EXA : NASDAQ : US$13.69
Exa is the leading provider of simulation software to the
ground transportation industry. The firm’s technology is
used by more than 90 global vehicle manufacturers to
help design efficient products via digital prototype. Exa
was founded in 1991, went public in June of 2012, and
is headquartered in Burlington, MA.
All amounts in US$ unless otherwise noted.
Technology — Enterprise Software — Applications
A RESPECTABLE QUARTER RESTARTS THE CLOCK TO BUILDING A TRACK RECORD OF EXECUTION. BUY.
Exa’s valuation is cheap enough and the firm’s business, which is basically
high fidelity fluid simulation, is seeing sufficient demand that we believe it is
reasonable for the firm to at least hit our estimates. If that happens, the most
likely baseline appreciation for the stock should be somewhere between
revenue and free cash flow growth, or about 15%. Exa would have to put up
some more “no drama” quarters before we would make the case, but if they do
so, you could make the case for a multiple expansion in the back half of 2014
as 2015 comes into view, which could propel the stock towards $20, which is
above our current price target (there are also obvious downsides if the firm
misses numbers, which we assume any investor with more than five minutes of
experience understands). Reiterate BUY.
A nice quarter: return to double digit growth. Exa reported revenues and
adjusted EBITDA of $14.1M (+12% y-o-y) and $1.6M (11% margin), which
were respectively $0.4M and $0.1M ahead of our estimates. Non-GAAP
EPS of $0.05 was ahead of our $0.04 estimate, and YTD Exa has generated
operating cash flow of $4.4M compared to a ($4.1M) loss a year ago.
Color from the call. Project activity in the passenger car segment has
gained momentum over the last two quarters, and Exa noted some early
renewal activity ahead of normal Q4 seasonality. While aerospace is
becoming a more meaningful contributor, the truck and off-highway
markets are showing little growth globally.
A wide range, but in line for Q4. Management suggested that the firm will invest for growth if activity remains at current levels, so we have proactively trimmed our F2015 profit expectations. The firm’s goal remains to return organic revenue growth to the 15-20% range.
Posted by jackbassteam on December 6, 2013
HXL : NYSE : US$43.50
Hexcel is a leading supplier of advanced composites for the commercial aerospace, defense, space and industrial
markets. Specific product offerings include carbon fibers, specialty reinforcements, prepregs, fiber-reinforced
matrix materials, honeycomb, adhesives, and composite structures.
All amounts in US$ unless otherwise noted.
Transportation and Industrials — Airlines and Aerospace
2014 GUIDANCE WILL BE HIGHLIGHT OF UPCOMING INVESTOR DAY
Hexcel (HXL) will release its 2014
guidance at its investor conference on 12/16. We believe the initial EPS guidance will call for 10-14% EPS growth, or a range of $2.00 – $2.10.
Over the past three years, HXL has outperformed its initial full year EPS guidance by 17% on average. We believe HXL should continue to benefit from the secular and cyclical growth for composites in commercial aerospace, with the A350 providing significant late-cycle acceleration.
Wind sales should improve off the H1/13 trough, and capital deployment opportunities could provide additional catalysts. Moreover, the 777X represents longer term upside and could be a potential catalyst. We are raising our price target from $46 to $50.
While we do not expect the initial 2014 guidance to be a significant catalyst for the stock, we expect HXL to be a top performing stock in 2014. We believe the guidance will be in-line with expectations, and we are maintaining our 2014 and 2015 EPS estimates of $2.14 and $2.42.
In terms of markets, we model in ~13% growth for commercial aerospace in both 2014 and 2015, driven largely by the 787 and the A350. Other catalysts include cash deployment (share repurchases, primarily), better than expected execution, and the 777X.
Our $50 price target is based on the average of a 22.5x EPS multiple and a 14.0x EBITDA multiple applied to our 2014 estimates. We believe HXL will continue to justify a premium to the sector based on the secular composite growth, better-than-expected execution, and cash deployment, and the improving outlook for wind sales into 2014.
Posted by jackbassteam on December 2, 2013
LNR : TSX : C$35.67
Linamar is a leading industrial manufacturer specializing in machined automotive components (mainly engine, transmission and other driveline components) and other industrial systems (aerial work platforms and related products, energy product assemblies, agricultural equipment assemblies). The company operates principally from Guelph, Canada but it has growing operations in Europe, the U.S., Mexico and Asia.
All amounts in C$ unless otherwise noted.
Transportation and Industrials — Auto Components
Q3/13: LARGE POSITIVE SURPRISE, FORECAST, TARGET BOOSTED
Continue to recommend BUYing for good growth potential
LNR remains attractive for a strong EPS growth profile from strong organic sales growth in its Powertrain/Drivetrain (P/D) automotive segment and sales growth and margin expansion in its Industrial segment.
