Oracle : Analyst Day Update

ORCL : NASDAQ : US$38.27

BUY 
Target: US$48.00

COMPANY DESCRIPTION:
Oracle develops, licenses and services database and
middleware software, applications software, and
hardware systems worldwide. The firm is the world’s
second largest application software firm, and a top five
systems vendor. Oracle was founded in 1977 and is
headquartered in Redwood City, CA.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Infrastructure
A MYTHBUSTER-THEMED ORACLE ANALYST DAY
Investment thesis
Our view on Oracle is simple: the company is not as troubled as the stock’s
valuation reflects. There are enough good things – new products, new
markets, new business models – coming down the pipe that we expect ORCL
shares to see a 1-2 multiple point expansion over the next year, which implies
10-20% upside from here. For a large cap stock, that is more than sufficient to
justify our BUY rating.
Investment highlights
  Oracle’s analyst day as part of its OpenWorld
User Conference. A couple hundred financial types were in the room.
 Incremental takeaways. The firm outlined and explained multiple
attributes that are better than consensus opinion – in other words, Oracle
was busting myths. The firm’s near-term ARR cloud pipeline tops $2
billion and is growing 30%+, meaningful upgrades in the firm’s core,
highly profitable database are on tap, and financial engineering in terms
of share count repurchases will remain material and fairly aggressive.
 Why the stock works. One way to make money in stocks is to buy shares
of companies on which investors soften too bearish opinions. This is the
crux of our BUY rating on ORCL. Yes, Oracle has vibrant competition, but
the firm simply is not as endangered, at least in the next year or so, as
hyperventilating cloud competitors assert. We have seen meaningful
rallies for Microsoft and HP as investor perception went from dire to at
least neutral. We believe a similar transformation awaits ORCL shares.
Valuation and price target
Our unchanged $48 price target is based on a 13x multiple applied to our
F2016 non-GAAP EPS estimate of $3.26 plus approximately $5.00 in
prospective net cash per share

Google PLUS $1000

GOOG : NASDAQ 
BUY 
Target: US$1,000.00 PLUS

Technology — Internet
SOLID Q3 RESULTS
Summary
Google reported solid Q3 results that beat consensus for revenue and EPS by a few percent despite intra-quarter concerns that the rollout of Enhanced Campaigns would negatively impact advertiser behavior in the quarter. Websites revenue growth accelerated despite continued CPC shrinkage and made up for a big deceleration in Network revenue. With many investors already expecting a strong Q4 from EC impact, getting past this potentially bumpy Q3 with a solid set of results should allow the stock to work well through year-end.
Key points
 Bullish – Websites revenue growth accelerated to 22% from 18% in Q2 (albeit against an easy comp); positive TAC developments – network TAC was 70.5% of revenue, down from 72.3% in Q2 despite weaker Network revenue, which typically sheds low-TAC partners, and Web sites TAC was 8%, flat with Q2 and better than our estimate.
 Bearish – CPCs shrunk another 8% y/y as mobile/EC transition continues; Network revenue growth slowed to near zero y/y, decelerating sharply from a weak 7% in Q2; MMI lost >$300 million.
 Estimate changes – We are changing our 2013/2014/2015 combined gross revenue estimates to $59.4B/$67.8B/$77.9B from $59.4B/$68.6B/$78.6B and increasing non-GAAP EPS estimates to $44.37/$53.14/$64.04 from $43.99/$52.54/$62.99.
Valuation
We raise our price target to $1,000  PLUS from $940. Our new target is based on 19x (up from 18x) our slightly higher 2014 non-GAAP EPS estimate of $53.14 (up from $52.54).

Mitel Networks

Image representing Mitel Networks Corporation ...

