Q2 Holdings

QTWO : NYSE : US$13.68
BUY 
Target: US$17.00

COMPANY DESCRIPTION:
Q2 Holdings provides a cloud-based platform for
customer facing web and mobile banking solutions for
regional and community financial institutions. The
platform enables users to pay bills, check balances,
transfer funds, and deposit checks through a unified
online platform or mobile device. Q2 was founded in
2004 and is headquartered in Austin, TX.

All amounts in US$ unless otherwise noted.

 

GROWTH; INITIATE WITH BUY, $17 PT
Investment thesis
In our opinion, Q2 Holdings could be one of the quiet winners of the recent IPO
class. The firm sells customer-facing banking applications, competing largely
with legacy software vendors and aging custom code. Q2 signs 5+ year
subscriptions (excellent visibility), is growing revenues ~30%, but won’t likely
break even until sometime in 2017. If Q2 can articulate and demonstrate a
clear and consistent path to profitability, the stock could get re-valued into the
25%+ growth SMID cap cloud cohort, which implies a 7-9x forward revenue
multiple. As is our custom, our price target is more conservative and assumes a
modest deterioration in the EV/revenue multiple, but a 20% appreciation in the
face of 30% revenue growth. We are initiating coverage of QTWO with a BUY.
Investment highlights
 An upgrade cycle is underway. Regional and community financial
institutions (RCFIs) are increasingly becoming viable competitors to the
national mega-banks – this means that they too need online and mobile
banking functions and sleek, next-generation user interfaces. Enter Q2.
 Legacy competition. Being founded in the mid-2000s, Q2 has the
advantage of being constructed on a unified, cloud-based platform with a
mobile-first development mentality. The firm competes either with vendors
like Digital Insight (NCR) and First Data, who are attempting to morph
timeworn applications, or oftentimes in-house, custom-built code.
 Attractive micro-economics. Q2 signs 5+ year initial deals, dollar-based
retention including upsell tops 125%, and the firm crosses into profitability
after 1.8 years of a new customer relationship. This means that in the near
term at least, the faster Q2 adds clients, the more money they will lose.
 What it means for the numbers. From the firm’s roughly $65M run rate,
we expect Q2 to be a ~30% revenue grower for the next several years.
Gross margins should scale from ~40% this year to 60%+ with scale, and
Q2 should become cash flow and EBITDA profitable sometime in 2017.

magicJack VocalTec Ltd.

CALL : NASDAQ : US$18.86

BUY 
Target: US$24.00 

COMPANY DESCRIPTION:
The company is the inventor of lightweight, VoIP-based
magicJack devices that allow customers to make phone
calls by plugging into the USB port on a computer or into
a power adapter and high-speed Internet source. The
company is headquartered in Netanya, Israel.

All amounts in US$ unless otherwise noted.

 

Telecommunications
MANAGEMENT ROADSHOW INSPIRES
CONFIDENCE – SLIGHTLY ADJUSTED ESTIMATES
Investment recommendation
On the road with the management of CALL as they continue to outline how they are repositioning the company.

Management discussed initiatives enacted to improve
customer care and ease the customer renewal process since last year.
They are also considering a return to the former pricing plan (12
months). Soon we expect to see the launch of a new device with a
revised advertising campaign that could return the company to strong
top-line growth. Over the next five years we continue to expect industry
voice telephony pricing will continue to compress and for the company
to continue to gain market share.
Investment highlights
 Less advertising drives Q1/14 higher EBITDA (EPS) – We now
believe the company spent significantly less on advertising than we
initially expected as we await the product refresh. As a result, Q1/14
profitability will likely be greater than we expected but on lower
revenues. We have adjusted estimates accordingly.
 Product refresh should better integrate App – With the refresh,
which could be launched in weeks, we expect a full refresh of the
App. In fact, the company just unveiled an updated, rebranded
version for Android. The refresh aims to improve integration with
the device, lowering churn and driving higher revenue growth.
 Transition continues, 2014 inflection – It’s increasingly clear the
direct competitor (Vonage) is not significantly impacting the market.
With the product refresh that should come in early May, we believe
it is likely that the company returns to double-digit revenue growth
this year.

