Today - Saturday, March 15, 2014
- It's a sell sign: Corporate insiders are more bearish than at any time since at least 1990.
- Such bearishness isn’t evident from the traditional sell-to-buy ratio, which stands at above average levels but no higher today than a year ago; Mark Hulbert highlights an alternative sell-buy calculation that strips out those who own more than 5% of a company’s shares - typically institutional investors, whose past transactions typically have shown no correlation with subsequent market moves.
- Based on this adjusted ratio, corporate officers and directors in recent weeks have sold an average of six shares of their company’s stock for every one they bought - more than double the average since 1990.
- Selling has been particularly aggressive in the capital goods, tech, consumer durables (autos, construction, appliances) and consumer non-durables (food and beverages, clothing, tobacco) sectors; pessimism isn't so rampant in energy, industrials and financials.
Friday, March 14, 2014
- Alcoa (AA -0.2%) is initiated with a Buy rating and $15 price target at Sterne Agee, which believes each of Alcoa's three market segments are poised to "enjoy independent secular trends."
- AA's downstream segment, which is 52% aerospace sales, will benefit “as destocking abates and as the long-term aerospace delivery cycle engages Alcoa's world class fastener, investment cast, and forging operations,” the firm says.
- For the midstream segment, the analyst expects 1.2M tons of auto sheet by 2025, but this number “could grow more than 2x as adoption accelerates across platforms.”
- 43% of AA's sales come from the upstream commodity segment, which are "executing on cost curve improvements through utilization [and] rationalization."
- US Steel (X -1.3%) is downgraded to Underperform from Neutral at Credit Suisse due to relative valuation and expected lower iron ore pricing in H2 2014.
- Equity prices, and particularly US Steel, seem to be overlooking recent commodity price weakness as a short-term destock related phenomenon - perhaps not surprising given the 2012 collapse and rebound in iron ore prices - but Credit Suisse believes that, unlike 2012, structural changes to the global ferrous supply/demand balance through mid-year will see commodity prices settle at a lower level in H2 than they did after the 2012 destock shock.
- Also, the firm thinks US Steel's relative outperformance vs. international peers including ArcelorMittal (AT) likely is due to EM/DM exposure trade, but the gap will close at some point.
- ETFs: DBC, DJP, GSG, RJI, GCC, USCI, CFD, CTF, RGRC, GSP, GSC, LSC, DEE, DJCI, UCI, CMD, DDP, DYY, BCM, UCD, FTGC, CMDT, SBV, DPU, CSCB, CSCR
- Tsakos Energy (TNP +7.6%) is initiated with a Buy rating and $9 price target at UBS.
- TNP's core exposure is in crude and product tankers, and given the firm's bullish outlook on crude and product, it views TNP's sector-low 0.98x price/NAV as a highly attractive entry point; a smaller free float and diversified fleet may account for some of the discount, but the firm feels this is fully warranted.
- UBS also starts Teekay Tankers (TNK +2.4%) and Navios Maritime (NNA +0.2%) with Neutral ratings, and Scorpio Tankers (STNG +8.1%) at Buy with a $13 target.
- Imperial Capital raises its price target for Whiting Petroleum (WLL +1.6%) to $75 from $68, as improved production from new completion design continues to impress (Briefing.com).
- While Q4 results of $0.88 fell shy of estimates, production volume of 9.3M boe was ahead of expectations due to improved performance to recent wells completed with WLL's new design with cemented liners and plug and perf technology.
- Initially employed at Hidden Bench in Q3 2013, WLL has recorded a 50%-plus improvement in performance for wells completed with the newer design at Missouri Breaks and Pronghorn, as well as Redtail, the firm notes.
- NuStar Energy (NS +2.9%) is upgraded to Buy from Neutral with a $62 price target, up from $49, at Goldman Sachs as project-driven cash flow growth visibility improves throughout 2014.
- Following 10 consecutive quarters of no distribution growth, including nine in which distributions exceeded cash flow, Goldman believes fee-based growth driven by its Eagle Ford project backlog will put NS back on track for positive distribution coverage in H2 2014 and increases by mid-2015.
- The firm lowers earnings estimates for 2014 by 2.5% to $1.95 but raises 2015 and 2016 to $2.70 and $2.90 respectively.
- FMC Corp.'s (FMC +0.2%) recent move to split into two public companies, retaining its fast-growing agricultural solutions and health and nutrition segments while spinning off its slower-growing lithium and soda ash businesses, should unlock value and push shares up as much as 21%, Barron's believes.
