Thursday, April 17, 2014
- After initially trading near breakeven following a Baird upgrade to Outperform, SolarCity (SCTY +1.7%) has moved higher.
- Baird's Ben Kallo thinks the 35% drop seen since Feb. 27 provides a great buying opportunity for "the stock most levered to the U.S. rooftop market, which will likely undergo a boom over the next several years."
- He also argues SolarCity's cost cuts and scale give it a competitive edge, and that solar asset-backed notes provide it with cheap capital to "capitalize on the expansive U.S. greenfield opportunity."
- Deutsche and Roth talked up the value of SolarCity's asset securitization efforts two weeks ago. Shares rallied yesterday on news of the DOE's loan guarantee proposal.
- Kinder Morgan Partners (KMP -0.8%) is reiterated with an Underweight rating and $82 price target at Morgan Stanley, which says it can't see KMP outperforming peers on distribution growth that is below the industry average.
- Acknowledging KMP's cash flow stability from quality pipeline assets and geographic diversity, the firm sees accretion via projects and acquisitions as limited by a large asset base and a high general partner cash incentive share (45%-plus) which caps distribution growth upside.
- The firm says KMP's oil production business (15%-20% of cash flow) creates material future asset/reserve replacement risk, and dropdowns from KMI (into KMP and EPB) likely will be finished by 2014, creating the need to continue to develop new organic projects.
- KMI +1.2%, KMR +0.5%, EPB +2.2%.
- Deutsche Bank analysts raise their price targets on top oil service stocks (OIH), seeing increasing strength in a North American cyclical recovery with current forward earnings estimates perhaps proving to be conservative.
- Basic Energy Services (BAS) gets a big price boost to $43 from $18, citing a recent activity update that indicated utilization levels had increased across all the company’s business segments.
- Other top stocks rated Buy at the firm, including those whose price objectives have been raised: BHI, EXH, HAL, PTEN, PES, SLB.
- Cloud Peak Energy (CLD -1.5%) is "a good stock in a dirty business," Barron's says in making the case for a potential 30% upside in what it sees as undervalued shares, but CLD isn't enjoying the usual Barron's bounce.
- CLD trades at a discount to its larger peers despite its clean balance sheet and improving free cash flow profile, and a rise in thermal coal prices could have a dramatic impact on profits and the stock; every $1/ton increase in the Powder River spot price adds ~$46M to CLD's EBITDA.
- Most other coal names also are lower: BTU -1.5%, CNX -0.3%, ACI +0.2%, ANR -1.3%, WLT -2.1%, WLB -0.1%.
- JPMorgan's Philip Cusick has upgraded Gogo (GOGO +3.1%) to Overweight, and set a $28 PT.
- Cusick calls the in-flight Wi-Fi provider's recent selloff "macro or sentiment-driven," believes its business aviation ops are worth $11/share alone, and sees plenty of U.S. and international opportunities as Gogo "accelerates the pace of RFPs."
- The upgrade follows deals with Boeing and Air Canada, and the unveiling of Gogo's high-capacity 2Ku satellite connectivity platform.
- Alcoa (AA +0.8%) is upgraded to Sector Perform from Underperform with a $15 price target, up from $12, at RBC, based on the recent stronger than expected performance in the alumina and global rolled products businesses.
- The firm admits that it had underestimated the upside potential for the shares and now sees lower downside risk than before, but it believes much of the business improvement and near-term growth likely is reflected in the share price.
- Adam Gefvert expects You On Demand (YOD) to trade at $1.50 by the end of 2014, and $0.50 by the end of 2015.
- He points out YOD only had ~$300K in 2013 revenue in spite of potentially reaching 18.2M Chinese households as of 2012, and that even a 3x 2014 revenue increase would leave shares trading at over 120x sales.
- Gefvert also notes the Chinese VOD service provider has to contend with the huge popularity of pirated content, and (given Q4 SG&A spend of $8.3M) declares management is "fleecing shareholders."
- With a large number of outstanding warrants and preferred shares having sub-$2 conversion prices, Gefvert thinks YOD could fall below $2 if holders
"get worried and convert and sell their stock before it falls any closer to the exercise price."
Wednesday, April 16, 2014
- ConocoPhillips' (COP +1%) price target is raised to $85 from $80 at Oppenheimer to reflect the company's improving outlook on stronger financial and operating results (Briefing.com).
- Last week, COP reiterated its value proposition of 3%-5% compound annual growth for both production and margins, by allocating 95% of its $16B annual capex in 2014-17 on projects with greater than $30/boe margins while maintaining a dividend yield above its U.S. peers and strong financial flexibility.
- With higher production growth than other majors and a lower valuation than E&P peers, Oppenheimer says COP offers an alternative to both groups.
- Precision Drilling (PDS +5.3%) is upgraded to Overweight from Underweight at Morgan Stanley, which believes the oilfield services company may double its Canadian land-drilling business over several years, benefiting from its exposure to the liquefied natural gas market which should see meaningful secular growth.
- The firm says Canadian service providers Calfrac Well Services (CFWFF) and Trican Well Services (TOLWF) also could see growth for pressure pumpers.
- New Gold (NGD +3.1%) is upgraded to Buy from Hold at Canccord Genuity, despite lowering its price target to $7.50 from $8, seeing an attractive entry point after the recent share price correction which has more than priced in the development risk with the Blackwater and El Morro projects.
