Friday, January 31, 2014

Google Earnings Call Fourth Quarter Ending Dec. 31st 2013

Google reported for Q4 and full year ending December 31st yesterday January 30th. The company missed EPS by 28 cents but they beat revenue by 100MM. The stock price reacted very positively to the earnings release closing at 1180.97 USD per share today January 31st. This is up around 4% from the 1135.39 USD per share that Google closed at right before the conference call.
Revenues came in at 16.9BB with 1.2BB of this being from the Motorola segment. This number was up 17% YoY and 13% QoQ. Google segment revenues were 15.7BB up 23% YoY and 13% QoQ. Full year 2013 revenue and EPS were about $59,826BB and $40.12 respectively.
Site Revenues were $10,551BB up 22% YoY and 12% QoQ. $3.522BB of this is from network member websites and this value is up 2.5% YoY and 12% QoQ
Other Revenue came in at 1.647BB up 99% YoY and 34% QoQ. The quarter on quarter increase can be attributed to seasonality and sales of hardware products like the Nexus tablet, Chromecast, and Chromebooks. The Year on Year increase is due to the increasing use of Android mobile devices as digital sales of apps and content using Google Play drove this revenue segment almost twice as high as last year.
This quarter the company sold off their Motorola segment to Lenova for 2.9BB and had investors cheering despite the multibillion dollar write down and loss that Google took on the sale. Still, considering the segment is decreasing bottom lines and the 2.9 billion that they received can be used to pay for other acquisitions, everybody agrees this was the right move. Also a 10 Year global cross-patent deal was struck between Samsung and Google. Samsung was definitely more likely to work with Google again now that they have sold their handset business and the hardware operating system duo should be especially beneficial to Google. Samsung is known for tweaking the Android operating system and now that it will most likely be using more of Google’s apps, Google play may see heavy growth like it did YoY in Q4 of 2013. Realistically, high end devices make the most purchases on mobile devices and a lot of the market share that Android dominates is low end where app and content purchases are minimal. Increasing amounts of Google apps on high end Samsung devices will bring more revenue.
 A couple recent acquisitions include Nest Labs for 3.2BB, a company that sells “smart” home devices like thermostats and smoke detectors that can save energy and automatically adjust under different conditions. Also The company is set to acquire an artificial intelligence company called DeepMind for an estimated cost of at least 400MM (acquisition price has not been disclosed but it will very likely be above 400MM).

Now, last but not least Google has finally announced a share split and creation of new “Class C” shares that will have no voting rights. This comes after settling and lawsuit between Google and stakeholders against the split that gives more voting rights to founders Larry Page and Sergey Brin. More details on the split are set to emerge but it will take place on April 2nd. I feel that it is very important to note a contingency of the approved stock split that requires Google to Pay Class C shareholders if the Class A shares are trading higher than Class C shares a year after the split. Google will be liable to pay up to 7.5 Billion to shareholders if the split does not roll out accordingly. Google may be responsible for a payment to shareholders based on the percent difference between Class A and Class C shares. Note that the payment increases are capped at 5% (A difference of 5% or above will result in the same payment by Google), and Google will pay have to pay Class C shareholders the % difference between both classes of shares multiplied by the class A share price. The company will be issuing around 277 million shares and the 2-1 split should cut the stock price just about in half when the NASDAQ opens on April 2nd. Class C shares will trade under GOOG and Class A shares under GOOGL.

We are very comfortable with our position in Google at this time and have a price target of $1300.

Whirlpool 4Q Earnings

Whirlpool released their fourth quarter earnings on January 30th in which they beat top line but fell seven cents short consensus bottom line revenues. Whirlpool ended the year with record revenues of $18.8 billion and net income of $827 million or $10.24 a share doubling y-o-y. For the fourth quarter Whirlpool saw a 9% increase in North America, 7.7% increase in Latin America, 6.7% increase in EMEA and a 12.8% decrease in Asia due to weaknesses in India. The rise in revenue is a result of increased demand for their innovative products. Gross margin expanded a100 basis points from 16.9% to 17.9% and operating margin expanded 170 basis points from 6.4% to 7.6% from the fourth quarter in 2012. Whirlpool provided guidance for 2014 anticipating $12.00-$12.50 a share. WHR’s stock price has grown 42.36% over the past year which outperforms the S&P 500. With that in mind I still feel that Whirlpool is undervalued and that my thesis is still intact. Whirlpool continues to be a good stock and we should continue to see its price climb over the next few years.

