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.

Lumber Liquidators Holdings

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

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

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
 Incorporating our updated projections into our discounted cash flow model raises our price target from $119 to $120.

Midstates Petroleum

Wilcox County Courthouse IMG_3363

Wilcox County Courthouse IMG_3363 (Photo credit: OZinOH)

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

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.


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.

Tremor Video

Advertising advertising

Advertising advertising (Photo credit: Toban B.)

TRMR : NYSE : US$8.38
Target: US$12.50 

Tremor Video is a leading provider of video advertising solutions enabling brand advertisers to engage consumers across multiple internet-connected devices. Tremor’s proprietary technology, VideoHub, allows advertisers to target desired demographics, and publishers to monetize their video impressions. The company has built out a robust online video ecosystem that includes over 500 publishers, over 200 of which partner with Tremor exclusively.
All amounts in US$ unless otherwise noted.

Investment recommendation
We initiate coverage of Tremor with a BUY rating. As a leading player in the premium online video advertising market, Tremor should benefit from a shift in video consumption from television to online. As with the early stage in any such shift, migration of usage has outpaced that of ad spend, but we believe this gap will close. Pure-play investment exposure to online video seems scarce, which should support Tremor’s growth story.
Investment highlights
 Online video viewing (including mobile) should grow significantly over the next few years. While early growth has been driven by user-generated content (YouTube), the next leg is likely to come from premium content. We believe this should attract more advertisers, contributing to online video advertising market growth of 29% CAGR between 2012 and 2016.
 We believe Tremor’s competitive advantage stems from its premium publisher relationships (many of them exclusive), proprietary campaign management technology, scale, and MRC accreditation.
 We believe our growth estimates for Tremor’s core business of ~25% are likely to prove conservative given that the end-market is growing faster. As such, there is potential upside to our financial projections.
Our $12.50 price target is based on a 25x our 2018 EPS estimate of $0.94, discounted to present using a 12% weighted average cost of capital.
Tremor is a new issue with limited operating history. The online video advertising market could be slow to develop. Direct publisher/advertiser relationships could reduce reliance on Tremor and other ad networks. Advertising spend is cyclical and can be lumpy. A lock-up expiration in December 2013 might contribute to stock volatility.

Advanced Micro Devices AMP Raising Target Price


AMD (Photo credit: Majiscup – The Papercup & Sleeve)

AMD : NYSE : US$4.64
Target: US$6.00

NOTE: This Company was an ” avoid” in the Apprentice Millionaire Portfolio ( available at ) just six months ago .

Advanced Micro Devices designs and produces microprocessors, graphics and media solutions for the computing, communications and consumer electronics markets. AMD is the world’s second-largest producer of microprocessors.
All amounts in US$ unless otherwise noted.

Investment recommendation
We are increasing our estimates and raising our price target to $6 following meaningfully higher Q3 revenue guidance versus consensus
expectations and our above consensus estimate. While upside to Q3 is largely console derived, AMD management is confident they are gaining
share in GPU in the 2H13 following small gains in Q2, and going forward growth will increasingly involve gross margin accretive areas
including embedded (STB, medical devices, digital signage), professional GPU and dense servers. Our rating remains BUY as we believe this
turnaround story appears to have legs.
Investment highlights
 AMD reported Q2/13A (Jun) after the close. Revenues and EPS were $1.161B/($0.09), better than our estimates of $1.110B/($0.12) and
consensus expectation of $1.108B/($0.13). The 7% sequential increase in revenues came in above their guided range (-1% to +5%) driven by a 12% Q/Q growth in Computing partially offset by a 5% Q/Q decline in Graphics and Visual solutions.
 AMD guided revenue in Q3 to increase 22% Q/Q, plus or minus 3% mainly driven by the ramp of the semi-custom game console chip sales. At the mid-point, revenue guidance of $1.42B was above our prior estimate of $1.29B and consensus estimate of $1.22B. Operating expenses for Q3 are expected to be $450 million and gross margins are expected to decline to 36%.
AMD’s price target of $6 is 0.7x our C2014 sales estimate of $5.835B.


Image representing Allergan as depicted in Cru...

