Today - Friday, November 28, 2014
- Activist Starboard Value has disclosed a 2.2M-share (7.2%) stake in DRAM/SRAM maker Integrated Silicon (NASDAQ:ISSI). (13D filing)
- Starboard says it has "engaged, and intend to continue to engage, in discussions with management and the Board of [ISSI] regarding corporate strategy and Board representation and the composition of [ISSI's] Board, generally."
- Berenberg's Tammy Qiu declares Applied Materials (AMAT - Buy reiterated) and Lam Research (LRCX - launched at Buy) to be two of her favorite chip equipment plays ahead of an expected 2015/2016 slowdown in semi capex.
- Like David Einhorn and others, Qiu expects Lam to gain chip equipment share thanks to strong exposure to the FinFET (3D transistor) etching and 3D NAND flash deposition/etching markets.
- Applied is expected to benefit from both FinFET/3D NAND exposure and Tokyo Electron (OTCPK:TOELF) merger synergies. Qiu: "We believe TEL can improve its margin following the merger with AMAT, from single-digit to above 20%, by exiting non-profitable business, optimizing operations and platform alignment with AMAT."
- She's less enthusiastic about KLA-Tencor (NASDAQ:KLAC) and ASML, launching the former at Hold and reiterating a Hold on the latter. Though liking KLA's process control share (helps with regards to FinFET exposure), Qiu considers shares fairly valued at 21x estimated FY15 (ends June '15) EPS.
- ASML, meanwhile, is expected to see a relatively slow EUV sales ramp. Qiu expects ASML to ship only 40 EUV tools in 2019, below management's guidance for 50-60. In addition, sales of ArFi lithography tools are expected to "decline over time due to re-use and efficiency improvements."
- Altogether, Qiu forecasts semi capex will grow just 2% in 2015 and decline 7% in 2016, after growing 12% in 2014. Memory capex is expected to fare better than foundry/logic capex.
Thursday, November 27, 2014
- Arctic Securities maintains its Sell rating and lowers its price and dividend targets on Statoil (NYSE:STO).
- Notes that “run rate” 2015 operational cash flow is currently at NOK 104B while CAPEX is currently guided at NOK 138B. Consensus dividend expectation is NOK 7.54/share, or NOK 24B. "Statoil will hence before any divestments have to borrow NOK 58B next year to bridge the funding gap."
- "Statoil is not in a position to continue the current dividend policy." Says oil prices would need to rise to $130/bbl for 2015 and $115/bbl for 2016 to make dividend sustainable.
- Lowers price target to NOK 115 and dividend estimate by NOK 1.75/share to NOK 5.75 and NOK 6.00 in 2015 and 2016.
- Shares are -24.6% since Arctic first pegged STO with a Sell rating on July 23. They fell 4.75% today to NOK 142.30.
- Previously: Crude now -7.6% on OPEC rollover
- Upgrades Barclays (NYSE:BCS) to Buy from Neutral.
- Price target rises 10% to 300p (26% upside)
- BOE's “more benign” leverage ratio means BCS is less likely to need additional capital, and will be under less pressure to shrink low risk-weight positions.
- Barclays has the lowest leverage ratio of major U.K. lenders, and was considered most at risk from the BOE’s decision.
Wednesday, November 26, 2014
- A new report from BofA Merrill Lynch stays positive on the top utility stocks for the rest of the year and 2015, offering five recommendations for utilities paying high current dividends and expected to raise dividends significantly over the coming years.
- The firm sees Dominion Resources (NYSE:D), which currently pays a 3.3% dividend, growing its dividend 7% this year, in line with the last four; many analysts think the new EPA bill may actually provide a tailwind for the company.
- Also suggested: AEP, PCG, UIL, PPL
- ZAYO has received 11 bullish ratings on underwriter coverage day, and no neutral or bearish ones.
- Goldman (Buy, $30 target) calls the fiber network owner "a pure-play opportunity on 20%+ secular growth in data traffic expected over the next few years," and thinks the market for fiber infrastructure service can post a 7% CAGR through 2020. "Our [sum-of-the-parts] analysis suggests the market is giving little credit to revenue visibility and incremental margins of the physical infrastructure business."
- "Zayo owns one of the largest collections of fiber in the U.S. and primarily targets customers with heavy and complex bandwidth needs," says Morgan Stanley. "Consolidated adjusted EBITDA margins for Zayo are ~58%, meaningfully higher than its peers due to its focus on the higher margin products like dark fiber (~70% margins) ... Even if individual product margins remain flat, consolidated margins can grow due to a mix shift."
