Thursday, May 21, 2015

Seeking Alpha: With Nektar Therapeutics, Value Never Comes Easy

Ordinarily you might think that the approval of one billion-dollar drug and the imminent approval of another would be good news for a biotech, but then Nektar Therapeutics (NASDAQ:NKTR) has never been an ordinary biotech. Investors remain rightly concerned about the odds of commercial success with the company's OIC drug Movantik and somewhat less rightly concerned about the prospects of Baxter's (NYSE:BAX) upcoming long-acting PEGylated rFVIII product, and the negative results from the Phase III BEACON study of NKTR-102 surely didn't help.

I've never been a particular fan of Nektar, so it serves me right that the shares would fall about 15% since I last wrote favorably about them. Even despite these concerns and the elevated level of risk, I continue to believe that Nektar shares look undervalued today.

The full article is here at Seeking Alpha:
With Nektar Therapeutics, Value Never Comes Easy

Seeking Alpha: Competition Will Be Tough, But Clovis Oncology Has Legitimate Compounds

One of the contributory causes to biotech bubbles seems to be a collective amnesia on the part of investors regarding the fact that not every drug launched for an indication is going to succeed. Even in underserved indications like lung cancer, there are winners and losers and competitive differentiation is an important part of long-term success.

In the case of Clovis Oncology (NASDAQ:CLVS), I think investors are right to be concerned about the potential competitive pressures from AstraZeneca (NYSE:AZN) and Tesaro (NASDAQ:TSRO) among others, but I also think the market is underestimating the value of the company's lead drug candidates for lung and ovarian cancer.

Read the full article here:
Competition Will Be Tough, But Clovis Oncology Has Legitimate Compounds

Seeking Alpha: Not Simple To Value, Compass Diversified Holdings Looks Appealing Nonetheless

Conglomerates have always presented investors with valuation challenges, as few companies provide the level of detail necessary to value the components and even those that do often lack proper benchmarks. Compass Diversified Holdings (NYSE:CODI) adds some additional challenges and questions to the mix, including how to value management's value creation efforts and whether to factor an investor's tax status into the mix.

Compass is limited to some extent as an investment candidate by a lack of coverage and the added work that goes into getting a fair sense of the per-share value. I think the added work is worth it, though, as I believe these shares are worth around $20.

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Not Simple To Value, Compass Diversified Holdings Looks Appealing Nonetheless

Seeking Alpha: The Math Could Get Weird, But Intercept Pharmaceuticals Looks Too Cheap

Whether it was a "sell the news" reaction or legitimate disappointment in the size and scope of the Phase III NASH study, Intercept Pharmaceuticals (NASDAQ:ICPT) shares sold off to the tune of 16% on Tuesday when the company revealed its plans for further development of obeticholic acid (or OCA) in NASH. Calculating the value of any pre-revenue biotech requires a lot of assumptions (and I'm well aware of the "garbage in, garbage out" risk), but I continue to believe that the market is undervaluing what could be a platform company in liver disease.

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The Math Could Get Weird, But Intercept Pharmaceuticals Looks Too Cheap

Seeking Alpha: Innospec Continuing To Build A Quality Business From A Small Base

While Innospec's (NASDAQ:IOSP) foray into oilfield chemicals has run smack into price-related activity declines in North America, this small specialty chemical company continues to leverage a strong fuel additives business and a growing value-added personal care performance chemicals business. With the balance sheet flexibility to add more specialty business lines and a reasonable valuation, this company should still be look forward to above-average growth and margin leverage prospects.

Read the full article here:
Innospec Continuing To Build A Quality Business From A Small Base

Wednesday, May 20, 2015

Seeking Alpha: Louisiana-Pacific Seems To Be Running Off The Bottom

These are interesting times in the housing/building materials space. I'd hardly call the recent data on housing starts exceptionally bullish, but household formation has been improving and low interest rates should be supportive for home buyers. At the same time, the producers of oriented strand board (or OSB), engineered wood products, and other wood-based building materials haven't exactly been paragons of discipline. That has led to lower prices, and in some cases multiyear lows for OSB in certain regions.

