Friday, July 31, 2015

Cigna Q2

Cigna had their quarterly report on July 30th, and came in with strong revenues at $9.5 billion, which showed a 9% increase from a quarter ago.  Cigna also reported shareholders net income at $588 million or $2.26 per share, compared to $2.12 a share just a quarter a ago.  Cigna’s strong revenues are a result of their strong and effective efforts regarding their global strategy.  In other big news regarding Cigna, Athem’s acquisition has become official, the final deal of the for the acquisition of Cigna was for $103.4 in cash and .5152 ANTM shares for each of Cigna’s shares. Overall the deal was worth $54.2 billion, which would price Cigna at $188 a share.  This deal comes after months of negotiations between Cigna and Anthem, deals were rejected by Cigna for as high as $184 a share. As of 7/30/2015 Cigna is trading at $143.90, showing a 20% from our original purchase if the shares. After updating the model with the most recent quarterly numbers, the updated price target $169.16.

VMWare Blog

VMWare (VMW) posted earnings on July 21st for Q2 FY'15 and the stock saw immediate improvement reminiscent of the stock's reaction to VMWare's earnings report for Q1 of the same same year. On the day of reporting, VMWare was trading at about the same price we bought the stock for in April. In the time between then and now the stock was showing promising potential and was trading in the high $80 range teetering $90. The stock took a sharp decline which was attributable to a legal litigation in regards to pricing. The stock quickly picked up following the Q2 earnings report where VMW beat consensus by $0.02.

VMWare posted revenue of $1.6 billion which reflects 10% year over year growth. The growth is a reflection of consistent market dominance and realization in revenue with recently acquired AirWatch. A catalyst, in my opinion for future growth for revenues because of the movement into the mobile space. With AirWatch up 60% in YoY growth in license bookings, I see the company taking advantage of consistent high growth in that sector attributing to our price target being met in our investment horizon.

Following the earnings release, VMWare traded up as high as $90 and is sitting at that range which is a different story when compared to what happened following Q1 close. The stock rose following Q1 earnings release to $90 but then dropped quite a bit in the following days. VMW is now showing consistency in $90 range and I am very optimistic that the stock will reach our price target within an appropriate time frame.

HOS Beats by $0.28, Beats on Revenue

Hornbeck Offshore Services reported Q2 results Wednesday after the close. Revenues were $136.4mm, although down 20% over last year’s second quarter, beat expectations. The year-over-year decrease in revenues was primarily due to soft market conditions in the GoM, which led to the Company's decision to stack 18 OSVs on various dates in the fourth quarter of 2014 and thus far in 2015. 2Q2015 EBITDA was $66.3 million, an increase of $4.6 million, or 7%, from the comparable 1Q2015 EBITDA of $61.7 million Diluted EPS was up $0.11 over last quarter at $0.53, beating consensus by a substantial $0.28. The stock has been trading down over the last month due to declining oil prices. I was bullish on this quarter particularly for HOS therefore I anxiously waited for their earnings release for a rebound in the stock price. During Thursday’s trading session, the stock traded up as high as 14% from Wednesday’s close and closed up 8% on the day. Going forward, I strongly believe HOS is fundamentally strong enough and well positioned to withstand the volatile energy sector. With that being said, I will closely monitor the price to ensure it does not fall below our stop loss. As far as my valuation goes, I have not had time to fully update the model and will do so as soon as possible. For now, with our investment thesis still intact, the stock seems to still be fairly undervalued.

Wednesday, July 29, 2015

CIT Group Q2 Earnings Report.

