Wednesday, December 24, 2014
- Monsanto (MON -1.3%) is downgraded to Neutral from Buy at Miller Tabak, which believes it is time for investors to cash in before increased product competition comes back into focus.
- While the firm thinks forward purchasing by farmers was slower this year, partly due to commodity price uncertainty and a delayed harvest, it notes that MON had flagged during its Q4 conference call that Q1 2015 earnings would fall ~50% Y/Y.
- Tabak also thinks MON will need to work harder to maintain global market share compared to the past three years, and thus does not see Q1 earnings as a major market mover for shares.
- Navigator Holdings (NYSE:NVGS) +8.1% premarket after Jim Cramer touted the stock last night on Mad Money, saying the shipper of natural gas has been wrongly punished with the rest of the energy sector.
- Cramer thinks NVGS could be a great bargain at current prices, and notes that the company's business has no exposure to the price of oil.
- "Investors get spooked out of the stock because they fail to understand that the value of the company's ships is simply not correlated with energy prices," according to Cramer.
Tuesday, December 23, 2014
- It’s pretty clear why many energy stocks are hurting amid falling crude oil prices, but Morgan Stanley has researched across industries to determine some less clear-cut winners and losers.
- Airlines consume huge amounts of fuel, but the firm says American Airlines (NASDAQ:AAL) and Allegiant Travel (NASDAQ:ALGT) should benefit more than most from lower oil prices since they do not hedge the price of fuel to reduce price volatility.
- Among autos, Tesla (NASDAQ:TSLA) draws concern because "lower-for-longer oil certainly hurts the case for mass-market adoption of electric vehicles.”
- Since lower gas prices should reduce shipping costs, Stanley sees the benefit trickling into Q1 per-unit shipping costs at Amazon (NASDAQ:AMZN).
- The firm likes Monster Beverage (NASDAQ:MNST) on the idea that Americans getting cheaper gas might be more ready to splurge on energy drinks, and gas stations and convenience stores account for 75% of MNST’s sales.
- Among apparel companies and retailers, Stanley likes brands that are most popular with lower-income consumers, who they believe are most likely to put the money they save into new purchases: PLCE, FL, FINL, BWS, SKUL, ARO, BURL, ROST.
- Goldman Sachs' David Kostin thinks it’s time for patient investors with at least a 12-month time horizon to begin loading up on energy companies.
- The Goldman team recommends refiners such as Marathon Petroleum (NYSE:MPC) and Phillips 66 (NYSE:PSX), as well as midstream companies that are less sensitive to oil prices and offer the potential for dividend growth, including EQT Midstream Partners (NYSE:EQM), Kinder Morgan (NYSE:KMI) and Cheniere Energy (NYSEMKT:LNG).
- With capital spending sure to take a hit and oil prices likely to remain volatile, oil service companies probably aren’t the way to go, but Goldman considers the more defensive names such as Atwood Oceanics (NYSE:ATW), Schlumberger (NYSE:SLB) and Oceaneering (NYSE:OII) as the best of a bad lot.
- Although the energy sector led today's stock advance, a raft of companies downgraded by Global Hunter mostly took it on the chin - none more so than Key Energy (NYSE:KEG), which plunged 15% after shares were cut to Reduce from Neutral with a $1.50 price target that was reduced from $2.50.
- Also downgraded to Reduce were HERO -6.1%, NBR -3.2%, DO +1.3%.
- Lowered to Neutral were HAL +0.5%, GEOS -8.9%, HP -2.9%, BAS -2.5%, PKD -2.5%, BHI +0.6%, BBEP -0.2%, MEP +0.1%.
- Downgraded to Accumulate: PES -3.5%, PTEN -1.1%, NGLS +2.9%.
- The firm upgraded five stocks - ATW, NOV, OII, RES and SPN - all of which gained in today's trading.
- Calumet Specialty Products Partners (CLMT +5.7%) is resumed with a Buy rating and $30.50 price target at MLV, which sees units poised for a 2015 rebound as maintenance capex declines and leverage should continue to moderate from a peak of 7x debt/EBITDA toward 4x.
- MLV also sees potential for a modest distribution increase in H2 2015 as LTM coverage should exceed 1x, and projects the specialty products segment - which accounts for ~75% of profit - will benefit from lower crude costs.
- Rosenblatt Securities' Jun Zhang thinks China Mobile plans to procure a whopping 200M 4G smartphones in 2015, after selling 75M-80M in 2014 (~20% less than originally planned). Smaller rivals China Telecom and Unicom are seen collectively procuring 80M.
- Given the relatively high DRAM content of 4G phones, Zhang expects Micron (MU +1.3%) to benefit from the sales growth. Skyworks (SWKS -1.1%), meanwhile, is deemed well-positioned due to its high Chinese 4G power amplifier share; the higher RF content of 4G phones relative to 3G models also doesn't hurt.
- TrendForce recently forecast mobile DRAM, which tends to carry higher ASPs/margins than PC DRAM, would account for 40% of 2015 DRAM output, up from 2014's 36%. The firm also forecasts mobile demand and healthy pricing will lead industry DRAM sales to rise 16% next year to $54.1B.
