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).
- It’s time for the medium-term investor to start buying the biggest of big oil companies, HSBC says, as the market seems to have capitulated on the sector.
- HSBC views BP and Total (NYSE:TOT) as clearly the cheapest of the oil supermajors, with share price discounts to sum-of-the-parts valuation for BG Group (OTCPK:BRGXF, OTCQX:BRGYY), Statoil (NYSE:STO) and Repsol (OTCQX:REPYY, OTCPK:REPYF); Exxon Mobil (NYSE:XOM) still trades at small premium to the SoP valuation, and the firm likes Chevron (NYSE:CVX), which was penalized in its valuation by its ongoing capital intensity in 2017.
- The stocks also offer average prospective dividend yields of 5%-plus for 2015, and the dividends look robust as they are supported by strong balance sheets, more active asset disposal programs, and strong new project cash margins.
- Given the uncertain and volatile outlook for the dollar and thus gold prices, J.P. Morgan's commodities team suggests three "conservative" pair trades it expects to be profitable in a neutral or weaker metal price environment.
- The firm recommends buying Newmont Mining (NYSE:NEM) and selling Barrick Gold (NYSE:ABX), “driven by the idea that the deal where Barrick buys Newmont could be back."
- Buy Agnico Eagle Mines (NYSE:AEM) and sell New Gold (NYSEMKT:NGD), as JPM sees underground mines as more resilient than open pits, and AEM has fallen more sharply than deserved.
- Also, JPM likes buying Silver Wheaton (NYSE:SLW) and selling Coeur Mining (NYSE:CDE), as it believes royalty/streaming companies will be more robust in times of weak metals prices than pure-play miners.
- Cliffs Natural Resources (CLF +8.8%) enjoys a dead-cat bounce after a 25% plunge in the prior two days, rising today despite Deutsche Bank's downgrade to Hold from Buy with a $10 price target, lowered from $17, citing on reduced volumes (-15%) and lower expected EBITDA (-5%).
- The firm considers CLF's estimated Bloom Lake closure costs of $650M-$700M over five years as a "worst case scenario," an closure costs could be lowered and potential offsets could emerge; in the meantime, CLF will rely primarily on its U.S. iron ore segment, while it continues to entertain the potential sale of Asia Pacific iron ore and North American coal segments.
- Targa Resources Partners (NGLS +1.1%) is upgraded to Buy from Accumulate with a $70 price target at Global Hunter, after units are down by ~10% since the announcement of the Atlas Pipeline transaction and have underperformed most MLP peers.
- NGLS has dropped despite posting a solid Q3 beat and upgrading its distribution growth guidance for 2015; the firm thinks this is a result of investor concern over NGLS' higher commodity exposure after the APL transaction, but it believes APL's 2015 natural gas liquids commodity hedge book, coupled with the NGLS growing fee-based business, position the combined entity well.
- Optical networking hardware vendors and their component suppliers are turning in a good day. The gains come a day after component vendor Oplink announced it's being acquired by Koch Industries for $445M, and will be managed by connector maker Molex (a Koch subsidiary).
- RBC thinks Koch's entrance into the slumping component industry could trigger further consolidation. "Current fab utilization rates remain low ... with optical component vendors unable to charge a premium for their innovation. Gross margins are currently weighed by competitive pressures with optical component makers willing to cut pricing to account for high fixed costs."
- The firm believes Finisar (FNSR +1%) could be a buyer, and JDS Uniphase (JDSU +1.5%) and Oclaro (OCLR +7.1%) sellers. JDS, set to spin off its component unit, is facing activist pressure to put the business on sale.
- Meanwhile, Ciena (CIEN +2.8%) announced this morning it's partnering with Avaya to offer an enterprise solution that pairs its optical networking and integrated optical/Ethernet gear with Avaya's Ethernet switches. Like peers, Ciena is trying to lower its dependence on pressured carrier capex budgets.
- Other gainers: AFOP +3.7%. NPTN +3.3%. ADTN +2.7%. INFN +1.9%.
- Denbury Resources (DNR -1.2%) is downgraded to Equal Weight from Overweight with an $11 price target, cut from $15, at Barclays, citing DNR's lower production estimates, higher cost assumptions, and a lower target multiple.
- Yesterday, Wunderlich had lowered shares to Hold from Buy and cut its price target in half from $22, citing a lack of operational or financial clarity provided at the company's analyst day.
- The downgrade wave began Monday, following DNR's announcement late last week that it planned to cut its 2015 capital spending by 50%, joining several oil and gas producers scaling back investments due to sliding crude oil prices.
Wednesday, November 19, 2014
- Potash (POT +1.2%) is upgraded to Outperform from Market Perform with a $40 price target, up from $38.50, at Raymond James after troubles at a mine owned by Russia’s Uralkali forced its closure; in the event Uralkali’s capacity remains handicapped, the firm thinks POT could benefit from a tighter potash market.