Thursday, January 30, 2014

Qualcomm 1Q14 Earnings: Great Results, Exiting Position

Qualcomm Inc. reported 1Q14 earnings on January 29 and held a corresponding conference call at 4:45 E.S.T.  Quarterly revenue came in at a record $6.6BB which is substantially lower than our estimate of $7.0BB and slightly lower than street estimates of $6.67BB, up 10.0% YoY.  Non-GAAP EPS was reported at $1.26, substantially lower than our estimate of $1.39 and higher than street estimates of $1.18, representing no growth YoY.  Qualcomm’s impressive EPS includes a $0.25 per share gain related to the sale of Omnitracs and a $0.20 per share impairment in other expenses related to assets in their QMT business.  During the fiscal quarter, Qualcomm returned approximately $1.6BB to stockholders, including $600M in dividends and $1.0BB in stock purchases.

Newly named CEO Steven Mollenkopf was welcomed in 2014 with strength in both emerging and developed regions with increased penetration of smartphones into lower tiers.  Global smartphone adoption continues to be the key driver of royalty revenue growth.  It is believed that emerging regions smartphone shipments are expected to grow at about 30% CAGR through 2017.  Snapdragon-based devices have been integrated into over 1,350 designs with 500 more in the pipeline.  Snapdragon processors have already showed strong volume growth in flagship tablets including the new LG G Pad, the Samsung Galaxy Note Pro, and the Samsung Galaxy Tab Pro.

As previously reported in the monthly report, Apple signed a deal with China Mobile for them to start offering the iPhone.  This big deal, along with the new 4G spectrums licenses that have been issued in China have been driving Qualcomm’s revenue.  Qualcomm also continues to invest heavily in their leading portfolio of patented technologies applicable to 3G and 4G devices.  To compliment this expansion into emerging markets, Qualcomm has taken actions to manage spending, resulting in better operating margins.  Non-GAAP R&D and SG&A were below guidance by 3%.

Looking forward towards fiscal 2014, Qualcomm’s next generation chipset are progressing well and should continue to support their track record of dominance in the industry.  The new Snapdragon processor is expected to ship in devices the first half of 2014 and will take advantage of Ultra HD.  Qualcomm also expects the rollout of their new 9x35 modem delivering their fourth generation of LTE.  Although the aforementioned catalysts imply growth, Qualcomm is conservative with their estimates, expecting Q2 revenue to be about $6.1-6.7BB and non-GAAP EPS approximately $1.15-1.25. 

While we are pleased with Qualcomm crushing the bottom line, we are displeased with the light guidance and the probe that China’s National Development and Reform Commission has launched.  It is believed that Qualcomm has violated an anti-trust law and as a result could face fines up to or exceeding $1BB.  In comparison to our above consensus estimates, light guidance and a potentially crippling fine leave us unconfident in multiple expansion and force us to exit our position.

Saturday, January 25, 2014

PCP 2014 Q3 Earnings

Precision Castparts (PCP) posted their Q3 2014 earnings data for fiscal year 2014 as scheduled on Thursday, January 3rd, 2014.  A reported quarterly EPS of $2.95, which missed the consensus estimate of $3.04 by $0.09, was a disappointing end to a quarter where we saw steady gains in the stock.  Between this disappointing earnings report and a plunge in the market PCP has been beaten hard the last two days with a fall in share price of -5.63%.  PCP closed the week with a price of $255.46.  Just to get some perspective of a lower cap, we bought into the stock at $243.14.  Although the picture for PCP might look bleak, I believe that the fall in share price and miss on earnings should not be impetus for us to sell out but rather an opportunity to buy into a great company at a depressed price.  I hope to make a case for why I believe this to be true.
When combing through the Q3 earnings call transcript it became clear that the miss on the EPS was not attributable to any fundamental fault in management or business plan but rather late quarter dynamics that frankly PCP could not have easily controlled or mitigated.  This led to a delay in sales and adversely affected the top line.  So in a sense, I believe the market has overreacted to PCP’s Q3 report because what ate into the EPS for the quarter does not seem to be an event that could reoccur.
PCP’s fundamentals are solid and everything that we set forward as an investment thesis is intact.  PCP is the market leader in a rapidly growing OEM market and shareholders will be rewarded.  PCP has demonstrated that they can perform: sales increased 16% versus last year, operating income increased 27% versus last year, operating margins expanded 250 basis points, going from 25.5% last year to 28% this year and EPS increased 28%.  Looking ahead, a projected step-up in customer contracts typical for Q4 will be the impetus for more growth going forward.  Our updated price target is $283.18.
PCP took a sucker punch this quarter but I do not think this should be used as a basis to sell out.  Since we took a half position in PCP, I would encourage the group to consider doubling down and look at the current price as not as a poor signal but as a good opportunity.

