Today - Monday, March 30, 2015
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.
- 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
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)
Friday, March 27, 2015
Thursday, March 26, 2015
- MKM's Michael Genovese is pleased with Infinera's (NASDAQ:INFN) recent unveiling of two new photonic integrated circuits (PICs) that will go into optical transport systems aimed at 100G metro networks. "PICs are the source of the company's competitive advantage in long haul, and we expect the new more flexible and granular PICs to form the basis of a compelling Metro 100G aggregation/Telecom product later this year."
- Infinera asserts its new PICs offer more flexibility by allowing capacity to be "divided at a granular optical level with each slice capable of being routed in a different direction as it exits the line card or the system housing it." One PIC (the ePIC-500) delivers 500Gbps of capacity at network hub locations, and the other (the oPIC-100) 100Gbps at network spoke locations.
- Infinera claims tests showed "an estimated average reduction of 28 percent in modules, 31 percent in power and 45 percent in bandwidth inefficiencies as compared to conventional, commercial off the shelf technologies that deliver single-wavelength or super-channel solutions for 100G, 200G or 400G."
- Genovese sees Infinera's addressable market expanding to ~$20B in 2018 from ~$5B in 2014 as it "competes in end-to-end Optical Transport including Metro and [data center infrastructure]," and as its systems handle traffic forwarding features traditionally handled by routers - the latter could pose challenges for Cisco (NASDAQ:CSCO) and Juniper (NYSE:JNPR).
- Infinera is once more within a dollar of a 52-week high of $19.48.
Wednesday, March 25, 2015
- MKM Partners chief market technician Jonathan Krinsky offers his picks and pans in the world of energy MLPs, based mostly on relative strength compared to the sector’s benchmark Alerian MLP Index, which has slumped for the past six months.
- Krinsky's Buy recommendations: ALDW, BPL, CPLP, ENB, ETE, KMI, PAGP, SEMG.
- However, he tags CNP, NRP, SDLP and TOO with Sell ratings.
- ETFs: AMLP, AMJ, MLPL, YMLP, MLPI, MLPA, MLPN, EMLP, MLPG, MLPX, MLPS, MLPY, AMU, YMLI, MLPJ, ZMLP, ENFR, AMZA, ATMP, MLPW, MLPC, IMLP, OSMS, YGRO, MLPO
Tuesday, March 24, 2015
- Default risk is off the table, says SA Pro author Terrier Investing of Essex Rental (NASDAQ:ESSX), after the company, as he expected, received waivers from lenders.
- While Q4 results missed expectations, Terrier notes crawler backlog was up 30%+ for the second consecutive quarter, pointing to material improvement in earnings in 2015.
- The stock is suffering a bout of profit-taking today, down 10.7% to $1.26 per share, after running from $0.77 to $1.41 over the last week following Terrier's initial write-up (and a bullish piece from Value Investors Club).
- Previously: Essex Rental misses by $0.02, beats on revenue (March 23)
- Related: Essex Rental: Technical Default Masks Massive Value; Triple-Digit Returns Possible (March 20)
Monday, March 23, 2015
- With shares having already fallen sharply from a Feb. 20 high of $70.48, and a 4M-share offering launched in advance to relieve selling pressure, CyberArk (NASDAQ:CYBR) is shooting higher on lockup expiration day.
- Helping the company's cause: BofA/Merrill's Tal Liani has launched coverage with a Buy rating and $60 target, arguing CyberArk offers differentiated solutions for protecting an enterprise's privileged accounts (PAs).
- Liani observes most cyberattacks have targeted PAs, and that a company typically has 2x-4x as many PAs as employees.He adds CyberArk "offers multiple solutions, ranging from password vault, identity manager, access manager, and others," and (with half of clients deploying only one software license) sees plenty of opportunities for cross-selling.
- His target is equal to a 9.5x 2016E EV/sales multiple. Piper recently offered similar praise for CyberArk's PA-protection offerings, albeit while launching coverage at Neutral.
