Thursday, March 6, 2014
- Alpha Natural Resources (ANR) -2.4% AH after Goldman Sachs downgrades shares to Sell from Neutral with a $4 price target, down from $6.
- Goldman cites a challenging met coal price outlook which drives its EBITDA estimates sharply below consensus; valuations near historical peak levels on an EV/EBITDA basis; competitively disadvantaged assets, including higher-cost met coal assets and lower-quality PRB mines; and high leverage levels and an incrementally negative free cash flow forecast.
- The firm says estimates need to be recalibrated lower before it could become more constructive on the stock.
- Jefferies' Aaron Schwartz has upped his SolarWinds (SWI +2.7%) PT to $57 from $51, and calls the company's EPS/free cash flow upside "underappreciated" at a valuation of 16x FCF.
- Schwartz foresees the systems management software firm delivering 20% Y/Y license growth in "a baseline scenario," and thinks sales hiring, cross-selling, and higher transaction volumes could yield upside.
- SolarWinds has moved higher since posting a Q4 beat (featured 20% license growth) and solid guidance a month ago. Earnings disappointments led shares to underperform in 2013, after entering the year carrying steep multiples.
- Anadarko Petroleum (APC +1.2%) has lagged most of its E&P peers, but Argus thinks it’s time to buy, upgrading shares and setting a target price of $96.
- Argus likes APC's prospects for 5%-7% annual production growth through 2020 and its industry-leading exploration program, as well as the substantial base of reserve assets, which management should be able to develop or monetize to boost shareholder value.
- The firm says its former Hold rating had been based on a view that potential liabilities in the Tronox case would keep pressure on APC shares, but proceeds from recent asset divestitures have eased concerns about the impact of any future settlement.
- Axiall (AXLL +9.9%) is upgraded to Buy from Neutral with a $60 price target, raised from $45, at Goldman Sachs, which believes bad news is priced in the share price and earnings could double.
- AXLL shares have dropped sharply over the past year, and the firm says the current price more than reflects headwinds; lower caustic prices from new industry supply, higher natural gas costs, ethylene contract resets, arrested PVC margins, Aromatics oversupply, and operational issues are now widely known.
- Star Bulk Carriers (SBLK +3.1%) and Navios Maritime (NM +4.1%) are upgraded to Buy from Hold at Stifel, which sees a cyclical recovery coming in the dry bulk market as an expected 120M tons of new seaborne iron ore trade drives 6% demand growth for the year.
- SBLK is upgraded with an $18 price target; given SBLK's large position in capesize vessels and substantial operating and financial leverage, Stifel believes the company should be ideally positioned to benefit from rate improvements.
- NM is upgraded with a $14 target; NM has 17 capesize vessels, six with charters expiring in 2014 and another six chartered in and operating in the spot market, which the firm says puts it at a distinct advantage and positions it as one of the most leveraged names to rising dry bulk rates.
- Consolidated Edison (ED +0.5%) is upgraded to Buy from Hold with a $60 price target at Argus, which says the stock appears favorably valued based on historical multiples and relative to peers.
- ED's rate plan settlement was approved by New York regulators last month, and while the company did not receive the rate increases it initially requested, the firm likes the deal which allows for rate base growth in its electric, gas and steam operations while temporarily freezing rates for customers.
- ED also offers an attractive dividend yield of ~4.5%, above the industry average.
- SA author/hedge fund analyst Thomas Hor considers Sky-mobi (MOBI +15.6%) deeply undervalued at 2x 2014E EV/sales (a multiple well below that of peers), and considers the company well-positioned to profit from a Chinese mobile gaming industry expected by iResearch to grow 94% this year to RMB21B ($3.4B).
- Hor sees Sky-mobi's smartphone-related revenue, driven by downloads/in-app purchases tied to its Maopao app store (pre-installed on phones sold by China Mobile), more than doubling this year.
- He adds Sky-mobi was adding 380K+ users/day as of December, and had 110M+ Maopao users by the end of 2013 (many of them in Tier-2/Tier-3 cities seen as "fertile grounds for growth").
- Hor's $21 PT is based on a multiple of 6x 2014E EV/sales.
Wednesday, March 5, 2014
- EOG Resources' (EOG -0.6%) target price is raised to $214 from $190 at Deutsche Bank, as year-end 2013 disclosures from Buy-rated EOG suggest the drivers of oil growth are diversifying away from rather than concentrating further on the Eagle Ford.
- Since contributing 90% of EOG oil growth in 2012, the firm's analysis suggests the diversification means growth in 2014 and beyond will be more balanced at 65% Eagle Ford and 35% for other plays, offering important implications for EOG's risk profile and multiple, and how the market perceives the stock's multi-year outlook.
- Robert W. Baird refreshes its outlook for master limited partnerships with six downgrades: five high-growth partnerships that now look fairly valued - NGL Energy Partners (NGL -1.8%), New Source Energy (NSLP -4%), Plains GP Holdings (PAGP -0.3%), Summit Midstream Partners (SMLP -0.6%) and Tallgrass Energy Partners (TEP -2.7%) - and are cut to Neutral from Outperform, and a reduction for Whiting USA Trust II (WHZ -0.7%) to Underperform from Neutral on elevated commodity risk.
- The firm recommends recycling capital into its top investment ideas: ONEOK Partners (OKS -1.2%), Plains All American Pipeline (PAA +0.9%), Rose Rock Midstream (RRMS +0.2%) and Crosstex Energy LP (XTEX -1.5%)
- Despite downgrading multiple high-quality MLPs, Baird says its long-term bullish view on the sector remains unchanged (Briefing.com).
- Crosstex Energy LP (XTEX -1.7%) is downgraded to Hold from Buy with a $33 target price at Wunderlich, as it believes near-term yield compression from synergies and growth development may be limited.
