Seeking Alpha
  • Saturday, April 18, 2015

  • 8:04 PM
    • Nokia (NYSE:NOK) and Alcatel-Lucent's (NYSE:ALU) planned merger could unravel Nokia's R&D partnership/reseller deal with Juniper (NYSE:JNPR). Juniper, which has partnered with Nokia on solutions that pair the former's routers with the latter's base stations and mobile core network gear, counts Alcatel as its second-biggest rival (after Cisco) in the carrier router market, and also squares off against the company in other markets such as carrier SDN software.
    • Ruckus (NYSE:RKUS) is another Nokia partner that could be in the crosshairs: The company competes against Alcatel in carrier Wi-Fi hardware, and has a reseller deal with Nokia that goes back to 2012. The deal was recently expanded to cover Wi-Fi/4G small cell systems.
    • At the same time, the merger has fueled speculation one or more rivals could respond with acquisitions of their own. A potential acquisition of Juniper by mobile infrastructure giant Ericsson (NASDAQ:ERIC) has especially been the subject of much talk.
    • Ericsson is also viewed as a potential suitor for optical networking hardware vendors/fellow Alcatel rivals Ciena and Infinera. Ruckus has been seen as a potential M&A target for a long time. However, it currently competes against Ericsson, which bought Wi-Fi hardware vendor BelAir Networks in 2012.
    • RF backhaul hardware maker DragonWave (NASDAQ:DRWI) could also lose business thanks to the merger; it bought Nokia's RF backhaul business in 2012. and maintains a reseller deal. However, H.C. Wainwright recently downplayed those concerns, arguing Alcatel's RF backhaul systems are expensive and clunky.
    • Juniper and Ericsson report earnings on April 23, and Ruckus on April 30.
  • 5:57 PM
    • Though 3D printer makers have seen their shares pummeled in 2014 and early 2015 thanks to a mixture of earnings disappointments, margin/spending concerns, and multiple compression, Canalys forecasts total sales of 3D printers and related materials/services will rise another 56% in 2015 to $5.2B. It also forecasts a 44% industry CAGR from 2014-2019, leading revenue to reach $20.2B.
    • Canalys' Joe Kempton notes improving printer speeds, the availability of new materials, and the launch of new manufacturing methods have boosted growth. He also observes patent expirations have helped the vat polymerization segment of the 3D printer market grow rapidly; material extrusion printers have historically held a much larger shipment share.
    • At the same time, Kempton points out there has been a major increase in the number of industry players, particularly from Asia. "In the next five years, more companies will move in to establish their own niches ... Long-existing vendors such as Stratasys (NASDAQ:SSYS) and 3D Systems (NYSE:DDD) are well placed to take advantage of this growth but may find their dominant positions challenged by newer rivals."
    • The aerospace, automotive, and medical markets are expected to remain major enterprise growth drivers, as firms such as GE, Boeing, and BMW continue investing heavily in 3D printing. On the consumer side, $500 is seen as the "sweet spot at which many consumers are likely to make impulsive purchasing decisions; " 3D Systems' Cube printer goes for $999. Kempton also argues performance, materials, and software improvements are still needed for consumer adoption to take off.
    • Other 3D printing industry firms: XONE, VJET, OTCPK:AMAVF, MTLS, CAMT, ARCW
    • Yesterday: Stratasys' MakerBot unit conducts layoffs
    • Three days ago: 3D printing stocks up strongly amid NYC conference
  • Friday, April 17, 2015