Image via CrunchBase

MITL

 NASDAQ : US$4.52 BUY 
Target: US$6.00

COMPANY DESCRIPTION:
Mitel is a premier provider of IP telephony infrastructure, principally to small and mid-size organizations characterized by 1,000 or fewer lines. Products include IP-PBX systems, desktop hardware, UCC applications and managed services. Based in Ottawa, Canada, Mitel employs ~2,400 individuals and has 1,600 channel partners across 90 countries.
All amounts in US$ unless otherwise noted.

Semiconductor Devices and Related Technologies
UPSIDE LIKELY ON EXPANDING SOFTWARE SALES
We reiterate our BUY rating and increase our price target to $6 from $5 following largely in line Jul Q results and healthy gross margin guidance.
While the outlook for Oct Q revenue is a little light versus our previous model, gross margin expansion is proceeding at a strong clip, and we expect MITL to further capitalize on traction for its MiCloud UC-as-aservice offering and recently-acquired prairieFyre’s contact center  solution. We continue to view MITL as well positioned in leading virtualized UC applications and see upside potential to our estimates on continued gross margin expansion driven by expanding software sales.
Investment highlights
 MITL reported Q2/C13 (Jul) results. Revenue was $141.6 million compared to our estimate of $142.5 million and consensus of $143.5 million. EPS was $0.17, compared to our inline estimate of $0.15.
 Management guided Q3/C13 (Oct) to revenue of $142-148M, and implied EPS at the mid-point of $0.19. This compared to consensus estimates of $149M/$0.21 and our estimate of $148M/$0.21.
Management highlighted that the guidance includes caution based  on the softness seen by Avaya and Cisco.
 Mitel completed the acquisition of prairieFyre, a contact center  software provider, for $20 million in cash in the quarter.
prairieFyre provides Mitel’s existing contact center solutions and  management highlighted the acquisition was accretive in the  quarter.
Valuation
MITL’s price target of $6 (was $5) is 6x our C2014 EPS estimate of $.95

Sprott Physical Gold

Gold Buddha

Gold Buddha (Photo credit: @Doug88888)

Gold (GC : NASDAQ : US$1415.40), Net Change: 22.30, % Change: 1.60%, Volume: 146,830
Sprott Physical Gold (PHYS : NYSE : US$11.84), Net Change: 0.11, % Change: 0.93%, Volume: 1,469,493
Go for torque, go for quality or go for the physical? Worries about a potential U.S. military strike against Syria sent oil and
gold prices higher on Tuesday. After almost a 30% fall in the gold price (peak to through) in H1/13, all gold producers without
exception have had to adjust to the new environment.

Even producers with a better quality asset base have had to improve their working capital management, adapt exploration budgets, and in some cases postpone/suspend lower priority development projects. Higher cost producers, have had to come up with new business models (new mine plans) in order to survive in the world of lower gold prices. Higher leveraged companies have had to go even further by postponing key capital projects and searching for alternative ways to generate cash (non-core asset sale for example).

Over the past month, gold shares have recovered some of their losses following the rebound in the gold price and more clarity on managements’ revised plans. At this stage, it is important to look at gold equities by evaluating a number of key parameters in order to select those companies that are best positioned to weather likely higher gold price volatility in the near term without needing to make significant changes to their growth plans and/or business models.

Investors should more on defensive gold equities with a low-cost asset base, low leverage and the ability to deliver development plans even in a volatile gold price environment. Barron’s published an interesting technical comment on gold this week, “the [gold] market negated its June breakdown and now has its sights set on a much more important feature – the former price floor in the $1,542 an ounce area…If gold can reclaim that level, it would be a 30% gain and a bull market by definition.”

Separately, it is worth noting that Sprott Physical Gold Trust now trades at NAV or at a slight discount. Historically, PHYS’s premium/discount to NAV (since inception on February 25, 2010) has ranged between a discount of 2.49% (May 27, 2013) and premium of 23.68% (May 25, 2010).