- Croft Value Fund's Russell Croft sees the split as a good strategic move, and thinks the ag and health part of the business should trade at 17x-18x earnings with the minerals businesses 12x-13x; between the two, he projects a sum-of-the-parts in the low $90s.
- Even better, Credit Suisse's John McNulty raised his target price on FMC to $97 after the announced split, noting that each part of the business will get more targeted management, which will spur high growth and valuation creation.
- Air Products (APD +0.3%) is maintained at Hold but with an increased $125 price target, up from $104, at Jefferies, which thinks APD should have fully digested products approved based on the 2004-06 worldview by 2016.
- With a new CEO likely identified shortly, the firm expects a more intense focus on levers to improve earnings power but believes this is already largely discounted in the share price.
- Plug Power (PLUG) -5.6% premarket after getting tagged with downgrades by analysts at Roth Capital and Cowen & Co.
- Roth cuts shares to Neutral from Buy, seeing near-term risks ahead and saying 2014 bookings momentum appears to be tapering.
- Cowen downgrades PLUG to Market Perform from Outperform with a $7.50 price target, believing strong bookings should drive sales and margin expansion but shares are fully valued.
Thursday, March 13, 2014
- National Oilwell Varco (NOV -2.8%) is downgraded to Neutral from Buy at ISI Group, which says deepwater and ultra-deepwater rig demand are diminishing, and dayrates are weaker than the market appreciates.
- Other oil services names also are lower: SLB -0.9%, HAL -0.2%, BHI -0.2%, NE -3.8%, CAM -1.3%, WFT -1.8%, SPN -2%, FTI -1.3%, DRQ -2.9%, KEG -0.9%.
- EPL Oil & Gas (EPL +0.7%) is downgraded by at least a half-dozen sellside firms which say investors should not expect competing bids for Energy XXI's $39/share offer.
- Stifel, for example, cuts shares to Hold from Buy, seeing no meaningful probability for competing bids after EXXI's "full and fair" offer; the deal is friendly, it contains a high cash component (65%), a breakup fee is involved, and there is a limited number of buyers for shelf production.
- The firm also cites a fairly narrow arb spread (1.1% to the cash/stock offer) and risk of additional downside to EXXI stock in the near-term given the acquisition metrics.
- Wunderlich's Kaushik Roy has started coverage on Violin Memory (VMEM +9.1%) with a Buy and $6 PT. He considers the flash storage vendor's recent troubles surmountable, and notes new CEO Kevin DeNuccio "has a track record for transforming businesses."
- Roy has also assigned a Buy rating to storage giant EMC. Violin, reportedly on the block, sold off last week after its FQ4 numbers failed to impress.
- Callon Petroleum (CPE +8.9%) is upgraded to Sector Outperform from Sector Perform with an $11 price target, up from $10, at Howard Weil, as CPE's Q4 results showed it beat estimates on oil production by ~9% but was a little lighter than expected on natural gas production and realized pricing.
- The firm says it is not concerned about the non-disclosure of production rates for three Wolfcamp B wells that have been flowing back under natural pressure for some time now and are just now being placed on artificial lift; this could be a positive sign, because CPE likely would not continue to flow back the wells naturally unless the wells were performing up to or beyond expectations.
- Abraxas Petroleum (AXAS +3.9%) is upgraded to Accumulate from Neutral with a $4.50 price target, up; from $4, at Global Hunter, which cites "very positive developments on AXAS' conference call coupled with a compelling valuation and organic growth profile."
- The firm says AXAS' net debt fell ~41% after the $73M sale of non-operated Eagle Ford assets, which has dropped AXAS's estimated FY 2014 EV/EBITDA multiple to 5.1x vs. small-cap peers at 6x, and has helped push its debt-adjusted production growth/share forecast to 10% in 2014, higher than the industry average of ~7%. (Q4 earnings)
- AXAS's inventory footprint also is much improved vs. prior quarters, as the firm now sees future well count more than 2x higher than expected just quarters ago, driven by Eagle Ford success at the emerging Jourdanton prospect.
- EMC's (EMC +1.8%) core Information Infrastructure ops (storage hardware/software, RSA) are "grossly undervalued" and chairman/CEO Joe Tucci will likely engineer a value-unlocking "structural change" before leaving in 2015, says Wunderlich's Kaushik Roy, while starting coverage at Buy.
- Roy thinks EMC is suffering from a "holding company" discount, and pegs the value of EMC and subsidiary VMware's (VMW +0.2%) Pivotal spinoff at $5B+. He also declares the company to be "evolving rapidly as technologies change" (previous), and predicts it can outgrow the broader IT sector.