- A similar Canaccord upgrade for Golden Star Resources (GSS -2.3%) fails to provide the same support, as shares cap an 11.7% drop so far this week and a 23.5% swoon in the past month.
Tuesday, April 15, 2014
- Wal-Mart (WMT -0.8%) shares are lower, partly due to a William Blair downgrade to Underperform from Market Perform, mostly on concerns about the company's size which slows growth and dynamism, competition from online retailers, and the possibility that investors will rotate out of retailers in general at this stage of the economic cycle.
- Given the downgrade, the firm cuts its annual EPS estimates for this year and next by a dime each, to $5.15 and $5.50, and cites sluggish retail sales in Q1 and weak consumer confidence among low-income households, as many of them face the expiration of benefits from the federal SNAP program and higher healthcare costs.
- Basic Energy Services (BAS +3.8%) is upgraded to Hold from Sell with a $27 price target, up from $19, at Wunderlich, citing better market conditions while noting that much of the improvement is priced in.
- With weather improving from early 2014 and E&P budgets remaining robust, the firm believes most E&P companies are cramming 12 months of solid activity into 9-10 months, and the increase in spending should benefit players like BAS.
- The company's monthly update saw strong growth as the weather improved.
- Morgan Stanley (MS +0.7%) is upgraded to Buy from Neutral with a $35 price target at BofA/Merrill, based on a more attractive risk/reward given the recent pullback; earnings upside in wealth management, equities and investment banking; and long-term upside from increasing efficiencies and capital return.
- Jim Cramer thinks BAML's call "works" - he likes the job James Gorman has done and sees the call as especially helpful for MS ahead of Q1 earnings on Thursday.
Monday, April 14, 2014
- Early gains in Ballard Power (BLDP +0.7%) are fading, as Cowen starts coverage of BLDP at Market Perform with a price target of $3.75, slightly below the stock's close at $3.93 last week, as the firm notes some key positives.
- BLDP and Volkswagen have a multi-year contract which might be good for C$60M-C$110M in revenue, and a partnership with Anglo American Platinum targets developing home generators for South Africa.
- Cowen is looking for a FY 2014 loss of $0.07/share and a 2015 loss of $0.01/share, while seeing respective '14 and '15 revenue of $80M and $97.5M.
- After early gains, other alternative energy stocks are mixed: PLUG +1%, FCEL -0.8%, HYGS -3%, ZBB -1.1%.
- Transocean (RIG +3.3%) is upgraded to Hold from Sell with a $45 price target at Deutsche Bank, which says shares feel over-sold, particularly with near-term catalysts on the horizon.
- The firm sees some potential near-term catalysts with self-help initiatives and improved return to shareholders, including progress on an MLP, but the backdrop remains challenging as newbuild rates and the jackup market likely will roll lower later this year, which is likely to temper any enthusiasm.
- Meanwhile, shares are reiterated with a Hold rating at Argus, concerned that RIG is more exposed than peers to deteriorating conditions in the offshore drilling market (Briefing.com).
- Boardwalk Pipeline Partners (BWP +3.2%) is upgraded to Neutral from Underperform with a $16 price target, up from $14, at BofA/Merrill, as reports indicate BWP has concluded a successful binding open season in contracting some legacy south-to-north pipeline capacity to a north-to-south flow, which could help stabilize BWP's base business.
- BWP also may have several other potential pipeline reversals on the table, and recent natural gas spreads and volatility also may provide some near-term uplift for BWP's storage and pipeline businesses.
- The firm also upgrades Regency Energy Partners (RGP +0.4%), to Buy from Neutral with a $30 price target, believing units are overly discounting RGP's tight coverage and relatively expensive up-front multiples for recent acquisitions.
- Sempra Energy (SRE +0.4%) is initiated with a Buy rating and a $106 price target at UBS, which likes SRE's involvement in every attractive angle of energy infrastructure, with the bulk of growth tied to liquefied natural gas exports through its Cameron facility on the Gulf coast and Mexican energy reforms.
- The firm believes SRE's underlying core utility business in southern California also is well positioned to benefit from ever-expanding state energy policies, including storage, improved pipeline safety and hefty renewables ambitions.
- UBS thinks SRE can readily achieve a 10% EPS compound average growth rate through 2019, meaningfully above utility peers at ~4%.
- Energy Infrastructure analysts at J.P. Morgan make the case that with commodity prices soaring, its top-rated high-yielding MLPs in the category are a solid bet in a choppy market.
- NuStar Energy (NS) and Crestwood Midstream Partners (CMLP) pay distributions well in excess of 7%, Williams Partners (WPZ) and Regency Energy Partners (RGP) each pay ~7%, and Energy Transfer Partners (ETP) pays 6.8% after defying the recent market selloff to trade near 52-week highs.
- BP (BP +0.1%) shares aren't getting much of a lift from an upgrade at Canaccord, which raises its rating to Buy from Hold with a new $8.87 price target, up from $7.86, on its belief that the market is putting too much weight into the litigation surrounding the 2010 Deepwater Horizon oil spill.
- A compelling valuation argument is building in favor of BP based on free cash flow generation potential, the firm says; also, Macondo pre-tax cash flows have slowed dramatically in the last year, and with BP taking a tougher line in the U.S. courts, the cash out flows likely will remain at much reduced levels while BP fights its case.
Sunday, April 13, 2014