Entegris Not Getting Its Due For A Differentiated Exposure To Semiconductor Markets

Electrochemical, filtration, and material handling company Entegris (ENTG) has had a rough year, as has competitor/peer Versum Materials (VSM), though investors in semiconductor equipment stocks like AEIS (AEIS) and VAT (OTCPK:VACNY) may not exactly be overflowing with sympathy (they've had it worse). Although Entegris is much more leveraged to wafer starts than equipment orders, investors seem to have bailed out ahead of this memory-led decline in equipment orders.

Although Entegris has some exposure to equipment trends and wafer starts may not be so strong next year, I think these shares are starting to look pretty interesting. Margins should continue to head higher (driving a better EV/revenue multiple), and I see meaningful room for FCF margin expansion as Entegris leverages ongoing growth in chip production and ever-increasing chip complexity. My biggest concern is perceptual, with the risk that investors look at the worsening outlook for equipment and high lead times and just bail on all things chip-related.

Continue reading here:
Entegris Not Getting Its Due For A Differentiated Exposure To Semiconductor Markets

Alnylam Pharmaceuticals Could Use Some Straightforward Good News

Alynlam Pharmaceuticals (ALNY) could really use some straightforward, clean, good news right now, as several of the company’s recent positive events have been “yes … but” situations. Today’s update on givosiran in acute hepatic porphyria is a case in a point. While the drug seems to be effective (as expected), with a highly statistically-significant reduction in ALA (a biomarker), the safety of the drug is likely to be a talking point until, and perhaps after, the full Phase III data package is available. On the back of some concerns about the cardiac safety profile of Onpattro (and implications for the important ALN-TTRsc02 (“sc02”) program), it’s not exactly the news investors really want to hear.

I continue to believe that Alnylam is undervalued, and that it’s pipeline of drugs for rare diseases, led by recently-approved Onpattro, will generate substantial revenue in the coming years. I’ve tweaked some of modeling assumptions, but I continue to believe that the shares should trade over $140, though there are above-average risks.

Click here for more:
Alnylam Pharmaceuticals Could Use Some Straightforward Good News

MRC Global Leveraging Renewed Energy Capex Investments, But Looks Undervalued

The recovery in the U.S. onshore oil & gas sector has been a significant catalyst for MRC Global (MRC), the world’s largest distributor of pipes, valves, and fittings (or PVF) and other equipment to the energy sector. With the shares up almost 70% over the past three years, the stock has easily outperformed fellow distributor NOW (DNOW), as well as the broader oil/gas services and equipment sector. The performance over the past year hasn’t been as strong, though, with NOW handily outperforming MRC Global, which I believe is due in part to greater upstream leverage.

It would appear that there is still upside in MRC shares, as the company benefits from ongoing revenue re-acceleration and improving margin leverage. I do expect the growth drivers to transition more toward the midstream and downstream businesses in the coming years, but I believe there is value here up into the low-to-mid $20’s.

Read the full article here:
MRC Global Leveraging Renewed Energy Capex Investments, But Looks Undervalued

MidWestOne May Not Be A Growth Star, But The Story Has Some Value

The Midwest is not exactly the most attractive banking market these days, but sometimes you can find worthwhile opportunities in unusual places. That may well prove to be the case with MidWestOne Financial (MOFG), as this Iowa-based bank continues to invest in growth in larger metro areas like Denver and the Twin Cities while possibly starting to turn its eye towards consolidating its local market.

I certainly have some concerns regarding MidWestOne, including a track record that isn’t the greatest with respect to operating efficiency and credit quality, but the valuation seems to more than reflect those issues. If credit quality is indeed back on a sustainably better path and management can continue to find cost-saving deals in its local footprint, the discount here could shrink and reward shareholders.

Click here for more:
MidWestOne May Not Be A Growth Star, But The Story Has Some Value

SGS Needs To Verify Its Own Self-Improvement Processes

Wherever there are regulations, there’s almost always some mechanism for ensuring compliance with them, and that has created an enormous global market in testing, inspection, and certification (or TIC). The largest player in a fragmented market, Switzerland’s SGS (OTCPK:SGSOY) (SGSN.S) not only helps companies stay in compliance with all manner of laws and regulations, but also help ensure product, process, and system quality, safety, and performance. The range of services SGS offers runs the gamut from testing corn shipments to refinery process optimization to auto emissions testing to testing electronics and toys for safety.

SGS is the leading player in a field with attractive growth characteristics, and the company has a decent track record of free cash flow generation, but management has established an unfortunate recent track record of over-promising and under-delivering on margin improvement, and the shares look pretty richly-valued even factoring in a relatively more stable trajectory for earnings.

Read more here:
SGS Needs To Verify Its Own Self-Improvement Processes

Seacoast Banking Making Money In The Sunshine State

A couple of years ago, Seacoast Banking (SBCF) was a “show me” story where investors were uncertain if the company could execute on opportunities to reduce costs, improve its utilization of technology, and drive better loan growth. Over the past three years, not only has Seacoast delivered on multiple growth and quality metrics, but the shares have roughly doubled since then, roughly doubling the regional bank indices and eking out a small win over CenterState (CSFL) over that time.

There are a lot of things I still find very attractive about Seacoast, including its strong core deposit franchise, its data-driven business model, and its leverage to significantly above-average growth potential in its home state of Florida. While I don’t think there are serious credit risks yet, I do have some concerns about where we are in the cycle and how that might impact a higher-multiple growth bank like Seacoast.

Although the valuation on a P/E basis isn’t bad, I find the long-term discounted earnings valuation a little stretched and I’m worried that bank multiples could re-rate lower. While I think M&A appeal is a back-stop to the valuation, I’d rather see a wider discount to fair value as compensation for some of those risks.

