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NASDAQ : US$4.52 BUY
Mitel is a premier provider of IP telephony infrastructure, principally to small and mid-size organizations characterized by 1,000 or fewer lines. Products include IP-PBX systems, desktop hardware, UCC applications and managed services. Based in Ottawa, Canada, Mitel employs ~2,400 individuals and has 1,600 channel partners across 90 countries.
All amounts in US$ 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.
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.
MITL’s price target of $6 (was $5) is 6x our C2014 EPS estimate of $.95
Posted by Jack A. Bass on August 30, 2013
Montney, British Columbia Location (Photo credit: Wikipedia)
PPY : TSX-V : C$8.21
Painted Pony Petroleum is a junior oil & gas explorer focused primarily on the Montney in northeast British Columbia. Painted Pony is listed on the TSXV under the symbol “PPY”.
All amounts in C$ unless otherwise noted.
PRODUCTION RAMPING UP
Painted Pony released Q2/13 results that were largely as expected given that the company had provided a full operational update on July 25.
While there was not a lot of new information in the release, current production levels of 9,200 boe/d (vs. Q2 average of 7,928) are are promisingng, and have the company poised to exit 2012 close to the 10,000 boe/d mark. Painted Pony remains one of our favourite names in the Junior E&P space, as we believe it offers enormous resource potential with a path to value realization.
Production: PPY announced Q2 production of 7,928 boe/d, which was slightly above the pre-announced figure of 7,800 boe/d from two weeks ago. Production during the quarter was hampered by wet weather conditions and facility constraints. In July, production averaged 8,700 boe/d and has increased again to a robust 9,200 boe/d in the first week of August. In our view, strong production
figures through the back half of the year have the potential to be a
material catalyst for the stock.
Cash flow: PPY’s CFPS for the quarter came in at $0.14, which was one penny shy of our estimate and consensus. The slight miss to our estimate was largely the result of marginally higher cash costs.
Montney drilling: Year-to-date, PPY has drilled (or is now drilling) eight (5.6 net) Montney horizontals in NE BC, with another five (4.0 net), planned for the remainder of the year. The latest set of well results, released in the company’s July 25 operational update, included positive well rates from Townsend and Blair
Posted by Jack A. Bass on August 14, 2013
NYSE : US$16.75 BUY
Globus is a medical device company focused exclusively on the design, development, and commercialization of products that
promote healing in patients with spine disorders.
All amounts in US$ unless otherwise noted
We maintain our BUY rating on shares of Globus following a mixed Q2/13. Best-in-class top-line growth (albeit a bit light vs expectations) combined with strong operating margins reinforce our thesis of Globus offering investors multiple opportunities to create value.
Our thesis remains intact and we are buyers of Globus on any weakness as the company is well positioned for growth in 2013 and beyond via continuous new product flow, distribution expansion and best-in-class financial discipline.
Q1/13 results of $107.0M/$0.21 were mixed relative to our and consensus estimates of $107.6M/$0.20 and $107.5M/$0.20.
Breakdown of Y/Y revenue growth in the Q2/13: Innovative fusion +3%, Disruptive technologies +26% Y/Y, US grew +11%, and International +20%. Innovative fusion drove upside vs our estimate.
New rep adds in 1H/13 in-line with all of 2012 with more to come.
Management reiterated 2013 guidance for revenues of $432M and EPS of $0.81.
We are raising our price target to $24.00 from $22.00 based on a 26.4x PE multiple applied to our 2014 EPS estimate of $0.92.
Posted by Jack A. Bass on August 2, 2013
Several gluten-free beers from Germany. Español: Algunas cervezas de Alemania y sing gluten. (Photo credit: Wikipedia)
BDBD : NASDAQ : US$13.67
Boulder Brands (formerly Smart Balance) is a rapidly growing brand of healthy foods focused on the buttery spreads category (40% of sales), as well as peanut butter, oils, popcorn and mayonnaise and gluten free foods (over 40% of sales). The company owns the number two brand in the spreads category and the top two gluten free brands (Udi’s and Glutino). The spreads utilized a patented blend of fats and oils to make a product lower in cholesterol
ANNOUNCEMENTS WORTH $10M OF PROFIT; REITERATE BUY, RAISING TARGET TO $15 FROM $13
We continue to believe that Boulder Brands has a favorable financial model and platform for growth in the healthier foods arena that is highlighted by its rising exposure to gluten-free.
Boulder announced the completion of its refinancing, a small acquisition, and a meaningful strategic development with the licensing of its Smart Balance milk business.
