Williams-Sonoma Margin Pressure

The Williams-Sonoma flagship store in Union Sq...

The Williams-Sonoma flagship store in Union Square, San Francisco. (Photo credit: Wikipedia)

WSM : NYSE : US$56.40
HOLD 
Target: US$59.00

COMPANY DESCRIPTION:
Williams-Sonoma is a home furnishings retailer that  markets and sells products through around 590 brick and-mortar retail locations, the segment’s largest e-commerce business, and catalog distribution. WSM’s core concepts include Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, and West Elm.

 

Investment recommendation
WSM faces notable gross margin headwinds in H2 as we believe more aggressive promotions will continue to drive sales,
particularly in the retail segment. We estimate the gross margin will decline 53bps yr./yr. to 38.9%, which would be the
company’s weakest margin since FY09. WSM is also contending with investments above its initial expectation as its ramps up its global infrastructure to support new company-operated stores and e-commerce sites in Australia and the U.K. We think this translates to a 20bps EBIT margin contraction in FY13.

We are downgrading shares from Buy to HOLD. The near-term pressure is fairly reflected at the stock’s current multiples of 18x our FY14 EPS estimate and 8x FY14E EV/EBITDA, in our view.
Investment highlights
 The Williams-Sonoma concept continues to struggle to sustain sales momentum. The namesake brand has suffered
comparable brand revenue declines in five of the last seven quarters.
 Our FY13 EPS estimate of $2.77 is $0.04 below consensus. For FY14, we estimate EPS of $3.17, versus consensus of
$3.19.
 Shares have run full steam. WSM has appreciated 37% over the TTM period, versus the S&P 500 index +17% and the RLX

index +25%.

Salesforce.com

English: salesforce.com Deutsch: salesforce.co...

English: salesforce.com Deutsch: salesforce.com Français : salesforce.com (Photo credit: Wikipedia)

CRM

NYSE : US$43.65 BUY 
Target: US$54.00

COMPANY DESCRIPTION:
14-year-old Salesforce.com sells cloud computing and social enterprise solutions for businesses that range from Enterprise to
SMB. The firm’s core products include Sales Cloud (sales automation), Service Cloud (customer support applications),
Marketing Cloud (marketing tools), Force.com (a development platform) and Chatter (enterprise collaboration).

Technology — Enterprise Software — Software as a Service
AN UPSIDE QUARTER, AND MORE GOOD NEWS LIKELY ON THE WAY FROM CUSTOMER EVENTS; REITERATE BUY
Investment thesis
Salesforce’s Q2/14 results were nicely ahead of forecasts across the board. The firm remains by a wide margin the fastest growing company of its size, and with the addition of marketing automation functionality and still nascent adoption of its platform capabilities, we believe CRM should be able to keep its impressive growth trajectory relatively intact for at least the next 6-8 quarters.
The combination of a reasonable valuation and likely favorable commentary into and following upcoming customer events – ExactTarget Connections in September and Dreamforce in November – sets the stock up for a nice run through year-end. CRM is one of our top picks and should be a core growth holding for software investors. Reiterate BUY, increasing target to $54.00.


A solid print: upside revenue, FCF, and billings. CRM reported July quarter revenues and non-GAAP EPS of $957M and $0.09, which were respectively $22M and $0.02 ahead of our estimates. Adjusting for $16M of acquired ET revenue and a $7M FX headwind, organic revenue growth was ~30%.
FCF of $80.6M in the quarter, or $0.13 per share, was nicely ahead of our $57.0M estimate. Calculated billings of $1.014B was $80M ahead of our forecast and up roughly 34% y-o-y after adjusting for ET contribution, the impact of changing billing terms and FX. CRM ended Q2 with a $5.6 billion backlog of booked business, which is up ~$1.2 billion from a year ago.
 Outlook

Q3 slightly better, FY estimates inch modestly higher. CRM inched higher F2014 revenue and EPS guidance by approximately $35M and a penny largely due to an earlier-than-anticipated close of ET. Our updated estimates are for F2014 revenue growth of 32%, non-GAAP operating margins of approximately 9%, and operating cash flow growth of 15%

Joy Global : Less Joy

Joy Mining Machinery Founder Joseph Francis Joy

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.

Workday

Image representing Workday as depicted in Crun...