Read more here:
Seacoast Banking Making Money In The Sunshine State

The Market Expects Relatively Little From DSP Group's Transformation

DSP Group (DSPG) is trying to do a difficult thing in the chip space and basically reinvent itself with new applications for its core competencies in voice integration and low-power functionality. Somewhat unusually for the chip group, it’s not staking its turnaround/reinvention on a sizable M&A transaction, and is instead trying to reinvest the earnings it still generates from its fading lead business in DECT/CAT-iq SoCs for cordless phones.

In targeting markets like home gateways, low-power IoT connectivity, enterprise VoIP, and voice user interface SoCs, I believe the company is making logical decisions about where it can apply its core technologies and generate better growth in the coming years. There are admittedly not really any blockbusters here, but likely enough to generate decent revenue growth and margins in the coming years. For now, though, the Street isn’t buying it, as the shares seem to trade in line with some rather lackluster expectations.

Click here for more:
The Market Expects Relatively Little From DSP Group's Transformation

Marinus Looks Like More Than A Me-Too

Developing safe and effective drugs is hard, and doing so in the CNS space is even harder than normal. Add in worries that your lead (and only) drug is just a “me-too” product doomed to languish in the shadow of a celebrated advance in the field, and I suppose it makes sense that Marinus (MRNS) would have well-above average volatility.

I may be fundamentally mistaken, but I believe Marinus’s drug ganaxolone is more than just an attempt to hitch a ride on the coattails of Sage Therapeutics’ (SAGE) lead drug brexanolone. While Sage will likely enjoy a meaningful head start getting its drug to market in post-partum depression, I don’t believe that lead will cripple Marinus, and I believe there’s still upside here if ganaxolone proves to be a respectable second-place finisher.

Click here to continue reading:
Marinus Looks Like More Than A Me-Too

Alps Electric Worth Another Look On Improving Auto And Phone Trends

Between a near-term rebound in camera phone actuators and a longer-term opportunity in car electronics, I think this is a good time to reconsider Japan’s Alps Electric (OTCPK:APELY) (6770.T). Although the U.S. ADRs aren’t as liquid as investors might like, Alps looks undervalued below the $60’s and could have further upside as the company’s auto electronics business really starts to take off in a few years.

The biggest downside at this point would appear to be another disappointing cycle for Apple (AAPL) and its new phones, as Alps has maintained strong share in the OIS actuator market and has meaningfully operating leverage potential on higher volumes.

Read the full article here:
Alps Electric Worth Another Look On Improving Auto And Phone Trends

nVent Needs To Use Its Independence To Drive Growth

As the former Technical Products business of Pentair (PNR), nVent (NVT) has some important positive characteristics, including well-regarded brands, strong share in certain segments of the enclosure, heat tracing, and electrical fastening markets, and strong margins. What it has historically lacked, though, is growth, and that needs to be one of management’s foremost priorities if nVent is going to be a significant success as an independent company.

Although I do expect better growth relative to nVent’s track record, I don’t see enough growth to drive a compelling valuation today. To me, the shares look more or less like many industrials – not really attractively priced unless you have a pretty bullish outlook on the U.S. cycle and the company’s ability to pass on higher costs.

Read more here:
nVent Needs To Use Its Independence To Drive Growth

CenterState Banks Continues To Leverage Its Strong Florida Franchise

Long a popular target in takeover rumors, CenterState Banks (CSFL) has not only stayed independent, but has thrived over the past five years – pairing strong double-digit organic growth with an aggressive but still disciplined and coherent M&A strategy to drive above-average growth across multiple metrics. The market has certainly noticed, as the shares have roughly tripled the performance of regional banks over the last five years, while slightly outperforming over the past 12 months.

I’m a little more cautious about growth banking stories at this point in the cycle, as banks tend to peak ahead of yield curve inversion. Commercial real estate lending has gotten pretty frothy in many places, deposit betas continue to rise, and credit quality is about as good as it can get. Still, if low-to-mid teens growth is a reasonable long-term expectation, these shares may not be tapped out just yet.

Click here for more:
CenterState Banks Continues To Leverage Its Strong Florida Franchise

GEA Group Starting To Get Interesting

Down another 10% or so from when I last updated readers on the company, GEA Group (OTCPK:GEAGY) (G1AG.XE) has more or less lived down to my expectations as this company is largely marking time ahead of a management transition. Since that last update, though, the company has reported a decent quarter, has announced the new CEO, and has seen improvements across most of its end markets.

GEA Group still needs a lot of restructuring work, and that work is going to take years to accomplish. Still, I’m starting to think that the investment case is more interesting here. While I do incorporate business improvement expectations into my model (improvements that may not come), I believe that if GEA doesn’t make relatively quick restructuring progress, activist shareholders will push hard for a sale of the company. With a fair value of a little over $40/ADR, this may be a name for investors with the patience to hold a turnaround story to start looking into more closely.

Read more here:
GEA Group Starting To Get Interesting

ATS Automation Is A Service-Enhanced Play On A Major Multiyear Trend

Automation is a popular theme, particularly in the industrial sector, but it is also a rather broad term that can encompass everything from the most advanced robots, machine vision systems, and control technologies to relatively basic motors and conveyor belts. At the end of the day, though, it’s about equipping business owners with tools that enhance productivity. As a provider of both systems and services, Canada’s ATS Automation (OTCPK:ATSAF) (ATS.TO) sits in an interesting middle ground that could prove increasingly valuable as more and more business look to automate, including smaller operators that don’t have teams of engineers to design and guide the process.

Valuation is my biggest hang-up with the shares now, as the stock has risen almost 100% over the past year and trades at a level that already anticipates some meaningful operational improvements in the years to come. Investors should also note that the U.S. ADRs are not liquid on any consistent basis, though the Toronto-listed shares are.

Continue reading here:
ATS Automation Is A Service-Enhanced Play On A Major Multiyear Trend

With The Semi Cycle Clearly Dipping, Is It Time To Revisit AEIS?