And yet, Louisiana-Pacific (NYSE:LPX) is up about 25% over the past year. What constitutes a fair price for LPX is certainly up for debate, but the shares ultimately reached a point where they were trading at less than half the replacement value of the assets and reflecting none of the potential upside to any recover in housing and OSB pricing.

Whether LPX is trading at an interesting price today has a great deal to do with your near-term outlook for housing and your investment horizon. A true recovery scenario should see EBITDA approach $500 million and that can support a fair value in the low-to-mid $20's, but it's impossible to reach that price on the basis of a long-term FCF model that captures both the profitability of the good times and the negative free cash flow of the bad times. As a trade on a better housing outlook (and by extension, better wood products pricing), Louisiana-Pacific could still have room to run, but this looks like more of a trade than an investment.

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Louisiana-Pacific Seems To Be Running Off The Bottom

Seeking Alpha: Sanofi's Trying To Go On Offense While Playing Defense

Drug companies face what I consider to be an under-appreciated dilemma when managing their portfolios - the tradeoffs between market size and competition. Sanofi (NYSE:SNY) has done quite well for itself for years by working within a small oligopoly in insulin and vaccines, but now there are concerns that biosimliars and novel compounds from Novo Nordisk (NYSE:NVO) and Lilly (NYSE:LLY) will threaten that business. What's more, while Sanofi does have good exposure to rare diseases through its Genzyme business and multiple potential blockbusters by virtue of its relationship with Regeneron (NASDAQ:REGN), it has what increasingly looks like a token presence in oncology - the must-have market in many investors' minds.

I can't say that I'm a big fan of Sanofi at today's price. I think the company has backed itself into a corner in diabetes where it will have to fight hard to push me-too and also-ran drugs and I expect ample competition in cholesterol and anti-inflammatory/autoimmune diseases. I think long-term revenue growth in the mid-single digits and FCF margins in the mid-20%'s are reasonable expectations for the company, but that's not enough to drive an attractive valuation.

Read the full article here:
Sanofi's Trying To Go On Offense While Playing Defense

Tuesday, May 19, 2015

Seeking Alpha: Axiall's Ongoing, Frustrating, Gap Between Potential And Performance

I had more or less had my fill of Axiall (NYSE:AXLL) and its missteps/disappointments back in August of 2014, but it is nevertheless still a good idea to go back and review companies you once thought might have something to offer. After all, there's at least the chance that the original thesis wasn't so much wrong as early.

When it comes to this chlor-alkali and vinyl-based building products company, not all that much has changed for good or bad. Management seems to be less inclined to move forward with an ethylene joint venture, but PVC producers have been seeing a frustratingly lack of operating leverage and the long-awaited housing recovery has been slow to arrive. I can see how these shares could be worth more than $40 on an improving outlook for chlor-alkali and building products, but the risk of getting bullish on a laggard-to-leader story is that a lot of laggards stay that way for a long time.

Read the full article here:
Axiall's Ongoing, Frustrating, Gap Between Potential And Performance

Seeking Alpha: Exact Sciences' Significant Upside Looks Reasonably Priced

Things have gone well for Exact Sciences (NASDAQ:EXAS) since I last wrote about this up-and-coming diagnostics company in July of 2014. With a favorable CMS coverage decision in hand and a commercial launch underway, the shares have appreciated more than 40% and outdone the $20 base-case fair value I laid out at the time.

Since commercialization has begun, Exact Sciences has followed a path that should be familiar to the more grizzled veterans of med-tech stocks - namely, adoption hasn't ramped up quite as quickly as the Street hoped and it is costing more money to build and support the sales effort. As is, the shares look pretty much fairly valued to me today.

Seeing the Cologuard designated a Class A or Class B test by the USPSTF would be a significant help in securing commercial insurance coverage, but a cost effectiveness study due later this year could pose a threat to future pricing, as does competitive blood-based tests on the way. I'd certainly be happy to reconsider the shares on a pullback, but it would take some combination of a lower price, faster adoption, more assurance on pricing, better visibility into European sales, and/or more color on the pipeline to get me more bullish right now.