Verizon Communications

VZ : NYSE : US$48.04

BUY 
Target: US$55.00

COMPANY DESCRIPTION:
Verizon Communications is a leading provider of
communications, information and entertainment
products and services to consumers, businesses and
governmental agencies. Formerly known as Bell Atlantic
Corporation, the company offers both wireless and
wireline products and services. The company is
headquartered in New York, New York.
All amounts in US$ unless otherwise noted.

Telecommunications
ADJUSTING ESTIMATES FOR VZW CLOSE
Investment recommendation
We are adjusting our estimates to account for the closing of the
Vodafone/Verizon Wireless transaction earlier than we had
assumed in our initial model. We maintain our BUY rating and
$55 price target which implies 7.0x 2015 adjusted EBITDA (pro
forma for VOD buyout of VZW ownership) and 14.7x pro forma
2015 EPS.
Investment highlights
 Deal closed 2/21/14 – With the consolidation now complete,
we update our estimates to reflect full pro forma adjustments
in Q1/14. We previously assumed the deal would close at
quarter-end.
 No change to above-the-line estimates – As the consolidation
only affects items below, our revenue and EBITDA estimates
are unchanged. Our new estimates reflect materially lower
minority interest, higher interest expense due to increased
gross debt, and a higher pro forma tax rate.
 Continue to favor over others in space – As the continued
market leader in the US wireless industry, we continue to
favor Verizon over others in the sector. We believe a solid
Q1/14 report from its now wholly-owned wireless business
will continue to differentiate Verizon from the others in the
sector.

 

Qualcomm

QCOM : NASDAQ : US$80.14
BUY 
Target: US$90.00

Technology — Communications Technology — Semiconductors
WELL POSITIONED TO BENEFIT FROM CHINA TD LTE
OPPORTUNITY, UPCOMING HIGH-TIER ANDROID
LAUNCHES AND IPHONE UPGRADE IN H2/C2014
Investment recommendation:

Based on our monthly survey work and
recent smartphone product introductions, we believe Qualcomm is
maintaining its dominant market share and strong content share in
leading Android smartphones. We have also increased our forecasts for
TD-LTE smartphones sold in China during 2014 and 2015, resulting in our increased Qualcomm estimates and price target.

We believe continued growth of smartphones; connected devices such as tablets; the upgrade to new air interface technologies such as LTE, LTE Advanced, and TDD-LTE;
and continued strong share for integrated Snapdragon solutions should
drive solid F2014 and F2015 sales and earnings growth. We reiterate our
BUY rating and increase our price target to $90 from $86.
Investment highlights
 We believe QCT operating margins remain well positioned to
improve during H2/F2014 due to an increasing mix of the new LTE
chipsets, growing TD-LTE opportunities in China, and improved
leverage from Qualcomm’s cost optimization programs. We believe
TD-LTE smartphones sold in China should exceed 120M units in
2014 for the three Chinese carriers, leading us to increase our
global 3G/4G device shipment and ASP calculations.
 We anticipate a greater high-end TD-LTE smartphone mix in China
should benefit QCT margins and drive QTL growth and could provide
upside to consensus H2/F2014 and more likely F2015 estimates. Due
to our increased TD-LTE unit assumptions, we have increased our
F2014 pro forma EPS estimate from $5.12 to $5.14 and F2015 from
$5.76 to $5.95 versus consensus of $5.11 and $5.70, respectively.
 Given our increased TD-LTE expectations combined with Qualcomm’s
strong content in the Galaxy S5 and HTC One M8, we believe revenue

Towerstream Corp.

TWER : NASDAQ : US$2.61 
BUY  Target: US$5.oo

COMPANY DESCRIPTION: Towerstream is a leading U.S. fixed-wireless broadband service provider to approximately 3,500 business customers in 13 major markets across the U.S. In addition, through its wholly owned subsidiary, Hetnets, the company operates, and leases Wi-Fi/Small Cell rooftop tower locations to cellular phone operators, tower, Internet and cable companies and hosts a variety of customers on its network.
All amounts in US$ unless otherwise noted.