When I last wrote about Advanced Energy Industries (AEIS), I noted that while I think this is a strong company in the power components and subsystems space, the risk of further deterioration in the near-term outlook for semiconductors and semiconductor equipment skewed the risk too negatively in view. The shares are down another 10% since then, along with a significant cut to third quarter guidance, and there is no longer much pushback from readers on whether there really is a slowdown underway.

It’s really easy to get an itchy trigger finger with high-quality plays like AEIS and VAT (OTCPK:VACNY), as it’s typically only during these downturns that you get an opportunity to buy in at better valuations, and you don’t want to miss the eventual rebound. On the other hand, it’s pretty common for analysts and investors to misjudge the length and depth of down-cycles at the beginning, and it’s frustrating to buy in at the bottom only to discover another 20% or more downside.

I continue to believe the long-term value of AEIS shares is well above current levels (in the mid-$60s to mid-$70s), but I would also point out that these shares have traded as low as 1x tangible book in the not-so-distant past, suggesting another 50% downside if things really go sour in the market. I don’t expect that to happen, and I believe the long-term drivers of chip demand remain sound, but with 2019 possibly shaping up as a tougher year too, investors considering these shares should at least go in with their eyes open to the downside risks.

Read the full article:
With The Semi Cycle Clearly Dipping, Is It Time To Revisit AEIS?

BorgWarner Bumping Along The Bottom In Search Of A Spark

Vehicle components supplier BorgWarner (BWA) continues to sputter along, having not really gone anywhere over the past three months after a nasty decline from the highs to start the year. BorgWarner’s peak-to-today drop has actually exceeded the overall parts sector (down 25% versus down about 15%), even though the company’s actual performance hasn’t been that bad and its positioning for the future transition to hybrids and electrics look good.

I think BorgWarner is cheap enough to warrant serious consideration, but this will probably take more patience to work out. I don’t see a big turnaround in the U.S. car market next year, and I don’t feel all that comfortable counting on a big turnaround in volume in China either. That leaves the shares in a sort of performance no man’s land. I do believe these shares will be at a higher level next year as investors start looking ahead to better auto volumes and gaining more confidence about the path forward for hybrid and electric programs.

Follow this link for more:
BorgWarner Bumping Along The Bottom In Search Of A Spark

CapitaLand Bouncing Back On Renewed Asset Recycling

I’ve lamented in the past that no matter what CapitaLand (OTCPK:CLLDY) (CATL.SI) does, the shares seem stuck between S$3 and S$4. When I last wrote about the shares, they were on their way down to retest that S$3 level and have since rebounded on good second quarter earnings, the naming of a new CEO, and ongoing steps to recycle capital into new investments, including a meaningful move into the U.S. market.

CapitaLand remains a challenging stock. The liquidity for the ADRs isn’t great (the Singapore-listed shares are far more liquid), and this is a tough stock for many investors to evaluate and model. On the other hand, CapitaLand has proven itself to be a quality developer and manager of properties in Asia with the ability to earn above its cost of capital. That is not presently reflected in the share price, and I believe there is still worthwhile upside from these levels.

Click here for more:
CapitaLand Bouncing Back On Renewed Asset Recycling

Mining And China Seem To Be Supporting Komatsu

Komatsu (OTCPK:KMTUY) (6301.T) has been lagging peers and rivals like Caterpillar (CAT) and Hitachi Construction Machinery (OTCPK:HTCMY) over the past couple of years, despite solid order trends at Komatsu, good initial results in its automation efforts, and further synergies to be gained from the Joy Global deal. Over the last couple of months, though, Komatsu shares have perked up a bit and risen more than 10% since my last update, on renewed enthusiasm for the mining business and the Chinese construction market.

Komatsu still looks a little undervalued, but the company has a lot riding on expanding its mining business and achieving those hoped-for synergies in the mining business. Although the construction business isn’t done yet for this cycle, the mining business really needs to step up for the shares to keep moving higher.

Read the full article here:
Mining And China Seem To Be Supporting Komatsu

ING Settled Its Money Laundering Case, But Worries About Capital And Turkey Remain

Bulls continue to have their patience tested by ING (ING), as shares of this Dutch bank continue to suffer from an assortment of worries including loan growth, capital adequacy, and the stability of the company Turkish operations. With the shares underperforming other European banks by about 10% over the past year, though, I continue to believe the skepticism is overdone and that these shares offer attractive long-term opportunity on mid-single-digit earnings growth. While capital levels are a risk, I believe the risk is manageable and more than reflected by the 25% discount to ROTE-based fair value.

Continue here:
ING Settled Its Money Laundering Case, But Worries About Capital And Turkey Remain

Ternium's Investor Day Seems To Have Restored Some Confidence

Ternium (TX) shares have had a poor year, underperforming the ADRs of ArcelorMittal (MT) and Gerdau (GGB), as well as the shares of other steel companies like Steel Dynamics (STLD). Although Ternium is looking at an attractive long-term opportunity to grow its share of the Mexican market, investors have been scared off by a host of uncertainties, including the NAFTA renegotiations, the Mexican election cycle, the deterioration of the Argentine economy, uncertainty in Brazil, weakness in Colombia, and the prospect of peaking global steel prices.

Management’s investor day earlier this month did seem to restore some confidence to investors, but the shares continue to look surprisingly cheap on a relative basis, particularly when factoring in the company’s strong margins. Although I remain concerned we’re past the peak in steel and that it will tough for any steel stock to significantly outperform, Ternium’s share price and valuation just look too low to me.

Click here for more:
Ternium's Investor Day Seems To Have Restored Some Confidence

OceanFirst On A Solid Footing For Future Growth

With not a lot else going on, September is a popular month for sell-side conferences and company investor/analyst days. Although these are great opportunities to learn more about companies you care about, it does tend to lead to a bit of a backlog if you follow a relatively longer list. Even so, OceanFirst Financial’s (OCFC) first-ever investor day hit a lot of the important notes on how and why I believe this New Jersey-based community bank is well on its way to above-average growth in the coming years.