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Exact Sciences' Significant Upside Looks Reasonably Priced

Seeking Alpha: Can Tyco Break Out Of A Persistent Lagging Trend?

For a company that is supposed to be in one of the more attractive industrial markets, fire and security, Tyco (NYSE:TYC) hasn't lived up to investor expectations. With weaker than average growth and margins, Tyco has been lagging other fire/security players like Honeywell (NYSE:HON), United Technologies (NYSE:UTX), Stanley Black & Decker (NYSE:SWK), and Allegion (NYSE:ALLE) for some time, not to mention the market as a whole (as measured by the S&P 500).

Can the company reverse this unimpressive trend? I can't immediately think of another company in this size range with as much exposure to the non-residential construction market (though Ingersoll-Rand (NYSE:IR) is close), both here and abroad, and perhaps the protracted lull in that market explains some of Tyco's underpeformance. That said, management needs to address what seems to be an elevated level of corporate expenses and a relatively bad track record of meeting projections.

I don't see a large amount of undervaluation here, but this is a significant "self help" story where outperformance on margins can have a disproportionate benefit on the valuation. It's also arguably still at a size where a larger conglomerate could consider it an acquisition target, particularly with the prospect of rooting out the company's elevated cost structure.

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Can Tyco Break Out Of A Persistent Lagging Trend?

Sunday, May 17, 2015

Seeking Alpha: With Medicaid And ACA Squared Away, Anthem Needs To Work On Medicare

One of the giants of the health insurance space, Anthem (NYSE:ANTM) does a lot of things well. The company has leveraged its experience in small group underwriting to become the most profitable public exchange player and its acquisition of Amerigroup established a leading position in Medicaid. Although Anthem remains a good commercial insurer, its weak performance in Medicare Advantage (or MA) is a notable weakness and likely a priority target for management over the next few years.

The ACA hasn't really hurt Anthem, nor other large players like UnitedHealth (NYSE:UNH), Aetna (NYSE:AET), and Humana (NYSE:HUM) and I see little remaining risk there unless political and legal maneuverings threaten to utterly overturn the system. The biggest question I see for Anthem then is how they go about improving their MA positioning - will this be a slow, mostly organic, multiyear process, or will the company look to scoop up Humana? I don't see a lot of undervaluation in these shares today unless it can grow behind a mid-single digit rate, but I think it is a reasonably solid core holding with upside to an improved MA position down the road.

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With Medicaid And ACA Squared Away, Anthem Needs To Work On Medicare

Seeking Alpha: Softer Prices Leading To Underwhelming Results At Weyerhaeuser

Weyerhaeuser (NYSE:WY) and Plum Creek (NYSE:PCL) have yet to see the recovery in timber demand that they need to post compelling earnings and cash flow, and it shows in the stock performance. While both offer decent dividend yields, the shares of both companies are only up about 3% since I last wrote about Weyerhaeuser in August of 2014.

Weyerhaeuser has made good progress with its cost cutting initiatives, but timber and wood product prices just aren't cooperating at this point. Although the near-term earnings prospects for Weyerhaeuser don't argue for this being a must-own stock, I believe the underlying value is more compelling for patient investors.

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Softer Prices Leading To Underwhelming Results At Weyerhaeuser

Seeking Alpha: Brazil's Ailing Economy Keeps Gerdau Under The Weather

As I recently discussed in an article on Mexico-centric steel company Ternium (NYSE:TX), I've been on the wrong side of the tape by liking Latin American steel companies and it has been even worse for the Brazilian companies. Growing Chinese exports have continued to weigh on global steel prices, but Brazil's economy hasn't improved since the election and weak civil construction and heavy manufacturing further undermined Gerdau's (NYSE:GGB) operations.

Like Ternium, I think there is long-term value in Gerdau. The company has a diversified production base (blast furnaces and mini-mills) and has been making investments to improve its vertical integration and skew towards more value-added products. Unlike Ternium, though, I see more challenges in Gerdau's biggest market and more operational risk. I do think Gerdau can trade higher over the long term, but it is harder for me to make a case that this is a must-buy today.

