Seeking Alpha
  • Friday, October 24, 2014

  • 5:52 PM
    • "Investor pessimism doesn’t seem to dampen [Jeff] Bezos’s appetite for risk. Employees unsettled by Amazon’s (AMZN -8.2%) steadily depreciating stock price are probably the only thing that can force Bezos to slow down," writes BloombergBusinessweek's Brad Stone in the wake of Amazon's Q3 miss and soft guidance.
    • Stone, who wrote a popular book on Bezos and Amazon, notes declining employee stock grant values caused by investor angst over Amazon's losses could increase employee turnover, something management is unlikely to ignore. Thus, curbing spending (with the goal of boosting Amazon's shares) could go hand-in-hand with keeping needed employees happy.
    • How much could lower spending boost profits? In a much-discussed September post, Benedict Evans estimated Amazon's trailing free cash flow would be around $4B (rather than a current $1.08B) if its capex/sales ratio remained at 2009 levels.
    • Nonetheless, Evans defended Bezos' strategy: "Amazon has perhaps 1% of the US retail market by value ... Jeff Bezos’s view is pretty clear: keep investing, because to take profit out of the business would be to waste the opportunity ... The question to ask isn’t whether Amazon is some profitless ponzi scheme, but whether you believe Bezos can capture the future."
    • The sell-side was in a less forgiving mood today: Two downgrades arrived (from Cowen and Janney), as did a slew of target cuts. Notably, analysts often expressed more concerns about Amazon's top-line growth slowdown (particularly for media and international sales) than its bottom-line pressures.
    • Prior Amazon earnings coverage
    | 4 Comments
  • Thursday, October 23, 2014

  • 3:14 PM
    • "I am as optimistic as I've been in a long time," says Don Wordell, noting the pull back in energy prices is a big economic stimulus. His RidgeWorth Mid-Cap Value Fund (MUTF:SAMVX) has topped 97% of peers over the last decade, and the $3.9B fund has returned 2.2% YTD - slightly ahead of the category average.
    • His top five picks: SanDisk (NASDAQ:SNDK) is off more than 10% over the last month, but demand for its products is strong and growing. Cigna (NYSE:CI) and Aetna (NYSE:AET) stand to profit as hiring picks up, and with it more people into the healthcare system. Baker Hughes (NYSE:BHI) has been especially beaten down along with the price of oil, but Wordell says this hasn't caused companies to scale back production plans. OshKosk (NYSE:OSK) has been weighed on by sluggish commercial construction, but Wordell says it's about to pick up.
    | Comment!
  • Wednesday, October 22, 2014

  • 10:30 PM
    | 18 Comments
  • 3:53 PM
    • Coeur Mining (CDE -14.1%) plunges after BMO Capital downgrades shares to Underperform from Market Perform and slashes its stock target price to $4 from $9.50, pointing out signs of "strained" valuation.
    • The downgrade comes as BMO describes its view that silver will continue to underperform gold over the next 12 months, and that silver miners "will need to look increasingly toward grade as a mechanism to reduce unit costs at the expense of reserve life."
    | Comment!
  • 12:30 PM
    • Hess (HES +0.6%) is upgraded to Buy from Neutral with a $100 price target at UBS, which sees HES as having an attractive valuation risk/reward, strong liquidity to withstand a potential period of low oil prices, strong leverage to oil to benefit from a recovery, and several catalysts on the horizon to improve its valuation.
    • At the firm's $95/bbl base case, UBS says HES should deliver debt-adjusted cash flow/share growth of 8% vs peers' 7%.
    • UBS says HES' portfolio has long-term visibility, but it also sees potential for an increased growth rate if prices recover and the company chooses to accelerate Bakken and Utica development activity.
    | Comment!
  • 11:49 AM
    • Chesapeake Energy (CHK +3.3%) is upgraded to Buy from Neutral with a $27 price target, up from $24, at UBS, which says new CEO Doug Lawler has removed most of the firm's bear arguments concerning high leverage, lack of transparency, and material free cash flow outspend.
    • CHK's turnaround is not reflected in discounted valuation, the firm says, adding that high leverage has been reduced, visibility has increased, and free cash flow deficit has been narrowed.
    • Given CHK's strong liquidity, below average oil inventory and attractive market valuations, UBS believes CHK may pursue an acquisition targeting oil-weighted U.S. resource assets.
    | 4 Comments
  • 9:46 AM
    • Cliffs Natural Resources (CLF +5.5%) opens sharply higher after Credit Suisse, a longtime bear on the stock, now says it is bullish ahead of next week's earnings report and that the magnitude of CLF's cost-cutting efforts is likely to surprise the Street.
    • Credit Suisse believes the total cuts could be worth more than $300M in EBITDA, and it thinks Q3 trade data also looks strong.
    • The firm says it is time to cover shorts, and that's no small matter with 44% short interest in CLF.
    | 6 Comments
  • Tuesday, October 21, 2014

