Monday, April 29, 2013

Cerner Corporation 1Q13 Earnings Strong, FY13 EPS Guidance Marginally Up

Cerner Corporation reported 1Q13 earnings after the bell on April 25th. Revenues were up 6% to $680MM vs. $641.2MM last year, however, below consensus of $708.4MM due to reduced levels of low-margin technology resale. This had no material impact on adjusted EPS reported at $.66 up 22% from 1Q12 which beat consensus of $.63 due to strength in other areas. Q1 bookings were $801MM up 23% year over year and a record for the company in any first quarter. System sales were down 12% from the same period a year ago which grew 61% reflecting a tough comp. Gross margin increased substantially to 81.3% up from 78.3% in 4Q12 driven by lower mix of technology resale and strong service margins while operating margin increased 340 bps compared to 1Q12 to 24.7% as a result of ongoing operating efficiencies. 

The stock reacted positively soaring ~4.90% to $95.89 sitting near its 52 week high of $97.52. Management reiterated FY13 revenue of $2.95B-$3.05B and raised it's FY13 EPS to $2.78-$2.83 up from $2.75-$2.85. Cerner is well positioned to benefit from market place trends in IT healthcare and meaningful use healthcare reform. The company has a comprehensive approach to population health and significant progress is expected from their increased R&D investment and expanded relationship with Advocate Health Care- the largest accountable care organization in the U.S. We reiterate our BUY rating on Cerner Corporation and remain excited for expected margin improvements in addition to a robust product pipeline that will open up a new footprint of opportunities. 

Friday, April 26, 2013

Valeant Pharmaceuticals in Talks to Buy Actavis

At 7:02 pm, The Wall St. Journal announced that Valeant Pharmaceuticals (VRX) was currently in talks to buy Actavis (ACT) in a +$13 Billion, all stock deal, (Link found here) sending shares up 2-3% in after hours trading.

Due to a string of favorable patent litigation settlements and strong earnings, ACT has increased over 17% YTD (and 16.04% since our buy-in) to $100.94 at market close today (an all time high for the firm.) Because of this aggressive growth, ACT's market cap has steadily increased to its current $12.9 Billion standing. The current offer of $13 Billion, or $101.7 per share would be a premium of .75. UASBIG's price target puts Actavis at $120 with the most recent street consensus ranging from $105 to $120.

Considering the small premium and bullish consensus, VRX will likely have to offer a significantly larger premium or else continue their search for acquisitions else where. This seems reflected in the article above, as talks are currently being described as "Fragile" and ACT management is said to have insisted Valeant utilize both stock and debt (in a likely bid to increase the premium). Taking a brief look over Valeant's 10-K, the firm has 11 Billion in total debt on a book worth $17.9 Billion. It is probably unlikely that Valeant will want to issue more debt to acquire a company that itself, is fresh out of a merger. This seems to leave them with few options, and implies that this deal will likely fall through.

 Because of this and many other recent events, ACT's model will be revised in the next few days in order to represent the most up-to-date information.

Update: Reuters has announced that the merger talks have been put on hold indefinitely.
Article link

Citrix Systems 1Q13 Earnings Weak- Lower Q2 outlook, Sell off of full position

On April 24th Citrix Systems reported 1Q13 earnings after the market close. Despite revenue increasing 14% to $672.9MM vs. $589.5MM last year, Citrix missed Street estimates of $676.9MM mainly due to softening IT spending and increased operating costs. EPS was $.62 up 5% from a year ago, however, missed Street consensus of $.63 by $.01. In addition, EPS Guidance for 2Q13 was $.62 marginally lower than Street consensus of $.70 and FY13 EPS was slightly adjusted down 3 cents.

Shares took a tumble falling ~11% in after hours to $60.00 below my stop/loss of $61.22. While revenues from the American geos were solid throughout the quarter performance internationally on a regional level was impacted by different market forces, which resulted in delays closing identified opportunities. While technical integration with Cisco has improved, the next big milestone will be deeper integration on top of Cisco’s smart intelligent network platform to deliver a beautifully integrated application delivery network solution which was indicated as a “second half phenomenon.”