- MS also observes the fiber services market has seen huge consolidation, and that mobile, cloud, and online video traffic growth is boosting demand.
- Zayo now +39% from October's $19 IPO price. Peers Level 3 (LVLT +1%) and Cogent (CCOI +1.8%), for whom many of the bullish arguments for Zayo also apply, are trading higher.
- Helix Energy Solutions (HLX -4.1%) is downgraded to Equal Weight from Overweight with a $31 price target at Morgan Stanley due to lower oil prices, driving down free cash flow and thus spending levels.
- While noting that most of HLX’s intervention vessels have 1-5 years of backlog, Stanley sees risk around its Seawell and Skandi Constructor vessels, which have limited backlog in 2015.
- The firm maintains its favorable view of HLX’s well intervention business model, which it sees as largely insulated from weakness in the offshore rig market, levered to defensive life-of-field work, and poised to take market share from rigs, given increased efficiencies and lower building costs.
Tuesday, November 25, 2014
- Beaten-down Ceragon (NASDAQ:CRNT) trades at a price/sales ratio of less than 0.2x, and at less than half its book value of $2.31/share, notes SA author Hawkinvest.
- The author also points out analysts expect Ceragon to post breakeven EPS in 2015 and a $0.28/share profit in 2016, and that the company's new IP-20 RF backhaul line "appears to be the market leader in terms of its size and performance." Ericsson and Alcatel-Lucent are seen as possible acquirers.
- Also potentially helping Ceragon: Rival DragonWave has soared after announcing over $10M in orders from a tier-1 North American mobile carrier.
Monday, November 24, 2014
- Twenty-two spinoffs have been completed in 2014, the most in a decade, and another 28 have been announced. Among the catalysts are activist investors, so Credit Suisse screened for companies with multiple business segments, slow growth, and stocks trading for lower multiples than peers, in other words, "good, quality companies that are struggling to grow."
- The list is heavy on big media names like Time Warner (NYSE:TWX) and Twenty-First Century Fox (NASDAQ:FOXA), big tech like Oracle (NYSE:ORCL), Symantec (NASDAQ:SYMC), and IBM, and big industry like Lockheed Martin (NYSE:LMT), Ingersoll-Rand (NYSE:IR), and Raytheon (NYSE:RTN), but just two financial names - Travelers (NYSE:TRV) and Torchmark (NYSE:TMK).
- The rest: MO, CA, WU, DPS, PBI, SJM, HRS, SWK, EMR, WLP, MAT, GE, SNA, LLL, ITW, STJ, PDCO, HPQ, DLPH, HAS, NAVI, GME, CBS, JNJ, SLB.
- Analysts weigh in on Shell Midstream Partners (SHLX +3.6%) and its strong post-IPO performance after the end of the MLP's quiet period.
- UBS initiates SHLX with a Buy rating and $40 price target of $40, as it expects Royal Dutch Shell (RDS.A, RDS.B) to drop assets to the company faster than necessary to drive a 25.7% distribution growth compound annual growth rate during 2015-18, motivated to build scale quickly to make the MLP a meaningful entity within the company and to provide greater flexibility to finance growth projects and/or make acquisitions; it sees upside potential to $56 should Shell accelerate its drops to $1B of EBITDA by year-end 2016.
- Citigroup also starts SHLX at Buy, while Barclays begins coverage at Outperform and Morgan Stanley at Equal Weight.
- Societe Generale analysts believe there is a real possibility of even lower oil prices, and if that occurs the firm recommends “bottom fishing” in European oil majors.
- The sector offers more sustainable dividends than in the last oil price crash, as well as stronger balance sheets and liquidity, and reasonable valuations after the recent correction, the firm says, noting that in the 2009 crash, only the three supermajors in Europe - Royal Dutch Shell (RDS.A, RDS.B), BP and Total (NYSE:TOT) - maintained dividends unchanged, while the other six all cut them.
- Ring Energy (REI -5.1%) is downgraded to Hold from Buy with a $12 price target, lowered from $20, at Canaccord Genuity on equity dilution concerns.
- The recent decline in oil prices could accelerate REI's need for new capital, and the company's small relative size likely would preclude it from accessing the high yield market for several years, thus the firm believes dilution could limit near-term gains.