The only modeling changes post-event are mostly minor and don’t move my fair value estimates meaningfully. I continue to believe that OceanFirst is undervalued and priced to generate a double-digit annualized return for several years to come.

Read more here:
OceanFirst On A Solid Footing For Future Growth

Kinsale Capital Producing Great Growth From A Great Model

A pure-play excess & surplus underwriter with a strong management team, excellent technology, and a large addressable market opportunity, Kinsale Capital (KNSL) has posted some very strong premium growth in 2017 and 2018 along with good underwriting ratios. While Kinsale may well find that it needs to raise some capital to maintain its growth, I believe this company could be looking at a five to 10-year run of well above-average growth.

The “but”, as is often the case with quality growth, is valuation. Kinsale still has some upside from here if it can, in fact, deliver high teens adjusted earnings growth, but that’s a demanding bar and the shares are certainly not cheap by more conventional metrics.

Read the full article here:
Kinsale Capital Producing Great Growth From A Great Model

Pacific Premier Lagging On Weaker Core Banking

Smaller banks have had a so-so year as a group, and Pacific Premier Bancorp (PPBI) has done worse than average, and particularly since second quarter earnings. Not only has this growing Southern California bank disappointed the Street, but the combination of weaker loan growth and weaker spreads has hit expectations. Adding to that, Pacific Premier management has made it clear that they intend to remain active in M&A at a time when it seems that many investors would prefer that banks return surplus capital to shareholders rather than expand their businesses through M&A.

I do have some near-term concerns about the commercial real estate market, where Pacific Premier does around 40% of its lending, and while the California multifamily housing market doesn’t have the same challenges as the New York area, Pacific Premier’s higher than average exposure here is a potential risk. Pacific Premier still has a higher short interest than peers, but I do believe the valuation has become much more reasonable for a very profitable, fast-growing SoCal bank.

Follow this link for more:
Pacific Premier Lagging On Weaker Core Banking

It Seems Challenging To Reconcile Selective Insurance's Performance And Valuation

Good companies deserve, and often get, a premium valuation. Although I believe Selective Insurance (SIGI) is an above-average small P&C insurer, and one with opportunities to generate better results in the coming years, I have a hard time reconciling that performance with a book value multiple well over 2x and a P/E ratio that seems to assume quite a bit more growth than I think is likely.

Continue here:
It Seems Challenging To Reconcile Selective Insurance's Performance And Valuation

First Internet Bancorp Is Very Different, And Quite Possibly Meaningfully Undervalued

Indiana’s First Internet Bancorp (INBK) is definitely taking the road less traveled. With no deposit-gathering branch offices, First Internet lives up to its name as a bank that provides its services through the internet. While that hasn’t stopped the company from posting strong lending growth, with a clear focus on niche categories that larger banks don’t serve well, it has proved to be a challenging way to grow attractively-priced deposits and access to affordable funding remains a challenge and growth-limiting issue.

Valuation for First Internet is quite curious, in that it seems quite undervalued relative to its growth. I realize it’s not a particularly well-covered bank, nor very large, and the risks here are certainly above-average, but even so the shares look curiously-priced next to other small, fast-growing banks.

Read more here:
First Internet Bancorp Is Very Different, And Quite Possibly Meaningfully Undervalued

S & W Seed Trying To Restructure, But Liquidity Looms As A Threat

S & W Seed (SANW) is trying to restructure away from an alfalfa market that has proven far more challenging than expected, and as I said in my last update, I like the company’s plan to expand into other crops like sorghum and sunflowers (I’m less bullish on stevia). Unfortunately, as I noted in that last piece, S&W doesn’t have much room to maneuver, as the company’s liquidity is low and access to capital is going to come on less than favorable terms to current shareholders.

I continue to believe that this stock is basically a binary bet, and I don’t tend to like to have those in my portfolio. While I think the company’s efforts to leverage new alfalfa varieties developed with Calyxt (CLXT) have promise, as does the expansion into sorghum and sunflowers, it sounds like the next year is still going to be challenging for the alfalfa business and I’m concerned about the amount of dilution the company will experience in pursuit of a business model that generate meaningful cash flow (or acquisition interest) down the line.

Continue here:
S & W Seed Trying To Restructure, But Liquidity Looms As A Threat

Medtronic Steps Up With A Bigger Commitment To Robotics

Differentiation is the name of the game in the spine space today, and it seems clear that Medtronic (MDT) believes in the long-term future of robotics as a disrupting and differentiating opportunity. To that end, the company announced that it will be acquiring its partner Mazor (MZOR) in an all-cash deal that will give it full control over the future development of this leading robotics platform.

Even with the expected revenue re-acceleration in 2019 driven by the upcoming Mazor X Stealth (which brings integrated navigation to the robot), I believe Mazor is getting a fair price at over 18x estimated 2019 revenue. For Medtronic, while some investors may criticize the deal as buying the cow when they had already had a good deal in place for the milk, I believe total ownership of the platform and control over the future development path is worth paying for given the need to have a differentiated platform in the spine space today.

Continue here:
Medtronic Steps Up With A Bigger Commitment To Robotics

Harder Markets Driving James River Group

James River Group (JRVR) is a relatively small specialty insurer, but it punches somewhat above its weight by focuses on attractive areas like excess & surplus and fronting. Although the company saw an uncommon negative reserve development in 2017 due to higher losses from its business with Uber, James River has moved quickly to re-underwrite that business. All told, this has historically been an insurer with strong underwriting discipline, very good expense control, and a willingness to return capital to shareholders.

Between a restructured relationship with Uber and hardening markets in several of its core excess and surplus specialties, I think James River is looking at an attractive market opportunity relative to the overall P&C market. Even though the shares haven’t done much over the past year, they don’t look strikingly cheap today, as I think a mid-$40’s price is quite fair right now.