- Chinese 4G phone demand was among the positives cited by Brean yesterday while hiking its targets for Skyworks rivals RF Micro and TriQuint. Strong iPhone production and healthy pricing/margins were among the others.
- Stifel downgrades Breitburn Energy Partners (BBEP -1.7%), LRR Energy (LRE -4.4%) and New Source Energy Partners (NSLP -1.4%) to Hold from Buy due to pressure in the commodity markets and near-term concerns over credit facilities.
- The firm believes BBEP's ability to fund its reduced organic spending while funding the near-term shortfall in DPU coverage will be challenged, but it continues to believe the long-term outlook is attractive because of BBEP’s diversified geographic footprint.
- On LRE, Stifel says it is moving to the sidelines given near-term financing issues, even though LRE does not pose operational risk and the firm thinks the market likely is pricing in at least a DPU cut.
- On yesterday evening's episode of Mad Money, Jim Cramer declared Cypress Semi (NASDAQ:CY) a good way to play the chip industry's consolidation wave. Cypress and merger partner Spansion (NYSE:CODE), both of which soared after announcing their 50/50, all-stock, deal on Dec. 1, are getting a lift.
- Cramer also stated he thinks industry consolidation, which has contributed to a huge rally in chip stocks over the last 15 months, is far from finished. "I think the logic of this consolidation is so powerful that within a few years, there will be hardly be any small semiconductor companies left. That may sound crazy, but to me it makes sense."
Monday, December 22, 2014
- Southwestern Energy (SWN -5.5%) shares have fallen ~40% since the spring and are sharply lower today as oil and gas prices plunge (I, II), but a Barron's weekend profile talks about a potential 60% upside as natural gas prices are likely to rise in 2015.
- Wise dealmaking and drilling have made SWN one of the industry’s lowest-cost producers, which means earnings could rise smartly as the price of gas rebound, but shares trade for 14x next year’s estimated earnings, among the lowest multiples in the energy sector, Jacqueline Doherty writes.
- Barron's cites several reasons to expect spot gas prices will rise in coming years: Utilities are switching increasingly to natural gas from coal, industrial demand is growing, and the U.S. is developing an export market for gas.
- Though Globalstar (NYSEMKT:GSAT) has said its TLPS spectrum can be used to provide carrier-grade Wi-Fi for existing Wi-Fi hardware following a mere software upgrade, an analysis of technical data indicates current Wi-Fi RF filters will perform much worse on Globalstar's Channel 14 than on freely-available channels 1-13, argues Gerst Capital.
- Among other things, Gerst's analysis indicates the use of TLPS with a widely-deployed Avago RF filter will lead to "range reduction of at least 30%," and "underperform at any signal level where free Wi-Fi achieves 26Mbps to 58.6Mbps data rates."
- Gerst also reports hearing Globalstar "has been in communication with at least one Wi-Fi filter manufacturer regarding this problem," and notes an RF filter expert believes designing a filter that addresses the issue could take 1-2 years. "The filter & consumer device manufacturers won't go through the cost/effort of new designs without Globalstar's TLPS meeting some minimum level of volume expectations, likely in the 10's of millions."
- Prior bearish technical opinions: Kerrisdale Capital, Devin Akin
- Globalstar's response to Kerrisdale (.pdf)
- Earthstone Energy (ESTE +1.7%) says stockholders last Friday approved all proposals concerning the completion of its combination with privately held Oak Valley Resources and acquisition of additional acreage and assets in the Eagle Ford play.
- Wunderlich initiates ESTE wth a Buy rating and $24 price target, citing the re-emergence of the management team and investment group from Oak Valley that previously has had such strong success with GeoResources, and a strong financial position to drive solid returns going forward.
- With shares having lost ~3/4 of their value over the last two years, Cowen's Jeffrey Osborne has launched coverage on American Superconductor (NASDAQ:AMSC) with an Outperform rating and $1.25 target.
- Though admitting AMSC has seen "a large drop in its core customer base and broader revenue potential" in recent years, Osborne is pleased with the company's efforts to grow its offerings for Indian/Chinese wind manufacturers, and to go after superconductor wire opportunities in both the smart grid and industrial markets.
- Osborne: "We like [AMSC's] current positioning for potential upside in wind market dynamics and adoption of smart grid technologies, especially given its product diversification and recent trimming and refining of its workforce and overhead."
Saturday, December 20, 2014
- These five oil and gas producers have among the highest net debt-to-capital ratios in the industry, writes Avi Salzman, which could be an issue if oil prices stay at these levels:
- Ultra Petroleum (NYSE:UPL) at 115%, EXCO Resources (NYSE:XCO) at 90.3%, Halcon Resources (NYSE:HK) at 68.7%, W&T Offshore (NYSE:WTI) at 68.1%, Energy XXI (NASDAQ:EXXI) at 65.2%.