Image via CrunchBase

AGN : NYSE : US$81.99
Target: US$98.00

Allergan is a global health care company focused on the development and commercialization of pharmaceuticals, over-the-counter (OTC) products, and medical devices addressing obesity intervention and various aesthetic applications. Allergan is headquartered in Irvine,

With Mondays 12% RESTASIS driven sell-off, AGN shares are down 29% from mid-April year highs on the back of three disappointments that have also hit sentiment including (1) the LEVADEX complete response letter; (2) the DARPin set-back; and now (3) the RESTASIS draft FDA guidance that drove several recent downgrades. While our initial reaction is to go the other way and upgrade AGN as a RESTASIS generic now feels fully priced in and the stock is at trough valuation levels, we still lack catalysts needed for a sustained reversal. For now, we keep our HOLD rating and lower our target but we like the
risk/reward here.
 Potential generic timing is difficult to determine but will remain an overhang. We believe there are several generics pursuing RESTASIS but timing tough to call and we don’t see a RESTASIS X opportunity until at least 2017. We’ve factored in generics in 2015 and beyond with EPS impact of 15% to 17% based on initial assumptions.
 We think the stock has now fully priced in a generic RESTASIS. If we apply our new 2015 EPS of $4.98 to a trough 17x multiple (over the last 3-years versus a 19.7x average), we get an $85 stock price which is not far from the low $80’s closing. We think current valuation sets a floor from here.
 We’re taking a more conservative view on RESTASIS impact – lowering price target to $98. We have removed just over $1 annually from EPS beginning in 2015-2017 with our new EPS now $4.98, $5.70 and $6.45. Importantly, we think management has cost flexibility that can be used to blunt the EPS hit which we haven’t factored in. Our 12-month price target is based on P/E and EV/EBITDA but also implies that AGN can trade back to its historical 19.7x P/E level on re-based numbers that reflect a generic hit to RESTASIS in 2015.

Midstates Petroleum

Official seal of City of Houston

Official seal of City of Houston (Photo credit: Wikipedia)

MPO : NYSE : US$6.04 
Target: US$8.00

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.

Q2 Miss Lime production affected by storms in Oklahoma In a company-hosted dinner at the Louisiana Energy Conference (New  Orleans), MPO provided updates on its operations in the Wilcox, Miss  Lime and recently acquired Anadarko Basin properties. Based on our discussion, we lower Q2 production from 21mboepd to 19.5mboepd due to unexpected storms in Oklahoma that affected production in the Miss Lime. These weather disruptions were in addition to some lingering effects from the snow storms that affected Miss Lime production in Q1.
Despite the negative impact, mgmt. maintained its earlier guidance of 16-18 wells in the Miss Lime and avg. prod of 19-21mboepd for the qtr.
Wilcox: two well results expected in the Q2 earnings call  The company mentioned that the Musser Davis 8H- 2, an offset to the Musser Davis 8H-1, has been completed and is now  flowing. It might be recalled the Musser Davis 8H-1, completed in  October 2012, recorded a strong initial production rate of ~1,700boepd. The Olympia Minerales 16H-1, another well in the Upper Wilcox trend of  the N Cowards Gully, is nearing completion. This well will be the longest  lateral length drilled to date by MPO and will help delineate the southern  portion of the N Cowards Gully. Management expressed enthusiasm in both the wells, but held back disclosing any results until the Q2 earnings call.

Management also expressed confidence in the Fleetwood seismic  data seen to date and expects to put a rig back in Pine Prairie in late Q3. We expect five to six wells to be drilled in Pine Prairie in Q4/13.
Anadarko properties: just what the doctor ordered Management seems excited about the low-risk/high-return profile of the Anadarko Basin tight sands. Production is now above 8mboepd, and MPO expects to ramp up the rigs from three to six by the end of Q3.
Notably, the acquisition provides a stable development profile that was needed to balance the Wilcox exploration program.

Halcon Resources

Rectangular joints in siltstone and black shal...

Rectangular joints in siltstone and black shale within the Utica Shale (Ordovician) near Fort Plain, New York. (Photo credit: Wikipedia)

HK : NYSE : US$5.34
Target: US$8.50

Halcon Resources is an independent energy company engaged in the acquisition, production, exploration and development of onshore oil and natural gas properties in the United States. The company has oil and natural gas reserves located in several key areas including the Bakken,  Woodbine/Eagle Ford, Utica, Midway/Navarro, Wilcox, Mississippi Lime and Tuscaloosa Marine.