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Brazil's Ailing Economy Keeps Gerdau Under The Weather

Friday, May 15, 2015

Seeking Alpha: Can Improving Cash Flow Finally Lift Ternium?

Latin American steel stocks have been like a siren for me, with alluring valuations and long-term demand growth leading me to steer straight into the rocks. In the case of Ternium (NYSE:TX), not only has a multiyear decline in steel prices continued to weigh on results, but the company's ongoing commitment to its increasingly contentious stake in Usiminas (OTCPK:USNZY) is arguably an even bigger cloud at this point.

There's an old quote about stocks that goes something like "the markets can stay irrational longer than you can stay liquid," and that's certainly something to keep in mind with Ternium. I continue to believe that this is a well-run steel company and I expect that the company is in place to start logging solid free cash flows as it exits an investment phase. The trouble is that while a low single-digit revenue growth rate may suggest a fair value in the mid-$20's there is no obligation on the part of the market to be fair.

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Can Improving Cash Flow Finally Lift Ternium?

Seeking Alpha: Allied World Offers A Healthy Balance Sheet, But Market Conditions Are Tough

Allied World Assurance (NYSE:AWH) has done pretty well since last I wrote about this small specialty insurance company. The shares have risen more than 20% since that late April 2014 article, basically matching fellow specialty underwriter W.R. Berkley (NYSE:WRB) and surpassing the likes of Arch Capital (NASDAQ:ACGL), ACE (NYSE:ACE), and Aspen (NYSE:AHL) that have all seen sub-10% returns over that time.

Every insurance story offers its own little twists. Arch Capital is looking to grow its mortgage insurance business, while ACE is looking to overseas markets and Aspen is looking forward to achieving the benefits of scale as numerous relatively new business lines reach scale. For Allied World, there would still seem to be many attractive market entry/share expansion opportunities (even as rates weaken) and the company's balance sheet appears to be in very good shape.

I do have some concerns that the business that Allied World is writing today won't be as profitable as the business it wrote over the last few years and the sizable reserve releases will start to shrink, but that's a common industry concern now. That said, I like the company's leverage to specialty lines and overseas markets and the shares do look undervalued now.

Read the full article here:
Allied World Offers A Healthy Balance Sheet, But Market Conditions Are Tough

Thursday, May 14, 2015

Seeking Alpha: Arch Capital Keeps Going While The Going Gets Tougher

I like MetLife (NYSE:MET), ACE (NYSE:ACE), and W.R. Berkley (NYSE:WRB) quite a bit as insurance companies, but Arch Capital (NASDAQ:ACGL) has long been at the top of my list as a well-run insurance company with an uncanny knack for profitable allocating and reallocating of capital across multiple lines of business. That skill is increasingly valuable as P&C and reinsurance rates continue to fall and the industry looks to be heading into a tough multiyear stretch.

I don't believe that Arch Capital needs to join into the recent upswing in M&A activity, but the company does have the capital to get involved if the right opportunity should show up. Failing that, I expect the company to continue looking to mortgage insurance and selective alternative markets and excess and surplus lines as a source of growth and adequate returns.

Arch Capital has been something of a middle-of-the-road performer over the past year, but it's not yet particularly cheap even with long-range ROE estimates in the low teens. Buying into a part of the cycle where rates are falling, reserves are shrinking, and earnings are likely to come under pressure for many players is a risk on its own and given that backdrop I'd wait in the hopes of being able to buy Arch Capital's shares at a better price down the line.

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Arch Capital Keeps Going While The Going Gets Tougher

Seeking Alpha: Heartland Payment Once Again Going Off On Its Own

If you're a company involved in payment processing, you've likely been seeing a good run in your share price. Although I didn't think Heartland Payment Systems (NYSE:HPY) looked particularly cheap back in July of 2014, the whole sector has done well since then. Heartland is up about 20% since that piece, with Vantiv (NYSE:VNTV) up a similar amount, Total System Services (NYSE:TSS) up almost 30%, and Global Payments (NYSE:GPN) up almost 40%.

