Today - Friday, December 19, 2014
- While Red Hat's (NYSE:RHT) revenue rose 15% Y/Y in FQ3 and its deferred revenue balance 16%, its billings proxy (based on cash flow) was up 19%, notes Barclays (Overweight). "Underlying momentum in the core business, emerging product groups, and better large deal activity reinforce our positive view on the stock."
- BofA/Merrill (Buy) observes billings growth doesn't fully reflect Red Hat's public cloud growth (+50% Y/Y), given public cloud solutions (offered via partners) are billed "one month in arrears instead of one or more years in advance." It also likes the fact over half of all public cloud clients are SMBs, many of whom weren't prior Red Hat customers, and believes interest in version 7 of Red Hat Enterprise Linux (RHEL) is stronger than for prior versions due to a bevy of new features.
- Citi (Neutral) is more cautious on account of valuation. "Upside beyond $70 (20x+ FCF) likely requires sustained high teens billings growth which looks like a stretch. We continue to like VMW best in infrastructure software due to discount versus peers and 2015 catalysts (notably vSphere 6).”
- On the CC (transcript), Red Hat stated app development and emerging technologies revenue (covers middleware, cloud, and storage software) rose 45% Y/Y, and was 14% of total revenue. 62% of billings came from the Americas, limiting forex pressures a bit.
- Shares rose 10.6% in regular trading, easily taking out their post-Dot.com bubble highs.
- Prior Red Hat earnings coverage
- The FDA has approved the use of Cubist's (NASDAQ:CBST) Zerbaxa (ceftolozane/tazobactam) for "the treatment of adults with complicated urinary tract infections (cUTI) and complicated intra-abdominal infections (cIAI) caused by designated susceptible Gram-negative bacteria."
- Cubist adds the FDA's decision was "supported by positive data from two pivotal Phase 3 clinical trials - one in patients with cUTI and the other in patients with cIAI."
- Cubist, still set to be acquired by Merck (NYSE:MRK) for $9.5B, is up 2% AH.
- Previous: PDUFA date approaches for Zerbaxa
- The EPA released new rules for the disposal of coal ash in the first U.S. guidelines for dealing with the waste generated by burning coal, but the rules are not as stringent as environmentalists had wanted.
- The rules require power companies to close ponds containing ash slurry if they are structurally unsound or have contaminated groundwater and are not lined with materials that prevent leaks; some of the 150-plus coal ash disposal sites that have contaminated nearby groundwater may be forced to shut down.
- However, the rules do not classify coal ash as a hazardous waste, which would have added tougher handling requirements and higher costs; the EPA will leave it up to state regulators to ensure that companies meet the new requirements.
- ETFs: XLU, IDU, VPU, RYU, FUTY, UPW, PUI, FXU, SDP, PSCU
- NQ closed slightly above $4 a day after finally releasing its Q1-Q3 results, providing cautious Q4 guidance, and announcing it has signed an MOU to do a reverse merger for its FL Mobile unit with apparel retailer Tack Fiori.
- During the CC (transcript), long-time nemesis Carson Block (the founder of Muddy Waters) managed to jump in by telling the operator he was NQ investor Jim Oberweis, Jr. Block was cut off while asking whether recently-departed co-CEO Henry Lin is in jail, given media speculation to the effect due to Lin's ties to ex-CCTV anchor Rui Chenggang (detained on corruption charges).
- Omar Khan, still a co-CEO, would only reiterate Lin's departure was for "personal reasons," and not due to "anything related to the company."
- Khan also mentioned the NQSky enterprise mobility management (EMM) unit is now targeting larger customers, and that his shift is affecting near-term sales due to longer deployment times. He reiterated NQ's long-term revenue targets, but added the company isn't providing 2015 guidance for now.
- In response to a question about the proposed FL Mobile deal, VP Matt Mathison suggested NQ isn't too interested in Tack Fiori's existing businesses. "This has to do with FL Mobile ... This is the greatest way for us, for experiencing certainty and the most cost effective approach to achieve our objectives of one, unlocking value and to enabling FL Mobile to continue to expand and grow and benefit from having their own public currency."