The 225-basis-point improvement in its effective interest rate equates to nearly a $0.05 annualized EPS savings, which is in line with our expectations. Given we estimated $4M to $5M of losses in milk this year, the milk licensing deal is also worth about $5M of profit swing.
We are raising our 2013 EPS estimate to $0.28 from $0.27 and our 2014 EPS estimate to $0.46 from $0.42 to reflect the lower interest rates (we had previously assumed milk would reach break-even in 2014).
Raising price target to $15 from $13 to reflect higher forecasts and an increase in our EV/EBITDA target to 13x from 12x.
Posted by Jack A. Bass on July 11, 2013
Luon cropped pant for yoga or running (Photo credit: lululemon athletica)
LULU : NASDAQ : US$63.55
lululemon athletica Inc. is a designer and retailer of technical athletic apparel operating owned retail stores primarily in North America and Australia. The company offers a range of performance apparel and accessories for women, men and female youth. Its apparel assortment, including items such as fitness pants, shorts, tops and jackets, is designed for healthy lifestyle activities like yoga, running and general fitness.
After what has been a series of negative news events for LULU over the past few months punctuated by the Luon recall and CEO Christine Day’s announced resignation, we see a number of positive catalysts that we believe should turn the momentum in the stock. These include continued replenishment of Luon yoga pants that is yet to reach 100% pre-recall levels, explicit advertisements to customers indicating its “back in black” status, and the announcement of key management hires. We continue to fundamentally believe the demand for the brand has not ebbed and the growth opportunity both domestically and internationally is robust. With the stock having dramatically underperforming the SPX by 2800bps in H1/13, we believe these positive data points bode well for a recovery in H2/13 and into 2014. We reiterate our BUY.
Despite LULU’s “soft restocking” of its recalled Luon pants that began in late May, we expect a more broadly disseminated ad message this week announcing its in-stock position, particularly now that the Wunder Under crop is back in stores. This messaging should spur incremental traffic into stores, helping comps recover.
New hire announcements in supply chain are expected to occur in the coming weeks, with a new head of design announcement likely coming by summer’s end, thus alleviating “empty seat” concerns.
Our $87 target is a blend of 30x 2014E EPS/20x EBITDA/DCF.
Posted by Jack A. Bass on July 9, 2013
English: Bed Bath & Beyond (Photo credit: Wikipedia)
BBBY : NASDAQ : US$70.69
Bed Bath & Beyond sells a wide assortment of merchandise including home furnishings, domestics, giftware, health and beauty care items, and infant and toddler merchandise. BBBY operates around 1,000 Bed Bath & Beyond stores, 265 Cost Plus World Markets, 75 Christmas Tree Shops, 80 buybuy BABY locations, and 45 Harmon stores.
BBBY has launched the first of two new e-commerce sites, and we are raising our estimates as we incorporate growth of the online channel into our model. Behind sizable investments in a new e-commerce platform, including data analytics and web marketing teams, we believe BBBY can increase e-commerce penetration from its current level of 2% to 10% by the end of FY15. As the higher-margin e-commerce business accounts for a greater portion of sales, we expect the company will be able to better leverage expenses, leading us to raise our FY13 EPS estimate by $0.21 to $5.16, which is the highest forecast among sell-side analysts, and FY14 by $0.19 to $5.85. We don’t believe BBBY’s full growth potential is priced into shares at 13x our FY13 EPS estimate (excluding $4.56/share in cash) and 7x FY13E EV/EBITDA.
We are raising our annual EBIT margin estimates by nearly 40bps on average over the next five years. Our estimates reflect over 30bps of annual SG&A expense leverage, versus our prior forecast of 12bps of improvement.
Our price target increases from $75 to $79 as we incorporate our updated projections into our DCF model.
Posted by Jack A. Bass on June 20, 2013
NUVA : NASDAQ : US$22.34
NuVasive is a pure-play differentiated spine company focused on the design, development and marketing of products for the surgical treatment of spine disorders.
The company has gained significant mindshare in the spine community with its minimally invasive XLIF (extreme lateral interbody fusion) technique and proprietary nerve avoidance system. The company markets its products through a direct sales force.
We reiterate our BUY rating and are positioning NuVasive as our top new money pick. We believe the margin expansion story is tangible and
expect investors to focus on 2015 margins and earnings given a significant portion of the IP royalty payments to Medtronic cease at that
point. Furthermore, we believe the recent acquisition of a manufacturer and the initiation of product introduction in Japan offer additional
margin expansion opportunities. All in, we believe operating margins could expand by ~480 basis points over the next two years.