Wednesday, January 22, 2014

Regions Financial Q4 Earnings

On Tuesday, January 21, 2014 Regions Financial Corp (RF) reported Q4 2013 Earnings.  While GAAP Net Income was just $219 million and GAAP EPS was $0.16, well below analyst estimates of $283 million and $0.20, respectively, these numbers included one-time charges that detract $75 million from net income and $0.05 from EPS.  After adjusting for the above, Regions Financial reported Net Income of $294 million and EPS of $0.21.  RF has increased 2.74% to $10.86 on the news.  On Wednesday, the price further increased to $11.02.  For the moment the price target remains at $11.64, which is a 5.63% upside to the current price.  This will be further reviewed in the coming days.

Regions is executing very well on its current initiatives.  The company has been able to successfully expand its customer base while bringing down expenses and strengthening its balance sheet.  Net interest margin expanded by 2 basis points sequentially and 16 basis points year over year.  In this past quarter, the net interest margin was 3.26%.  Driving this upward are rising long term interest rates and the related slowdown in prepayments within the securities portfolio.  Revenues from non-interest sources increased by $31 million in quarter 4.  Partially diminishing that increase was the expected decline in mortgage-related revenue. 

Loan balances improved by 2% year over year, but this was brought down to a 1% increase after a transfer of loans to Available-For-Sale securities.  Business lending was the main driver for the increase, while mortgage loans were the main detractor.  Mortgage loans were way down, once again because of the transfer of loans to AFS securities.

To reiterate, there is currently a price target of $11.64.  This is currently being evaluated and I will have an update soon.

Tuesday, January 21, 2014

Halliburton's fourth quarter earnings

Halliburton announced earnings today for the 4th quarter along with full year. For the 4th quarter of 2013, HAL’s total revenue was $7.6 billion, compared to $7.5 billion produced in the 3rd quarter of 2013. Record revenues produced in their Middle East/Asia and Europe/Africa/CIS regions mainly drove the fourth quarter revenue. Reported income from continuing operations for the fourth quarter of 2013 was $770 million, or $0.90 per diluted share. Halliburton produced record setting annual revenues for 2013. We saw an increase in total full year revenue of 3%, or $899 million compared to year-end of 2012. Operating income did in fact decrease a near $1.0 billion, mainly due to substantial charges for an estimated loss contingency related to Macondo well incident along with pricing pressures in North America. Going forward Halliburton’s executives “expect low double-digit year-over-year growth in Eastern Hemisphere revenue, with quarterly margins consistently higher each quarter on a year-over-year basis, approaching 20% by year-end and averaging in the upper teens.” I think it is safe to stay optimistic about Halliburton and it’s future. They showed strong revenue growth in the recent past and seem to continue to grow in the following years.

Sunday, January 19, 2014

Visa almost hit the price target at the price of $232.18

Closed on Friday, Visa has market price $232.18, the stock up 4.69%, also hitting the 52 week high. As the price target is 235.94. I strongly recommend that we hold the stock and set up new 12 month price target at $246. TheStreet Ratings team rates Visa as a “Buy” with a ratings score of A. Visa’s sponsorship renewal of FIFA was announced on January 14, 2014 in Zurich. This announcement grant Visa as the exclusive partner of FIFA in the financial services product category for another eight years through 2022. In late December, Visa launched its marketing campaign for the 2014 FIFA World Cup in Brazil. This important partnership benefits VISA to connect more with business clients and global fans.  It truly improve worldwide awareness that VISA continues to be a market leader in this unity with the world's favorite sport. 

Merchants rack up $7.8 billion in Online Sales on US-issued VISA cards in just five days during the Thanksgiving Day to Cyber Monday. Sales of U.S. Visa accountholders increased to $7.8 billion, up 30% over last year. The holiday of Cyber Monday only accounted for $2.6 billion in online spending, an increase of 28% over 2012. In addition, Traveling has become an increasingly common trend among the rich. The average trip spend of affluent travellers is USD $3498 with the prediction of their spending rising to $4501 per holiday in the next year. 85% of affluent travellers own credit cards, 50% own debit cards. These card holders mostly plan and pay their trips through digital online banking. A common aspect of these travellers, Visa users. 

Thursday, January 16, 2014

Spirit Airlines closed today at a price of $50.00 and hit it's 52 week high as well.  The stock was up 3.52% and Spirit continues to show strong growth and the future is luminous.  Spirit Airlines was up 3.52% today due to their Q4 guide for RASM increased 3% year over year from prior guidance of 2%.  RASM standing for revenue per available seat mile.  The guides for Q4 CASM( cost per available seat mile) were between 5.98 to 6.03 cents.  Guides for the 1st quarter of 2014 are ASMs (available seat per mile) is projected to increase 21.5% year over year as well as ASMs for the year 2014 is now projected to increase 17% year over year.