Investment recommendation

We continue to recommend purchase of Towerstream shares due to its significant potential in Wi-Fi/small cell. At current levels, we believe the market has ascribed little to no value to the company’s Hetnets strategy. While we assume that Towerstream will sign further cable Wi-Fi deals and a small cell carrier contract in 2014, we have pushed out our Hetnets forecasts by approximately 6 months due to uncertainty on the timing of carrier small cell deployment. While we have rolled forward the base year in our 5-yr DCF model to 2015E from 2014E due to the passage of time, the reduction in our cash flow assumptions for Hetnets reduces our target price to $5.00 (EV of 5.5x our new 2015E revenue) from $6.00.
Investment highlights  Towerstream reported slightly weaker than expected Q4/13 results – EBITDA loss of $1.9 million was slightly below our $1.8 million loss forecast, but better than consensus loss of $2.4 million and a loss of $2.1 million in Q4/12. FCF loss of $4.4 million matched our forecast and was above the Q4/12 loss of $7.8 million due to reduced capex.
Fixed-wireless expected to grow in 2014 driven by ARPU growth and M&A – New higher ARPU service plans appear to be gaining traction. The company also expects to resume acquisitions in fixed-wireless this year, which we have not built into our forecasts.
Demand for Wi-Fi/small cell remains strong – The company expects to sign further cable Wi-Fi deals and its first small cell contract in H2/14.

magicJack VocalTec Ltd.

As seen on TV !

CALL : NASDAQ : US$17.53
 
BUY 
Target: US$24.00

COMPANY DESCRIPTION:
The company is the inventor of lightweight, VoIP-based
magicJack devices that allow customers to make phone
calls by plugging into the USB port on a computer or into
a power adapter and high-speed Internet source. The
company is headquartered in Netanya, Israel.

STRONG 2014 GUIDANCE;
RAISING PRICE TARGET TO $24
Investment recommendation
magicJack reported solid results while providing more detailed 2014
guidance that was significantly higher than ours and Street expectations.
With solid activations in the quarter, still early in the renewed
advertising campaign, we expect they will continue to scale through the
year and could offer upside to even these more optimistic estimates.
Although the company has not fully articulated its plans to monetize the
app which now has 6.9mm registered users, we continue to believe that
upside exists above our base-case valuation of 6.0x adjusted EBITDA.
We are increasing our price target to $24 on higher 2014 and 2015
estimates and a higher EBITDA multiple as the company continues to
demonstrate a turn-around in the business.
Investment highlights
 Solid results for Q4/13 – The company reported revenues and
EBITDA that exceeded our and Street expectations as the company
continues to attempt to restructure the business and modernize the
product offering in the market.
 Very solid outlook for 2014 – With the results, management also
updated its outlook for 2014that includes more detail beyond double
digit topline growth. We now expect the company is capable of
$162mm of revenue and $52mm of EBITDA.
 New device on the way – The company announced that it will deploy
a redesigned device that is more tightly integrated with the app in
Q2/14 (April), only one year after the latest device launch. Combined
with an extensive list of changes to the way the company
approaches the market, including the complete rebranding effort,
we believe the change will drive higher active users and cause the
app user base to grow at a strong rate while improving effective
ARPU.

OPK Insiders Buying – following Jack A. Bass

Yesterday, Feb. 24, 2014, 153 U.S. common stocks issued filings of shares being bought or sold by insiders. The transactions ranged in value from $614.00 to $8,867,579,754,879.72.

Highlighted Stocks Traded by Insiders:

Opko Health (OPK) – ( research report available from The Street.com )

Frost Phillip Md Et Al who is CEO & Chairman at Opko Health bought 17,200 shares at $9.00 on Feb. 24, 2014. Following this transaction, the CEO & Chairman owned 139.3 million shares meaning that the stake was reduced by 0.01% with the 17,200-share transaction.

