Today - Wednesday, March 12, 2014
- ZaZa Energy (ZAZA +6.2%) says it will move ahead with the third and final phase of its joint venture with EOG Resources (EOG -0.4%) developing the emerging Eaglebine tight oil play in east Texas.
- EOG will receive a 75% working interest in the remaining Phase III acreage, and ZAZA will receive $4.7M of upfront cash and a carry of the partner's share of future joint venture costs of up to ~$9.2M.
- EOG also commits to drill an additional two wells, with the first commencing no later than July 1.
- Credit Suisse has launched coverage on Himax (HIMX +2.7%) with an Outperform and $19 PT. Shares have gradually moved higher after opening near breakeven.
- The launch comes two days after Northland upped its PT to $20, while citing checks that suggest Q1 results are tracking in-line with guidance or better.
- Berenberg's Daud Khan has cut Cognizant (CTSH -2%) to Hold, citing a full valuation.
- Khan, who has a $51 PT for the outsourcing giant (17.8x 2015E EPS), notes shares are trading near all-time highs and argues consensus forecasts for 2015 and later point to a "high level of expectations."
- He's also worried about "unresolved issues" related to an immigration bill that restricts the activities of H-1B visa holders, and "general deflationary revenue pressures on the IT industry" (a possible reference to cloud services).
- SA author Charles Moscoe notes online video ad services firm YuMe (YUME +4.9%), which has a current market cap of $220M, has $50M in cash and $65M in receivables on its balance sheet, and no debt.
- He also notes the company has seen strong insider buying - directors have respectively made purchases of 100K and 24K shares - and no major insider selling since last year's IPO.
- Moscoe argues YuMe, which directly competes against Tremor Video (TRMR +1.6%) and indirectly against YouTube/Hulu, has a major opportunity to win the business of major TV brand advertisers ramping their online video spend.
- Earlier this week, YuMe launched a solution for the fast-growing programmatic video ad market. Moscoe points out CFO Tim Laehy has already said YuMe expects its programmatic launch (not factored into guidance) to contribute materially to 2014 revenue.
- With shares now up over 20x from their May 2012 IPO price of $6.50, Vipshop (VIPS +7.3%) is selling $550M worth of convertible senior notes due 2019. The notes carry an interest rate of 1.5%, and a conversion price of $201.24 (32% above current levels).
- The flash sales site is also selling 1.14M shares (~2% of outstanding shares) on behalf of existing holders at a price of $143.74 (6% below current levels).
- Underwriters have overallotment options to buy an additional $82.5M in convertible debt, and 171K additional shares from holders.
- Vipshop ended 2013 with $334.7M in cash, $385.8M in held-to-maturity securities, and no debt.
- Apparel stocks are getting roughed up a bit after Express is the latest retailer to come in with a profit warning for Q1.
- The winter storms and holiday promotions that plagued December and January sales totals set the tone for the sector early in the quarter, but concerns are deepening that the promotional atmosphere will be tough to shake off as traffic trends stay weak into March.
- Notable decliners: Lululemon (LULU) -3.7%, Aeropostale (ARO) -2.3%, American Eagle Outfitters (AEO) -2.9%, Gap (GPS) -1.9%.
- China TechFaith's (CNTF -21.4%) Q4 revenue was nearly flat Y/Y at $31.2M, with plunging gaming and brand name phone sales offsetting a near doubling of contract phone manufacturing (ODP) sales.
- The company admits mobile competition and "continually changing customer demands in the gaming business" are impacting sales. Q1 guidance is for revenue of $28M-$30M vs. a year-ago figure of $28.2M.
- Gross margin fell to 12.9% from 19.1% a year ago. Excluding impairment charges, opex fell 7% Y/Y to $4.4M.
- Q4 results, PR
- It's time to buy Rio Tinto (RIO +1.6%) after shares have dropped 8% in the past week thanks to falling iron ore prices, Societe Generale analysts say as it sees potential gains of more than 30%.
- The recent fall in iron ore prices, even if not reversed, should result in downward revision to near term consensus earnings forecasts but should not put meaningful downside pressure on longer term earnings forecasts for RIO, the firm says.
- RIO shares are trading on an implicit 2015 estimated P/E of 9.4x, well below BHP Billiton's (BHP) 13.8x, Antofagasta's (ANFGY) 18.9x, and Vedanta Resources' (VDNRF) 90.3x; the firm recommends investors buy RIO shares and hedge the risk by selling more steeply priced base metals producers.
- Petrobras (PBR +1.8%) is upgraded to Neutral from Underperform with a $14 price target at Credit Suisse after shares have dropped 22% YTD.
- The firm notes PBR's 2014 capital needs are nearly solved after raising ~$13B YTD in the debt markets, decreasing the fears of further equity dilution this year, but adds that cheap debt also has an indirect psychological negative effect of removing the sense of urgency to increase gasoline and diesel prices.
- The firm emphasizes it "cannot see what would urge investors at buy yet," with 2014 still looking like a difficult year full of macro uncertainties and without operational improvements in the business.
- First American Financial (FAF +6.1%) sports a sizable gain one day after doubling its quarterly dividend to $0.24 per share. In addition, the company boosted the size of its buyback program to $250M from $150M. With the increase, FAF has $182.9M of authorization remaining.
- At the current stock price of $27.79, the company could buy back about 6.5M shares under the plan vs. a float of about 105M shares today.
- Press release
- Fannie Mae (FNMA -11.7%) and Freddie Mac (FMCC -12.1%) are lower again in volatile action one day after a the release of a Senate proposal to wind the two down. Both stocks earlier took out the panicky lows made yesterday, but have bounced since.
- SA contributor Achilles Research reminds yesterday's news was completely expected and provided zero new information. The bill is the prototypical DOA legislation, especially with upcoming elections.
- The selloff, says Achilles, is a classic market panic in a couple of highly speculative and overextended names. Congress will do what it likes, but the fate of shareholders will ultimately be decided in the courts.
- SolarCity (SCTY +4.6%) will pitch its solar installation/electricity services to Best Buy (BBY -1.4%) customers at 60 stores in California, New York, Arizona, Oregon, and Hawaii.
- SolarCity, which already has a similar deal with Home Depot, will have onsite reps evaluate the feasibility of an installation with the help of satellite imagery, as well as discuss pricing and handle sign-ups.
- For Best Buy, the SolarCity deal is the latest in a string of store-within-a-store partnerships. Other partners include Apple, Microsoft, and Samsung.
- The release of 5M barrels is a test, says the government, to check for proper operations and infrastructure. Offers to buy are due by 2 ET on Friday.
- Oil was nicely lower today already and dipped further on the news, but has since returned to where it was before the release hit the wires, -1.4% to $98.66 per barrel.
- The latest EIA report released just minutes ago shows crude inventories up by 6.2M barrels last week.
- USO -1.2%
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