Showing posts from November, 2018

IB Net Payout Yields Model

What Was Micron Thinking?

Micron CEO updated corporate guidance at a technology conference. The company went forward with large buybacks in FQ1. The lowered revenue guidance will ultimately guide the stock. At an investor conference on Wednesday, the   Micron Technology   ( MU ) CEO updated guidance that was not a shock to our   investment thesis . The shocking part is that the company plowed ahead with large-scale stock buybacks in the face of a downturn gaining steam and knowledge that sector cycles always end up worse than expected. Read the full article on Seeking Alpha.  Disclosure: No position mentioned. Please review the disclaimer page for more details.   

Fitbit: Positioned To Win

The recent Gartner forecast on global wearables shipments is ultra-bullish for Fitbit (FIT) . The research firm forecasts shipments to triple from 141 million in 2017 to 453 million in 2022. Fitbit is a big player in the Smartwatch category and Gartner specifically points out the promises of medical devices what the fitness tracking company is just now entering. The best story for investors is that the stock only trades at a market value of $1.3 billion with a sizable balance sheet. Risk always exists with a stock, but Fitbit offers an incredible reward, if the company gets the wearables trend correctly over the next few years. Disclosure: Long FIT. Please review the disclaimer page for more details. 

Spirit Airlines: Back On The Radar

11/28 Update Spirit Airlines (SAVE) has surged 20% over the last couple of days after the airline boosted Q4 RASM to ~11% growth. The airline had originally forecast 6% growth after a period of declining metrics. The airline has amazingly hit new highs following my April article when Spirit Airlines was down in the dumps. Analysts are boosting 2019 EPS estimates above $5 per share. The stock likely rallies towards $70 on this bullish news. Investors should turn more cautious at these levels. The airline has a tendancy to dramatically boost capacity as yields start to improve. Absent any capacity boost, my view could stay bullish on these gains.

FireEye: Slight Shift

FireEye generated impressive Q3 results with impressive cash flow improvements. The cybersecurity company is in the midst of a shift towards Security as a Service. The weak Q4 guidance placed the stock right back in the penalty box when trading at multi-year highs near $20. My   investment thesis   has long held with most stocks that unless the stock throws off cash every day the company opens for business, the stock just isn't appealing.   FireEye   ( FEYE ) has long fell into that category due to the lack of growth to vastly change the cash flow picture, but the recent   Q3 results change the equation ever so slightly. Read the full article on Seeking Alpha.  Disclosure: No position. Please review the disclaimer page for more details.   

General Motors: Riding The Transformation

GM plans to close multiple plants that focus on the assembly of cars. The company forecasts increasing automotive cash flows by ~$6.0 billion by 2020. GM is set survive any current down cycle in the auto sector and thrive beyond 2020 as TaaS ramps up. My  investment thesis  has long held that the  General Motors  ( GM ) under the leadership of CEO Mary Bara is not your fathers GM. The auto manufacturer has correctly invested in transportation-as-a-service (TaaS) opportunities to position the company for the future while cutting costs. The stock has lagged due to fears of peaking auto sales, but the transformation should position GM to profit through a down cycle and into the massive TaaS opportunity down the road. Read the full article on Seeking Alpha. 

AT&T: Just Relax

AT&T trades back near the yearly lows at $29. The stock offers an incredible 6.8% dividend yield. Analyst meeting on Nov. 29 should provide a catalyst for the stock. Market will soon shift focus to $25 billion FCF focus. While my   investment thesis   has constantly slammed on the decisions of   AT&T ( T ) management to shift business away from building the best wireless network, the stock has turned into a bargain due to strong free cash flows. At $29, AT&T offers a nearly 7% dividend yield while recently backing incredibly bullish financials for 2019. The ongoing stock weakness remains an opportunity. Read the full article on Seeking Alpha.  Disclosure: Long T. Please review the disclaimer page for more details.   

Teledoc: More Downside Ahead

Teledoc (TDOC) is at the center of digital health. My previous research was for investors to 'pump the brakes' when the stock originally hit $60. The stock went on to surge to absurd levels reaching a high of $89. It's very crucial for investors to understand that Teledoc trading this far from the highs doesn't necessarily make the stock a bargain. The stock now trades at a market value of about $4 billion with '19 sales estimates of $550 million. Teledoc probably hits a buy zone down at $45 or when the price hits $3.3 billion or roughly 6x sales estimates. Disclosure: No position. Please review the disclaimer page for more details. 

GreenSky: Fintech Panic

GreenSky takes a big hit falling below $10 following weak Q4 EBITDA guidance. All of the fintech stocks have inevitably taken a big hit following going public despite maintaining solid revenue growth. GreenSky maintains strong transaction growth and only trades at 8x EBITDA forecasts. The recent slump in   GreenSky   ( GSKY ) follows a trend in fintech stocks eventually collapsing following high profile IPOs. One has to question whether these modern financials belong in the public markets if a high EBITDA margin company with 30%+ transaction growth isn't rewarded. The stock isn't likely to rally until the company hit financial targets, but the opportunity exists to start scaling into the stock in anticipation of better days ahead. Read the full article on Seeking Alpha.  Disclosure: Long LC, ONDK. Please review the disclaimer page for more details.    