  • 3:58 PM
    • Global Hunter revisits its commodity price outlook, now moving to $83 long-term oil vs. $85 previously, applying a higher discount rate to future cash flows and modeling more conservative assumptions with regards to future rig activity, which results in downward revisions for several exploration and production stocks price targets and some rating changes (Briefing.com).
    • Anadarko Petroleum (NYSE:APC), Gulfport Energy (NASDAQ:GPOR) and Rex Energy (NASDAQ:REXX) are upgraded to Buy; Talisman Energy (NYSE:TLM) is raised to Speculative Buy from Neutral.
    • Devon Energy (NYSE:DVN), Hess (NYSE:HES), Occidental Petroleum (NYSE:OXY) and Kosmos Energy (NYSE:KOS) are upgraded to Accumulate from Neutral.
    • Cobalt Energy (NYSE:CIE) is downgraded to Speculative Buy from Buy.
    | Comment!
  • 3:54 PM
    • Speaking at the Robin Hood Investors Conference, David Tepper says he's short the euro (FXE -0.6%).
    • The hedge funder has been expecting the ECB to go full QE at some point, and is no doubt pleased at this morning's floating of the idea of the central bank adding secondary market purchases of corporate bonds to its just-in-place program of buying ABS.
    • ETFs: FXE, EUO, ERO, DRR, EUFX, ULE, URR
    | 2 Comments
  • 3:13 PM
    • Jefferies lowers its commodity price forecasts, cuts 2015 earnings estimates for mining companies it covers by an average of 21%, and downgrades BHP Billiton (BHP +0.6%) to Hold from Buy but maintains a Buy rating on Rio Tinto (RIO +1.5%) and a Hold on Vale (VALE +1.1%).
    • The firm expects BHP to outperform over the very long-term but sees limited upside potential over the next 6-12 months, with shares now trading at a premium on price/NPV; BHP also has limited scope to materially grow its dividend over the next year.
    • Jefferies maintain its Buy rating on RIO based on relative valuation as well as capital return potential, high return on capital invested and strong free cash flow even in a weaker iron ore price environment.
    | 1 Comment
  • 2:42 PM
    • "Third Point has met with management several times and is confident that Alibaba (BABA +3.8%) can generate long-term value in its core markets and compete in new ones, making it a compelling potential multi-year investment," writes Dan Loeb in his Q3 letter (.pdf).
    • Loeb likes how the "substantial network effect" that exists for Alibaba's marketplaces both creates a strong moat and allows the company to obtain "an unrivaled amount of data on Chinese consumers."
    • However, it's the "under-appreciated" value of Alibaba's other assets, such as its Alipay stake, the Aliyun cloud infrastructure platform, and the China Smart Logistics JV (48%-owned, handled 38% more packages than UPS in FY14) that intrigue him the most. At current levels, Loeb thinks he's effectively getting free call options on these businesses.
    • Following a near-20% gain on his Sony (SNE -0.5%) investment, Loeb decided to bail out. Though approving of Sony's restructuring efforts, he thinks "more urgency will be necessary to definitively turn around the company’s fortunes."
    • Loeb has confirmed reports Third Point took a major position in eBay (EBAY +3.3%) in Q3, and says "a meeting with CEO John Donahoe this summer left us impressed by his process-driven approach to optimizing the business."
    • He argues the post-split eBay "will offer two appealing growth, relative value, and capital return profiles for investors," sees Marketplaces delivering high-single digits growth, and downplays Apple Pay-related concerns for PayPal on the grounds that Pay is primarily an offline payments solution.
    • Like others, Loeb expects an independent PayPal to have more partnership options with tech/Internet giants. He thinks it's only being valued at 11.5x-14.5x 2015E EPS, a range deemed "too cheap for a company growing sales 20% with significant strategic optionality and a strong chance to shape the future of payments."
    • Alibaba and eBay have moved higher following the release of Loeb's letter.
    | 4 Comments
  • Monday, October 20, 2014