  • 7:14 PM
    • "We believe ServiceNow (NYSE:NOW) saw increased seasonality in Q1, which is in part the result of the company's shift to Services Automation beyond IT, where the company will be focusing on larger cross-enterprise deals," writes Brean (Buy) after ServiceNow (NOW) provided light Q2 guidance and a smaller top-line beat than has been seen in recent quarters amid heavy forex pressures.
    • On the CC (transcript), CEO Frank Slootman stated ServiceNow "had quite a bit of deal slip" in Q1, and was also dealing with a drained deal pipeline (as of January) and a salesforce reorg. Brean isn't worried. "This is a common occurrence for enterprise software companies, but appears to have unfortunately caught many by surprise (ourselves included). However, we believe the after-market reaction reflects strong outperformance into the print, as well as overall anxiety in the market, as opposed to deteriorating fundamentals."
    • "When you trade at 9x 2016 revenues you don't get a pass...on anything," admits Canaccord (Buy). It's not thrilled with the Q1 numbers, but also thinks there was nothing to change its belief ServiceNow will grow to $3.5B-$4B/year business with 20%+ free cash flow margins by 2020. The firm still sees shares reaching $200 in 4 years.
    • TechStockRadar's Rob DeFrancesco: "[T]he longer-term outlook remains bright because the company continues to benefit from the broad enterprise transition to the cloud (it faces little legacy vendor competition) and gain traction in IT operations management (ITOM), a $10-billion market that is significantly larger than its core [IT service management] market. In the latest quarter, ServiceNow generated about 10% of its business from ITOM, indicating plenty of room for expansion."
    • Shares fell 11.5% in regular trading to $73.29. They're still up 38% from where they traded a year ago.
    • Yesterday: ServiceNow's Q1 results, guidance/details
    | Comment!
  • 1:46 PM
    • Cloud IT service management software leader ServiceNow is down 14.5% after providing soft guidance (thanks in part to forex) to go with a Q1 beat. Many high-beta enterprise tech names are off sharply amid a 1.5% drop for the Nasdaq.
    • In addition to Salesforce and Workday (previous), cloud software firms posting big losses include NetSuite (N -4.8%), Constant Contact (CTCT -3.3%), InContact (SAAS -3.9%), Paycom (PAYC -3.6%), Ultimate Software (ULTI -3.6%), and Textura (TXTR -3.7%). NetSuite reports on April 23, Ultimate Software on April 28, Constant Contact on April 30, and Paycom on May 6.
    • Big data/analytics software plays have also been hit hard. Tableau (DATA -6.3%), Splunk (SPLK -5.2%), Hortonworks (HDP -6%), and Varonis (VRNS -4.3%) are all off sharply. Though its growth rates and multiples are similar to those of many analytics software firms, ServiceNow generally isn't seen as an analytics play. This morning, D.A. Davidson launched coverage on Tableau and Splunk at Buy, and Hortonworks at Neutral.
    • Tableau, which surged yesterday following bullish Stifel and William Blair coverage launches, reports on May 7. Stifel praised Tableau's "superior product performance and simplified user experience," data discovery market lead, international growth potential (less than 25% of license revenue is from outside of North America), and ability to capitalize on "free demo downloads by front-line information workers evangelizing [Tableau's] product."  William Blair stated its survey work "indicates that the perceived value of Tableau exceeds that of other self-service [business intelligence] vendors."
    • Pac Crest hiked its Splunk target to $82 yesterday after attending a user conference. "[T]he economic value derived from expanding Splunk implementations ... into new areas like security intelligence, compliance and real-time capacity planning results in cost avoidance that can far overshadow the historical pricing objections to Splunk. This is a significant change in customer behavior and pricing perception ... It was clear that the appetite of existing Splunk users to find new use cases remains fierce..."
    | Comment!
  • 12:39 PM
    • Believing the company's core privileged account management (PAM) software could be a multi-billion dollar market in time, JMP's Erik Suppiger has launched coverage on CyberArk (CYBR - unchanged) with an Outperform rating and Street-high $72 target.
    • Suppiger, echoing some recent sell-side notes: "The cyber-security landscape is undergoing a paradigm shift, with more investments directed at internal security and we believe PAM is becoming a core component of internal security infrastructure. We also feel the adoption of cloud computing represents a significant long-term catalyst that is in the very early stages of development."
    • Citing channel checks, Suppiger asserts CyberArk is "emerging as the premier [PAM] brand leader, with key competitive advantages that include differentiated features, product breadth, and integration with ecosystem partners." He sees the company respectively posting 35% and 34% 2015 and 2016 sales growth, above consensus estimates of 29% and 25%. His target implies a steep 12x 2016E EV/sales ratio.
    • Shares are close to breakeven in spite of a 1.4% drop for the Nasdaq. Many security tech peers are down over 2%.
    | Comment!
  • 6:46 AM
  • Thursday, April 16, 2015

  • 12:22 PM
    • Believing shares will benefit from "the continued secular shift towards mobile payments," Macquarie has launched coverage on Xoom (XOOM +1.7%) with an Outperform rating and $20 target.
    • The firm observes Xoom has underperformed (slower-growing) money transfer peers Western Union and Moneygram in 2015 thanks to soft guidance and a fraud disclosure. It adds Xoom has averaged a 21% gain in June over the last two years, something Macquarie believes was aided by strong Mother's Day remittances.
    • Q1 results arrive on April 28. 4.8M shares (nearly 20% of the float) were shorted as of March 31.
    | Comment!
  • 6:53 AM
  • Wednesday, April 15, 2015