Management indicated that FY13 will be shaped more back ended as they start to ramp two new businesses around XenMobile and ByteMobile. We sold our full position in Citrix due to lack of a short-term catalyst in Q2 besides benefiting from missed engagements in Q1. The uneven environment in technology spending makes us remain on the sideline to view probable weakness in Q2. While our thesis for the mid-long term remains intact we will continue to monitor the stock for a more attractive entry point around the $54.00 level. Citrix participates in a broader segment of opportunities than it’s competitors and offers investors a great way to invest in two high-growth verticals, however, the short term headwinds have caused the stock to overact on the downside.

Thursday, April 25, 2013

Checkpoint releases Q1 earnings

Checkpoint released Q1 earnings Monday, beating net profit expectations, but falling short on revenue. They reported EPS of 79 cents; representing 6.8% growth from the year ago quarter, and a penny higher than analyst estimates. Revenue increased 3.1% yea rover year to $322.7 million, although analysts were looking for about $328 million. Guidance for Q2 left analyst expectations on the high end of their guided range. For revenue the company expects between $320 - $350 million, analysts were expecting $346.5 million. The street is expecting EPS of 83 cents which landed in the high end of managements 76-84 cents guidance.  Revenue seems to be an issue for the Software industry in general, with many companies performing far worse than Checkpoint in regards to revenue. Checkpoint is transitioning from deriving growth from products to growing from subscription revenues. One reason for the decrease in software spending could be companies getting their FY budgets set late in the quarter which pushed some bookings out to the next quarter. Overall, Checkpoint posted solid performance in a market that performed unexceptionally in Q1. Checkpoint has been trading in a range around $45, which is still above our stop loss of $43. The stock will be monitored closely in regards to our stop loss; however, we maintain our price target of $67.
-Ryan Ranado
Technology Sector Head

Qualcomm posts a solid quarter, drops on forecasts

Qualcomm reported record fiscal Q2 revenue earnings on April 24, 2013; however, Qualcomm projected weaker than anticipated fiscal Q3 per share earnings, causing shares to drop 6.9% to $61.45 (after hours). The forecast raised worries that Qualcomm's expenses are increasing at a time the average selling price of devices is falling. Also new low-cost phones and heightened competition are affecting margins.
Qualcomm's semiconductor business margin was 17%, the amount is much lower than the 26 percent margin posted in the first quarter.
There have been concerns that the smartphone industry's growth is slowing, but Qualcomm hasn't shown many signs of weakness. The company remains one of the only LTE providers in the industry, and its diverse customer base should help buffer it from a soft economy. However, Qualcomm likely will face more competition as rivals introduce LTE chips, and there are some upcoming Chinese vendors that could prove to be a big threat in the key emerging markets. Chief Executive Paul Jacobs said that 850 devices have been released or announced that use Qualcomm chips, and there's another 475 to come.
Qualcomm continues to spend significant funds on R&D. In Q2, Qualcomm spent $1.88 billion on research and development and selling, general, and administrative expenses, up 21 percent from the same period a year ago and up 11 percent sequentially. The company expects that level to rise 2 percent to 4 percent sequentially in the third quarter.
For the full year, Qualcomm expects an average selling price of $216 to $224 for 3G and 4G devices. It previously anticipated $214 to $226. In 2012, the average selling price totaled about $216 to $222.
For the fiscal Q2 ended March 31, Qualcomm reported net income fell to $1.87 billion, or $1.06 share, from $2.23 billion, or $1.28 a share, a year earlier. Excluding items like acquisition-related charges, earnings rose to $1.17 a share, from $1.01 a share a year ago. Qualcomm in January had projected fiscal second-quarter adjusted earnings of $1.10 to $1.18 a share.
Revenue soared 24% to $6.12 billion, above the midpoint of Qualcomm's estimates for $5.8 billion to $6.3 billion.
The company shipped 173 million chipsets during the period, up 14% from the previous year and at the high end of its projections for 163 million to 173 million.
Looking forward, Qualcomm expects fiscal third-quarter adjusted earnings of 97 cents to $1.05 on revenue of $5.8 billion to $6.3 billion.
It now expects adjusted earnings of $4.40 to $4.55 a share, up from January's forecast for $4.25 to $4.45 a share. It also anticipates revenue of $24 billion to $25 billion, up from its earlier expectation of $23.4 billion to $24.4