Image via CrunchBase

WDAY

NYSE : US$76.01
BUY 
Target: US$85.00

COMPANY DESCRIPTION:
Workday provides enterprise-scale, cloud applications that deliver the core functions for global customers to manage the human capital and financial resources of an organization. Solutions include: HCM, Financial Management, Payroll, Time Tracking, Procurement, Employee Expense Management, etc. Workday was founded by the former founders of PeopleSoft in 2005 and is headquartered in Pleasanton, CA.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Software as a Service
ANOTHER BLISTERING QUARTER — ENOUGH TO KEEP THE HIGH MULTIPLE REASONABLY INTACT; REITERATE BUY
Investment thesis
Workday reported another excellent quarter as once again virtually every metric bettered forecast. It remains our opinion that for at least the next half decade,
Workday is well positioned to be one of the largest beneficiaries of the massive enterprise upgrade cycle to cloud-based applications. This standing does not come cheap, and at more than 18x C2014 revenues, WDAY is the most expensive stock in all of software. That acknowledged, we continue to believe that rapid revenue growth (63% in F2013) and the likelihood of continued upward estimate revisions will keep potential (and likely gradual) multiple compression at bay so that investors can logically expect at least 15%+ annual returns. WDAY should be a core growth holding; reiterate BUY.
 Another upside quarter. Workday reported revenues, calculated billings, and FCF loss of $107.6M (+72% y-o-y), $132.2M (+36%) and ($42.6M), which were respectively $7M, $14M, and $22M better than our estimates.
Subscription revenues grew 92% in the quarter, and non-GAAP operating margin of (20.1%) was better than forecast as the firm marginally lagged hiring plans – the firm’s outlook incorporates a catch-up in Q3. Calculated billings benefitted from a couple of large deals with >1 year upfront cash  payments, but y-o-y reported growth is muted due to an effort to return to
annual invoicing from pre-IPO incentives to collect multiple years up front.
 Outlook:

Estimates moving higher again. WDAY provided FQ3 revenue guidance that at mid-point was roughly $2M ahead of consensus. Guidance ranges imply October quarter subscription revenue growth of ~75%. We have increased our F2014 revenue estimate to the high end of guidance, which is $446M (+63%), and now expect a FCF loss of roughly $83M.

Safe Bulkers Raises Returns On Jack A. Bass Managed Accounts

The Justice Society Returns

The Justice Society Returns (Photo credit: Wikipedia)

1 % monthly payouts are not effected by this rise in (any) particular holding.

SAFE BULKERS INC(SB:NYSE, US)

 

6.12USDIncrease0.35(6.07%)Volume:
Above Average
As of 22 Aug 2013 at 12:46 PM

ATHENS, GREECE — (Marketwired) — 08/21/13 — Safe Bulkers, Inc. (the “Company”) (NYSE: SB), an international provider of marine drybulk transportation services, announced today its unaudited financial results for the three- and six-months period ended June 30, 2013. The Company’s Board of Directors also declared a quarterly dividend of $0.05 per share of common stock for the second quarter of 2013.

Summary of Second Quarter 2013 Results

  • Net revenue for the second quarter of 2013 decreased by 12% to $41.4 million from$47.0 million during the same period in 2012.
  • Net income for the second quarter of 2013 increased by 14% to $24.6 million from $21.5 million, during the same period in 2012. Adjusted net income(1) for the second quarter of 2013 decreased by 36% to $15.1 million from $23.7 million, during the same period in 2012.
  • EBITDA(2) for the second quarter of 2013 increased by 14% to $36.1 million from $31.6 million during the same period in 2012. Adjusted EBITDA(1) for the second quarter of 2013 decreased by 21% to $26.6 million from $33.7 million during the same period in 2012.
  • Earnings per share (“EPS”) and Adjusted EPS(1) for the second quarter of 2013 of $0.32and $0.19 respectively, calculated on a weighted average number of shares of 76,679,328, compared to $0.28 and $0.31 in the second quarter 2012, calculated on a weighted average number of shares of 76,653,848.
  • The Company’s Board of Directors declared a dividend of $0.05 per share of common stock for the second quarter of 2013.

Lumber Liquidators Holdings

LL : NYSE : US$99.80
BUY 
Target: US$ 120

COMPANY DESCRIPTION:
Lumber Liquidators is the largest specialty retailer of hardwood flooring in the U.S. The company offers premium hardwood
flooring products in a wide variety of domestic and exotic wood, as well as engineered products, laminates, bamboo, cork, and
accessories. Lumber Liquidators assortment is largely comprised of proprietary brands including the flagship Bellawood brand