Follow this link to the full article:
Harder Markets Driving James River Group

Global Payments Continues To Hit The Mark With An Increasingly Tech-Driven Platform

Fintech has continued to perform well, with investors understandably attracted to the strong earnings growth that many of these companies are generating. In the case of Global Payments (GPN), management continues to show the benefits of its tech-enabled payments model, with strong revenue growth and improving margins on lower churn. While the shares went nowhere for basically the first half of the year, strong second quarters earnings have pushed the shares up almost 30% on a year-to-date basis and up about 15% since my last update on the company.

At this point, I think the market has Global Payments more or less accurately priced, but it wouldn’t surprise me if the ongoing enthusiasm for fintech took the shares higher, particularly if third quarter earnings come in strong.

Read more here:
Global Payments Continues To Hit The Mark With An Increasingly Tech-Driven Platform

Better Growth, But Sluggish Margins And Higher Leverage, At Compass

I’ve been a fairly harsh critic toward Compass Diversified Holdings (CODI) in the past, mainly because I think management takes a rich private equity-like cut, but without really delivering PE-level returns (Morningstar shows a 10-year average total annual return of just over 8.5%). While the partnership structure has certain advantages, it also is more complicated (forcing investors to deal with K-1’s) and I just don’t think the returns – whether you measure the market returns plus distributions, underlying distributable cash growth, underlying EBITDA growth, or what have you -- are up to snuff.

Nevertheless, results were a little better than I expected in the second quarter and the company continues to deploy capital at a somewhat aggressive pace. The shares are now a little below my estimate of fair value and there could be more momentum in the underlying businesses than in recent past quarters. While I don’t believe distribution growth is likely in the near term, and I would again note that partnerships are not suitable for everybody (or every account), better underlying business momentum could create some more value.

Read more here:
Better Growth, But Sluggish Margins And Higher Leverage, At Compass

First Bancshares Driving A High-Growth Plan Across The Gulf States

Mississippi’s First Bancshares (FBMS) continues to impress me with its growth strategy, and it would seem that the Street agrees, as the shares are up another 18% from when I last wrote about the bank and up close to 40% from my first article about the company on Seeking Alpha. Both of those figures put First Bancshares well ahead of the typical bank, and the company continues to execute a cogent “buy-and-build” plan that is expanding its footprint across the Gulf Coast.

I believe there are more potential gains from here, though I will say again that this is a high-growth/high-risk story within banking. Although loan growth remains healthy and there’s not nearly the same level of CRE lending competition in the Gulf that there is in areas like New York City, this is still a relatively mature part of the cycle and First Bancshares is likely going to see more competition as it pushes into markets like North Florida.

Read more here:
First Bancshares Driving A High-Growth Plan Across The Gulf States

Innospec Seeing A Hiccup In Margins, But The Core Business Looks On Track

Specialty chemical companies have continued to do alright this year, as volumes and pricing have helped partly offset increasing raw material pressures. Innospec (IOSP) has been a bit of a laggard since May, though, with the company’s second quarter report hurting the share price as investors didn’t like the weaker than expected margins in the business. I had thought Innospec looked a little pricey when I last wrote about the company, but I do see some upside here as I expect the company to benefit from some lagging pricing actions. If Innospec can get the Oilfield business in better shape, there could be more meaningful upside.

Read more here:
Innospec Seeing A Hiccup In Margins, But The Core Business Looks On Track

Wall Street Believes Winter Is Coming For Steel Dynamics

Metal spreads have continued to improve, but steel prices in the U.S. have come off their highs and analysts are now modeling 2018 as the peak year for Steel Dynamics’ (STLD) EBTIDA for this cycle. Fading prices and fading EBITDA expectations are never a good combo for commodity companies, and although these shares have outperformed peers on a one-year and year-to-date basis, the performance in recent months has been lackluster.

I do believe that Steel Dynamics is undervalued now and I do believe this is a relatively better place to be in the steel sector, but this looks more and more like a difficult place to make money for at least the next few quarters. Protectionist measures and a healthy economy may support a “stronger for longer” steel cycle, but I think it will be hard for these shares to significantly outperformance unless pricing and/or volumes really surprise.

Read the full article here:
Wall Street Believes Winter Is Coming For Steel Dynamics

Nucor's Healthy Spreads Aren't Enough As The Cycle Moves Past The Peak

It’s often difficult to make money in commodity sectors when the cycle has reached and passed its peak, and that seems to be holding true for steel. Although spreads continue to improve and earnings expectations for Nucor (NUE) have continued to rise for both 2018 and 2019, the shares really haven’t gone anywhere this year as investors expect meaningful earnings erosion from here and move onto to greener pastures.

I believe it’s better to be in mini-mill and/or specialty steel companies at this point, but I’m still mostly lukewarm on Nucor. I do see some risk of overspending on M&A, as well as some vulnerability to increasing capacity, though I will emphasize again that this is a very well-run company in the sector. I continue to believe that fair value is above $70 per share, but this may be a tough place to make money unless/until there’s a reason to believe this cycle will persist beyond current expectations.

Click here for more:
Nucor's Healthy Spreads Aren't Enough As The Cycle Moves Past The Peak

Can A Better Second Half Drive Some Enthusiasm For ArcelorMittal?

My concerns back in the late spring about it being too late in the cycle to make good returns in steel sector appear to have played out this summer. ArcelorMittal (MT) has declined more than 10% since my last update on the company, despite a stronger-than-expected second quarter and a stronger outlook for the second half. What's more, steel prices have held up, as has demand, and spreads are still attractive. It's not just ArcelorMittal, though, as Voestalpine (OTCPK:VLPNY), U.S. Steel (X), Ternium (TX), Steel Dynamics (STLD), and Nucor (NUE) are down over that period as well, and Acerinox (OTCPK:ANIOY) is barely up.