- Previously: Barron's: Five oils to buy now (Dec. 20, 2014)
- The super majors are probably the first place to look when oil prices fall, writes Avi Salzman, as their stocks tend to slide less drastically than smaller players, and maintenance of dividends is a priority for management. Favorites: Shell (RDS.A, RDS.B) and Chevron (NYSE:CVX).
- While smaller producers appear risky, Occidental (NYSE:OXY) came into the price plunge well-positioned with one of the industry's cleanest balance sheets.
- EOG Resources (NYSE:EOG) could be the pick among shale drillers, says Salzman, as it's chosen drilling spots carefully and its break-even price is among the lowest in the industry. "[The] best management team in Houston," says one fund manager.
- Oil service stocks look especially vulnerable with capex budgets being cut, but Schlumberger (NYSE:SLB) "should have protection in the downturn," writes Salzman, noting the company repurchased 1% of the float in Q3 and at 1.8% yields more than (soon to-be-merged) Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).
- See also: Barron's: Five oils to be wary of (Dec. 20, 2014)
- With crude oil prices near five-year lows, some analysts say gas stations may be the best way to play the energy sector right now, with CST Brands (NYSE:CST), Murphy USA (NYSE:MUSA) and Marathon Petroleum (NYSE:MPC) as pure plays worth watching.
- Gasoline retailers enjoy their largest profit margins in falling price environments such as today, says Again Capital's John Kilduff.
- The gas station trend is clearly seen with refinery Valero's (NYSE:VLO) 2013 spinoff of its retail CST Brands, which operates 1,900 gas stations in North America and whose stock has easily outperformed VLO in recent months; Gabelli last week increased its 2014 EPS estimate on CST because of lower oil prices.
- MUSA and MPC, also created as gas station spinoffs from refineries, have outperformed their parent companies as well.
- Tesoro (NYSE:TSO) said its retail segment enjoyed record performance in the most recent quarter, while big box stores such as Costco (NASDAQ:COST) that have gas stations connected to their stores also noted the benefit of lower oil prices in their earnings reports.
- The S&P Retail ETF (NYSEARCA:XRT) is up 3.4% over the last month to outpace the S&P 500 Index as consumer spending trends improve. Analysts have honed in on some categories which show some promise for growth.
- Drugstores: The transition by the sector into more health/wellness services sets it up for new growth channels. CVS Health (NYSE:CVS) reported strong comparable-store sales despite the full tobacco exit, while Rite Aid (NYSE:RAD) is prepping for a roll-out of RediClinics and HealthSpot kiosks. The visibility on Walgreen (NYSE:WAG) is somewhat clouded by the giant Alliance Boots integration, although it's ahead of rivals on the tech front with its rewards program, pharmacy app and developing online doctor concept.
- Athleisure: There's some gender initiatives going on in the athletic apparel sector with Under Armour (NYSE:UA) and Nike (NYSE:NKE) growing their women's business and Lululemon (NASDAQ:LULU) expanding on the men's side. All three companies have been closely on-trend with their assortment in a category with explosive demand. Importantly, pricing has held up this holiday season in the U.S., note retail watchers.
- Online replenishing: Fresh research into shopping trends indicates certain categories see continued buying through the online channel as consumers become attuned to a brand. Retailers positioned well to see more gains from the trend include Williams-Sonoma (NYSE:WSM), Ulta Beauty (NASDAQ:ULTA), Staples (NASDAQ:SPLS), Office Depot (NASDAQ:ODP), Sephora (OTCPK:LVMHF), Dick's Sporting Goods (NYSE:DKS), and of course Amazon (NASDAQ:AMZN).
- P-E buyouts: There are plenty of candidates in the retail sector for a leveraged buyout similar to the action that helped propel shares of PetSmart (NASDAQ:PETM) +40% from their lows. Keep an eye on Abercrombie & Fitch (NYSE:ANF), Aeropostale (NYSE:ARO), and Ann (NYSE:ANN).
Friday, December 19, 2014
- OGE Energy (OGE -0.5%) is downgraded to Hold from Buy with a $38 price target, reduced from $44, at Wunderlich, based on the organic growth uncertainty for the company's interest in Enable Midstream Partners (NYSE:ENBL) created by the drop in oil prices.
- However, the firm remains fond of the OGE story and believes there will be an opportunity to revisit its rating in 2015, with greater clarity on commodity prices and associated infrastructure opportunities for ENBL; utility operations are well positioned for growth and have increasing capital spending fueled by environmental retrofits for coal plants.
- Paragon Shipping (PRGN +10.2%) shares are substantially undervalued and could double next year, Maxim Group analysts say in naming PRGN as the top pick among dry bulk shippers for 2015.
- The firm notes that supply/demand balance in the Panamax fleet should be bolstered by increased coal shipments and exports of U.S. grain to China.
- Based on its estimated balance sheet and fleet for 2015, Maxim calculates a forward NAV of $8.12, implying that PRGN trades at ~0.29x estimates.; the firm's $6 price target implies a 0.74x multiple of the estimated NAV.