- Exxon Mobil (XOM -0.8%) and Chevron (CVX -0.4%) are lower as Raymond James downgrades both companies given their limited leverage to potential improving oil prices, while analyst Pavel Molchanov feels oil is within weeks of bottoming regardless of the OPEC decision.
- In cutting shares to Market Perform from Outperform, the firm says XOM's "ultra defensive" characteristics, including a large chemicals and refining businesses, have insulated the company from the worst of the falling oil prices, but it still expects the stock to be a middling performer.
- CVX, which is reduced to Outperform from Strong Buy, is approaching the peak of its spending while production growth should accelerate in the next two years, the firm says.
- Also, Molchanov upgrades Occidental Petroleum (OXY +0.8%) to Strong Buy from Outperform and Hess (HES +0.1%) to Outperform from Market Perform.
Friday, November 21, 2014
- Compass Point's Michael Tarkan has launched coverage on XOOM with a Sell rating and $11 target.
- Tarkan: "While we favor Xoom's operating model relative to the legacy money transfer agent model, increasing competition and ongoing concentration risk create uncertainty—and with shares trading at 42x our 2015 EPS estimate and 27x our 2016 estimate, versus peers at 10x-11x and 9x-10x, respectively, valuation appears rich."
- Shares fell 2% in regular trading, and aren't far removed from a post-IPO low of $14. They tumbled last month after Xoom provided light Q4 sales guidance and reported a drop in new customer adds.
- Geospace Technologies (GEOS -10.2%) is downgraded to Neutral from Buy at Dougherty, which also removed its price target, as the firm sees a difficult year ahead amid weakness in the seismic market.
- GEOS' Q4 results missed estimates due to disappointing product demand and gross margins, and industry commentary suggests the seismic market will continue weak into or perhaps through 2016, with the exception of ocean bottom seismic, the firm says.
- GEOS shares could remain under pressure with continued quarterly losses in the near term, the firm writes but adds that the $25.28/share tangible book value provides a rough floor.
- Tsakos Energy (TNP +1.4%) is reiterated with a Buy rating and $10 price target at Canaccord, which still believes the stock is highly undervalued even after climbing 55% since an "undeserved and unwarranted" decline to $5.05 in October.
- Noting the "spectacular" improvement in Q4 tanker rates, the firm sees the strength in the rate environment continuing through 2015, particularly given the current favorable supply/demand dynamics within the wet sector.
- Lukoil (OTCPK:LUKOY, OTC:LUKOF) has climbed 12% in U.S. trading this week, and BCS Financial is advising clients to buy the Russian oil producer’s stock, saying the “huge discount” to its biggest competitors is not justified.
- Lukoil’s stock price does not reflect the tax benefits it will get from developing new Caspian Sea fields as well as production in areas where crude is more difficult to extract, BCS believes.
- Lukoil, up 3.5% today, said yesterday that overseas output jumped 44% YTD.
- Caterpillar (CAT +3.5%) jumps at the open after China makes a surprise interest rate cut and the stock is initiated with a Buy rating and a $122 price target at Stifel,
- Stifel says CAT's cycles have two acts and sees a back-half recovery this cycle with a North American focus; the firm also believes seasonal tailwinds, a rebound in commodities on global GDP optimism, and prolonged easy Fed policy should favor CAT shares.
- The firm anticipates a North American heavy construction cycle, as well as oil and gas, as the catalysts for a late cycle recovery to fill the void that mining has left.
- JOY also +3.5%.
Thursday, November 20, 2014
- "You can’t find a sector that is more out of favor right now than gold,” says former geologist and gold fund manager Joe Foster, who expects volatility to continue but with seemingly every headwind already pushing on the price of gold, it might not take much to spark a rally.
- Foster prefers junior miners to larger companies, as "the large caps have really gotten too big for their own good,” singling out Rio Alto Mining (NYSE:RIOM), thanks in past to its success with lower-cost heap leaching; RIOM recently acquired another heap leach operation in Peru.
- He also prefers regional miners, because geographic focus allows companies to better handle the local regulatory and political situation; Foster likes Randgold (NASDAQ:GOLD), which operates mostly in west Africa and has one of the most successful discovery track records in the industry.
- Rounding out Foster's five favorites: B2Gold (NYSEMKT:BTG), Eldorado Gold (NYSE:EGO) and Torex Gold Resources (OTCPK:TORXF).