  • 3:41 PM
    • “Whenever I see a stock market explode, six to 12 months later you are in a full blown recovery,” he says, expecting the Chinese economy to therefore do better than most expect after the Shanghai Composite has doubled over the last year. A recovery in China, says Druckenmiller, means - among other things - good times for European exporters and higher oil prices.
    • As for the Fed, Druckenmiller stands among the few not expecting any rate hike this year. ZIRP, he says, encourages companies to take on debt, buy back stock at record-high pries, and pursue mergers, rather than build businesses.
    • As for Greece, he sees an exit from EMU coming, but isn't worried about contagion as the banks have unloaded their Greek debt and Mario Draghi has QE underway.
    | Comment!
  • 11:56 AM
    • "ENPH offers pure-play exposure to rapid growth in residential rooftop solar through 2016, and longer term growth in distributed energy solutions," argues JPMorgan, launching coverage on the solar microinverter leader with an Overweight rating and $16 target.
    • The firm sees Enphase's expansion into the international and commercial microinverter markets acting as growth drivers, and expects U.S. residential demand to remain strong ahead of a cut in a U.S. solar tax credit  (ITC) to 10% from 30% (set for the end of 2016).
    • It's also upbeat about Enphase's broader long-term opportunity. "Module-level power electronics (MLPE) should capture a growing share of the power optimizer and DC-to-AC inverter market, owing to superior energy yield and lower cost of ownership over the lifetime of the rooftop solar system, relative to conventional inverters. Enphase is a pure-play expression of the unit growth in the MLPE market, with up to 45% share of the growing US market,"
  • 10:57 AM
    • "The Time to Own Is Now," reads the headline of a note from Morgan Stanley's Ravi Shanker reiterating an Overweight rating and $68 target on Mobileye (NYSE:MBLY). "MBLY has been our top supplier pick in [North America] since the IPO thanks to its best-in-any-class growth story which includes 50%+ revenue CAGR through 2020, 75%+ gross margins, 50%+ revenue to FCF conversion, no gross debt, high barriers to entry and high visibility."
    • He sees three 2015 catalysts: 1) Growing confidence in strong driver-assistance (ADAS) penetration, following announcements by Nissan/Toyota to make ADAS standard in some markets and to offer it as a low-cost option on other models (other OEMs are expected to follow suit). 2) A decision by Volkswagen regarding its ADAS strategy; the automaker is expected to "adopt an Audi-like approach using mono vision," which would benefit Mobileye long-term. 3) Rising 2015 estimates, aided by new programs, the shekel's decline, and continued margin expansion.
    • Meanwhile, Deutsche's Rod Lache is out with a note declaring sales of active safety technologies such as forward crash avoidance/mitigation (FCAM) systems will be better than previously expected, thanks to both strong growth and high ASPs.
    • Lache sees both U.S. efforts to promote active safety and automaker competition helping penetration rise to 40%+ in 2020 and nearly 70% in 2025 vs. less than 7% in 2014. He forecasts Mobileye (target hiked by $2 to $55) will respectively post 2018 and 2020 EPS of $1.47 and $2.68.
    • Goldman upgraded Mobileye last month. Short interest was a steep 24.4M as of March 31.
  • 7:04 AM
  • Tuesday, April 14, 2015