DFS Q1 Earnings

Discover Financial Services (DFS) reported earnings on April 23, 2013.  Discover reported a diluted EPS of $1.33 which was up 10% from last year.  The main driven mainly through loan growth and the share repurchase program.  

Discover's business plan of organic growth is going strong. This can be seen in the 7% organic receivables growth.  The growth was driven by a 5% increase in card receivables and a combined 10% increase in private student loans and personal loans.  The PULSE growth slowed due to merchant routing, competitor actions and Discover's objective to focus on being a more profitable business rather than just volume growth.  The company had and ROE of 27%. The board of directors also approved a 43% dividend increase.  Discover continues to be very well capitalized which allows them to continue their focus on organic growth.  

Revenue net of interest expense increased by $189 million to almost $2 billion, which represents a 10% increase.  Net interest margin improved by 30bps to 9.39%.  This was due to   the decreased funding costs from lower interest rates.  Total loans grew by 7% and credit card loans grew by 5%.  Also helping to boost revenue was record low card delinquencies.  Delinquencies over the past 30 days hit a record low of 1.77%.  Other income increased by $59 million due to to inclusion of Discover Home Loans.  Expenses for DFS were still high Y/Y.  They were up 12%, which was mainly due to the increased compensation and marketing associated with the Home Loan Center acquisition.  As time passes these expenses are expected to decrease.  

Going forward I expect DFS to continue to have strong organic growth.  This can be seen in how well Discover Home Loans has taken off since being launched in June 2012.  I also believe the expenses will continue to decline once the home loan business becomes more well known.  The sooner synergistic effects can be recognized Discover will benefit.  

Wednesday, April 24, 2013

B/E Aerospace First Quarter Earnings

B/E Aerospace (BEAV) reported 1st quarter earnings in Monday April 22. B/E Aerospace reported revenue of 842 million and EPS of .87 cents per share. This was an increase in EPS of 30 percent year over year, and beat analyst consensus by 19 percent. Additionally, revenue of 842 million met consensus estimates and was a 12 percent increase year over year. B/E Aerospace continued to reap the benefits of the growing demand in the commercial airplane market. Book to Bill in that segment was 1.8X and approximately 1X across all segments, showing strong demand for B/E Aerospace products and services.

Additionally, B/E Aerospace has seen continued expansion of its operating margin. In the first quarter of 2013, B/E Aerospace saw an 80 basis point expansion of the operating margin. This was a result of continued reduction of SG&A expense. Additionally, B/E Aerospace has seen double digit year over year revenue growth in all three segments with the biggest surprise coming from the higher than expected growth in the business jet segment. On the earnings news, B/E Aerospace traded up approximately 3.5 percent.

Moving forward, we continued to see strong demand in the commercial aircraft market. With the 787 being authorized to fly once again pending the implementation of the new battery design, Boeing should begin to increase production of the 787 which is a major positive for B/E Aerospace. Additionally B/E Aerospace should see continued double digit growth in revenue and EPS, and continued expansion of their operating margin. We maintain a buy rating on B/E Aerospace, with an updated price target of $65.36.