I admit to being more than a little surprised by this run at Heartland Payment. I like the company's small/medium enterprise focus in card processing and the company's commitment to price transparency. I also like the efforts to diversify the revenue base, but the company has had some missteps with its acquisitions and margin leverage has stalled as the company invests for what management hopes will be a new leg of growth.

Already wrong once, I'm hesitant to beat the drum again and argue that Heartland is overpriced. The market certainly already expects a lot from a cash flow perspective, as high single-digit net revenue growth (10 years, annualized) and 20%-plus FCF growth rate (with long-term FCF margins in the high teens) isn't enough to get to today's price. On the other hand, management is recrafting itself as a provider of payment technology services to SMEs and targeting significant margin leverage in its non-card operations, as well as looking to integrated point of sale systems to generate sticky revenue. With the shares trading inline with near-term EBITDA growth prospects, I suppose there's still a play here for more aggressive investors.

Read more here:
Heartland Payment Once Again Going Off On Its Own

Wednesday, May 13, 2015

A Little Progress On The Personal Front

Spent all day today at the cancer center with Melanoma Girl (the superhero alter-ego my wife adopted at the time of her diagnosis). The news was modestly positive. This round of chemo has indeed shrunk some of the tumors, but there are are still tumors in the lungs and liver. We would of course have liked to see more tumor shrinkage/disappearance, but we'll take what we can get.

Seeking Alpha: Materion Executing On A Multi-Armed Growth Strategy

Kudos to Materion (NYSE:MTRN) for creating a plan to emphasize value-added products, improve margins, and generate more free cash flow and then executing, or at least starting to execute, on it. The shares aren't much higher than when I last wrote about the stock, but I thought the shares looked a little pricey then and there haven't been too many outperformers in the specialty alloy space.

I do still like this company, and I think the company's leverage to advanced industrial components, auto electronics, consumer products, and so on will serve it well. I also like the prospects for margin leverage and improved asset efficiency leading to free cash flow that can be reinvested into complementary acquisitions that will further stimulate revenue growth and margin leverage.

All of that said, it's unusual for a specialty alloys company to generate FCF margins above the mid-single digits for any sustained length of time and I think my 7% annualized organic revenue growth number is generous as is. I like the prospects for Materion to do well against undemanding growth comps this year and tomorrow's investor day could be a catalyst, but there's not very much fundamental undervaluation here that I can see.

Read the full article here:
Materion Executing On A Multi-Armed Growth Strategy

Seeking Alpha: Manitex Has Expanded Into The Downturn, But Can It Deliver?

What Manitex (NASDAQ:MNTX) has done is bold - in ten year's time the company will either be a well-diversified material handling company that is a thorn in the side of companies like Terex (NYSE:TEX) and Manitowoc (NYSE:MTW) or it will be a lesson on the risks of overly ambitious growth plans and aggressive use of leverage.

I've placed my own bet on the former outcome, and I do believe Manitex can drive double-digit revenue growth and build toward double-digit operating margins. Growth should come from share gains in larger cranes, exposure to a construction recovery, and a host of share-growth opportunities in areas like container handling and industrial cranes. It is likely going to take at least a few quarters for underlying demand to improve and there are risks that the costs of operating this expanded global enterprise will run higher than expected, but I continue to believe that Manitex can support a low-to-mid double-digit fair value.

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Manitex Has Expanded Into The Downturn, But Can It Deliver?

Seeking Alpha: Novadaq Knocked Back By Looming Competition And A Tough Transition

Small-cap med-tech Novadaq (NASDAQ:NVDQ) has continued to have a rough go of it, with the shares down about a quarter since my last update and down about a third over the past year. Investors are clearly frustrated with the noise and turbulence caused by the company's transition to a direct sales model, as well as spooked by the potential entry of Stryker (NYSE:SYK) this year into a market that Novadaq had had all to itself.

It's tough to advocate patience when a holding is deep in the red, but Novadaq does at least have a good platform technology to market - the company doesn't have to jump through hoops to make the argument that the SPY platform can lead to significantly better patient outcomes, including lower complication rates. What Novadaq does have to do, though, is build out its sales force, place units, train surgeons, and drive the recurrent revenue streams that the company needs to generate high margins. A mid-teens fair value still seems reasonable to me today, but this is likely a company that will be finding its way in 2015 and that isn't often good news for a company's shares.