- Consumer spending in several areas is likely to benefit from lower pump prices, but J.P. Morgan's Ryan Brinkman thinks the auto industry may benefit more than most from consumers having more money to spend on all things apart from fuel.
- The analyst sees Goodyear Tire (NASDAQ:GT), American Axle (NYSE:AXL), GM and Ford (NYSE:F) - in that order - as best positioned to benefit, followed by suppliers with material exposure to full-size trucks and SUVs that is not as great as AXL, including Tenneco (NYSE:TEN), Lear (NYSE:LEA) and Tower International (NYSE:TOWR).
- Tesla (NASDAQ:TSLA) is an exception, however, as Brinkman sees a potential reduction in the terminal value of cash flows on his reduced outlook for Model 3 vehicles if fuel prices remain low longer-term.
- Bloomberg reports Fitbit, the unquestioned leader in the growing health/fitness band market, has hired Morgan Stanley to take it public next year. A source says an IPO could raise $150M.
- NPD estimates Fitbit accounted for 67% of all "activity tracking devices" sold in the U.S. last year, and 77% of all "full body activity trackers." Canalys estimates Fitbit was responsible for 50% of the global Q1 market for smart wearable bands (pegged at 2.7M units).
- While rival Jawbone remains a threat, smartwatches are naturally viewed as the big one long-term. The Apple Watch, packed with health/fitness-related sensors, is set to begin shipping in early 2015. Meanwhile, a slew of OEMs have announced and/or launched smartwatches running Google's Android Wear platform. For now, Fitbit/Jawbone maintain a pricing edge.
- More on today's Goldman Sachs downgrade of Seadrill (NYSE:SDRL) to Sell: The firm believes SDRL still faces significant balance sheet risk - even after cutting its dividend - due to high financing requirements for 2015-16 and beyond, as well as limited refinancing channels with the possibility of a higher cost of debt.
- Goldman says Brent oil at US$70/bbl could leave SDRL in breach of its debt covenant in 2016, which could trigger an equity issue.
- SDRL recovered from a big early deficit to finish +1.9%, although most other offshore drilling contractors enjoyed much bigger gains.
- Transocean (NYSE:RIG) shares finished sharply higher today (+7.9%), but it’s hard to ignore the largely negative December fleet status report that came out late yesterday.
- In lowering his stock price target to $17 from $20, Cowen analyst J.B. Lowe said RIG secured one attractive contract this month, not enough to fill much needed ultra-deepwater floater availability; while RIG was able to put two idle floaters back to work, it had four additional rigs go idle, including one where the customer canceled the contract.
- Lowe believes falling oil prices will put increased strain on dayrates and utilization during 2015.
- Most offshore drilling service contractors racked up strong gains today as crude oil prices rebounded: NE +9.5%, ESV +9.5%, RDC +5.9%, DO +0.5%, ATW +7.1%, PACD +14%.
5:12 PM| Comment!
- Once Walgreens (NYSE:WAG) finishes acquiring the 55% of Alliance Boots it doesn't yet own, the company will move to the Nasdaq and change its symbol to WBA. The company will delist from both the NYSE and the Chicago Stock Exchange.
- On Dec. 10, Walgreens announced (to investor approval) CEO Greg Wasson will retire once the Alliance merger is finished. Shareholders vote on the deal on Dec. 29.
- News Corp. (NASDAQ:NWS) has bought BigDecisions.com, a site that "aims to help Indian consumers make smarter financial decisions through interactive, decision-making tools powered by sophisticated algorithms and data." Terms are undisclosed.
- With News Corp. stating BigDecisions.com has "helped some 40,000 users," the site appears to have a fairly small base as of now. Last month, News Corp. spent $30M to take a 25% stake in Indian real estate site PropTiger.com.
- Pres. Obama again pours cold water on the alleged economic benefits of the Keystone XL (NYSE:TRP) oil pipeline, telling reporters today that the project is "not going to be a huge benefit to U.S. consumers. It’s not even going to be a nominal benefit for U.S. consumers.”
- Construction of the pipeline would create a "couple thousand” jobs, but there are better ways to create long-term, paying jobs for American workers by investing in infrastructure, Obama says.
- The remarks are sure to increase speculation that the president eventually will kill the project.