Avago Technologies Limited

AVGO : NASDAQ : US$36.56
BUY 
Target: US$45.00

COMPANY DESCRIPTION:
Avago Technologies Limited is a designer, developer and global supplier of analog semiconductor devices. Avago offers products in three primary target markets: wireless communications, wired infrastructure, and industrial and automotive electronics. Applications for Avago products include smartphones, connected tablets, consumer appliances, data networking and telecom equipment, and enterprise storage and servers.

Technology — Communications Technology — Semiconductors
STRONG Q3/F13 RESULTS; WIRELESS AND WIRED DIVISIONS DRIVE STRONG Q4/F13 GUIDANCE
Investment recommendation:

Avago reported strong Q3/F13 results above our estimates with strong Wired and Industrial division sales offsetting weaker-than-expected Wireless demand. Further, Avago guided to strong sequential sales growth in Q4/F13 driven by strong
trends in the company’s Wireless and Wired divisions. We believe Avago’s proprietary technologies, strong IP portfolio, and diverse customer base in several growth markets position the company for strong long-term growth trends with industry-leading margins.

We reiterate our BUY rating and increase our price target to $45.
Investment highlights
 Q3/F13 sales of $644M and pro forma EPS of $0.74 were above our $623M/$0.68 estimates driven by 18% Q/Q sales growth in the higher-margin Industrial and Wired Infrastructure (excluding CyOptic sales) divisions versus our mid-single digit growth estimates for each division. CyOptics contributed $21M in sales during the quarter and should contribute $55M in Q4.
 Wireless sales increased only 3% sequentially or below management’s high-single digit sequential growth guidance, but
this is consistent with our analyses indicating softer high-tier smartphone sales trends during Q3/F13.
 Avago management guided to a 12-15% Q/Q sales increase for Q4/F13 driven by solid Q/Q growth in the Wireless and Wired Infrastructure divisions. Management anticipates mid-teens percent Q/Q growth in the Wireless division due to sales ramping into new smartphone programs at both Apple and Samsung, as Avago is benefitting from increased content share in high-end LTE smartphones.
 Given the strong results and our expectations for sustained growth trends, we have increased our F2013 pro forma EPS from $2.76 to $2.82 and F2014 from $3.29 to $3.30.
Valuation: Our $45 price target is based on shares trading at roughly 13x – 14x our F2014 pro forma EPS estimate.

Urban Outfitters

Urban Outfitters in Pasadena, California

Urban Outfitters in Pasadena, California (Photo credit: Wikipedia)

URBN :

NASDAQ :

US$39.92 HOLD 
Target: US$48.00

COMPANY DESCRIPTION:
Urban Outfitters is a specialty retail offering fashion apparel, accessories, and home goods through around 490 stores, online,
and catalogs. The company operates under the Urban Outfitters, Anthropologie, Free People (which includes a wholesale
segment), Terrain, and BHLDN brands.
All amounts in US$ unless otherwise noted

Investment recommendation


URBN’s Q2 EPS of $0.51 beat  our $0.47 estimate and consensus of $0.48. Despite comparable retail sales growth 160bps ahead of our forecast at +9% on top of +4%, total sales growth of 12% was below our +13% estimate. URBN opened fewer new Free People stores than we had anticipated, and Terrain’s landscape business declined. The EPS upside was driven by a better gross margin as fewer markdowns at Anthropologie drove a 168bps expansion versus our +86bps estimate.

The S.G. & A. expense rate increased 14bps, better than our forecast of 60bps of deleverage. Shares are trading at 19x our 2014 EPS estimate and 9x 2014E EV/EBITDA based on the after-hours quote of $42. We view these as fair multiples for a retailer we project will grow its top and bottom lines at average rates of 9% and 13%, respectively, over the next five years.
Investment highlights
 We are raising our Q3 EPS estimate by $0.01 to $0.46, a penny below prior consensus. Our model calls for a 105bps gross margin increase, up from our prior forecast of a 55bps improvement. For 2013, a 40bps increase in our gross margin projection lifts our EPS estimate by $0.06 to $1.90, $0.01 below consensus.
 Incorporating our updated estimates into our DCF model and rolling it out to 2014 raises our price target from $41 to $48

Steven Madden, Ltd.