- Fertilizer peer Mosaic (MOS +1.7%) is upgraded to Positive by Susquehanna, which believes its potash operating leverage is underappreciated by investors, as the shares went up less than POT yesterday in response to the Uralkali news even as MOS has more relative earnings leverage to an improvement in potash prices than POT.
- Earlier: CF Industries upgraded at Credit Suisse, which sees better industry position
- Despite coming up just short in yesterday's U.S. Senate vote on the Keystone pipeline, Credit Suisse upgrades TransCanada (TRP +2.4%) to Outperform from Neutral with a price target raised to C$68 from a prior C$58, noting that TRP's asset base is well positioned for several investment themes including Alberta's oil sands and west coast liquefied natural gas shipments.
- The firm continues to believe TRP's "journey to a more capital efficient model will be evolutionary rather than revolutionary," comparing the company's ascendance to Aesop's Tortoise and the Hare fable.
- The firm adds that TRP has a low-cost generation exposure in "structurally tight" power markets.
- Consolidated Edison (ED -1.2%) is downgraded to Sell from Neutral with a $49 price target at UBS following recent outperformance with shares experiencing the strongest positive volatility since 2008 despite a lack of positive catalysts.
- The firm believes the return on equity risk at CECoNY and Orange and Rockwood Utilities tips the scale negatively and deserves a discounted multiple.
- The potential near-term pressure on earnings power could move ED's return on equity below 9%, UBS says.
- CF Industries (CF +0.6%) is upgraded to Outperform from Neutral with a $315 price target, up from $228, at Credit Suisse, believing CF will further improve its industry positioning over the next 2-3 years and generate best-in-class free cash flow vs. peers.
- Although Credit Suisse sees nitrogen prices moderating slightly in 2015-16, the trend is well within market expectations; the firm says even with materially lower pricing, CF still has the ability to generate ~$32/share of free cash flow in 2017.
Tuesday, November 18, 2014
- Goldman Sachs analyst Neil Mehta is optimistic about oil refiner stocks, resuming the group at Attractive, adding Tesoro (NYSE:TSO) to the firm's conviction list and awarding Buy ratings to Marathon Petroleum (NYSE:MPC), Phillips 66 (NYSE:PSX) and Delek US (NYSE:DK).
- Metha believes refiners are one of the few energy sectors that can grow cash flow in a declining crude price environment, given industry economics are driven more by crude spreads than the directional oil price; he sees an average upside of 25% for refiners during the next six months.
- Despite the overall sector optimism, Mehta thinks investors should sell CVR Energy (NYSE:CVI) and Alon USA Energy (NYSE:ALJ), which have more exposure to the Permian Basin, where the difference in price vs. the WTI benchmark should get smaller.
- Encana (NYSE:ECA) could nearly double in the next year, as its ambitious restructuring plan, which includes a 20% workforce reduction and spinning off its Alberta land holdings into a separate company, should begin to pay off, RBC Capital analysts say.
- Because of the recent broad decline in energy stocks, investors have not priced in the effects of the restructuring, RBC says; ECA is trading at a debt-adjusted cash flow multiple of 5.5x vs. an average 6x for its E&P peers.
- The firm believes ECA "has some of the best real estate on the block when it comes to North American resource plays and possesses solid execution capability."
- Citing the company's digital revenue growth and cost-cutting efforts, Barclays' Christopher Merwin has launched coverage on Electronic Arts (NASDAQ:EA) with an Overweight rating and $48 target.
- Merwin: "EA has been proactive in adding new, high-margin digital revenue streams, while simultaneously cutting costs and rationalizing its product pipeline to drive margin expansion.
- He also argues digital content such as the Ultimate Team features for FIFA and Madden titles is "helping EA to increase the engagement levels of its player-base, a trend that should improve revenue visibility for EA's core titles and eventually transform the console-game publishing business into a higher multiple subscription model with less volatility."
- Shares have made new highs, and are up 86% YTD.
- Tetra Tech (TTEK +2.9%) is upgraded to Buy from Accumulate with a $31 price target at Global Hunter, after FQ4 earnings report provided more specifics on the company's exit from the RCM segment and its effect on contract portfolio risk and margins.
- TTEK's continuing segments are expected to generate EBITDA margins of 12%-13% vs. the full company's 11.1% in FY 2014, but the firm expects the higher margins to be accompanied by reduced contract risk; management expects its portfolio to be 30% fixed-price going forward, from an estimated 40% in prior years.
- Also, management announced a two-year, $200M share repurchase program, as the prior $100M program was completed; the firm says the program could have more than $0.20 of annualized EPS impact once complete and is not included in guidance.