Continue reading here:
Novadaq Knocked Back By Looming Competition And A Tough Transition

Seeking Alpha: At IPG Photonics, Strong Performance Backs Aggressive Expectations

In contrast to Rofin-Sinar (NASDAQ:RSTI), IPG Photonics (NASDAQ:IPGP) continues to perform very well on the back of growing adoption of fiber lasers and strong operating efficiency. This has been may favorite laser name for a while now, and the 35% move in the stock price since my last piece has been nice to see (and well above the results from Rofin-Sinar, Coherent (NASDAQ:COHR), and Newport (NASDAQ:NEWP)).

Although Rofin-Sinar has looked a little stronger of late in its fiber laser efforts, it is still well behind IPG Photonics and that is going to be a difficult gap to fill. Meanwhile, while Rofin-Sinar tries to get to where IPG Photonics already is, the latter is moving on with newer offerings like green lasers, ultrafast lasers, UV lasers, and products targeted at large applications like spot welding and paint stripping. The only major downside to the IPG Photonics story that I see today is the high level of expectations - today's price already seems to anticipate a 10-year run of greater than 10% revenue growth and FCF margin expansion into the mid-20%'s. While I think the company can do that, I'm not sure it can do so much better that there's a lot of upside at today's price.

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At IPG Photonics, Strong Performance Backs Aggressive Expectations

Tuesday, May 12, 2015

Seeking Alpha: Absent Product Revenue Growth, What Drives F5 Networks?

Wanting to like a stock is always dangerous, and that's the position I find myself in with F5 Networks (NASDAQ:FFIV). While I do believe that demand for application delivery controllers (or ADCs) is on the wane and likely to push market growth into the single digits, I also believe that the company has a significant opportunity in attaching security products and pursuing SDN/NFV and diameter signaling revenues.

The problem is identifying what's going to drive a meaningful improvement in the value proposition and/or investor sentiment. The shares look only slightly undervalued on the basis of 7% to 8% long-term growth and the company likely needs to generate double-digit product revenue growth again to get a real tailwind behind the shares. I continue to believe that F5 is a high-quality company that is not overvalued, but it's more difficult to argue that this is a must-own stock today.

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Absent Product Revenue Growth, What Drives F5 Networks?

Seeking Alpha: W.R. Berkley Pushing On Through A Tough Market

Tougher times are in the property and casualty insurance market, as insurers like ACE Limited (NYSE:ACE), Chubb (NYSE:CB), Hartford (NYSE:HIG), Travelers (NYSE:TRV), and W.R. Berkley (NYSE:WRB) are finding it harder to push rate increases and weak interest rates limit returns on conventional investment options. With loss trends having been pretty benign in recent years, there are worries among some investors and analysts that the industry is setting itself up for a string of weak performance as losses bite into capital and push down returns.

I'm really not that concerned about W.R. Berkley in that context. I am worried about limited premium growth potential and the year-to-year risks of the company's more aggressive investment philosophy, but I think the company's underwriting quality has shown itself over time and I still see opportunities for the company to grow its underwriting operations organically. I'm still not crazy about the valuation, but bargains in the P&C are hard to find these days.

Continue here:
W.R. Berkley Pushing On Through A Tough Market

Seeking Alpha: The Pepsi Launch Approaches, But Senomyx Needs To Deliver On Its Own Sales Efforts

The wait drags on for Senomyx (NASDAQ:SNMX), testing the patience of shareholders ahead of a long-anticipated launch from its major partner PepsiCo (NYSE:PEP). Chemophobia-laced "healthy living" nonsense aside, the fact remains that additives remain integral to the packaged food and beverage industries and a large revenue opportunity for Senomyx in the coming years.