- For investors with higher risk tolerance, the firm prefers to play the story through general partner Crosstex Energy Inc. (XTXI -1.2%), which offers sector-leading dividend growth estimated at 53% in 2014 and 43% in 2015.
- The legacy businesses remain challenged, which could be a risk to 2014 guidance and 2015-16 double-digit distribution growth, the firm adds.
- SA contributor Charles Moscoe, who was bullish on Skullcandy (SKUL -6.3%) last November when shares were near $5, thinks investors should sell ahead of tomorrow afternoon's Q4 report.
- Moscoe says his research indicates Skullcandy's search, Web traffic, and Google Shopping metrics are trending lower, while rival Beats continues gaining ground. In addition, Amazon checks suggest sales of Skullcandy's Air Raid Bluetooth speakers are "very slow," and that its flagship Crusher headphones are "experiencing some early signs of channel stuffing."
- Moscoe also: 1) Notes Microsoft still hasn't released an Xbox One-compatible adapter for Skullcandy's Astro gaming headsets. 2) Points out major reseller RadioShack just reported awful sales. 3) Believes Skullcandy is doing "a very poor job" promoting itself via social media.
Tuesday, March 4, 2014
- Solazyme (SZYM -1.1%) is downgraded to Neutral from Buy with a $13.50 price target at Goldman Sachs, which sees limited upside for the stock in the near-term although the long-term growth story is intact.
- The firm believes SZYM has executed well vs. peers, with its first two commercial-scale facilities now within months of coming online and delivering volume, but this catalyst appears to be reflected in the stock’s ~30% move since the end of January.
- The firm adds that it is more guarded on the near-term path for catalysts given financial performance is likely to remain muted.
- Cliffs Natural Resources (CLF) -1.8% premarket after Wells Fargo downgrades shares to Underperform from Market Perform and lowers its valuation range to $12-$14 from $19-$24 due to a challenging macro environment.
- Global spot pricing is weakening due to a slowdown in China, excess inventories, and ramping supply from low cost miners, the firm says as it lowers its estimated 2014 EPS to $0.55 from $1.75.
- While the firm likes the new CEO and sees value in shares if management sells high cost assets, it is not yet convinced the efforts will be enough to keep shares afloat.
Monday, March 3, 2014
- MarkWest Energy (MWE +0.6%) is downgraded to Neutral from Buy with a $65 target price, lowered from $72, at UBS, which cites MWE's substantial capex needs, meaning significant additional funding requirements.
- The large volume ramp MWE needs to hit targets, while likely, is not a lay-up, the firm says, particularly given potential issues such as weather, ongoing commodity volatility and basis blowouts for producers; it will be difficult for MWE to hit high single digit/low double digit distribution growth until its capex bulge begins to wind down in late 2015.
- Wunderlich also cuts shares to Hold from Buy, seeing investor concern about the return profile on the capex and the lead time required to achieving the stated mid-double-digit return on investment capital targets, which the firm sees limiting near-term valuation expansion (Briefing.com).
- Access Midstream Partners (ACMP +1%) is upgraded to Buy from Hold with a $64 price target, raised from $56, at Wunderlich ahead of the MLP's May analyst day.
- The firm expects ACMP to provide solid guidance for 2016 EBITDA along with a continuation of 15% distribution growth, which should lead to consensus estimate revisions.
- While some MLPs under coverage have provided lower than expected growth outlooks, the firm thinks ACMP offers good visibility on 15%-plus growth through 2016 underpinned by its diverse asset base, contractual model and strong coverage/balance sheet.
- SandRidge Energy (SD +0.7%) is higher after Global Hunter upgrades its rating for the shares to Accumulate from Neutral and lifts its target price to $8 from $7, citing an improving Mississippian well profile, both on the performance and cost sides of the equation.
- "While we take management's 3% upward type curve revision with a large grain of salt, when coupled with a decline in well cost to $2.9M, we think SD's improvements are at least worth a second look," the firm writes.
- The Barron's bounce is alive and well even amid today's broad stock market losses, as Atwood Oceanics (ATW +2.1%) benefits from a weekend article that says the midcap offshore driller should rise 40% in the next year.
- The vast majority of ATW's rigs are on contract through 2015, meaning ATW is less exposed to the recent dip in day rates than rivals, and ATW is more efficient than peers, making it more resilient in a weaker market; its 40% operating profit margin is 11 percentage points above the average offshore oil driller's and tops rivals' like Transocean (RIG), at 26%, and Rowan (RDC), at 21%.
- ATW's free cash flow has been negative since 2011 because of its shipbuilding program, but some analysts think cash should gush again starting in 2015, and the company could start issuing a dividend or buying back shares.
- "War in the Ukraine? Buy Canadian small-cap oils," BCMI newsletter editor Chris Damas asserts, believing they could benefit from the sort of spike in oil prices that's happening today.
- Specifically, Damas advises investors to take a look at Longview Oil (LGVWF -1.5%), Surge Energy (ZPTAF -1%) and Crew Energy (CWEGF +3.2%); he says they're inexpensive relative to current commodity prices and should do particularly well as geopolitical risks cause oil prices to remain elevated or spike higher.
Friday, February 28, 2014
- Kroger (KR) gained 4.5% today after a Deutsche Bank analyst said KR shares are trading at a substantial discount given the retailer's metrics, including comparable store sales at ~3% and EPS growth of 8%-12%.
- In keeping its Buy rating on the shares, DB believes "KR stands apart from other conventional grocers given its much greater scale, stronger local market share positions, broad private brand portfolio, and very consistent history of positive non-fuel ID’s.”
- The firm thinks KR or P-E firm Cerberus could acquire Safeway (SWY), estimating the valuation range for a deal at $45-$55, adding to recent rumors about a deal.