Halliburton (HAL) Q1 2013 Earnings

            Halliburton Co. (HAL) reported Q1 2013 earnings premarket on April 22, 2013.  They reported income from continuing operations for the first quarter of $624 million, or $.67 per diluted share.  This value excludes a $637 million charge, after-tax or $.68 per diluted share, which is a result of an increase in the reserve for settlement payments from the Macondo litigation.  With this litigation expense added in the reported loss from continuing operations was $13 million, or -$.01 per diluted share.
            Halliburton’s $.67 per diluted share, beat consensus estimates of $.58 for the quarter, which makes this the 4 quarter of the last 5 that Halliburton has outperformed their estimates.  This news resulted in a price increase of 5.59% to a closing price of $39.29.
            Halliburton’s reported revenue for the first quarter was $7.0 billion, which came in higher than 2012’s revenue of $6.9 billion.  The expanding international business was easily able to offset the reduction in rig counts we saw during the first quarter within the North America.  As rig counts dropped 3% within North America, sequential revenues declined 1%, while operating income increased 30% as we saw margins improve by nearly 400 basis points due to lower guar costs. Over the coming quarters we expect to see margins continue to improve as customer activity increases, and modest price increases take hold. 
            International revenues for the firm grew by 21% in comparison to Q1 2012, which means the company has shown the best year-over-year international growth for the past 4 quarters in comparison to competitors. Middle East/Asia region saw great improvement due to increases in services provided within China, Australia, and Saudi Arabia. Europe/Africa/CIS improved as drilling offshore of West Africa continued and North Sea operations picked up.  Latin America saw revenues increase 21%, but operating income declined 11% due to increased movement of rigs in Brazil and a reduction in the rig count of Mexico.  

Thursday, April 18, 2013

Capital One Financial Corp (COF) Q1 2013 Earnings

Capital One Financial Corp. (COF) reported Q1 2013 earnings after the market closed on April 18, 2013. Earnings per share were $1.79 beating analysts’ estimate of $1.60 per share and up 27% when compared to the Q4 2012 EPS of $1.41.

Net income increased to $1.1 billion from $843 million in the previous quarter and total revenue dropped 1% to $5.55 billion from $5.62 billion during the same time period. The main drivers of net income growth were primarily lower non-interest expenses and a reduction in credit expenses, which lead to lending margins improving modestly. Net interest margins improved 19 basis points to 6.71% from 6.52 the previous quarter. Each business segment delivered solid results, except for a decrease in revenue in the international card business and the balance sheet remained in a strong position with the tier 1 common capital ratio increasing to 11.8% as of March 31st 2013, up from 11.0% on December 31st, 2012. Provision for credit losses was $885 million for the quarter, which represents a decrease of $266 million that was driven by a $261 million release in allowance. Better than expected credit performance occurred in the quarter. The net charge off rate was 2.20% in Q1 2013, which is a decline of 6 basis points when compared to Q4 2012 of 2.26%.

A dividend increase to 30 cents a share from 5 cents a share was announced and due to strong capital generation management expects to begin a share repurchase program as early as Q4 2013. An agreement to sell the Best Buy private label portfolio was also announced and it expected to close in Q3 2013 for about $7 billion.

VZ shares trade up on Q1 earnings

Verizon Reported strong Q1 earnings on April 18, 2013, as its EPS of 68 cents was 15.3% higher from the year prior. This beat analysts' estimate of 66 cents.

Verizon's net income increased 15.8% to $1.95 billion in the first quarter with more wireless subscribers while its FiOS pay-TV and broadband business also continues to grow. In addition to net income increasing, Verizon's  total operating revenue rose 4.2% to $29.4 billion.

With its enhanced wireless network 4G LTE, revenue for Verizon Wireless, its wireless carrier subsidiary jointly owned with U.K. based Vodafone, totaled $19.5 billion, a 6.8% year over year increase. Its operating income margin, 32.9%, was a record high.

Verizon's landline FiOS network, grew by 15.1% to $2.6 billion in revenue for the quarter. FiOS added 188,000 Internet customers during the quarter, while 169,000 signed up for its TV service. Its average revenue per user rose 9.5% to $107.15.

Verizon reported before the market opened and shares traded as high as $51.15 (up 3.25%), before closing at $50.91. 