SHOO :

NASDAQ : US$54.18
BUY 
Target: US$59.00

COMPANY DESCRIPTION:
Steven Madden, Ltd., together with its subsidiaries, designs, sources, markets and sells fashion-forward footwear for women, men and children. The company was founded in 1990 and is headquartered in Long Island City, New York. SHOO has a portfolio of brands that reaches globally among all economic tiers. SHOO offers products through wholesale partners, an e-commerce
platform and its own retail stores.
All amounts in US$ unless otherwise noted.

CEO Ed Rosenfeld presented at the Canaccord Global Growth Conference Wednesday.
Central to its strategy is (1) accelerating growth in the core Steve Madden women’s business from MSD to M-HSD, (2) expanding outlet door openings, and (3) market share gains with both new and existing brands. While still early, the reads on BTS have been positive and retailers are enthusiastic about the newness for fall ‘13 particularly in booties/boots. We reiterate our BUY rating and raise our target to $59 from $57 to reflect a slightly higher P/E multiple of 15x in our valuation.
Investment highlights
 SHOO continues to take share at M and as such its table doors dedicated solely to the Steve Madden brand are expanding by 13% from 230 to 260 this fall. Any weakness at M is not affecting SHOO.

 Emerging brands (Betsey, Superga, and Freebird) are all performing well and have ample growth runway ahead. With the recent upturn in dress shoes, Betsey footwear growth should accelerate into 2014.  Growth of outlet stores (12 currently) could accelerate next year as SHOO sees an opportunity to ultimately have 50-60 stores.
Valuation
Our $59 target is a blend of 15x 2014E EPS, 9x EBITDA, and DCF.

Insmed

Production of pyocyanin, water-soluble green p...

Production of pyocyanin, water-soluble green pigment of Pseudomonas aeruginosa. (left tube) Ps. aeruginosa cultured on heart infusion soft agar medium. The aerobic bacteria grow only on the surface of the medium (forming whitish biofilm) , and water-soluble green pigment diffuses down. (right tube) Uninnoculated medium (as control). (Photo credit: Wikipedia)

INSM

 NASDAQ : US$10.87 BUY 
Target: US$18.00

COMPANY DESCRIPTION:
Insmed is focused on developing novel, targeted inhaled therapies for the treatment of serious orphan lung diseases. Its lead product candidate is Arikace, a liposomal formulation of FDA approved antibiotic, amikacin.
All amounts in US$ unless otherwise noted.

Investment recommendation


Reiterate BUY, $18 price target on Arikace potential in two orphan indications: CF P. aeruginosa and nontuberculous
mycobacteria (NTM) lung infections. INSM’s lead drug Arikace is a liposomal formulation of potent, FDA-approved antibiotic
amikacin. We expect positive data from a Phase 2 US NTM trial (data Q1/14E). Our $18 target is based on a pNPV analysis.
Investment highlights
 We continue to see the NTM as the value drive of the stock and think a clear path forward will crystallize after Q1 date
and formal FDA meeting along with ongoing QIDP dialogue.
 INSM believes a single point change in the NTM endpoint scale would be clinically meaningful. We think if a one-point
change on the 7-point, semi-quant scale is supported by improvements in QoL measures, this combination of data
could be meaningful to FDA and clinicians. Data from the Ph2 open label trial should be available mid-2014.
 We think Ph3 CF sub-population analysis could support European health technology assessments. Sub-population
analysis from CF Ph3, to be presented at NACFC, could support Arikace use in certain select patient populations either instead of or in combination with Tobi.

Skyworks Solutions

The old Skyworks Logo

The old Skyworks Logo (Photo credit: Wikipedia)

SWKS : NASDAQ : US$23.64
BUY 
Target: US$30.00

COMPANY DESCRIPTION:
Skyworks is a leading supplier of power amplifiers, front end modules and other RF components for mobile devices (handsets, smartphones, and tablets) and communications infrastructure.

