Invesco First Quarter, 2014 Financial Report

From the first Quarter of Invesco. Net income declined to $187.8 million, or 43 cents a share, from $222.22 million or 49 cents compare to the last year. But Invesco’s assets rose 1.1% in the quarter to a record $787 billion because of deposits in other businesses and higher equity markets. The U.K penalty and related legal fees decreased earnings by 7 cents a share. Additional costs connected to building closure and job cuts reduced net income by 9 cents a share. It shows 15% decline of profit due to the company was fined by U.K. regulators for breaking rules on limiting risk (Invesco Perpetual broke rules on limiting risk 33 times, didn’t communicate properly with investors about derivatives, didn’t record trades on time and failed to monitor whether trades were allocated fairly among funds). And announced a quarterly dividend of 0.25 per share. This represents a $1.00 annualized dividend and a dividend yield of 2.78%.

In May 12^th, 2014. Invesco Ltd reported preliminary month-end assets under managements of $779.4 billion, a decrease of 1% month over month. The decrease was driven by negative net long-term flows and outflows. There is $13 billion outflow in the U.K.

Despite the weaker first quarter financial report. Investment performance during the quarter was strong across the time period. 81% of assets were ahead of peers on a three-year basis, and 73% of assets were ahead of peers on a one-year-over the past year. From updated model, the new target price $42.40 represent 17.96% upside.

Cisco Systems Inc. 3Q14 Earnings; The Future is Looking Bright

Cisco Systems Inc. reported 3Q14 earnings May 14th and held a corresponding conference call after market at 4:30 E.S.T. Quarterly revenue came in at $11.5BB, substantially lower than our estimate of $12.5BB, but beating estimates of $11.35BB, down 7.7% YoY. Quarterly non-GAAP EPS came in at $0.51, which beat our estimate of $0.45 as well as the street’s estimate of $0.48.  Cisco also generated $3.2BB in operating cash flow and returned $3BB in dividends and share buybacks over the quarter.

In 3Q14 Cisco strengthened their gross margin to 62.7% from 61.3% which has been one of their initiatives to improve bottom line.  Although revenue decreased, Cisco saw growth in important business segments including U.S. commercial and U.S. enterprise revenues which both increased 10%, Data Center revenue which grew 29%, and most importantly service revenues which grew 3% with continued strong margins.   A big driver of revenue this quarter as well as into the future is Cisco’s Nexus 9000, a switching platform that enables scalable architecture and is software upgradable on Cisco’s ACI.  Cisco grew from 20 to 175 customers this quarter with potential of over 1,000 while boasting competitive wins at large financial institutions and large cloud providers.  ASR 9000 revenue also grew a massive 59% and represents Cisco’s fastest growing and most successful high-end router.  On the contrary, Cisco has faced challenges in emerging markets, service provider orders, and new product transition in high-end routing and high-end switching.  Cisco has remained confident in their strategy in emerging markets to engage with leadership in these countries on key priorities and technology developments to push their solutions.

Looking forward, Cisco looks to develop and grow two transitions, their global cloud and Internet of Everything, which represent a large portion of my thesis.  Not only are customers already turning to Cisco for their open and highly secure hybrid cloud, but Cisco has announced a partnership with major global InterCloud company Telstra.  Cisco is also making progress identifying IOE to specific business opportunities and pipelines, as customers embrace cloud, mobility, social, and analytics of IOE.  Cisco expects revenue to decline approximately 1-3% and non-GAAP EPS to be around $0.51-0.52 in 4Q14.

Cisco crushed top and bottom line as well as sharply raised guidance for the rest of 2014.  The market finally gave Cisco the credit they deserve as they appreciated 7% after hours following the earnings announcement.  My thesis remains intact and stronger than ever as they have been returning shareholder value through increasing dividends and share buybacks, increasing software and service revenue, as well as made progress towards the $19+ trillion market of Internet of Everything.

Price Target raised on SanDisk Corporation

SanDisk Corporation surpassed our price target of $90.60 per share on Monday, May 13th. Multiple expansion and great earnings for 2014 Q1 sent the stock up over 20% since we took a position in the company. Although the stock is at all time highs we believe that there is more upside to come and the growth story for NAND flash is still too compelling for us to exit our position. Our updated price target is $101.04 per share for 2014. Our Revenue forecasts are at the high end of the company's guidance for 2014 and our margin forecasts fall in the middle of the guidance range. We anticipate continued strong earnings growth going forward. Our 2014 Q2 EPS estimate is 1.48 dollars per share and consensus is around $1.38 per share according to Factset. In other words we think that the company is positioned for another earnings beat and may even surpass our estimates. Strong revenue growth from SSDs and embedded chips will positively impact margins along with manufacturing improvements. Cost per Gigabyte was down 23% YoY and more cost reductions will result from manufacturing facility upgrades. We have also been more than impressed with the fact that the company showed significant earnings growth and margin improvements during NAND price declines on both the spot and contract markets. Our investment thesis is still more than intact and just beginning to unfold. We anticipate SSD demand, decelerated decline in NAND prices, and stronger than expected demand for mobile devices, especially in China, will push the stock up further in the short term.