Q3/13 results were consistent with this thesis and then some. We boosted our target on a slightly stronger mid-term forecast, powered by slightly stronger sales and margin assumptions, and our usual one-quarter valuation period roll forward.
Q3/13: large beat on sales and margins
EPS came in at $0.80, much stronger than our $0.64 forecast and the consensus mean estimate of $0.66. EPS was up a healthy 54% YOY.
LNR is clicking on most cylinders. P/D benefited from launches and strong industry volumes. Industrial continues to rebound but remains below potential. P/D sales and margins and Industrial margins all came in stronger than we expected.
LNR guided to very strong margins in 2014 (in the same ballpark as the very strong 2013 margins). This was a large upside surprise. Sales expectations are good too.
We boosted our 2014 forecast on the margin guidance upside surprise. Mid-term prospects appear relatively unchanged, suggesting an eventual margin decline at P/D. Our mid-term forecast is only slightly stronger.
Premium valuation given growth and industry outlook
We continue to value LNR at 5.75x EV/NTM EBITDA (5.75x Q3/14E EV to Q4/14E – Q3/15E EBITDA), which is about 0.75x higher than normal. We are using a premium multiple given LNR’s growth and excellent industry fundamentals.
Posted by jackbassteam on November 20, 2013
VECO : NASDAQ : US$30.59
Veeco Instruments manufactures process equipment and instrumentation for the LED, solar, data storage, wireless,
semiconductor and scientific research markets. Veeco’s manufacturing and engineering facilities are located in New York, New Jersey, California, Colorado, Arizona and Minnesota, and sales offices are found globally.
Our current rating is in-line with our bearish view that there is limited upside for both MOCVD equipment names.
Now that the company is current we have seen the expected negative effect on Veeco’s margins due to price competition and lack of a bubble-type spending environment which we do not believe will be repeated. We do not envision that pricing will materially recover over the next investment cycle, continuing to weigh on margins.
While we are bullish on the SSL secular trend, we believe expectations for both Veeco and AIXTRON are not in-line
with the new normal of a 200-400 annual tool market.
We see some potential upside from Synos; however, this technology is still nascent and we harbor concerns about the increase in OPEX to support this and other new initiatives.
We believe that fundamental downside exists in VECO shares, despite investor enthusiasm on the secular trend.
Given the risks of a slower MOCVD cycle and limited earnings power we would advise investors put money downstream for exposure to the LED macro.
Posted by jackbassteam on November 15, 2013
FWLT : NASDAQ : US$28.86
Based in Zug, Switzerland, Foster Wheeler AG is a global engineering and construction contractor and power equipment supplier delivering technically advanced, reliable facilities and equipment. The company employs approximately 13,500 professionals with specialized expertise dedicated to serving clients. Its two primary business groups consist of the Global Engineering & Construction Group and the Global Power Group.
All amounts in US$ unless otherwise noted.
IMPROVED OUTLOOK & SURGING E&C BACKLOG: TARGET TO US$37.50 FROM US$30.00, REITERATE BUY RATING
We reiterate our BUY rating and increase our one-year target price 25% to US$37.50 following strong Q3/13 results and an increased EPS forecast. Global E&C backlog is 71% higher y/y (and 61% above last cycle’s peak) and we found management’s view of booking opportunities incrementally more positive. We see robust EPS growth through 2015, notwithstanding our downgraded E&C margin expectations to reflect mix. We have increased our 2015 EPS estimate to $2.45 from $2.15 and our target multiple to 14x from 13x, brining our target price to US$37.50 when adding $3.50/share in freehold cash forecast at year-end 2014.
Excluding a $0.05 FX gain, FW reported Q3/13 EPS of $0.47, ahead of our $0.40 estimate and the Street at $0.43. Scope revenue was 7% below forecast, but GPG EBITDA margin offset this coming in at 25% compared to our 17% estimate on solid profit enhancement realization. GPG 2013 margin guidance was unchanged at 17-19% while E&C was increased to 11-13% from 10-12%.
Management believes activity is picking up in E&C. This is especially true in N. America (abundant small/medium sized awards and EPC opportunities in the US plus SAGD in Canada) and the Middle East (Iraq and Saudi Arabia where a $70 billion petchem spend is on tap).
FW trades at 15.2x our 2014E EPS vs. the group at 14.5x.
Posted by jackbassteam on November 14, 2013
Joy Mining Machinery Founder Joseph Francis Joy (Photo credit: Wikipedia)
Joy Global (JOY : NYSE : US$49.16), Net Change: -2.15, % Change: -4.19%, Volume: 7,519,489
Joy Global, a maker of mining equipment, reported a 36% slide in quarterly orders and warned of
sharply lower revenue for a further year as coal producers cut back capital spending in the face of a supply glut and low prices.