The shares most recently traded at $9.07, up $0.07, or 0.73% since the insider transaction.  Historical insider transactions for Opko Health go as follows:

  • 4-Week # shares bought: 20,000
  • 4-Week # shares sold: 46,730
  • 12-Week # shares bought: 30,000
  • 12-Week # shares sold: 46,730
  • 24-Week # shares bought: 30,000
  • 24-Week # shares sold: 46,730

The average volume for Opko Health has been 4.0 million shares per day over the past 30 days. Opko Health has a market cap of $3.6 billion and is part of the health care sector and health services industry. Shares are up 5.92% year-to-date as of the close of trading on Monday.

Opko Health, Inc., a pharmaceutical and diagnostics company, engages in the discovery, development, and commercialization of novel and proprietary technologies. It operates in two segments, Pharmaceuticals and Diagnostics. Currently there are 3 analysts that rate Opko Health a buy, no analysts rate it a sell, and none rate it a hold.

OPKO Health Inc(OPK:NYSE, US)

BuySell

9.06USDIncrease0.12(1.34%)Volume:

Below Average
As of market close 25 Feb 2014.

Quote Details

Open 8.92 P/E Ratio (TTM)
Last Bid/Size 8.96 / 10 EPS (TTM) -0.29
Last Ask/Size 9.10 / 5 Next Earnings 17 Mar 2014
Previous Close 8.94 Beta 0.85
Volume 2,861,359 Last Dividend
Average Volume 3,354,194 Dividend Yield 0.00%
Day High 9.15 Ex-Dividend Date
Day Low 8.84 Shares Outstanding 408.0M
52 Week High 12.95 # of Floating Shares 216.217M
52 Week Low 6.14 Short Interest as % of Float 21.13%
chart
Jack a. Bass Managed Accounts – Performance Based Fees – to obtain your portfolio profits email Jack at 604-858-3202 or call Jack direct at 604 -858 -3202 ( same time zone as Los Angeles)
On Feb 18 ( one week ago ) we highlighted GT Advanced Technologies – then at  $ 11.80
GT Advanced Technologies Inc(GTAT:NASDAQ, US)

BuySell
13.86USDDecrease0.28(-1.98%)Volume:
Above Average
As of market close 25 Feb 2014.

Quote Details

Open 14.46 P/E Ratio (TTM)
Last Bid/Size 13.75 / 3 EPS (TTM) -1.71
Last Ask/Size 13.89 / 50 Next Earnings 28 Apr 2014
Previous Close 14.14 Beta 1.88
Volume 11,364,056 Last Dividend
Average Volume 9,444,935 Dividend Yield 0.00%
Day High 14.52 Ex-Dividend Date
Day Low 13.71 Shares Outstanding 134.2M
52 Week High 14.52 # of Floating Shares 133.8332M
52 Week Low 2.61 Short Interest as % of Float 22.93%

Analog Devices

ADI : NASDAQ : US$51.23 
BUY  Target Price $ 60

COMPANY DESCRIPTION:

Analog Devices designs, manufactures and markets high- performance analog, mixed-signal and digital signal processing integrated circuits (ICs) used in industrial, communications, computer, and consumer applications .target: US$60.00

Technologies DIVERSIFICATION CONTINUES TO PAY OFF

ADI delivered a little upside for EPS last night and guided modestly better than the Street as all verticals except consumer ran ahead of expectations. With the better mix, gross margins were a positive surprise as was EPS. CQ1 guidance calls for more of the same as well as better revenue. With a dividend hike and $1b buyback in place, we believe ADI continues to offer defensive exposure to semiconductors at a time when growth for the industry remains in question. We are reiterating our BUY and increase our price target to $60 from $55.
We are increasing our estimates and price target largely on better gross margins. For CQ1, EPS is now expected to be $0.56 up from our prior estimate of $0.49, while revenues remain roughly $2.6B. EPS for C2014 is increased slightly to $2.40 from $2.39 while revenue remains roughly $2.8b. Our price target is increased to $60, or roughly 20x C2014 EPS plus $12.07 net cash per share.
Broad upside minus consumer ADI’s revenue was better than expected across its Industrial, Automotive, and Communications segments, while Consumer was weak. The most significant upside came from Communications where the company sells into wireline and wireless equipment and avoids lower margin smartphone ICs. We believe a strong capex cycle for wireless basestations could deliver revenue and earnings upside versus our revised estimates.