SSS MOMENTUM PUSHES OUR H2 EPS ESTIMATES HIGHER
Investment recommendation
Very strong sales results at Home Depot (HD : NYSE : $73.73 |HOLD), and Lowe’s (LOW : NYSE : $45.81 | HOLD) this week
points to a rapid recovery in big-ticket home-improvement purchases. On the heels of LL management’s positive
presentation at the Canaccord Genuity Global Growth Conference on August 14, we believe the company’s improved value
proposition will enable it to grow rapidly in this environment, fueled further by a broader advertising message with an
increased focus on the do-it-for-me customer. The new store

Flooring Project - Stairs Landing in Diagonal

Flooring Project – Stairs Landing in Diagonal (Photo credit: 1Sock)

format is in only 8% of LL’s footprint, and we believe it can drive
20% store-level growth as it ramps.
Investment highlights
We are raising our Q3 EPS estimate by $0.05 to $0.66, in line with consensus. Our Q3 SSS forecast increases from +10% to +15% on top of +12%.
 New distribution centers should improve efficiency and support continued top-line growth and margin expansion. LL
is consolidating one of two east coast DCs into a facility 33% larger, and it will open its first west coast location in
California.
 Incorporating our updated projections into our discounted cash flow model raises our price target from $119 to $120.

Anadarko Petroleum Target $115

Anadarko Petroleum Corporation

Anadarko Petroleum Corporation (Photo credit: Wikipedia)

APC : NYSE : US$91.52
BUY 
Target: US$115.00

COMPANY DESCRIPTION:
Anadarko Petroleum is an oil and gas E&P company with global operations in countries including the United  States, Algeria, Ghana and Mozambique. The company is headquartered in The Woodlands, TX.
All amounts in US$ unless otherwise noted.

Investment thesis
We see APC’s success in high-risk, high-impact offshore exploration growing its NAV and future production as well as providing it the optionality to sell down stakes in big discoveries. APC can reinvest proceeds in its more predictable onshore US operations. This formula is unique among APC’s large-cap E&P peers.
Catalysts and reasons to buy
 Strong US oil growth: We predict total US crude oil production will grow 10% in 2013 and 18% in 2014, driven by horizontal drilling in the Wattenberg (CO) and the Eagle Ford (TX).
 High-impact deep-water oil exploration: The company is an active and successful explorer in the deep-water GoM and internationally. This is APC’s forte, and we expect more impressive results.  Sell-down in Mozambique a catalyst: We believe APC could net over $2.5B and would derive other benefits. We expect a deal shortly.
 Optimistic on Tronox resolution: This contingent liability has depressed APC’s share price by ~$5/share in our view. The judge should be delivering his verdict at any time. We believe the case will be resolved positively for APC.
Valuation
We value APC using two metrics – NAV and EV/EBITDA. By discounting our $167/share NAV by 20% and averaging that with a 5.0x multiple on our 2014E EBITDA of $11.4B, we arrive at our $115 target.

Magna International Inc. A Growth Story

Mila (concept car division of Magna-Steyr) Alp...

Mila (concept car division of Magna-Steyr) Alpin, 2008, seen at MOTOR SHOW ESSEN 2010 (Photo credit: Wikipedia)

MGA : NYSE : US$81.16
MG : TSX : C$83.90
BUY
Target: US$89.00

COMPANY DESCRIPTION:
Magna is a one of the world’s largest and most diversified Tier 1 automotive components suppliers, active in 25 countries. The company also provides complete vehicle assembly services through its subsidiary, Magna Steyr.
All amounts in US$ unless otherwise noted.

BUY for strong growth story
We continue to recommend BUYing MGA to benefit from good EPS growth from modest sales growth, margin expansion and share buy backs. Margins should especially benefit from European and eventually emerging market (Rest of World or ROW) operating improvements and lower new facility costs.
Net, we expect these factors to drive low double-digit EPS growth/year. 
Management meetings reconfirm growth potential

Highlights include:
 European margin improvement could happen faster than expected,  There is upside potential to MGA’s European margin improvement target,
 MGA’s product mix seems likely to evolve, but we do not expect it to change substantially, as MGA is already a leader in most of its product areas, and
 We expect free cash flows to be spent on acquisitions and/or share buy backs, which should drive EPS growth. We expect acquisition discipline and acquisition opportunities to be lower.
High valuation, but supported by positive growth dynamics MGA’s valuation remains on the high side (see valuation section), but we think it can remain there given positive industry and company dynamics. Such dynamics support good EPS growth and the potential for upside surprises and positive forecast revisions, as per this quarter.
We have maintained our valuation multiple at 6.0x EV/NTM EBITDA, a roughly 1x multiple premium to MGA’s normal range given the positive growth dynamic thesis. The resulting target is moderately above our $83.27 DCF analysis.

