscriber growth.
- Yahoo (NASDAQ:YHOO) "offers an attractive way to buy BABA at a 20% discount to current levels, or 21x [estimated 2016] EPS," writes Morgan Stanley's Brian Nowak (formerly with Susquehanna), who has launched coverage on Yahoo with a Buy rating and $55 target.
- MS/Nowak sees Alibaba's earnings growth accelerating to 37% in 2016 after totaling just 9% in 2015 (due to near-term margin pressures caused by aggressive spending). On that basis, he backs Morgan Stanley's $102.30 Alibaba target (set by fellow analyst Robert Lin), and values Yahoo's Alibaba stake, due to be spun off tax-free this year, at $38/share. Based on today's close of $84.58, the stake would be valued at ~$31.40/share.
- After factoring the Yahoo Japan stake, net cash, and core Yahoo, Nowak reaches a $55 sum-of-the-parts valuation. He expects core Yahoo to continue losing display and search ad share, but notes it's worth $5/share even if valued at just 4.5x estimated 2016 EBITDA.
- Thanks to yesterday afternoon's buyback announcement, Yahoo rose 1.4% today to $45.10. After the close, Yahoo disclosed it has extended the deadline for renegotiating its Microsoft search deal by 30 days. The deal lasts until 2020, but gives Yahoo the right to terminate if (among other things) its trailing 12-month U.S. revenue per search (RPS) falls below a % of Google's estimated trailing 12-month U.S. RPS (excluding mobile).
- Realty Income (NYSE:O) is up 3.3% in after-hours trade as it's set to join the S&P 500, replacing Windstream Holdings (NASDAQ:WIN), itself down 5.1% today and -0.5% after hours.
- Windstream -- spinning off assets into a REIT -- will head to the S&P MidCap 400 to replace International Game Technology (NYSE:IGT), which is being acquired by GTECH. Meanwhile, Douglas Emmett (DEI, up 2.1% after hours) will replace Realty Income in the MidCap 400 after trading on April 6.
- In other moves, Gentherm (THRM, +1.8% late) replaces buyout target Aviv REIT (NYSE:AVIV) in the S&P SmallCap 600 after trading on April 1; and Echo Global Logistics (ECHO, +1.9% late) will replace C&J Energy Services (NYSE:CJES) in the SmallCap 600 after trading April 1, as C&J is merging with part of Nabors.
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