ArcelorMittal looks very cheap on the basis of near-term EBITDA, and even looking a few years ahead to declining prices and profits suggests that today's valuation is weak relative to historical norms. At this point, I'm not really sure what's going to bring investors back to this name, as steel prices aren't likely to improve much (if at all) from here, and investors tend to bail when pricing momentum fades. So, while I do think ArcelorMittal looks unfairly cheap, the markets don't care about fair, and investors considering these shares need to be aware of the risk that this is a value trap.

Continue here:
Can A Better Second Half Drive Some Enthusiasm For ArcelorMittal?

With Margin Leverage Emerging, Can Carpenter Technology Get Going?

Carpenter Technology (CRS) has been a frustrating story to watch, as a good recovery in oil/gas and strong demand growth in aerospace and medical don’t seem to be resonating all that strongly with the market. I wasn’t quite so bullish on Carpenter in May as I was earlier in the year, but I’m surprised the shares haven’t really budged since then. While they have outperformed Allegheny (ATI), Haynes (HAYN), and Universal Stainless (USAP), I don’t think the market is really very bullish on the prospects for Carpenter to continue to garner parts qualifications from aerospace customers and fill that under-utilized Athens plant.

I remain more bullish than the Street on this one, as I do believe ramping aerospace demand and ongoing recovery-driven demand in oil and gas will support volume. I’m also bullish on the company’s opportunities in additive manufacturing (especially in medical), though I see some risk to the Transport segment as heavy truck builds slow. If I’m right about the upcoming ramp, particularly in higher-value specialty products, gross margins could move into the 20%’s in this upcoming fiscal year, and I believe a mid-$60’s fair value is still in play.

Read more here:
With Margin Leverage Emerging, Can Carpenter Technology Get Going?

Danaher's Pall Investor Meeting Underscores Several Business Strengths

In isolation, Danaher’s (DHR) investor day focusing on the Pall operations doesn’t really change anything about the story. What I believe is more important, though, is what the presentation reveals about the company’s much-lauded Danaher Business System (or DBS) and its ability to drive value from M&A.

With Danaher successfully integrating and improving companies across the range of revenue growth and R&D intensity, I believe Danaher has a compelling case for how and why it can continue to buy companies (particularly in life sciences and diagnostics) at seemingly high valuations and still generate value from the process and capital invested.

Danaher’s life science opportunities are significant, and I see no reason to believe that the company is looking at any significant near-term issues in the water or product ID businesses. Management was actually more optimistic than I expected on conditions in the semiconductor sector, and the company is leveraging its pricing power and supply chain flexibility to minimize the disturbances from tariffs.

Read more here:
Danaher's Pall Investor Meeting Underscores Several Business Strengths

Gerdau Facing A Still-Challenging Brazil, But U.S. Margins Improving

These are still challenging days to be a steel producer in Brazil. Pushing through price increases takes some effort and patience, and demand is still being hamstrung by soft infrastructure spending and tenuous consumer confidence. Even so, Gerdau (GGB) is back to nearly 20% EBITDA margins in its home country, while efforts to improve margins in the U.S. also seem to be producing some benefits.

Gerdau shares have fallen about 16% since I last wrote on the company (when I thought they looked a little pricey), with a weaker Brazilian real exacerbating a 6% decline in the local shares. I can't say that the shares are supremely undervalued today, and I think I'd rather take my chances with Ternium (TX) in Latin American steel, but the shares do appear to have upside from here and that upside could expand if and when confidence returns to Brazil and as the company makes more progress with U.S. margins.

Follow this link to continue:
Gerdau Facing A Still-Challenging Brazil, But U.S. Margins Improving

Fly Leasing Still Holding Below Fair Value

Although Fly Leasing (FLY) is up a little from when I last wrote about the company, the performance over the last year still hasn’t been very compelling next to AerCap (AER) or Air Lease (AL), and the shares continue to underperform the S&P 500 over that span. At this point, there’s not much that management can do other than execute the plan in place and prove to the Street that the planes it will be acquiring from AirAsia will generate attractive returns. Fly Leasing deserves to trade at a discount to book value, but I believe a 30% discount is too large, and I think a fairer price is in the high teens today.

Click here for more:
Fly Leasing Still Holding Below Fair Value

Steady AerCap Continues To Offer Value

Aircraft leasing company AerCap Holdings (NYSE:AER) has done relatively well this year, with the shares slightly ahead of the S&P 500 on a year-to-date basis and slightly behind on a trailing 12-month comparison. The company has also continued to outperform its peers, with the shares outperforming Air Lease (NYSE:AL), Fly Leasing (NYSE:FLY) and Aircastle (NYSE:AYR) over the past year. Air traffic growth remains healthy on a global basis, oil prices are not yet at problematic levels for airlines, and rate increases give investment grade-rated AerCap an ongoing opportunity to take advantage of its better access to capital.

I continue to believe AerCap shares are undervalued, though the environment over the next couple of quarters may not be as conducive to outperformance. A shift away from significant asset sales is going to weigh on reported earnings, and a shift back toward portfolio growth is going to redirect capital away from share buybacks for a time. Even with that turbulence, though, I believe these shares are undervalued below the low-to-mid $60s.

Click here to continue reading:
Steady AerCap Continues To Offer Value

Akoustis Technologies Is A Puzzling Pre-Commercial Tech Story

It may not always be the case that if something seems to good to be true it probably isn’t, but healthy skepticism can be an investor’s best friend. To that end, Akoustis (AKTS) is both intriguing and confounding. While the idea of disruptive technology in the RF filter space is certainly appealing, particularly with an enterprise value of less than $200 million, I think you have to ask why a company with promising technology and no revenue would go public through a reverse merger instead of following the more typical venture-IPO route.

I don’t know whether the worst accusations against Akoustis are true, but I do know that a lot of what they’re attempting to do flies in the face of how business normally works, and I know competition in advanced filters is extremely fierce. It’s true that Akoustis is targeting markets that can support meaningful revenue, but with what I regard as unproven technology, unproven execution capabilities, significant barriers to adoption, and thin financial resources, this is at best a very risky proposition.

