Wednesday, June 17, 2015

ORCL Q4 2015 Earnings

Today, after market close, Oracle Corporation (ORCL) released their Q4 2015 earnings. Oracle’s earnings were severely weakened by the strong US dollar and related foreign currency headwinds. The currency headwinds alone turned what would otherwise have been solid single digit growth in ORCL’s core competencies into single digit decreases. For example, total revenue fell 5 percent, but without the currency the change would have been a positive 3 percent. Perhaps most importantly, Oracle’s primary cloud component saw an increase of 29% while the pro forma growth (excluding currency headwinds) saw an increase of 35%. The market’s reaction was overwhelmingly negative with ORCL showing a decrease of over 6% in after-hours trading Wednesday. This decrease brings ORCL down to $42.10 (7:10 P.M.) slightly below our purchase price of $42.25. A factor that contributes to this earnings miss is analysts over-estimates of fourth quarter growth as salespeople rush to meet quotas in the end of ORCL’s fiscal year 2015. The financial model for ORCL has been updated and the new price target is $52.86.
Jeff Sherman

Tuesday, June 16, 2015

Kinder Morgan Inc.

Shares of KMI have been trading weakly over the past few weeks, seemingly in accordance with the announcement of the Fed's expectations to raise interest rates. The fear of rising interest rates has tempted investors to get rid of their high-yield equity investments, such as Kinder Morgan. This sell-off really doesn't make sense because long-term investors should be excited about the prospect of higher future rates. Once the commotion surrounding this hike seems to settle, Kinder Morgan should be at a price that will present investors with a golden buying opportunity. Secondly, shares have been trading down due to a couple bearish articles negatively impacting investor sentiment towards the company. Nothing has changed with Kinder Morgan as far as the investment thesis goes, and there is no doubt that KMI will generate substantial excess coverage to cover its dividend distributions at year end. Kinder Morgan's cash flows are highly predictable and of low risk. A problem that some investors have is with the $40B in debt on the company's balance sheet. I contend that KMI is definitely not over-levered since the company's equity value currently stands at $84B. In response to the recent slide I am lowering my price target to $46.19, which represents a ~17% upside from yesterday's $39.46 close. I would suggest doubling down on our position if KMI drops below $38 because I believe investors have overreacted to the news about interest rate hikes, along with the fact that the Street has their price target for the stock sitting at $47.50. -Eric Cohen

Sunday, June 14, 2015

Spectrum Brand Holdings

Spectrum Brand Holdings (SPB)

At the end of May, Spectrum Brand Holdings closed at $96.65. Since then they have decreased $0.37 leaving them at a price of $96.28, demonstrating a relative stability in the stock. Given the current volatility of our markets and the diversified nature of this stock, this minimal decrease in stock price is to be expected and doesn’t in itself hold any indicative any negative signs for this company. Since our purchase of the stock on March 3rd, it has increased in value by $2.30.

SPB is diversified across various products and brand names allowing a lot of their unsystematic risk to be diversified away. Recently SPB has increased their consumer diversity by adding Armored AutoGroup Parent Inc. to their product line. Spectrum Brand Holdings still holds true to our thesis of them having a great reputation, loyal customers and diversified product line. This assures investors like us they are a safe company that will flourish with a good economy. 

Inter Parfums (IPAR) (Two Weeks June)

            So far in the month of June Inter Parfums is up 3% since the previous monthly write up. A solid earnings release as well as promising company guidance has pushed this stock on the rise. The stock is currently priced at $34.10; considering our model’s price target of $41 there is still plenty of upside. Inter Parfums still stands in line with guidance with no public statements stating otherwise. I also believe the current state of the economy with employment rates on the rise puts consumer spending in a great position allowing for growth in this company.
Current price as of 6/14/15 $34.10 (-.87%) on the day.

Marathon Oil Corporation

Since the first of June, MRO has fallen 2.21% ending Friday off at $26.49. The drop in the stock price follows the news that OPEC will continue to maintain their target production level of $30 million dollars a day.  With this being said, the U.S. continues to cut production levels, with the rig count being half of what it was at this time last year. Still, the U.S. has just passed Russia as the biggest oil and natural gas producer in the world, as congress considers legislation to permit the export of crude oil from the U.S. Another supply increase to look out for is the possibility of Iran producing gas again, as it is going to European energy giants asking for the $100 billion needed to rebuild its oil industry. However, Iran will not have a large effect on the global supply for a couple years.

Analysts covering MRO have an average price target of $34.00. I believe the stock should be held, as it still rests at 3.8% above the buy-in price. Analysts continue to upgrade the stock, and predictions for the next earning update keep looking better. Although oil prices have the possibility of falling, legislation allowing for the exportation of oil will be a big win for MRO.

VMW Bi-Weekly Blog

VMW Bi-Weekly Blog

VMWare (VMW) opened June trading at $87.96 and closed on June 12th at $88.91. The stock has been incrementally climbing in value since the stock's purchase in April. VMWare still has room to run in my opinion and that is backed by VMWare's overwhelming presence in the virtual technology space. The company's strong technological management skills and innovation leads me to believe the current price target for VMWare of $95.05 is fair and I believe the company will post strong second quarter figures and will push the stock very close to our price target.

Google Bi-Weekly Blog

Google Bi-Weekly Blog

Google's two stocks (GOOG) (GOOGL) have not made significant gains since June's opening. GOOGL opened the month at $547 and closed on June 12th at around $549 while GOOG opened at around $531 and closed during that same time at about $534. Seeing no significant gains in either stock. The stock's performance has been relatively unimpressive. Neither of the stock's are trading near their 52 week high which causes some reason for optimism. However I believe that our current price target for Google's class C shares of $649.86 is unwarranted. A more realistic price target in my opinion would be near $610. My opinion is backed by the fact that Google has been declining in its ROA over the past 5 years and for FY 2014 was at 12% - a trend displayed by companies that signify a slowdown in growth. After Q2 earnings we will have to revisit our valuation for the price target and conjure one that would be more appropriate given today's performance by Google's stocks.