Saturday, March 21, 2015
- Previously suffering from chronic underinvestment in technology and staffing when under its troubled former parent, Royal Bank of Scotland, writes Lawrence Strauss, Citizens Financial (NYSE:CFG) is bulking up in a range of businesses since being spun off in an IPO last September.
- The stock has gained 15% since, but still trades at just 1.1x tangible book value - about a 20% discount to peers. With double-digit earnings growth possible in 2016, the shares - including the 1.6% divided yield - could return 30% this year. "This is one of the few turnaround value names in the bank space," says Cambiar Investments' Ania Aldrich, an owner of the stock.
- The bears, however, point to return on equity - Citizens' was just 6.1% last year, about half the amount of peers - and wonder whether the bank can catch up. Citizens is targeting 10% in 2015. There's also the stock overhang - RBS still owns 70.5% of CFG and will be whittling that down over time.
- Among the bank's moves is targeting commercial lending - where returns are four times greater than consumer lending - and commercial business now accounts for 44% of the portfolio vs. 36% in 2009. Citizens is targeting 50%.
- Then there's expenses, and Citizens' bloated efficiency ratio of 67.11% means there's plenty of room for improvement (peer average is in the low 60s).
- Stress test: After failing in 2014, Citizens was approved for a $500M buyback this year and allowed to maintain its $0.10 quarterly payout.
Friday, March 20, 2015
Thursday, March 19, 2015
10:46 AM| Comment!
Tuesday, March 17, 2015
- Despite the prospect of a Fed rate hike, patient investors should stick with utility stocks for their attractive yields, regular earnings and dividend growth, two analysts tell CNBC.
- While higher rates may look foreboding, Hilliard Lyons analyst David Burks says recent history shows the sector could still outperform, noting that electric utilities beat the S&P 500 "by a fairly wide margin" during the 2004-06 period of higher rates when the Fed raised rates 16 times.
- Morningstar's Travis Miller thinks the sector's short-term performance will continue to reflect interest rate movements, but that investors willing to hold utilities two years or more can get strong absolute returns.
- Burks' favorite income pick is PPL, his top growth pick is NEE, and he likes AEP for total return; Miller's picks include SO, which he says has come down substantially and is now trading a discount, plus DUK and ITC.
- ETFs: XLU, IDU, VPU, RYU, FUTY, UPW, PUI, FXU, SDP
- After meeting with CEO Greg Butterfield, CFO Dana Russell, and other execs, Credit Suisse is "incrementally more constructive on the residential solar opportunity and Vivint Solar's ability to be a leader in the space."
- The firm was "particularly impressed with management's attention to execution, encouraged by the robust demand indicators, and enthusiastic about the next ~12 months when Vivint Solar can pull many value-enhancing levers." It target has been hiked by $1 to $22, and its 2015-2017 EPS estimates slightly increased.
- Also: Butterfield appeared yesterday on CNBC's Fast Money yesterday (video). Like SolarCity Lyndon Rive during his CNBC appearance, Butterfield used the occasion to argue low oil prices are having little impact on U.S. solar demand.
- Shares are up 32% since Vivint reported better-than-expected Q4 installations and offered solid 2015 guidance on March 4.
- The Keystone pipeline disappointment is hardly a death knell for TransCanada (NYSE:TRP), as the company remains one of the top holdings in Skip Aylesworth’s Hennessy Gas Utility fund, which climbed 21% last year as distribution gains trumped price drops.
- TRP is "a fine, healthy company and, yes, this is a hiccup, and they would love to see Keystone happen, but it is just a part of their business," Aylesworth tells Barron's.
- Of one Aylesworth's favorite energy investments actually is Berkshire Hathaway (BRK.A, BRK.B), which is heavily involved in the distribution of natural gas and owner of Burlington Northern, which is exploring using natural gas to fuel long-distance freight trains.
- Other favorites: ENB, WMB, LNG, NJR, KMI, SE
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