Read more here:
Akoustis Technologies Is A Puzzling Pre-Commercial Tech Story

Playing M&A Bingo With BB&T

When an historically acquisitive bank signals that they’re reading to start considering M&A again, I don’t think it’s much of a stretch to start speculating on the sort of target(s) the company might have in mind. In the case of BB&T (BBT), while management has certainly laid out a case for worthwhile organic growth by focusing on its core strengths in business and consumer lending, the company has also laid out a clear set of criteria for future M&A, and I believe management would like to make a significant deal (or two) to vault the company over the $250 billion asset level.

Deal or not, I believe BB&T shares are modestly undervalued today. While there are certainly other options in BB&T’s size range worth considering (including PNC (PNC)), I believe mid-single-digit growth can support an attractive return at today’s price.

Read more here:
Playing M&A Bingo With BB&T

MetLife Continues To Languish In An Out-Of-Favor Sector

Maybe the nicest thing I can say about MetLife (MET) is that it has suffered no worse than its sector, with the shares down 4% over the past year and more or less in line with Lincoln (LNC) and Prudential (PRU), while Unum (UNM) has fallen more than 20%. The issues for investors remain more or less the same – worries about spread pressure, worries about credit quality risk in fixed income, worries about the growth potential of mature markets, and probably most importantly, worries about the status of reserves in long-term care insurance books.

I continue to believe MetLife is undervalued, but it’s hard to identify a catalyst for a turnaround in sentiment. A successful/benign completion of its actuarial review of its LTC business would certainly help, but I think investors are firmly in the “we’ll believe it when we see it” camp when it comes to the potential of the LTC business, as well as the company’s cost-cutting targets and growth initiatives. I continue to see fair value in the low-to-mid $50s, which when combined with the dividend, suggests a pretty good return for this unpopular name.

Read the full article here:
MetLife Continues To Languish In An Out-Of-Favor Sector

Efficiency Initiatives, M&A, And Cycle Have Boosted Columbus McKinnon

Columbus McKinnon (CMCO) is off the beaten path, and at around $1.3 billion in enterprise value it is certainly a smaller industrial, but this company is a leading player in material handling products like hoists, industrial cranes, controls, and actuators. Not only has the company gotten a noticeable boost in recent years from acquisitions and cyclical recoveries across a range of industrial end-markets, but the company has also done an excellent job of executing on the (relatively) new CEO’s vision for a leaner, more dynamic Columbus McKinnon.

Although the shares have outperformed the industrial sector this year (and significantly outperformed over the past two years!), this may not be the end of the opportunity. I’m a little nervous about projecting high single-digit to low double-digit FCF margins for a business like this, but it’s hard to argue with the margin improvements that the company has already made, as well as the opportunities in product simplification and R&D re-investment.

Read more here:
Efficiency Initiatives, M&A, And Cycle Have Boosted Columbus McKinnon

Smiths Group Back To The Drawing Board With Value-Creation

Although Smiths Group (OTCPK:SMGZY) (SMIN.L) enjoyed a good spring/early summer, the shares have given up a lot of those gains as concerns continue to swirl around the Medical business, particularly now that the negotiations with ICU Medical (ICUI) have fallen apart. Not helping matters are concerns as to whether the John Crane business can continue to do all of the heavy lifting for the business and whether management is truly serious about generating value through active portfolio management.

The inability to sell Medical is a disappointment, and there’s really no denying that unwinding conglomerates is now in vogue. With Smiths inability to generate meaningful organic growth in many years, investors want more action even though the company has generated more respectable returns on capital. Given these pressures, Smiths upcoming earnings are going to be an important event for investors – moreso in terms of what management has to say about its vision for portfolio transformation over the next year or two.

Read more:
Smiths Group Back To The Drawing Board With Value-Creation

Quality And Conservatism At People's United Comes At A Cost

There’s a lot to like about People’s United Financial (PBCT). A leading bank in New England (#4 in deposit share), People’s United services a client base with well above-average household income and has maintained excellent full-cycle credit quality versus its peers. The bank has also had solid success in expanding its lending franchise into the New York and Boston metro markets and has produced some good long-term C&I loan growth numbers. I’d also note that the bank pays a fairly attractive dividend and operates with a conservative financial structure.

There are also things that aren’t so good about People’s United, though, including the company’s persistent below-peer profitability and more limited growth prospects. Loan growth is looking more challenging in 2018 and the bank’s asset sensitivity may not be worth as much if we’re closer to the end of the rate cycle. People’s United has long underperformed regional banks as a group, and while I do see some value here, this is a tougher call given the more diminished growth prospects that I see.

Click here for more:
Quality And Conservatism At People's United Comes At A Cost

Exceptional Growth And Aggressive Evolution Still Drive Palo Alto Networks

Palo Alto (PANW) is a case-in-point as to why I don’t like to sell stocks just because they look expensive. Good companies, particularly those with a knack for disruptive innovation, have a way of driving ongoing growth above and beyond what seems reasonable to expect. In the case of Palo Alto, ongoing excellence in execution and a strong security market have led to another 17% move in the shares since my last update on the company. Nice as that is, and it handily beats the return of the NASDAQ over that time, it’s well short of what Fortinet (FTNT) and Check Point (CHKP) have delivered, and Fortinet and CyberArk (CYBR) have likewise outperformed Palo Alto on a trailing one-year basis.

Just as selling a strong growth stock because it looks “expensive” can be a regrettable mistake, so too can rushing to make up for lost time and over-correcting. I like the outperformance Palo Alto has been showing, I’m intrigued by the potential of Application Framework, and I think new CEO Nikesh Arora certainly has the right experience to transition Palo Alto into a new hybrid cloud world of security. But I also want to keep some semblance of sanity when it comes to valuation; even though Palo Alto’s potential growth rate for fiscal 2019 would argue for an even higher multiple than it currently sports.