Akamai Technologies BUY Target Price $56

AKAM : NASDAQ : US$47.68
BUY 
Target: US$56.00

COMPANY DESCRIPTION:
Akamai provides content delivery and cloud infrastructure services for accelerating and improving the delivery of content and applications over the Internet, ranging from live and on-demand streaming videos to conventional web content, to c-commerce tools. The company is headquartered in Cambridge, Massachusetts.
All amounts in US$ unless otherwise noted.

Telecommunications
ANOTHER SOLID QUARTER EXPECTED; VOLUME GROWTH TO HELP OFFSET REPRICE IMPACT
Investment recommendation
We maintain our BUY rating and $56 price target ahead of its seasonally-strong Q4 report that is also expected to be potentially impacted by the “catch up” contract repricing with its largest customer. Despite this well-articulated headwind, we continue to expect another solid quarter report as we believe the potential drag has been well reflected in investor expectations and that organic growth from favorable secular trends will more than offset the negative impact over time.
Investment highlights
 Solid CDN traffic growth expected – With the majority of the software downloads for the initial iOS7 and subsequent updates expected to have occurred in Q4/13, we expect the traffic growth for the Media Delivery Solutions business to be strong in the quarter. Combined with the continued proliferation of over-the-top video traffic growth, we believe the company will deliver another quarter with robust traffic growth of the traditional CDN business.
 Security, e-commerce continue to benefit – As the consumer holiday purchases continue to shift towards mobile and other online venues, we believe the growth in Akamai’s e-commerce business will remain strong as the company facilitates fast and secure online transactions with its massive infrastructure and optimization software. Performance & Security business will also benefit from the continued IT outsourcing trends as enterprises increasingly focus on performance and reliability in their cloud migration.
 Temporary speed bump provides opportunity – Despite investor concerns due to a large contract re-pricing, we believe Akamai remains a unique asset well positioned to benefit from multiple favorable secular trends (mobile, cloud, online video and security). As such, recent volatility creates an opportunity to accumulate its share, in our view

Broadcom Update Target Price $35

BRCM : NASDAQ : US$29.21
BUY 
Target: US$35.00

COMPANY DESCRIPTION:
Broadcom is a global leader in semiconductor products
for wired and wireless communications. Broadcom
operates in three key business groups: Mobile &
Wireless, Infrastructure & Networking, and Broadband
Communications.
All amounts in US$ unless noted.

Technology — Hardware — Semiconductor Devices and Related
Technologies
DELIVERS UPSIDE ACROSS ALL DIVISIONS
Investment recommendation
We reiterate a BUY rating and our $35 price target on BRCM following
upside for mobile, broadband, and infrastructure. While guidance is
slightly below consensus, we expect upside from mobile and wireless
platform solutions on continuing design win momentum and new phone
launches. We expect MWC to be a positive catalyst for the shares.
Investment highlights
 BRCM reported Q4/13 (Dec) after the close. Revenues and EPS were
$2.06 billion (-4% Q/Q) and $0.60. This compared to consensus
estimates of $2.02B/$0.57 and our estimates of $2.03B/$0.58.
 The company guided MarQ revenue to $1.9 billion to $2.0 billion
(down 6% Q/Q at the midpoint) and implied EPS is $0.45. This was
below the consensus view of $1.97B/$0.47 and our estimate of
$2.00B/$0.49. Management expects sequential decline in Mobile &
Wireless coupled with slight decline in Infrastructure & Networking
and slight decline in Broadband.
Valuation
BRCM’s price target of $35 is 13x our C2014 EPS estimate of $2.55 plus
net cash of $1.69/share.

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