Expiration of patents in 2015 leads to cessation of ~$14.5M in annualized royalty payments to Medtronic in February 2015. This equates to a 160 bp improvement in GMs in 2015.
The acquisition of manufacturing highlights a push to in-house manufacturing. The expected benefit is ~110 bp through 2015.
International leverage on the back of successful commercialization in Japan combined with general operating expense leverage is expected to contribute ~310 bp of OM improvement through 2015.
We are raising our price target to $29.00 from $24.50. Our valuation is based on our 2015 non-GAAP EPS estimate of $1.40 applied to the
group mean 2014E P/E multiple of 20.7x.
Posted by Jack A. Bass on June 19, 2013
HPV/LSIL On Pap Smear ThinPrep liquid-based Pap. Normal squamous cells on left; HPV-infected cells with mild dysplasia (LSIL) on right. See also File:Low-Grade SIL with HPV Effect.jpg – Another example of LSIL with HPV changes. File:High-Grade SIL.jpg – High-grade squamous intraepithelial lesion (HSIL). (Photo credit: Wikipedia)
HOLX : NASDAQ : US$20.98
Hologic is a women’s health company that offers medical imaging, diagnostic and therapeutic products to hospitals, imaging clinics, private practices, and labs through a 625-rep direct sales force as well as select independent distributors. The company develops and markets products that address a range of women’s health concerns, including breast cancer, cervical cancer, menorrhagia, osteoporosis and preterm birth and others.
APTIMA HPV GETS ENDORSEMENT
Reiterating BUY following Thursday’s announcement that Hologix and Quest Diagnostics entered into a five-year, non-exclusive agreement for
women’s health testing. Quest, already a user of ThinPrep, looks to add HPV, CT/NG, and Trich.
Better late than never for Aptima HPV. We view the Quest agreement as a strong endorsement for the HOLX Aptima HPV test and believe it should serve as a testament to other labs.
Possible lateral implications to competitive landscape. We believe Quest may look to standardize tests and suppliers under its Invigorate program, possibly resulting in HOLX capturing more CT/NG and HPV business at the expense of BDX and QGEN,
No change to estimates. We estimate another six months for Quest to offer Aptima HPV. Given, we already model 2014 HPV sales of $55M, +90%, our estimates stay intact for now. However, additional contracts could spur upside to estimates.
Aptima HPV offers fewer false positives. Recall that the Aptima HPV test (CIN3=95.7%) showed sensitivity similar to HC2 (95.3%) while
superior to cytology (73.3%). Specificity for Aptima (CIN3=90.3%) compared with cytology (90.8%), while HC2 was lower (84.9%).
Our $26 price target assumes a 16.8x multiple on our C2013E EPS of $1.55.
Posted by Jack A. Bass on June 11, 2013
English: Barefoot female in public being shooed away by NYC police (ostensibly for panhandling). (Photo credit: Wikipedia)
SHOO : NASDAQ : US$47.67
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.
SHOO’s success is predicated on continual turnover in fashion and its ability to deliver on those new trends. After previewing fall ’13 product and the bustling traffic in its showroom, we believe this season should be no different for Madden. Booties continue to sell at breakneck velocity,
particularly the Troopa in updated prints and materials (e.g., floral and macramé at $129). The bootie’s success has caused it to go on autoreplenishment in 3 colors to meet insatiable demand. The next iteration bootie is an ankle bootie with a stacked heel, continuing the underlying theme and supporting solid category growth in H2/13, we believe.
Gold accents remain a key trend (e.g., gold chain mail, buckles, and zippers) although in a more subtle manner than before. Interestingly, the dress
category is showing signs of life at SHOO retail as the $99.95 Marlenee has become the third fastest shoe to sell 1M pairs. While retailers are not
committing to the trend just yet, the data is positive, and we note that SHOO usually leads these trends by 6-12 months. We reiterate our BUY.
Madden Girl is the standout brand as the repositioning at M doors is driving solid reorders, while at TGT both private label and Mad Love are also performing well. Conversely, the sneaker trend appears to be winding down as distribution is maxed and the category is approaching saturation.
Sandal inventory across the industry remains heavy despite the recent weather-driven uptick in traffic. As such, retailers have broken price on the category and we fear further price reductions are to come should sandals not accelerate by July 4. While SHOO’s sandal inventory is in control, we believe the need to maintain promotional pace with others will subject it to unnecessary markdowns. That said, this is embedded in guidance and thus we do not see any risk to our Q2 numbers
Posted by Jack A. Bass on June 10, 2013