Today - Wednesday, April 23, 2014
- Despite more than doubling over the past twelve months, Sparton (SPA -0.4%) has more upside potential if a major contract with the U.S. Navy is secured, Barron's David Englander writes.
- Since 2011, SPA has boosted revenue 25% annually, and EBITDA 90% annually, as management focuses on buying up attractive manufacturing businesses in highly regulated markets such as defense and medical devices.
- Gulfmark Offshore (GLF +1.6%) is upgraded to Buy from Neutral with a $49 price target, up from $44, at Global Hunter, which believes GLF is positioned to deliver more earnings growth than current consensus expectations through 2015.
- Although market softness is expected to continue in the Gulf of Mexico in 2Q14, the scheduled ramp in the floating rig count and GLF's imminent capacity additions should significantly improve its prospects there by H2 2014, the firm says.
- Agnico Eagle Mines (AEM +1.9%) is upgraded to Outperform from Sector Perform with a $43 price target at RBC Capital following the combined bid with Yamana for Osisko, which is expected to succeed as Goldcorp's (GG) final offer has now expired.
- The firm views the overall transaction as positive and accretive to EPS and cash flow/share, and sees recent share price weakness as creating an attractive entry point.
Tuesday, April 22, 2014
- It's easy to blame the winter weather for any earnings disappointments this quarter, but don’t buy it when Cliffs Natural Resources (CLF) uses the excuse when it reports April 24, Wells Fargo analysts say.
- The firm expects CLF to report soft Q1 results and guidance due to declining iron ore prices and, yes, the weather; but Wells is bearish, as the long-term bias to pricing remains negative.
- Investors likely will focus on restructuring efforts, particularly progress in either selling or finding a partner for high cost Canadian operations, not an easy feat in a downturn; CLF also is evaluating an MLP structure for its U.S. operations, but the firm does not view an MLP conversion as a de-leveraging event.
- QEP Resources (QEP -2.2%) is downgraded to Equal Weight from Overweight with a new $31 price target, down from $36, at Barclays as the firm lowers its 2014 and 2015 debt-adjusted cash flow estimates by 14%, primarily reflecting negative revisions in production forecasts following the disappointing outlook provided by QEP earlier this year.
- Barclays is cutting 2014-15 production estimates by 11% and 16%, respectively, including 8% and 9% cuts in oil production.
- Valero Energy (VLO -0.6%) is downgraded to Neutral from Buy with a $63 price target at BofA/Merrill, as the firm closes out its longstanding constructive view of the U.S. refinery segment.
- Upward earnings momentum that has underpinned a threefold jump in sector valuations has stalled and embedded volatility has increased to the point where risk/reward is no longer attractive, the firm says in re-categorizing U.S. refiners as a trading call.
- Gold and silver equities now appear more fairly valued, Goldman Sachs says, raising its sector coverage view to Neutral as it sees more responsible capital allocation, successful cost cutting initiatives, a refocus on maximizing free cash flow, and sound strategic portfolio optimization improving the positioning of select companies and offsetting its below-consensus outlook for commodity prices ($1,200/oz. gold from 2015 forward).
- The firm upgrades Barrick Gold (ABX) to Buy, believing the company's financial flexibility has significantly improved; ABX +1.8% premarket.
- B2Gold (BTG) is initiated with a Buy rating and C$4.20 price target, as Goldman cites imminent production growth from the Otjikoto project which enhances BTG’s free cash flow generation and should fund future development.
- Started at Neutral: AGI, FNV, BVN,.
- Maintained at Buy: GG, AUY, SLV.
- Sell: IAG, EGO, PAAS.
- ETFs: GDX, GDXJ, NUGT, DUST, SIL, GLDX, JNUG, SLVP, RING, SILJ, JDST, GGGG, PSAU
Monday, April 21, 2014
- Raytheon (RTN +1.2%) rose 57% last year and 10% YTD but shares could add another 30%, according to a Barron's weekend profile, after a string of high-margin foreign contract wins, a stabilized U.S. defense budget, strong cash flow, vastly improved pension finances, a 10% dividend hike, and stock buybacks.
- RTN looks especially inexpensive because demand for its electronics is soaring, aided by the growing interest in cybersecurity worldwide; as spending on new ships and aircraft is cut, older fleets are being upgraded less expensively with more advanced electronics - "It's hard to be hotter than defense electronics right now," says one analyst.
- Also, rising global tensions have lifted demand for RTN's missile systems from governments all over the world; RBC Capital notes RTN's international exposure is more than twice that of other major defense contractors.
- Citi analysts post their list of 50 top Buy-rated stocks with a market cap of at least $3B, at least a top-three market share in a third of their businesses, and a global reach as measured by significant revenue outside of their home market; Business Insider highlights 20 according to estimated total return.
- Gilead Sciences (GILD) tops the list with a 45.4% ETR, and Citi believes GILD will generate a significant amount of cash and will buy back stock, engage in product and company acquisitions to grow its pipeline, and potentially start providing a dividend in 2-3 years.
- Rounding out the top 20: FB, BX, V, CERN, FLT, BA, MA, LVS, SBUX, MJN, GOOG, EBAY, BIIB, AXP, HOG, VFC, PII, VMC, FTI.
- UBS has upgraded Cornerstone OnDemand (CSOD +1%) to Buy, and set a $60 PT.
- The firm declares Cornerstone "continues to have leading mindshare with HR buyers as a pure-play [SaaS] talent management vendor," and thinks its recent selloff has yielded an attractive valuation for a company expected to grow sales by 45% or more in 2014.