CIT Group reported earnings 7/28/15 and was in-line in EPS with the street estimates of $.66, and missed on revenue by posting 406.6M, which was off by 28.37M.  CIT Group missed on my estimate of EPS of $.78. The OneWest acquisition will be occurring on August 3rd. This provides a catalyst for CIT Group to make additional interest income. Expenses have increased 10M, and also earning assets have increased .9B. The increase of expenses was mainly due to the pending acquisition.  CIT Group is continuing to set itself up for a high interest rate environment. The synergies achieved by buying OneWest will strengthen the likelihood of CIT Group achieving my price target of $55.18. CIT Group stock price acted negatively to these earnings, and is now under the buy in price. Look for CIT Group to manage their costs over the third quarter, and this could be achieved by the synergies of OneWest and CIT group. By doubling the size of CIT Group’s bank branch, they are able to lower funding costs, and they add 70 branches to their commercial banking branch.

CIT Group’s transportation business is performing well, by having 98% of railcars being utilized, and 97% of aircraft being used. Aircraft lending in Asia has been growing at a constant pace and CIT has been continuing to partner with Century Tokyo Leasing.  The middle market banking activity is doing sub-par due to low M&A activity occurring in the middle markets.  CIT Group is trading today at $45.42

Saturday, July 25, 2015

Inter Parfums Inc. Declines 10%

On Thursday, July 23rd Inter Parfums declined over 10% to $29.94 per share. The decline was caused by preliminary Q2 revenue miss expectations. The company’s US based operations have shown solid growth but has been mitigated by continued negative market conditions in Eastern Europe and China. For instance, the company’s Anna Sui brand based in China saw a 24% decline in sales. These headwinds are expected to continue throughout the remainder of 2015, which is why the company is developing new products and global brand strategies for 2016.

As of July 25th, 2015 the stock price of IPAR is $29.75

Las Vegas Sands Q2 Earnings

Las Vegas Sands announced 2nd quarter earnings on July 22nd, after the close. Net revenue decreased 19.4% to $2.92 billion compared to $3.62 billion in the 2nd quarter of ‘14. This missed consensus by $70 million; adjusted EPS of $ 0.60 also missed by only a penny. Operating income in the second quarter also decreased 28.3% to $689.3 million compared to $961.5 million YOY. This can be mainly attributed to soft results in Macao. The following day the stock opened at its high of the day $57.15. Throughout the day the stock dropped back to a price of $55.74 for the close.

Highlights for the company include

The Macao operations managed to improve EBITDA margin by 200 basis points to 32.2% on quarter-to-quarter basis.

The Sands China (the 70% owned subsidiary) EBITDA of $569 million, represents a 29% decline over the prior year, but a 6% sequential increase over the previous quarter. This is exactly the type of sign we are looking for in terms of the Macao turn around. In addition, the gaming revenue market share in Macao reached 24.6% for the quarter, which is the highest since Q1 of ’09. This was achieved while being disciplined about the casino reinvestment expenses as evident by the EBITDA margin increases.

The company’s highly valued Macao VIP gaming segment is currently out performing the regions market. Overall LVS’s Macao properties rolling volume (chips used by VIP’s) declined 10% sequentially versus the 15% decline in Macao’s VIP junket volumes.

Marina Bay Sands (the Singapore casino) delivered another solid quarter, which despite the impact of the stronger U.S. dollar generated adjusted property EBITDA of $363 million. As well on a constant currency basis, the property’s normalized EBITDA was up 6%.

During the earnings conference call Adelson, the CEO and founder was adamant regarding return of capital to shareholders. He stated “We remain committed to the maintenance of our generous recurring dividend program and we remain committed to increasing those recurring dividends in the future.” This is very positive to hear for shareholders as it is keeping many satiated until Macao rights itself. This statement is by all mean feasible due to the company’s industry leading cash flows and balance sheet strength. During this quarter LVS bought back 1.3 million shares at an average price of $50.46.

As the company sticks to their critical mass, the very in-depth entertainment and consumer attraction components of the integrated resort model, LVS will maintain its dominance of the industry. The investment thesis remains strong, as it seems the Macao turn around has slowly begun.

Thursday, July 23, 2015

Hold or Buy Some Shares on Amkor

Currently, Amkor Technology has stock price at $5.13 before the market closed which is completely below our target price $10.12. The trading price is continuously dropping from $9.91 on March 2th.