Investment recommendation:

While investors remain concerned regarding potentially slower high-end smartphone market growth in mature markets, we believe Skyworks growing content share and growing sales initiatives in new markets should result in 12-15% annual sales growth with expanding margins over the next couple years. Given Skyworks’ broad RFIC portfolio and customer base, we believe Skyworks growing portfolio of RF and analog solutions positions Skyworks to grow content share within its handset customer base and expand Skyworks’ content share in other markets such as wireless infrastructure, 802.11ac WiFi, and the M2M market. We reiterate our BUY rating and increase our price target $30.
Investment highlights
 We believe Skyworks is well positioned to hold strong dollar content share with leading LTE smartphone platforms and gain incremental share with its SkyOne integrated front-end solution in smartphones during F2014. Further, we believe new smartphone socket wins including power management ICs and WiFi PAs, recovered sales in wireless infrastructure, and strong growth from a diverse set of increasingly connected consumer and M2M market verticals should drive higher-margin HPA sales growth.
 In fact, we anticipate an increased mix of higher margin new products within both the Handset and HPA businesses over the next several quarters. Therefore, we are modeling steady gross margin improvement from 43.4% in F2013 to 44.5% in F2014. Our F2014 pro forma EPS estimates of $2.65 remains above consensus estimate of $2.55.
Valuation:

Our $30 price target is based on shares trading at roughly 11x-12x our F2014 pro forma EPS estimate.

Wi-LAN Inc.

Wi-Fi Signal logo

Wi-Fi Signal logo (Photo credit: Wikipedia)

WIN : TSX : C$3.41
WILN : NASDAQ
BUY 
Target: C$6.60

Wi-LAN is a technology development and patent licensing company focused on wireless, wireline and digital video technologies. The company has a growing patent portfolio that is in excess of 3000 issued and pending patents that relate to Wi-Fi, WiMAX, CDMA, DSL, DOCSIS, and V-Chip technologies. The company has licensed its patent portfolio to more than 230 companies and is currently in multiple litigations that could yield significant windfalls

Investment recommendation


WiLAN reported Q2/13 results beating expectations on the top line driven by new license agreements with Samsung, Dell and Panasonic. Q3/13 revenue guidance was also above consensus. Higher than expected (but unsurprising) litigation expense drove bottom line weakness. We continue to see new licensing potential in 2013/14 as WiLAN currently has 15 active patent litigations against 13 defendants. While we acknowledge political/regulatory risk, we continue to recommend WiLAN given 1) 4%+ dividend yield, 2) recurring license revenue and 4+ years of backlog; 3) upside from an active licensing/litigation pipeline; and 4) an excellent balance sheet with $1.31/share in cash. We maintain our BUY rating and target price of C$6.60.
Investment highlights
 Q2/F13 and Q3 guide beat on the top line – Revenue was $19.9M (down 4% YoY but up 9% QoQ), beating Street expectations and the company guidance. Adj. EPS of $(-0.01) missed our and consensus estimates of $0.01, mostly driven by higher than expected litigation expense. Q3/F13 guidance for revenue of over $20.7M was above consensus but inline with our $20.5M estimate. Adj EPS guidance range is $(-0.0) to breakeven, below our $0.01 and consensus of $0.02, primarily due to high litigation expense of 13.5-14.5 million expected in Q3.
 Dividend policy intact – WiLAN reiterated its intention to channel 40% of its cash flow to shareholders via a dividend which it expects to maintain despite recent cash balance declines.
Valuation
WiLAN trades at 3.1x C2014E EV/EBITDA, below our $3.75/share estimate of NAV and a discount to the peer average of 7.0x. We base our DCF backed target price on 8x C2014E EV/EBITDA given growth potential in 2014.

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