Fitbit: Holiday Special

Fitbit (FIT) is one of the top downloaded apps over the holidays as people get fitness trackers as holiday gifts. The stock is in a precarious position where Fitbit could close the gap from the surge following Q3 earnings, yet the related company is expecting a strong quarter. The amazing part is that those results signaled a turn in the business. The stock is exceptionally cheap here around $5. The key is knowing that any further weakness in the stock is technical in nature and not any signal of weak holiday sales. Fitbit could easily retest $4.50 based on this chart. The stock shouldn't trade at an EV 0.5x sales estimates while the company is shifting towards a med tech future. The stock would make a great stocking stuffer. Disclosure: Long FIT. Please review the disclaimer page for more details. 

Wayfair: More Weakness Ahead

Based in part on the negative call by Citron Research, Wayfair (W) is down below $85 now. My previous articles ($$) were negative on the stock due to the similar issues of diseconomies of scale. Until the online furniture company shows that offering a global delivery network for heavy furniture items can scale profitably, the stock is likely to struggle. Citron has a $40 target on the stock, but something closer to $70 appears the most likely short-term target. My view is more constructive long term. The retail experience in the furniture market is less than desirable leaving a big opportunity for Wayfair that offers a better service and selection. The question is whether the company can leverage an already large tech department and turn this into a real business. Disclosure: No position. Please review the disclaimer page for more details. 

LendingClub: Perplexing Negativity

LendingClub reported another quarter of records. The stock still trades at the lows follow the scandal around the former CEO when the business was at risk. Even a $7 price target offers a very low FY20 EV/EBITDA target. After yet another earnings report,  LendingClub  (NYSE: LC ) is trading in the $3.50 range following a quarter where key growth metrics grew at a 20% annual clip. My  investment thesis  remains solidly on track as the online lending platform with nearly $800 million of cash and loans held for sale is constantly ignored by the market. The perplexing value won't last as the fintech continues to survive and thrive in a rising interest rate environment. Read the full article on Seeking Alpha. 

Sonos: Don't Chase The Rip

Sonos (SONO) is up sharply following FQ4 results that beat estimates. The smart speaker company easily beat EBITDA targets as their new smart speakers had a strong quarter. Source: Seeking Alpha  The biggest issue with the company is that Sonos still produced a $15 million loss last year and the company only monetizes a hardware solution. The story still isn't that compelling until Sonos figures out how to make money off the voice-assisted speakers, instead of the tech giants. Disclosure: No position. Please review the disclaimer page for more details. 

Intel: Don't Buy The Buyback Just Yet

Intel (INTC) announced adding $15 billion to the share buyback plan bringing the total to $19.7 billion. On initial review, the amount isn't substantial enough to move the needle on the stock. Intel has a market cap of $215 billion so the total amount falls short of 10% of the outstanding shares. Based on history, the semiconductor giant isn't aggressive on share buybacks either. A net payout yield of 6.4% isn't impressive in a market with beaten down stocks. Besides, Intel wasn't that good with the last big buyback program in 2015 when the NPY topped 10% and the stock actually dipped. Stay tuned, more to come here based on whether Intel is actually aggressive buying shares on the dips. Disclosure: No position mentioned. Please review the disclaimer page for more details. 

What Was Applied Materials Thinking?

Applied Materials (AMAT) spent the last year convincing people of a new normal in the semiconductor space, but the December guidance suggests the cyclical sector hasn't changed at all. - Downside Q1 guidance has revenue of $3.56B to $3.66B (consensus: $3.98B) and EPS of $0.75 to $0.83 (consensus: $0.93; -25% Y/Y at midpoint). Consensus was for a revenue decline so it wasn't like the market expected great quarterly numbers from AMAT. The odd part was the decision of the BOD to spend $751 million during the quarter on share repurchases. Any company expecting to miss estimates by such a wide margin should not be loading up on stock buybacks. The question here is whether the cycle has further downside. AMAT still expects solid profits so now isn't the time to runaway, but its too early until after Thanksgiving to even think about chasing the after-hours dip to $32. Lets see where AMAT trades on Friday.

AMD: Big Horizon

The New Horizon event unleashed a big horizon for 7nm chips in the datacenter space. The AWS deal reduces the risk to the investment story. Analyst estimates for 2019/2020 are only taking into account baseline server CPU market share gains. The recent dip in  Advanced Micro Devices  ( AMD ) to below $17 and Monday's drop to $19 are rare opportunities to own a tech company on a major dip in front of a massive new product release. The  Next Horizon event highlighted the big opportunity in the  datacenter,  reinforcing our  bullish investment thesis . Read the full article on Seeking Alpha.  Update 11/15 : AMD closed down 5% in after-hours trading due to weak results from Nividia (NVDA). Those results shouldn't impact the market share gains expected of AMD in 2019 and beyond. Disclosure: No position mentioned. Please review the disclaimer page for more details. 