It is set to report second-quarter 2015 results on Jul 27 after market close. Last quarter, it posted a 20% positive earnings surprise. The results were driven by increased demand for advanced packaging and test technologies. Moreover, the strategic initiatives undertaken by the company led to higher sales and profitability. The company’s efforts to strengthen its cooperation with J-Devices, joint venture in Japan, on many fronts, including sales, operations and R&D, are expected to reap benefits in the to-be-reported quarter. Amkor Technology expects second-quarter earnings per share within 5 cents to 15 cents and revenues in the range of $725 million to $775 million. Nevertheless, management expects the demand to be constrained mainly because of inventory adjustments and other issues at one of their major customers in the mobile device segment. This is likely to affect results in the second quarter.

On July 21th 2015, Amkor Technology, Inc announced plans to expand its state-of-the art assembly and test factory located in China’s Shanghai Free Trade Zone. With this project, Amkor expects to increase its manufacturing facilities in China by 45% to nearly 60,000 square meters of cleanroom space. Demand for assembly and test services is booming in China, particularly for advanced products employing wafer-level, die stacking and package stacking technology. This investment reflects the long term strength of mobile communications business, and the increasingly important role of the Chinese market in the global semiconductor supply chain.

I will suggest to hold on the position and let’s wait to next Monday to see how the second quarter going on. Even though the demand might constrained due to the inventory adjustments and mobile device segment, it seems such adjustment will not last very long. The fall in Amkor price is cyclical, which is usually very low in the summer according to the past. I will suggest to hold the position or even add some shares.

Cigna 7-23-2015 Update

Cigna started the month at a price of  $162.40, and is currently trading at $154.36, showing a 5% decrease; the wide shift in stock price is due to the rumors circulating around Anthem buying out Cigna.  The most recent report published by the Wall Street Journal is reporting that their competitor Anthem will acquire Cigna for $48 billion; this equates to about $188 a share, since purchasing the stock at a shade over $120, this would represent 56% worth of upside.  The main strategy behind the acquisition for Anthem is to attempt to consolidate the market; with consolidation these corporations are able to penetrate new markets, and absorb a larger customer base.  Cigna had previously rejected a $47.5 billion offer from Anthem; this would price the company at $184 a share.  Anthem and Cigna are now the second and fifth largest health insures by revenue.  Cigna specializes in administration of healthcare coverage for large employers, while Anthem administers the blue cross and blue shield plans 14 different states.  The analysis believes that the combine customer base, along with the different health care plans will bode well and that the acquisition will reflect positively on revenues.  There are estimates that predict that the combination of companies will create $2 billion in annual synergies.  The deal has still yet to be complete, and they must overcome the hurdle of antitrust laws, which may be tricky considering the whirlwind of corporate acquisitions within the healthcare industry in the past year.  Cigna reports quarterly earnings on Thursday July 30th.

Sunday, July 19, 2015

Google Q2 Earnings

Google Q2 Update

For a long time Google (GOOG) has been confined to trade range in the mid to lower $500 range but following Friday's earnings release - Google managed post gains in historic proportions. Beginning the quarter at $542 and ending the quarter at $520, the company closed on July 17th after reporting earnings at $672. The tech giant gained $65 billion in market cap in one trading day, the biggest single day gain posted by a company ever.

Google posted gains across the board in revenue and income measures, an attribute that is not new for the company. Revenue was basically in line with consensus at $17.7 billion reflecting 11% growth with Non-GAAP operating profit accounting for 34% of revenue at $6 billion. Bottom line GAAP net income was $3.9 billion which was up 17% YoY leading to an EPS for Class - C shares to reach $6.99, blowing away consensus predictions of $6.70.