The key question remains as to whether Senomyx can convert that large opportunity to real sales. Although the company's direct sales efforts have long lead times (up to, or beyond, two years in some cases), some fruits of those efforts should be visible in the next twelve months. Likewise, investors will know soon enough whether PepsiCo is going to launch products incorporating Senomyx's Sweetmyx S617 with its full marketing vigor or whether it will be a more cautious and limited effort. Delays in commercialization efforts and increased execution risk in my model have led to a lower fair value, but that fair value target remains close to $10 and offers substantial upside if those orders do in fact materialize.

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The Pepsi Launch Approaches, But Senomyx Needs To Deliver On Its Own Sales Efforts

Monday, May 11, 2015

Seeking Alpha: PMC-Sierra Leveraged To High-End Product Cycles

These aren't the best of times for the storage and carrier hardware industries, but PMC-Sierra (NASDAQ:PMCS) is looking to leverage new product introductions, the move toward software-defined networking in the data center, and a capex shift toward optical transport networking (or OTN) equipment to drive a meaningful upturn in revenue and further leverage in margins.

Mid-to-high single-digit revenue growth and low double-digit FCF growth can support today's stock price and the company's margins do argue for a higher revenue multiple than today's level. It's also worth noting that acquisition activity has picked up in the chip space and PMC-Sierra would fit in with multiple suitors that have the wherewithal to make a deal. I don't see a large discount to fair value here, but the company has a legitimate opportunity to gain share in multiple markets and the company is still of a size where a few extra points of market share can drive meaningful extra value.

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PMC-Sierra Leveraged To High-End Product Cycles

Seeking Alpha: For Ever-Volatile Maxwell, New Markets Must Start Placing Orders

Maxwell Technologies (NASDAQ:MXWL) shares have always been volatile, but the direction of that volatility has been decidedly negative over the last year. Investors have grown increasingly frustrated over the erratic performance of the company's Chinese hybrid bus market and the lack of significant orders or momentum in supposed-to-be-big markets like autos, trucks, and trains.

As speculations go, this could be an interesting stock for aggressive investors to consider. The company now counts PACCAR (NASDAQ:PCAR) as an OEM heavy duty truck customer and management has been guiding to greater auto adoption in the 2016 model year. Admittedly there is still frustratingly little substance for these shares to trade on, but that's the nature of emerging/speculative tech and the long-term rewards could still prove meaningful.

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For Ever-Volatile Maxwell, New Markets Must Start Placing Orders

Seeking Alpha: Out Of Recovery, Popular Needs A Healthier Home Market

Popular (NASDAQ:BPOP), the market-leading bank in Puerto Rico, has done a lot of good things to clean up its operations since the banking meltdown. The shares haven't really outpaced the sector over the last year, though, and I believe that has a lot to do with the ongoing struggles of the Puerto Rican economy.

I believe management's acquisition of assets from the wreckage of Doral (DRLCQ) was a relatively good move, but the company is likely still looking at tepid loan growth and comparatively high credit risk in the short-term. Higher rates would help (as it would for many other banks), but a better economy in Puerto Rico would help even more. I'm not bearish on Popular, but the shares only look about 10% or undervalued to me today and that's not quite enough to get me interested in adding them to my portfolio.

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Out Of Recovery, Popular Needs A Healthier Home Market

Seeking Alpha: Amidst Multiple Distractions, PRA Group Keeps On Collecting

PRA Group (NASDAQ:PRAA) has gone nowhere fast over the last two years, as the company has seen a shift in the profitability of the charged-off debt it can buy and the debt collection industry has continued to evolve. Management has also added complexity, integration risk, forex risk, and regulatory risk to the model in expanding into the European market through its acquisition of Aktiv. Now add in an ongoing investigation from the CFPB that will almost certainly result in some sort of payout from the company.

Despite that backdrop, I still think the shares are undervalued and that the company's performance is starting to improve again. Amortization rates are higher, recent purchases are performing well, and the quality of the receivables looks good. From an industry perspective, there are still reasons to believe that substantial volume could become available in the next year or two and Aktiv offers sizable opportunities for capital deployment. There are above-average risks inherent to this company's model, but I believe fair value is in the mid-$60's to low-$70's today.