CenturyLink: Another Bizarre Reaction

CenturyLink fell 10% following Q3 results despite boosting FCF targets. The company remains on track for reaching merger synergy targets including a large boost to EBITDA margins. The stock weakness provides investors with a healthy 11.4% dividend yield. My   previous research   highlighted how the market had bizarre reactions to the quarterly reports of   CenturyLink   ( CTL ) and Q3 was no different. Despite all key metrics improving, the market chose to focus on the company pruning low-margin customers. Use the weakness to again own this massive 11.4% dividend yield. Read the full article on Seeking Alpha.  Disclosure: Long CTL. Please review the disclaimer page for more details.   

Netflix: Costly Streaming Wars

The streaming video wars should reach peak competitive levels in 2019. Netflix enters the competition while burning cash at a $3 billion annual rate. The entry of the tech giants leaves Netflix at a balance sheet disadvantage with net debt approaching $10 billion in 2019. The stock is due for another rally in early 2019 for investors to fade. The planed addition of several tech giants along with traditional media players into the direct-to-consumer streaming video segment should expose the biggest weakness of leader  Netflix  ( NFLX ). The problems with developing a leading market position without building up a pristine balance sheet is that competitors can easily attack the company's weakness and ultimately prevent a player like Netflix from achieving the massive cash flows and profits warranting a market valuation of $132 billion. Read the full article on Seeking Alpha.

Typical Yelp

Yelp slumps 30% on a typical sales hiccup. The consumer review site saw key metrics grow about 20% YoY. The stock has historically rebounded following these quarterly problems as the stock bounces off trough P/S multiples. Yelp   ( YELP ) never seems to fail to rip failure out of the hands of success. The consumer review site always follows strong quarters with unexpected issues. The stock has historically been a buy on these dips as the key consumer metrics constantly expand in the 20% range. Read the full article on Seeking Alpha.  Disclosure: Long Yelp. Please review the disclaimer page for more details.   

Square: Cracks Forming

Square actually traded down following a big Q3 beat. A lot of the negative signal from prior to the quarter contributed to the weakness in the stock. The market has missed that share counts are exploding, up 15% YoY. The stock still trades at about 23.5x '18 adjusted revenue estimates. As some shareholders hate, my  previous articles  on  Square  ( SQ ) pointed out the substantial risks in owning the mobile payment provider with limited profits at stretched valuation multiples. Following the release of  Q3 results , some more cracks are starting to form in the runaway growth story where my  investment thesis  already identified negative signals.  Read the full article on Seeking Alpha.

Qualcomm: Don't Overreact

Qualcomm is down over 8% on disappointing FQ1 guidance. Apple remains the main thorn in their financials impacting the comparisons until the license dispute is resolved. Business remains solid, with EPS targets rising even without ~$1.7 billion in high-margin license revenue. The net payout yield is set to reach 35% make a very bullish buy signal. The perplexing story of  Qualcomm  ( QCOM ) was further evident by the reaction to a  large FQ4 earnings beat . After massive stock buybacks and with 5G on the horizon, now isn't the time to abandon ship just because  Apple ( AAPL ) continues playing hardball. My  long-term investment thesis  remains solid. Read the full article on Seeking Alpha. 

Glu Mobile: Trend Intact

Glu Mobile reported solid Q3 results. The company remains on track to generate bookings approaching $500 million in the next year or so. The stock remains exceptionally cheap at a P/S ratio of 2x. The new and improved  Glu Mobile  ( GLUU ) continues to chug along producing consistently better results. My  investment thesis  that the stock is one hit game away from a big rally is even truer now with the stock selling off below $7 after the tech wreck of October. Read the full article at Seeking Alpha.  Disclosure: Long GLUU. Please review the disclaimer page for more details. 

Snap: Death Spiral

Snap reported another quarter of declining users. Industry surveys continue to show Instagram successfully take market share and killing all momentum in Snapchat. The company is burning far too much cash to play any turnaround story. The  quarterly results  for  Snap  ( SNAP ) were so bad that my recently issued  price target of $5  now appears aggressive. The original story of out-of-control spending has been replaced by active user declines. The social-messaging platform won't have a rewarding future based on projected user declines. Read the full article on Seeking Alpha. Update 11/15 Don't place a lot of thought into the DOJ and SEC subpoenas regarding the IPO. The company disclosed the large cash flow losses that are leading to the problems with stock now. Shareholders in the lawsuits against the company apparently can't read a prospectus. Regardless, the stock should still head below $5. Disclosure: No position mentioned. Please review the discla

Facebook: Not Clear Yet

Facebook smashed Q3 EPS estimates as analysts likely overcorrected on cost estimates. The social networking platform still faces significant margin pressure in 2019. 2019 analyst estimates still need to contract before investors can get an all-clear on the stock at the $150 level. Prior to its  Q3 earnings report , my  investment thesis  on  Facebook (NASDAQ: FB ) was focused on the double hits the company was taking for the same issues. The thesis further supported that the social networking giant was likely to beat estimates, as costs failed to materialize as projected. The stock is a Buy with a $150 reference point as soon as analysts lower EPS estimates for 2019. Read the full article on Seeking Alpha.