The surge in value comes after Google's new CFO, Ruth Porat who was previously the CFO of Morgan Stanley, joined Google in May. Under her oversight, the company has displayed better cost management and a refocus in revenue driving activities, which for many investors was a cause of concern posed by Google. The biggest single contributor to Google's revenue is Google Sites which rose in revenue 13% compared to this time last year translating to $12.4 billion. Porat stressing the shift in search revenue towards the mobile market can only be viewed as a positive scenario. With PC sales decreasing and growing consumer demand for mobile devices, Google is in a prime position to take advantage of an untapped mobile ad market. While keeping usability a priority, GOOG is up scaling the mobile advertisement business and affirming itself as the dominant player for that market. Youtube mobile users also grew which translates to a growth in Youtube's "true view ad" revenue. Overall Youtube saw an impressive 60% increase in user watch time compared to last year. In addition to a revamped focus in revenue building programs, Porat has enacted expense control policies to mitigate the expenses of Google's various ventures to maintain its status as an innovative tech company. The trend can be quantified in the fact that Non-GAAP OpEx reached $5.4 billion this quarter which accounted for 30% of revenue as well as an 11% increase YoY. What is interesting is that in Porat's first quarter as CFO, Non-GAAP OpEx decreased 1% sequentially. Obviously Porat's influence has impacted the financial statements of Google and has investors excited for the company's performance in the future.

With Porat's leadership and Google's status and capabilities, the price target has obviously been raised for Google. However, compared to many analysts I am currently a bit conservative on just how high the PT should be lifted. Granted Google's performance was monumental, it will be interesting to see if the company's cost cutting policies and increased focus in revenue drivers will be sustained. Keeping that in mind I am a bit more conservative with my price target lies in the $730-$750 range. The model needs revisiting for precise pricing but based on the fact that Google gained so much value in a single day, I am a bit apprehensive with Google's potential upside since the stock has not reached its current value in a steady fashion but rather as a result of beating expectations. With the bar set higher than ever for Google, it is going to be tough to add value to an already relatively expensive stock.

Saturday, July 18, 2015

LRCX July 17th

Lam Research Corporation (LRCX)
LRCX started the month of July trading at $82.27 well above our purchase price of $79.63. However, this was still far below the price target of $96.55. Unfortunately, LRCX closed on Friday July 17th trading at $77.26 representing a 6.1% decline for the first half of the month of July. This is due in large part to the shift in the current state of the semiconductor industry. Lam is a semiconductor equipment manufacturer and they also provide maintenance to the specialized equipment. The future of the semiconductor industry is in question as Moore’s law is starting to be broken. Moore’s law states that the amount of transistors on a semiconductor will double every 18 months, this is become difficult as the transistors cannot seem to get any smaller. Some manufacturers have invested in larger 450mm semiconductor wafers, but the larger size of the pieces causes it to lose its integrity. Due to these setbacks the semiconductor industry could go in many different directions, and it’s anyone’s guess what could be the biggest new advancement in the industry. As for right now LRCX is in a holding pattern and the demand for their equipment is in decline. I believe that we should continue to hold LRCX for the time being, but if the industry appears to shift to require equipment that Lam doesn’t service, then it might be time to get out of our position. LRCX is expected to release their next earnings statement at the end of July.
Jeff Sherman

ORCL July 17th

Oracle Corporation (ORCL)

ORCL started the month of July trading at $40.25 which is below out purchase price of $42.25. The recent decline is due, in large part, to the most recent Q4 earnings release which showed strong growth, but missed expectations due to foreign currency challenges. In the earnings release Oracle’s primary cloud component revenue saw an increase of 29% while the pro forma growth (excluding currency headwinds) saw an increase of 35%. ORCL closed on Friday July 17th at $40.40 representing a 0.3% increase so far this month. During the past month Oracle’s management was criticized for their seemingly large executive pay. Oracle’s founder and chairman received $67.2 million in compensation in 2014, down from his 2013 pay of $96.2 million. Oracle continues to stay ahead of their competitors; they are growing faster in the cloudscape then many of their competitors. And they are also maintaining growth in their traditional markets. I believe that ORCL will continue to be a good investment throughout the next quarter. There have been rumors of Oracle being able to acquire a smaller cloud company.

Jeff Sherman