- Separately, FBR's Daniel Ives has upped his VMware PT to $120 from $115, while stating checks have been "incrementally positive." Demand has been strong both from VMware's mainstay virtualization software, and for its software-defined data center initiatives.
- Ives also believes a strong ELA renewal cycle is helping VMware out, and that a broadening product set should strengthen the company's efforts to re-accelerate growth.
- Previous: EMC takes storage share in Q4
- BofA/Merrill's Justin Post has upgraded Activision (ATVI) to Buy, and cut archrival Electronic Arts (EA) to Neutral.
- Post sees several catalysts for Activision, including an upcoming Diablo 3 expansion pack, the 2H14 arrival of a World of Warcraft expansion pack and (possibly) a Chinese online version of Call of Duty, and (most notably) the Sep. 9 launch of first-person shooter Destiny, which Activision thinks could be its third billion-dollar franchise.
- His 2015 Activision EPS forecast has been raised to $1.38 from $1.31, and his PT to $25 from $20.
- As for EA, Post sees fewer catalysts following the March 11 Titanfall launch, and "more compelling content" over the next six months from the likes of Activision, Ubisoft, and Sony. Though he thinks EA has strong FY16 (ends March '16) growth potential thanks in part to new Battlefield and Star Wars launches, he doesn't see any titles driving major FY15 upside.
Wednesday, March 12, 2014
- Goldman's upgrades of Infinera (INFN +14.9%) and Calix (CALX +2.8%) wound up sparking a broader rally telecom equipment and optical component makers. Notable gainers: FNSR +6.2%. UBNT +6.7%. CYNI +5.1%. CIEN +3.8%. JDSU +5.4%. AFOP +3.4%. NPTN +3.4%. ADTN +2.8%. FN +2.2%.
- Goldman's Simona Jankowski believes Infinera, which recently lost a major Verizon deal to Alcatel-Lucent, has regained Level 3 as a client. She also estimates 100G optical system shipments "have approximately a 15% point gross margin advantage" relative to 10G counterparts, and sees this delta boosting Infinera's margins as 100G "increases from mid-50% of total product revenue in 2013 to mid-70% in 2014."
- Regarding Calix, Jankowski reports seeing better spending trends among the tier 2/3 carriers the company leans heavily on, and thinks 2014/2015 estimates now "more accurately reflect" Calix's growth trajectory.
- Today's gains come as the optical networking industry's OFC 2014 conference continues. As usual, the conference has seen a slew of product launches. Ciena has followed Infinera (previous) in launching software tools for intelligently controlling a network's optical layers, and JDS Uniphase is showing off several new components and modules.
- Boeing (BA -1%) shares, already down 9% YTD after surging 94% last year, are slipping again today as UBS cuts its price target to $127 from $137 on the belief that problems with 787 production means cash burn will go on longer than expected.
- The firm's updated learning curve analysis forecasts Boeing’s 787 cash burn at ~$6B in 2014, only slightly better than 2013, and it sees cash burn improving by ~$2B/year beyond 2014 and reaching breakeven in 2017, two years later than guidance.
- CRT Capital, however, says sources expect 5-6 787 deliveries this month getting back on track to normal levels by June; while a modest impact could be felt in Q1 and possibly Q2, the firm doesn't expect any change for the full year (Briefing.com).
- Summit Midstream Partners (SMLP +9.5%) is upgraded to Outperform from Neutral with a $45 price target, up from $42, at Robert W. Baird after yesterday's announced $305M drop-down acquisition from its sponsor, Summit Investments, at an estimated 13% accretion and 8.7x EBITDA multiple.
- SMLP also announced expected Y/Y distribution growth of 15%-20%, while Baird had expected 13.5%; the firm raises its 2014 and 2015 DPU estimates by 3% and 7%, respectively, to account for the transaction and updated drop-down assumptions.
- FuelCell Energy (FCEL -0.3%) merits a big target price boost to $4.10 from $2.30 from Stifel, which reiterates its Buy rating as it foresees sizable wins over the coming months to drive further investor interest in the stock and pave a path to profitability.
- FCEL’s star has risen and fallen alongside Plug Power (PLUG +10.7%), which mostly supplies fuel cell products for warehouse equipment such as forklifts; fuel cell-powered forklifts may need tax credits, but FCEL produces power that is priced competitively with or without subsidies, Stifel says.
- Cowen analysts earlier took a different approach, downgrading shares to Market Perform in the belief that most of the headway the company would make this year is already factored in the current share price.