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Amidst Multiple Distractions, PRA Group Keeps On Collecting

Seeking Alpha: Commercial Vehicle Still A Great Story That Nobody Cares About

The line between patient and stubborn can be a little fuzzy at times, but sometimes investors have to have the stamina to wait for the market to wake up to a story. That is still my approach to Commercial Vehicle Group (NASDAQ:CVGI), as management continues to execute on a plan to drive not only sales growth, but greater diversification and higher margins in the years to come.

Commercial Vehicle Group has badly lagged other commercial vehicle suppliers like Cummins (NYSE:CMI), Allison (NYSE:ALSN), WABCO (NYSE:WBC), and Grammer (OTC:GMEGF) over the past year despite double-digit revenue growth and noticeable improvements in margins. Some of that could be tied to the company's leverage to the possibly peaking North American truck market, but perhaps also because this barely-followed stock is just not on anybody's must-watch list.

Whatever the case may be, I continue to believe this is an interest relative and absolute value story today. I don't think my forecast of 5% long-term annualized revenue growth is that ambitious, particularly given the company's efforts to target growth in agriculture and construction, nor do I believe my mid-single digit FCF margin is ambitious relative to the norms in this sector. Those inputs still support a nearly $9 fair value, though, so I believe this is still a stock well worth consideration.

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Commercial Vehicle Still A Great Story That Nobody Cares About

Friday, May 8, 2015

Seeking Alpha: A New Beginning For Lundbeck, But Not A Clean Start

These are interesting times for H. Lundbeck (OTCPK:HLUYY) (LUN.CO) and its shareholders. This smallish Danish specialty pharmaceutical company is attempting to launch new drugs into crowded markets with questionable differentiation and has a relatively modest (and high-risk) pipeline, as well as limited resources with which to acquire new candidates. Amidst these challenges, the company saw its CEO resign for violating its code of ethics - hardly what investors ever want to see amidst challenging multi-market drug launches.

Wednesday may go down as a big turning point. There are still very legitimate worries about the future of the company's newest launches, but the company announced the hiring of a very well-regarded pharma executive as its new CEO. His options may be limited by Lundbeck's resources and reputation, but investors who are positive on the company's new drugs and underlying approach to drug development are going to very much look forward to what he can offer in terms of better sustained performance.

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A New Beginning For Lundbeck, But Not A Clean Start

Seeking Alpha: Margin Leverage Limiting WESCO's Potential

None of the major industrial distributors have been doing especially well of late (other than HD Supply (NASDAQ:HDS)), but WESCO (NYSE:WCC) has had a rough time of it as industrial spending has weakened and the company has struggled to generate meaningful margin leverage. WESCO's steady-eddy performance is one of its strong points during the tough times, but the company's going to be hard-pressed to generate substantial margin upside without some underlying inflation as rivals compete hard for business and customers push back on pricing.

I like WESCO as a company, but I think management has a tough challenge in front of them - very lean SG&A spending doesn't leave much room for meaningful cost-cutting, pricing power limits the gross margin potential that I see, and breaking out of the company's long-term average revenue growth rate range in the mid-single digits may well require M&A at the cost of risk and leverage.

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Margin Leverage Limiting WESCO's Potential

Seeking Alpha: After Flaring Off The Excess Enthusiasm, Chart Industries Looks More Interesting

Around nine months ago investors still had to go to pretty great lengths to come up with a growth scenario that made Chart Industries' (NASDAQ:GTLS) valuation look reasonable. With Chart Industries and other "natural gas economy" stocks like Westport Innovations (NASDAQ:WPRT) and Quantum Fuel Systems (NASDAQ:QTWW) having gotten hammered down in the ensuing months, though, it's worth taking another look at some of the better names leveraged to growth in LNG.

To be sure, I don't think my model for Chart Industries is exactly conservative, as I'm still looking for annualized revenue growth of nearly 7% and margin leverage based on a North American LNG build-out that may never materialize. That said, those numbers support a fair value above $45 and an EV/EBITDA multiple of less than 7x for a company that could grow at a 10% clip for the next decade seems like an interesting valuation for an admittedly speculative opportunity.

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After Flaring Off The Excess Enthusiasm, Chart Industries Looks More Interesting