  • 7:15 PM
    • Goldman Sachs offers three criteria on how to pick stocks to short: Look for individual stocks with high valuations that have a tendency to underperform; take hints from mutual funds as they do a good job of selecting shorts; and look for stocks that are likely to move on company-specific factors and are less prone to moving with general market and sector trends.
    • Among the overvalued stocks Goldman thinks could drop are CELG, ORLY and RHT; stocks underweight by mutual funds that could fall are HST, CTL and EQR; and likely to deviate from the broad market and their sectors are KLAC, JEC and COH.
    • Rounding out Goldman's 19 stock recommendations that could reward short sellers: ARG, DO, DISCA, FLS, KSS, MOS, NDAQ, NVDA, TDC, WU.
  • 12:24 PM
    • "We like Tangoe’s dominant share of a large market, barriers to entry, blue-chip clients, new products, potential for further client penetration, 10-15% growth with improving profitability," writes Barrington Research's Jeff Houston, launching coverage on Tangoe (NASDAQ:TNGO) with an Outperform rating and $18 target.
    • Houston forecasts 2015 revenue of $239M (+13%) and 2016 revenue of $266M (+11%), slightly below consensus estimates of $239.7M and $268.4M. At the same time, he notes management "aims to reach $1 billion of [annual] revenue over time with 100-200 basis points of annual margin improvement."
    • The cloud telecom management software vendor is near its highest levels since last November.
    | Comment!
  • 11:53 AM
    • Believing there are "multiple drivers of growth" beyond an October deadline for U.S. retailers to implement EMV (chip-and-PIN) payment systems, Goldman has upgraded VeriFone (PAY +1.6%) to Buy, and hiked its target by $6 to $44.
    • Goldman sees plenty of room for margin/cash flow growth thanks to restructuring moves, supply chain rationalization, and a mix shift towards higher-margin U.S. sales. The firm also observes VeriFone trades at a 25% discount (on a forward P/E basis) to European rival Ingenico.
    • An 8% revenue CAGR is forecast for 2014-2017, and FY15 (ends Oct. '15) is expected to be "an inflection point" for free cash flow. Goldman sees the latter opening up "options for pursuing a more active capital allocation strategy with an increasing mix of M&A."
    • Stifel upgraded last week. Shares are ~$3 away from a 52-week high of $38.63.
    | 1 Comment
  • 9:37 AM
    • Believing PC weakness is priced in and valuations are low, BofA/Merrill has upgraded Seagate (STX +0.8%) to Neutral and Western Digital (WDC +1.1%) to Buy ahead of the companies' calendar Q1 reports (set for April 17 and 28, respectively).
    • BofA thinks pricing is holding up well in spite of PC-driven unit weakness, and that a mix shift towards higher-margin enterprise drives (fueled by Web/cloud demand) is propping up both ASPs and gross margins.
    • Nonetheless, the firm is respectively cutting its Q1 and Q2 hard drive market shipment (NYSE:TAM) forecasts by 4M and 3M to 126M and 129M - Seagate/Western's Q1 forecast is at 135M - and its 2015 TAM forecast by 9M to 525M. Estimates for both firms have been moderately cut.
    • Regarding Western, BofA argues the company's strong SSD presence (made possible by a string of acquisitions) "ensures that the cannibalization of performance drives [by SSDs] is not a significant net negative."
    • The upgrades come a day after Brean reiterated Buy ratings on Seagate/Western (while cutting estimates), and Jefferies added Western to its Franchise Pick list; like BofA, Jefferies cited the demand/ASP boost provided by high-capacity cloud drives, and argued PC issues are priced in.
    | 1 Comment
  • 6:42 AM
  • Monday, April 13, 2015

  • 1:36 PM
    • "[W]e think they ought to do just a transparent review, and determine whether it makes sense, but we are not definitely saying they should split it up," says Jana Partners' Barry Rosenstein on CNBC, after Jana issued a letter urging Qualcomm (QCOM -0.1%) to consider a breakup.
    • Qualcomm considered spinning off its chip division (QCT) from its IP licensing division (QTL) in 2000 amid heated licensing talks with Nokia. Synergies exist between the businesses: Qualcomm's patent portfolio helps QCT obtain more favorable patent licensing terms from third parties, and R&D carried out by QCT adds to QTL's portfolio.
    • Rosenstein is more insistent on wanting Qualcomm to up its buybacks. The company is just a month removed from announcing a new $15B buyback and promising to repurchase $10B worth of shares within 12 months, on top of a commitment to return 75% of free cash flow to shareholders. However, Rosenstein notes Qualcomm's cash balance is still equal to 30% of its market cap.
    • Part of Rosenstein's argument for mulling a breakup: With Qualcomm trading at 9x EPS excluding cash, he thinks QCT has a "negative valuation" if one assigns a fair market value to QTL. "Obviously, it’s not worth a negative value ... We think they need to figure out what they can do to close that valuation gap."
    • Qualcomm has responded to Jana's letter by highlighting its existing buyback efforts and stating "prior reviews have concluded that the synergies provided by our business model create more value for stockholders than could be created through alternative corporate structures."
    • Jana's call comes as Andreessen Horowitz VC Scott Kupor argues the obsession of activist investors with near-term profits has hurt tech M&A activity. Qualcomm has been fairly acquisitive in recent years.
    • After opening sharply higher, Qualcomm is now near breakeven.
    | 1 Comment
  • 6:42 AM
  • Saturday, April 11, 2015

  • 9:21 AM
    • After Friday's 10.8% moonshot, General Electric (NYSE:GE) sells for 16x 2015 estimated earnings, writes Avi Salzman, a pretty rich multiple considering the company's industrial businesses have boosted operating earnings by an average 1.4% annually for the last four years.
    • United Technologies (NYSE:UTX) trades at a 16 multiple, but has grown operating earnings by an average 4.9% over that period, and Honeywell (NYSE:HON) sells for 17x after growing earnings by an average 16%.
    • "Here’s the problem: The assets they have deployed in the finance unit were generating a lot of earnings,” says a fund manager and longtime GE owner. “As they sell those down, they have to replace them with industrial earnings or share buybacks. There’s going to be a period of time where earnings will be stagnant ... The Street will get bored waiting."
    • Previously: GE's move away from finance sets up industrial deals, Immelt says (April 10)
    • Previously: GE sets plan to exit almost all of GE Capital; launches $50B buyback (April 10)
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