CIT Group

CIT Group is up 2.2% since the start of June, and paid its $0.15 dividend. This increase is mainly due to the possibility of increasing interest rates. CIT Group has been growing their loan book and has been growing their airplane fleet. CIT Group has also been participating in a stock buy back program which all is increasing the price of the stock.

I recommend that we continue to hold CIT Group in the portfolio. CIT Group has a 4% net interest margin, which is higher than industry. CIT also services small and middle markets, and the financing industry is changing because GE Finance is looking to sell their division. CIT Group is also still in the processes of acquiring OneWest bank which a deal should be completed in the coming months. However, no public advancements on the merger have happened since March since the public hearing.

Bank of America

Bank of America has been making a run in the month of June. Bank of America has been up 6% since June 1st. We are above our buy in price and heading towards our price target of $21.00. It is trading up because the Fed will be making their decision if interest rates are going to increase. The treasury yields have been increasing and having financial company stock increase as well.

I recommend to hold the company. Bank of America has been cost-cutting and refining their loan book for a higher interest rate environment. When interest rates increase Bank of America's net interest margin, the money they make off of loans, will increase as well. Along side the net interest margin, Bank of America's multiples are not at historical or comparable levels. Any major litigation have passed and unless another scandal hits among the big banks I do not see any legal fees in Bank of Americas future.

Las Vegas Sands

Since the start of June, LVS has appreciated from $49.95 all the way back up to $55.00 (close to our buy in) at the end of the first week of June, back down to a close of $52.24 on Friday. This quick upward movement can be attributed to slight news of turn around numbers in Macao. These include the mass gaming segment up 9% and VIP segment up 3% month to month. Obviously the market has since corrected itself after that 10% gain in a week. 

I believe this company should continued to be held, (I would even suggest buying more if the price dropped again, to bad we can't do that). This stock still has a 44% upside for us and we are below our buy-in. As stated in the investment thesis Las Vegas Sands is in the best position to ride through the headwinds in Macao, once they pass the company will continue to dominate the entire industry.

Down trend with Amkor

Amkor stock is currently trading 46.29% below its 52-week-high, 14.21% above its 52-week-low. The 1-year stock price history is in the range of $5.77 – $12.27. Amkor has a price to earnings ratio of 11.32 versus Technology sector average of 24.67. AMKR stock price has underperformed the Nasdaq by 13.3%. AMKR current short interest stands at 6.88 million shares. It has decreased by 4% from the same period of last month. Around 14% of the company’s shares, which are float, are short sold. With a 10-days average volume of 1.43 million shares, the number of days required to cover the short positions stand at 4.9 days.

Since Amkor has witnessed a significant price decline in the past four weeks, and it has seen negative earnings estimate revisions for the current quarter and the current year. A key reason for this move has been the negative trend in earnings estimate revisions. For the full year, It has seen 1 estimate moving down in the past 30 days, compared with no upward revision. This trend has caused the consensus estimate to trend lower, going from 80 cents a share a month ago to its current level of 64 cents. The stock also has seen some pretty dismal trading lately, as the share price has dropped 18.2% in the past month.

So it may not be a good decision to keep this stock in your portfolio anymore, at least if you don't have a long time horizon to wait.

Saturday, June 13, 2015

LRCX June 14th

Lam Research Corporation (LRCX) started the month of June trading at $83.39, and closed Friday June 12th at $81.46 representing a 2.31% decrease for the month of June. This decline can be contributed to a decrease in demand for their products in recent weeks. Samsung, who at one point was one of LRCX’s major buyers has decreased and postponed the amount of semiconductors equipment product that they will buy from LRCX.  As the entire semiconductor industry has begun to slow, LRCX has already recovered from a low of nearly $70 per share in recent months. On the bright side there are expected to be some changes in the industry in the near future that could renew interest in LRCX, also they have continue to show growth that is above that of the industry average. I believe that we should continue to hold LRCX for a few reasons 1) if there is a rebound in the semiconductor industry or a improvement on the current technology LRCX could benefit 2) also with many takeovers in the industry LRCX could be a potential target, and could fetch a premium on the stock 3) As long as LRCX continue to outperform its industry and large industry competitors like Applied Materials, LRCX should remain in our portfolio. 

Jeff Sherman

ORCL June 14th

Oracle Corporation (ORCL) stock began the month of June trading at $43.79 and closed Friday June 12th at $44.34 representing a 1.26% upside for the first half of June. Much of the news surrounding ORCL in the past two weeks as been about their entrance into the cloud-space and comparing them to some of their fast-growing competitors likes and Workday. ORCL which was traditionally an application software firm, has made headlines because of their transition into the cloud-space while maintaining a firm grip on their core business segments, other application software firms that have tried to enter the cloud-space like SAP haven’t been nearly as successful. There is much anticipation for ORCL’s earnings report that is due out next week. This will be the fiscal fourth quarter for ORCL, their third quarter earnings yielded better-than-expected results, hopefully ORCL can continue that momentum into the fourth quarter which historically posts higher earnings. I believe that ORCL should continue to be held as it is above the purchase price and below the price target. We should continue to hold onto this stock as long as ORCL continues to show improvement in their new technology ventures as well as maintaining growth in their traditional business segments. 

Jeff Sherman