- Ryan DeVoe

Monday, April 15, 2013

OZRK Earnings

First, I would like to apologize for my model being out of date on Dropbox- I went to update it after earnings were reported and noticed that my most recent update(s) did not make it onto the UASBIG dropbox nor onto my own personal one and were lost when my computer died the other week. I know I need to work on my FY2012 Statement of Cash Flows, but outside of that, my model is updated and back on our dropbox. I have a current 1-year price target of $49.49, representing a 22.67% upside from the most recent closing price. It'll be more accurate once the full 10Q comes out, but I am still confident in their ability to drive growth in their stock price.

Earnings were released last week. They came in at $0.56 EPS, beating estimates of $0.55. As per usual with this company over the past few years, it is difficult to talk about their achievements in the previous quarter in terms of the ones before it- since they closed Q4 2012 with $2.4 Million in gains from their acquisition of Genala Bank (which amounts to nearly 20% of their final net income available to shareholders), it is difficult when reading the reports to simply compare this quarter to the one before.

In general, OZRK outperformed Q1 2012 with Net Interest Income (after Provisions for Loan Loss, which was neither inappropriately small nor large) growing 1.6% and Non-Interest Income 18.6% (more than offsetting the increases in Non-Interest Expense), leading to an 11% increase in Net Income.

Considering they just completed their first traditional acquisition, the balance sheet looks pretty good- loan growth was perhaps a bit sluggish at just 3.5% over last year and a minor (less than .5%) decrease over last quarter, but cash going towards acquisitions means less cash to go towards loans. Deposits and other liabilities grew more slowly than loans, meaning that a portion of the loan growth over Q1 2012 came from Stockholder's Equity (Liabilities shrank more quickly than loans from Q4 2012 as well)

While it is beyond my skill level to model, the keystone of my thesis with Ozarks is their acquisition strategy. They are aggressive in their pursuit of banks to purchase yet conservative in their pricing, leading to acquisitions that are not only accretive in the long run, but also bring with them initial gains. This certainly may lead to some not entirely exciting quarters, but should be beneficial in the long run. That being said, this past quarter was certainly far from a bad one- especially when you consider that Q1 is generally more challenging than Q4 and their Q4 2012 has significant one-time gains.

As mentioned in my first paragraph, I maintain my hold position with a current price target of $49.49 and will fix the cash flows on the model soon.

Wednesday, April 10, 2013

New Patents and Coverage Help Propel Masimo 6.6%; Valuation Confirmed

Masimo Corporation got approval on their patent, filed Dec 7, 2007, for the Plethysmograph Variability Processor. This processor triggers blood flow to a given tissue site to calculate different variables and indicators to determine conditions of blood & blood flow, as well as seeing how efficient specific treatments are for these conditions. On another note, Janney Montgomery Scott initiated coverage on Masimo with a BUY rating and a target price of $26.00 a share, further solidifying the UASBIG BUY rating and 12M price target of $26.23.

The accumulation of good news, heightened with a strong market, helped Masimo rally up 1.9% at open to $19.40, opposed to a previous closing price of $19.04. It traded at a high today of $20.35, a gain of 6.9%. The rally eventually cooled down and the stock ended $20.29 a share, representing a daily gain of 6.6%, beating the S&P500 gain of 1.2%. 

Although Masimo is down YTD by 343 basis points, there is much more expected growth as more hospitals begin to implement their products. Within a span of only a couple weeks, three different hospitals have implemented new Masimo systems mainly because of the efficiency and cost effectiveness to both the patient and the provider. The most recent to implement Masimo devices is East Tennessee Children’s Hospital, one of only four hospitals in its state certified as a Comprehensive Regional Pediatric Center. East Tennessee Children’s Hospital has given insight on possibly expanding the Patient SafetyNet into different units of the hospital. With new accelerated acceptance of the Masimo product, our thesis is further affirmed for the long term growth of Masimo.