Agrium Inc. Potash Sector Star

Agrium Forgetmenots vs Know Potential-8644

Agrium Forgetmenots vs Know Potential-8644 (Photo credit: TMYphoto)

AGU : NYSE : US$87.26
AGU : TSX
BUY 
Target: US$106.00 

COMPANY DESCRIPTION:
Agrium Inc. is a leading global producer and marketer of agricultural nutrients, industrial products, specialty fertilizers, and a major retail supplier of agricultural products and services in North America, South America and Australia.
All amounts in US$ unless otherwise noted.

Investment recommendation
We continue to prefer the non-potash equities over the potash equities due to an oversupply in the potash market and the added uncertainty that has now arisen as a result of the Uralkali announcement (which has been followed by a lowering of prices into a few markets, and more importantly, the expectation by buyers of a lowering of price into all markets). Monsanto (BUY, US$121.00) remains our top pick, followed by Agrium on a relative trade. We continue to prefer, on a relative basis, the shares of Monsanto here (as the outlook for its seed business in the Americas continues to look positive, providing continued earnings momentum), and Agrium on a relative basis (where its retail segment offers less volatility through a wide range of inputs from seeds to fertilizers to chemicals, as well as exposure to all three wholesale fertilizers) versus those of Mosaic and Potash Corp., where the majority of their business is exposed to potash sales. And given the multiple spread mentioned below, we believe that as the market fundamentals unfold, Agrium will continue to narrow the spread on the potash producers, something that has been occurring since Agrium announced Q1 results in early May.
Investment highlights
 Agrium reported adjusted Q2/13 EPS of US$4.94 versus guidance of US$4.60-5.40, our estimate of US$4.92 and consensus of US$4.95.
 On a P/E multiple basis, the potash equities have historically traded at a 2.5+ point multiple premium to Agrium. That spread widened through the winter, such that Potash Corp.’s multiple spread discrepancy versus Agrium ballooned to 5.7x through the end of April, but has since narrowed to 3.7x. We expect the relative trade to continue to narrow in Agrium’s favour over the next few quarters.
Valuation
We continue to rate the shares of Agrium a BUY with a 12-month target price of US$106.00 based upon a 10.75x multiple to our blended 2014E/2015E EPS

Midstates Petroleum

Wilcox County Courthouse IMG_3363

Wilcox County Courthouse IMG_3363 (Photo credit: OZinOH)

MPO : NYSE : US$5.03
BUY 
Target: US$7.00

COMPANY DESCRIPTION:
Midstates Petroleum is a Houston, Texas-based E&P with core assets in the Wilcox (LA), Mississippian. Lime (OK) and Anadarko
Basin (OK). Founded in 1993, Midstates was listed on the NYSE in April 2012. Recent acquisitions in Miss Lime, Anadarko Basin
have tripled production and proved reserves.
All amounts in US$ unless otherwise noted.

 

2Q13 REVIEW: FY PROD LOWERED, CAPEX RAISED, PRICE TARGET REDUCED
Prod guidance suggests steep growth in 2H13, maintain BUY, PT at $7
During its recent earnings call, MPO discussed its core operations in the Miss Lime, the newly-acquired Anadarko Basin assets, and the high risk/high margin Wilcox program. All evidence pointed towards a 2H/13-weighted production. In that respect, we remain excited about the growth ahead, specifically the ongoing exploratory work in the Wilcox, cost improvements in the Miss Lime, and development of the Cleveland / Marmaton properties. The slow start to the year due to
weather-related downtime and normal integration of acquisitions has caused MPO to lower its FY guidance from a mid-point of 25 mboepd to 24.5 mboepd. In addition, the mid-point of capex was raised from $550mm to $562.5mm and unit LOE increased from a mid-point of $7.75/boe to $8.25/boe. As a result, our NAV is lowered by $1 to $7.
MPO getting the hang of the Wilcox?
Management reported strong results from the 4 Hz wells drilled during the quarter, although high costs remain a concern. The Musser Davis 1 well was drilled to ~18000 ft, completed with a 4300 ft lateral at a well cost of ~$14mm and reported 30 day IP of 882 boepd (83% liquids). Other wells also reported strong liquids content. MPO plans to drill a few more wells in 3Q and still maintains long term well costs of $8mm.
Strong, stable production provided by Anadarko and Miss Lime MPO provided another strong operational quarter where production met guidance. Guidance suggests that Miss Lime and Anadarko Basin will see a steep growth in production, while Wilcox will continue to be a high impact asset that will provide MPO an unmatched competitive advantage.
We maintain our BUY, but lower our price target to $7 from $8.

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