We believe the memory space is one of the best brackets of technology to be in right now and SanDisk will continue to reap the benefits of the its cost and pricing advantages in 2D NAND for the remainder of 2014 and into 2015. We are very excited to see how the company will perform with stabilizing NAND prices and worldwide increases in demand for the technology in 2014/2015. We believe that the premium on the company's multiples compared to 5 year averages is justified and that multiples will remain around or slightly below these levels for at least the next quarter or so. This is based on above average market conditions for NAND flash, high revenue and earnings growth, and record gross margins. Comparable valuation was composed using an even blend between average Price to Earnings, EV to EBIT, EV to EBITDA, and Price to Book multiples among firms in the NAND flash, hard-drive, and semiconductor space. DCF analysis and historical multiple analysis were also utilized. Many analysts began taking notice in this company's strong position for success and growth following our decision to buy the company and many price target upgrades have been issued by competing analysts. A growing amount of price targets now lie above the $100 dollar per share level. If the company continues to beat our estimates we will keep the stock. Our main focus will be 3D NAND manufacturing updates among competitors, especially if we end up deciding to hold our position into 2015.

Ralph Lauren 4Q14 Results

Ralph Lauren (RL) reported 4Q14 earnings this past Friday (May 9th, 2014). RL reported a profit of $1.68 for the quarter, beating forecasts of $1.63.  Additionally revenue climbed 14% (to 1.87B), surpassing estimates for $1.83B. For the year, RL stated that EPS rose 4% to $8.44, beating by 5 cents.

Despite reporting results that were better than The Street's expectations, the stock dropped (~2%) largely due to RL's warning that the substantial growth initiative costs will erode their operating margin. The company noted that the substantial costs would in part be driven by: retail store development (opening approximately 40 - 45 new stores in FY15), SAP implementation (In FY15 the transition from legacy systems to SAP will be completed in North America (whole operations). Likewise, RL will begin the implementation process in Europe), and upgrades to their global e-commerce operating platform.

RL's guidance for 1Q15 and FY 15 fell just shy of analysts' estimates, contributing to the stock's decline. For FY15 management forecasted revenue growth in the range of 6-8% to come in at $7.9 billion. On the other hand, analysts were expecting profits of $9.2 per share with $8 billion in revenues.

Although the 4Q14 conference call left many investors weary of the company's future, RL has continually surpassed expectations. RL has been able to pinpoint the growth initiatives that will push the company higher, and is in the process of implementation. While the process will decrease RL's operating profit margins, RL is putting their money in all the right areas and success of such initiatives will be apparent in the future.

It is not clear to me why investors were so shocked about RL's decreasing margins, for the company had forewarned of such event in their 3Q14 conference call. I am not overtly concerned about the margins, for I had expected this. RL still demonstrates tremendous opportunities for growth - their clear strategies place them on the right track to maximize their sales and profit growth in the long-term.

PCP Beats on Q4 2014 Earnings

The Q4 2014 results are in for Precision Castparts (PCP) with earnings that topped estimates. Sales increased 4%, going from $2.4 billion last year to $2.53 billion this year. Operating income increased 15%, going from $626 million last year to $720 million this year. Operating margins expanded 280 basis points, going from 25.7% last year to 28.5% this year. All of these factors generated EPS growth of 16%--slower than previous quarters that generated 20% growth--going from $2.82 last year to $3.27 this year.  This $3.27 EPS beat consensus by 2 cents. The stock made little movement in the post-midday trading in response to the news.

Military sales, which make up 15% of PCP’s aerospace market, fell 22% in the quarter.  However, sales for the much-larger segment of commercial aircraft, which makes up 79% of PCP’s aerospace market, rose 5%. This is in line with our investment thesis that commercial aircraft sales should be the driver behind this company. Because fuel accounts for one-third of commercial airlines expenses, there has been a push by these customers to invest in more fuel efficient aircraft. PCP’s largest customers, Boeing and Airbus, will continue to ramp up production of their new fuel-efficient planes and airlines will continue to look to replace their aging fleets.

PCP has characteristically continued its trend of achieving synergies through acquisitions.  TIMET, the titanium maker PCP bought last year, was credited in the earnings call as being “rapidly integrated and delivering accelerated performance.”  The recent acquisition of ADI is expected to expand PCP’s Airbus position, chiefly exposure to the A350.  Going forward, there are some commodity risks the Group should keep its eyes on.  Rising nickel prices—which PCP combats with the use of scrap metal—and the growth in natural gas prices—which could hurt PCP’s IGT (a fancy name for jet engines that are used to generate power) aftermarket—should be kept on the radar. In addition, we need to monitor if slipping in military sales is a continued trend. The model and price target will be updated soon.