  • 6:14 PM
    • Seadrill (NYSE:SDRL) was downgraded to Neutral/High Risk from Buy today at Citigroup, which cited a combination of disappointing exploration, further investment decision delays and increased oil price uncertainty as leading to a 10% reduction in its medium-term rig demand forecast.
    • Citi believes the decline, combined with significant supply added in 2015, likely will extend the current market weakness into 2016, which could materially affect SDRL’s ability to sign and thus finance the next wave of its newbuilds; it also sees increased risk of dividend cuts to maintain the leverage ratio within covenants.
    • SDRL finished flat today but most offshore drillers rose even as the firm lowered its growth estimates across the sector to reflect a slowdown in investment: ATW +3.4%, HP +3.3%, RDC +3.2%, DO +2%, RIG +1.8%, NE +1.7%, PACD +1.2%, ESV +1%.
    | 23 Comments
  • 3:59 PM
    • Citigroup upgrades Freeport McMoRan (FCX +1.5%) and three other names in the mining and energy sector, attracted to their valuations after stocks in its coverage area have been hit by the recent correction in the broader market, even as it downgrades Cliffs Natural Resources (CLF +2.2%).
    • Analyst Brian Yu raises FCX to Neutral from Sell following the price decline, saying that while the company remains highly leveraged to global growth based on its copper and oil exposure, FCX has been aggressively selling assets to manage the balance sheet.
    • Consol Energy (CNX -0.1%), Newmont Mining (NEM +2%) and Alliance Holdings (AHGP +1.9%) are all lifted to Buy from Neutral.
    | 2 Comments
  • 3:50 PM
    • Lemelson Capital says it has taken a 2% stake in Geospace (NASDAQ:GEOS). Tthe firm notes shares trade only a little above tangible book value, and argues they have a "fair value" of $78 (nearly 3x Friday's close).
    • Earlier this year, Lemelson urged chip equipment maker Kulicke & Soffa to do a buyback; Kulicke announced one 4 months later.
    • Seismic equipment peer Ion Geophysical (NYSE:IO) is also having a good day. Both Geospace and Ion sold off on Friday after Cowen downgraded the former.
    | 3 Comments
  • 2:57 PM
    • Westar Energy (WR +0.7%) is downgraded to Neutral from Buy with a $38 price target at UBS on concerns about the outcome of next year's expected Kansas jurisdictional distribution rate filing in light of recent outcomes for Atmos Energy (NYSE:ATO) and Great Plains Energy (NYSE:GXP).
    • The firm cuts its estimates for 2016 by a nickel to reflect the risk of an authorized return on equity between 9.5% and the current regulatory assumption of 10% that was established in the Nov. 2013 La Cygne scrubber case.
    | Comment!
  • 1:17 PM
    • With shares down 17% going into today, Canaccord's Dvai Ghose has upgraded Rogers (NYSE:RCI) to Buy. His target is at C$46 ($40.70).
    • Ghose thinks the Canadian carrier's wireless ARPU could be better than expected, and that it's addressing its service quality issues. He also likes Rogers' limited TV exposure, and considers worries about mobile regulatory risk overblown.
    • Nonetheless, he's still worried about the customer service issues and high churn, as well as high debt, a declining video base, a "questionable" IPTV overlay strategy, and the "potential inability to fully monetize" Rogers' $5.2B NHL deal.
    | Comment!
  • 12:26 PM
    • Cliffs Natural Resources (CLF +1.6%) is higher despite a Citigroup downgrade to Sell from Neutral with a $5 price target in a valuation call on the iron ore and met coal miner.
    • Citi sees iron ore unlikely to average much above $80/metric ton over the next couple of years, and says Friday's announcement of a covenant breach (max 45% debt to capitalization) and post-asset writedowns could force CLF to cut or eliminate its dividend as well as the stock buyback program.
    • CLF is trying to JV or sell its Canadian and Australian mines, but the firm estimates that both currently are posting negative free cash, pressuring potential transaction values.
    | 11 Comments
  • 9:55 AM
    • Goldman has upgraded Align Technology (NASDAQ:ALGN) to Buy ahead of Thursday's Q3 report, and Credit Suisse has upgraded to Outperform.
    • Goldman's Robert P. Jones notes Align's 19% pullback since the end of Q2, and calls the medical scanner/CAD services provider "a long-term growth story still in its early innings with only ~11% unit share."
    • Though Jones admits Q3 results and Q4 guidance could be soft, he considers risk/reward favorable, particularly given healthy spending on discretionary procedures by wealthier consumers.
    | Comment!
  • Saturday, October 18, 2014

  • 4:00 PM
    • Sony (NYSE:SNE) has 40% upside if management shrinks its electronics exposure and steps up profits from its healthy movies, music, insurance, games and imaging chips businesses.
    • Bad news is already priced into shares, Jefferies analyst Atul Goyal says.
    • Sony has scheduled a Nov. 25 investor event during which it’s likely to give more details on restructuring plans.
    • Source: Barron's
    | 24 Comments
  • Friday, October 17, 2014

  • 6:59 PM
    • Zulily (NASDAQ:ZU) is "early with its unique value proposition to the affluent but value-conscious mom," writes Canaccord's Michael Graham, arguing the online women's/children's apparel retailer has differentiated itself in a very competitive market.
    • Graham, who launched coverage with a Buy rating and $45 target, even goes as far as to say Zulily has "turned shopping into a daily, serendipitous experience beginning promptly at 9:01 a.m., offering moms entertainment and shopping for non-mainstream fashion bargains."
    • He adds Zulily's suppliers "get valuable exposure to their target customers with economics that are competitive with those from a conventional retailer," and that his cohort analysis suggests "potential revenue upside."
    • The note arrives with shares down 49% from a February high of $73.50.
    | Comment!
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