Investment recommendation
HK has built positions in some of the most exciting liquids-rich resource plays in the US, including the Utica Shale and Williston Basin (WB). A new Eagle Ford (EF) play called El Halcon was also recently unveiled, and the Wilcox has been moved to the forefront. We believe HK is well positioned to rapidly grow production and cash flow, which we believe in turn should be a catalyst for a higher stock price.
Investment highlights
 HK announced Thursday it priced a $300M public offering of 5.75% Series A Cumulative Perpetual Convertible Preferred Stock. The conversion price is ~$6.16, resulting in an additional ~48.7M diluted shares. The underwriters have an over-allotment option for an additional $45M. The company expects to use the estimated net proceeds of $291M to pay down a portion of its revolver, which had $591M drawn on its $850M borrowing base as of June 7.
 We are lowering our 2013 and 2014 EPS/CFPS estimates due to an increased share count and the addition of preferred dividends. Our 2013E numbers to go $0.31/$1.39 from $0.35/$1.47 and 2014E goes to $0.63/$2.30 from $0.72/$2.52.
Our new $8.50 price target represents a ~20% discount to a $10.55 NAV (down from a $9 price target and $11.25 NAV with the same discount

Herbalife BUY Target $ 63

Herbalife product brochure Cover RU Russian Fe...

Herbalife product brochure Cover RU Russian Federation Fédération de Rossiya (Photo credit:

HLF : NYSE : US$43.38
Target: US$63.00

Herbalife is one the largest direct sellers in the world with over 3 million distributors in over 80 countries. The  company focuses on the growing market for health and wellness with a line of weight management products,  nutritional supplements and personal care products.

Investment recommendation
We believe Herbalife’s efficient business model along with deployment of its daily consumption models globally will  continue to drive double-digit revenue and earnings growth.
Investment highlights
• Herbalife released its latest survey results, broadening the scope and utilizing Nielsen this time to complete a consumer survey of over 10,500 adults. Notably this survey asked consumers about purchases of multiple brands to hide  Herbalife as the sponsor.
• The survey results corroborate prior research by Lieberman  about the breadth of consumer purchases (7.9M adults) or  3.3% of the population (Lieberman measurement was 5% of  households had purchased).
• The survey concluded that 87% of purchasers were not distributors, addressing the debated Vander Nat model for  MLM commissions.
The shares trade at just 8x next year’s projected earnings, or a 40% discount to the direct selling peer group. We maintain our  $63 price target, which assumes a 12 PE on F2014E.

Nordion Inc.

Commercial Irradiator

Commercial Irradiator (Photo credit: NRCgov)

NDZ : NYSE : US$7.76
Target: US$11.00

Nordion Inc. is the sole surviving operating business following the divestiture of other core divisions of MDS, Inc. The company’s competencies involve the processing of isotopes, leveraging of existing nuclear infrastructure for the timely delivery of products, and the adherence to regulations governing the nuclear industry. Nordion has three main operating segments: Medical Isotopes, Sterilization Technologies, and Targeted Therapies.
All amounts in US$ unless otherwise noted.

Investment recommendation
Nordion will report Q2 results after market close on Wednesday, June 5 and host a conference call at 10am the following day. We project higher revenue YoY as demand for Mo-99 is expected to increase due to the extended shutdown of the competing Petten reactor, partially offset by a seasonally weak quarter for Co-60 deliveries. The recently announced sale of Targeted Therapies is a positive step in Nordion’s ongoing strategic review process; however, we believe that it is Nordion’s next steps that will be most important to fully unlocking shareholder value.
Investment highlights
 Strategic review highlights individual segment value. Nordion has completed the first step of the strategic review initiated in January. We believe that the continuance of this process could realize at least $10.50 per share of value with the sale of the Sterilization business.
 Significant challenges for Medical Isotopes remain. We believe that uncertainty around the future of the NRU and funding for research into new sources of Mo-99 provides little clarity for this segment.
 Looking for GammaFit traction in 2013. Nordion’s Sterilization segment is a stable source of cash flow, underpinning our DCF and sum of the parts valuation. We expect that signs of market growth driven by the launch of GammaFit would be positive for the stock.
We value Nordion based on a DCF analysis, using a WACC of 10.5% and a terminal growth rate of 1.0%. We note that, even if we assume zero value for Medical Isotopes, our SOP valuation comfortably values Nordion at more than US$10.50. Our DCF valuation, supported by an SOP analysis, backs our US$11.00 target price and BUY rating.


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