Spirit is continuing to show positive results and I am extremely pleased that we have it in our portfolio as I only expect it to continue to grow and it's ability to rebound from difficulties such as the harsh cold weather this month show's the company's resilience and strong stability.  I would recommend holding ticker SAVE right now as I believe it has more to give and room to prosper.

Guillermo Dilone
Industrial Analyst

Target is Bad News

Things have not been going well for Target due to the data breach and their lower than expected results in Canada. The data breach that was announced on December 19th has lowered revenues, added costs related to the breach, and lowered consumer confidence, causing Target to lower its Q4 EPS dramatically from previous guidance of $1.50-$1.60 to $1.20-$1.30. Comparable sales are expected to come in down between 2-6%. Consequently, management had to revise its full fiscal year EPS expectations from $4.70-$4.90 to $4.59-$4.69. Target is facing many challenges assimilating their new stores into Canada. Problems in the U.S. have also arisen, primarily attributed to uncertain income growth. Many shoppers have complained that Targets prices are higher in Canada when compared to its U.S. counterparts. On top of bloated pricing model in Canada, competitors, including Walmart, is beginning to drop its prices for thousands of products to keep its market share in the Canadian market. The chances of Target benefiting from its expansion into Canada are growing slimmer and the future is becoming riskier. Target has considerably underperformed the SPDR Consumer Staples ETF, Costco, and Walmart over the last twelve months. Additionally, Target’s recent troubles will lead to uncertainties of returning value to its shareholders in this turmoil period. The UASBIG thesis behind the Target investment no longer holds true, leading the group to take its profit and SELL out of our full position. -Kristen Pfaffe

Friday, January 10, 2014

Visa Inc.

On January 6th 2014, Visa announced fiscal first quarter 2014 financial results on January 30, 2014. The current price of Visa is 223.70, which is 14% upside. Over the past year the trade between $154.14 and $224.52 and the company pays shareholders $1.60 per share annually in dividends, yielding 0.70%. Visa is still holding their investment thesis as a payment technology company, who engages in the operation of retail electronic payments network worldwide. It facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities. However, by Visa is created to make online payment easier instead of the traditional online check out by clicking check out, only put e-mail and the card to use.
Many have probably already heard about the credit card fraud between Nov.27 and Dec. 15 in which credit and debit card data was stolen from 40 million Target’s customers. This has become the second largest scam in U.S history. The major card companies like Visa and MasterCard have already set Oct 2015 as the deadline for U.S retailers to switch over to cards with chips. The massive media coverage of recent Target incident could speed up the process. Visa customers whose identity was stolen have no worries on fraudulent purchases made by culprits. Once they use their stolen information to make purchases, Visa is able to immediately locate their whereabouts through the transaction. All U.S consumer Visa credit and debit accounts are protected by Visa’s zero liability policy, which means customers won’t have to pay any fraudulent purchases. Visa provides a leadership security protection system. Their global fraud rate has come to 5 cents per every $100 transacted. One thing of concern is recently SmartMetric, Inc. is looking forward to the hearing of its lawsuit for patent infringement against both Visa and MasterCard in the Federal Circuit Court of the United States, which is expected to be heard either in April or May of this year.

Wednesday, January 8, 2014

Masimo Brings High Tech Medical Equipment to India

Author: Connor Benoit

On January 7, 2014 Masimo released news that they will be opening new offices in India. The outlook on the stock has been very positive (up almost 6%) since the news release.  India is excited about Masimo moving in and thankful for their commitment to the region.

"We have found that India is an important market for several reasons -- the most important is that the penetration of high technology devices is very low, a factor that could lead to thousands of avoidable instances of death and illness. As a leader in noninvasive patient monitoring, including measure through motion and low perfusion pulse oximetry, Masimo's technologies will be able to make a significant impact to improve patient safety and outcomes," said Jon Coleman, President, Masimo Worldwide Sales, Professional Services and Medical Affairs.
Masimo intends to raise awareness to the clinical and cost challenges that it can solve in India using its innovative technologies.  Our current price target is lower than street expectations.  After Jerome and I reevaluate the future revenues and international exposure, I expect the price target to increase close to the street outlook (around $36).  The increasing aging population along with the demand for Masimo’s innovative technology will also be factors in our review.
-Connor Benoit