- Walter Energy (WLT) -3.4% premarket after Goldman Sachs downgrades shares to Sell from neutral with a $5 price target, down from $9, citing a more negative view of met coal pricing and more positive thermal price forecast.
- Three factors underpin the Sell rating: the firm's EBITDA estimates are 59% and 35% below consensus for 2014 and 2015 given its met price view; it believes WLT's $250M asset sale goal will be difficult to achieve; and at current met prices, WLT may face a potential liquidity challenge in two years given negative free cash flow.
- Goldman raises its rating on Arch Coal (ACI) to Neutral from Sell to reflect its more constructive thermal coal price outlook.
Thursday, April 17, 2014
- After initially trading near breakeven following a Baird upgrade to Outperform, SolarCity (SCTY +1.7%) has moved higher.
- Baird's Ben Kallo thinks the 35% drop seen since Feb. 27 provides a great buying opportunity for "the stock most levered to the U.S. rooftop market, which will likely undergo a boom over the next several years."
- He also argues SolarCity's cost cuts and scale give it a competitive edge, and that solar asset-backed notes provide it with cheap capital to "capitalize on the expansive U.S. greenfield opportunity."
- Deutsche and Roth talked up the value of SolarCity's asset securitization efforts two weeks ago. Shares rallied yesterday on news of the DOE's loan guarantee proposal.
- Kinder Morgan Partners (KMP -0.8%) is reiterated with an Underweight rating and $82 price target at Morgan Stanley, which says it can't see KMP outperforming peers on distribution growth that is below the industry average.
- Acknowledging KMP's cash flow stability from quality pipeline assets and geographic diversity, the firm sees accretion via projects and acquisitions as limited by a large asset base and a high general partner cash incentive share (45%-plus) which caps distribution growth upside.
- The firm says KMP's oil production business (15%-20% of cash flow) creates material future asset/reserve replacement risk, and dropdowns from KMI (into KMP and EPB) likely will be finished by 2014, creating the need to continue to develop new organic projects.
- KMI +1.2%, KMR +0.5%, EPB +2.2%.
- Deutsche Bank analysts raise their price targets on top oil service stocks (OIH), seeing increasing strength in a North American cyclical recovery with current forward earnings estimates perhaps proving to be conservative.
- Basic Energy Services (BAS) gets a big price boost to $43 from $18, citing a recent activity update that indicated utilization levels had increased across all the company’s business segments.
- Other top stocks rated Buy at the firm, including those whose price objectives have been raised: BHI, EXH, HAL, PTEN, PES, SLB.
- Cloud Peak Energy (CLD -1.5%) is "a good stock in a dirty business," Barron's says in making the case for a potential 30% upside in what it sees as undervalued shares, but CLD isn't enjoying the usual Barron's bounce.
- CLD trades at a discount to its larger peers despite its clean balance sheet and improving free cash flow profile, and a rise in thermal coal prices could have a dramatic impact on profits and the stock; every $1/ton increase in the Powder River spot price adds ~$46M to CLD's EBITDA.
- Most other coal names also are lower: BTU -1.5%, CNX -0.3%, ACI +0.2%, ANR -1.3%, WLT -2.1%, WLB -0.1%.
- JPMorgan's Philip Cusick has upgraded Gogo (GOGO +3.1%) to Overweight, and set a $28 PT.
- Cusick calls the in-flight Wi-Fi provider's recent selloff "macro or sentiment-driven," believes its business aviation ops are worth $11/share alone, and sees plenty of U.S. and international opportunities as Gogo "accelerates the pace of RFPs."
- The upgrade follows deals with Boeing and Air Canada, and the unveiling of Gogo's high-capacity 2Ku satellite connectivity platform.
- Alcoa (AA +0.8%) is upgraded to Sector Perform from Underperform with a $15 price target, up from $12, at RBC, based on the recent stronger than expected performance in the alumina and global rolled products businesses.
- The firm admits that it had underestimated the upside potential for the shares and now sees lower downside risk than before, but it believes much of the business improvement and near-term growth likely is reflected in the share price.
- Adam Gefvert expects You On Demand (YOD) to trade at $1.50 by the end of 2014, and $0.50 by the end of 2015.
- He points out YOD only had ~$300K in 2013 revenue in spite of potentially reaching 18.2M Chinese households as of 2012, and that even a 3x 2014 revenue increase would leave shares trading at over 120x sales.
- Gefvert also notes the Chinese VOD service provider has to contend with the huge popularity of pirated content, and (given Q4 SG&A spend of $8.3M) declares management is "fleecing shareholders."
- With a large number of outstanding warrants and preferred shares having sub-$2 conversion prices, Gefvert thinks YOD could fall below $2 if holders
"get worried and convert and sell their stock before it falls any closer to the exercise price."
Wednesday, April 16, 2014
- ConocoPhillips' (COP +1%) price target is raised to $85 from $80 at Oppenheimer to reflect the company's improving outlook on stronger financial and operating results (Briefing.com).
- Last week, COP reiterated its value proposition of 3%-5% compound annual growth for both production and margins, by allocating 95% of its $16B annual capex in 2014-17 on projects with greater than $30/boe margins while maintaining a dividend yield above its U.S. peers and strong financial flexibility.
- With higher production growth than other majors and a lower valuation than E&P peers, Oppenheimer says COP offers an alternative to both groups.
- Precision Drilling (PDS +5.3%) is upgraded to Overweight from Underweight at Morgan Stanley, which believes the oilfield services company may double its Canadian land-drilling business over several years, benefiting from its exposure to the liquefied natural gas market which should see meaningful secular growth.
- The firm says Canadian service providers Calfrac Well Services (CFWFF) and Trican Well Services (TOLWF) also could see growth for pressure pumpers.