Net income fell 5% to $183.2 million, or $1.71 per share. Revenue dropped 5% to $1.32 billion.
Excluding items, Joy Global earned $1.70 per share while analysts expected earnings of $1.37 per share, excluding items, on revenue of $1.18 billion. Joy Global maintained its 2013 forecast for earnings of $5.60-5.80 per share.
The company, which derives two-thirds of its revenue from sales to coal miners, said it would increase cost cutting to offset the slide in orders. Management maintained its forecast of revenue for the year to October 2013 of $4.9-5.0 billion, down from last year’s $5.66 billion, and it warned the following year would be worse.
“The current outlook (for 2014) is unlikely to support annual revenue above $4 billion,” Chief Executive Mike
Sutherlin said in a statement. This is sharply lower than the previous average expectation from analysts for revenue of $4.57
billion for the year ending October 2014.
Posted by jackbassteam on August 29, 2013
(CAT : NYSE : US$83.06), Net Change: 1.00, % Change: 1.21%, Volume: 6,583,381
$2 billion? All in US$2 bills?
Caterpillar announced plans to purchase $1 billion of its own common shares under an
accelerated stock repurchase transaction. In April, the company announced a similar $1 billion transaction, which was
completed in June. Repurchasing an additional $1 billion of CAT stock in Q3/13 will bring CAT’s total 2013 stock repurchases
to $2 billion. In February 2007, the Board of Directors authorized the repurchase of $7.5 billion of CAT stock, and in December
2011, the authorization was extended through December 2015. Through the end of Q2/13, $4.8 billion of the $7.5 billion
authorization was spent. Pursuant to the accelerated stock repurchase agreement, CAT has agreed to repurchase $1 billion of its common stock from Societe Generale, with an immediate delivery of approximately 11 million shares based on current market prices.
The final number of shares to be repurchased and the aggregate cost to CAT will be based on CAT’s volume-weighted
average stock price during the term of the transaction, which is expected to be completed in September 2013.
Last week, CAT announced its Q2/13 results and reduced its outlook as dealers draw down inventories. CAT reported Q2/13 revenue of $14.6 billion (-16% y/y) compared with the consensus estimate of $14.9 billion, while EPS was $1.45 (-43% y/y) below the consensus estimate of $1.70. CAT reduced 2013 guidance on a more significant reduction in dealer machine inventory than originally expected, not due to a change in market expectations. For 2013, CAT now expects revenue of between $56 and $58 billion and EPS of $6.50 compared to $57 to $61 billion in revenue previously and EPS of $7.00. CAT’s retail sales of machines in North America declined 10% y/y.
This is the seventh consecutive month that it was in negative territory since April 2010.
Posted by jackbassteam on July 30, 2013
SNC-Lavalin (Photo credit: Wikipedia)
SNC : TSX : C$44.84
SNC-Lavalin is one of the leading engineering and construction groups in the world and a major player in the ownership of infrastructure, and in the provision of operations and maintenance services. SNC-Lavalin has offices across Canada and in over 35 other countries around the world, and its 24,000 employees are currently working in some 100 countries.
All amounts in C$ unless otherwise noted.
We reiterate our BUY rating and C$50.00 one-year target price on SNC shares after sponsoring meetings between institutional investors and Andreas Pohlmann, Chief Compliance Officer (CCO), and Denis Jasmin, VP, IR. Backstopped by $28.00 per share in hard infrastructure assets, we see a solid reward-to-risk value proposition afforded by SNC.
SNC is building one of the most complete compliance programs in the E&C space. Believing that a culture of corruption violations begins at the top, SNC has effectively removed the root cause. The vast majority of the Board and senior management have been replaced and the CCO post has been established. The goal is to effect grass roots cultural change.
Management doesn’t expect a “material” cost increase due to this added layer of compliance infrastructure. Many of the existing employees in legal are being given additional compliance responsibilities.
SNC’s employee amnesty policy expires August 31, 2013. To date, no new information has been brought to light. However, most employees who will use the program are likely to wait until the last minute to do so, in our view.
SNC is subjecting itself to stringent diligence and screening. All new hires and appointments to the Office of the President will be screened by an independent third party. Additionally, a monitor has been installed inside SNC by the World Bank (as part of the Padma Bridge settlement).
We got the sense that management is working hard to settle corruption related criminal charges as quickly as possible (see our 9 Jan. 2013 Daily Letter for our estimate of what the monetary fine could potentially be). Once management knows the penalty/fine, and assuming it is manageable, we believe SNC will be more active on the M&A front (especially in O&G).
Our one-year target is based on 13x 2014E cash-adjusted E&C EPS, plus $28.00 for ICI and $3.00 in freehold cash.
Posted by jackbassteam on July 4, 2013