Continue here:
Exceptional Growth And Aggressive Evolution Still Drive Palo Alto Networks

Adecoagro Downsizes Its Dairy Aspirations And Seems More Focused On Value

Adecoagro (AGRO) has struggled over the past year, with the shares down more than 25%. Plunging sugar prices, a weaker Brazilian currency, and concerns about the Brazilian economy are certainly major factors in that performance, but they aren’t the only concerns in play with Adecoagro. These shares have done almost nothing for investors over the past five years (which is at least better than Cosan (CZZ)), as investors have questioned management’s focus on true shareholder value creation.

Recent developments may be a step in the right direction. Not only did management outline a path toward dividends at a recent sell-side conference, but the company is also being more clear about its intentions to grow FCF and be a better steward of shareholder capital, including a significantly scaled-down offer for SanCor assets in Argentina. While there is still ample skepticism regarding this company, the share price seems to reflect a pretty dire long-term scenario.

Continue here:
Adecoagro Downsizes Its Dairy Aspirations And Seems More Focused On Value

More Clarity On Honeywell's Spinoffs And A Boost To Guidance

There's an ongoing tug of war in the industrial sector between analysts and investors who believe the end is nigh and that the cycle is going to start showing real signs of slowing next year, and the people who actually run those companies who believe business conditions remain strong. While many short-cycle industrials have picked up a little momentum lately, longer-cycle Honeywell (HON) has remained a strong performer throughout, with the shares arguably replacing 3M (MMM) as the must-own in the space.

In relatively short order, Honeywell will become a smaller, more profitable, and faster growing company as it completes the spinoffs of Garrett Motion (GTX) and Resideo Technologies. Spinning these two businesses should, in turn, lead to higher multiples for Honeywell as it will improve the company's margins, returns, and growth prospects. As all of that is going on, Honeywell continues to enjoy healthy demand across many of its businesses, with certain categories (aerospace, UOP, and automation in particular) looking like they have more to give. I've been a steady fan of Honeywell for a while, but given where the shares now sit in terms of valuation, I can't be quite as enthusiastic as before.

Follow this link to the full article:
More Clarity On Honeywell's Spinoffs And A Boost To Guidance

The Cycle Weighing A Bit On 3M

Shorter-cycle names have done a little better in recent months, but overall it’s been a challenging year for the stocks of companies like 3M (MMM), Illinois Tool Works (ITW), and Colfax (CFX) compared to Emerson (EMR), Honeywell (HON), and Eaton (ETN). The late summer/early fall is a popular time for sell-side conferences and investor days, and with that another chance to look at these names heading into the last three months of the year. In the case of 3M, it looks like the company’s shorter-cycle exposure is weighing a bit more on results, with management nudging down growth expectations while also experiencing higher cost inflation.

All told, 3M remains a well-run company at a somewhat challenging point in the cycle and with a tough valuation. 3M has a lot to offer as a flight-to-quality name and the company’s strong tradition of innovation and reinvestment supports a longer-term investment case, but unless management offers an uncommonly bullish outlook at its November investor meeting, investors are likely looking at middling near-term performance prospects.

Continue here:
The Cycle Weighing A Bit On 3M

Steady As She Goes For AllianceBernstein

A key part of the AllianceBernstein Holding LP (AB) story, and one that I've been saying for a while has been undervalued by the market, is the extent to which the company can unlock the benefits of prior investments in distribution platforms to generate better margins on rising AUMs. That story continues to work out, helping drive these units about 25% higher over the past year and 10% higher since my last update, all while paying an attractive tax-advantaged distribution.

I continue to believe that AllianceBernstein is a worthwhile holding to consider for investors who want a return story that skews toward the income side (and for whom an LP makes sense). The improvements in the company's equity funds is driving better asset growth and the company's overall strategy to drive more retail AUM still has room to run. Meanwhile, the expense benefits of shifting back-office operations out of New York City won't really show for several years, and can drive another leg of margin improvement. With a fair value in the low-to-mid $30s, I believe these shares continue to hold appeal for those willing and able to own an LP.

Read the full article here:
Steady As She Goes For AllianceBernstein

Cemex Still Undervalued - And Somewhat Underwhelming

Although Cemex (CX) shares have done pretty well since my last update, rising more than 15% and outperforming peers like Vulcan (VMC), LafargeHolcim (OTCPK:HCMLY), Buzzi (OTCPK:BZZUY), and Cementos Pacasmayos (CPAC), the absolute returns over the past couple of years still haven’t been all that impressive, and the company continues to see only modest growth in EBITDA. Now the company is launching another program of value-creation focused on asset sales, deleveraging, and cost cuts that should produce some incremental, but not transformational, value for shareholders.

The volume situation is frustrating, but I still see value in this company as it continues to reduce debt and starts to return capital to shareholders (likely next year). Asset sales could add a little value and there’s still a credible story here for volume acceleration in the U.S. and Mexico over the next couple of years. Below $8.50 to $9, I’d still say there’s more room for these shares to head higher.

Read more here:
Cemex Still Undervalued - And Somewhat Underwhelming

Hubbell Looking To Self-Help And A Cyclical Boost

Later-cycle plays have gotten more attention as this year has gone on, and with that electrical product and lighting specialist Hubbell (HUBB) has closed some of its multiyear performance gap relative to industrials, with the stock actually outperforming the Industrial Select Sector SPDR ETF (XLI) over the past year as well as handily outpacing Acuity (AYI) as well. Add in the Aclara acquisition, ongoing restructuring efforts, and an apparent willingness to address the lighting business more directly, and I can see why these shares have done well in recent months.

As far as valuation goes, Hubbell is more of a lukewarm prospect to me now. I like the potential of what facility consolidation, automation, and supply chain improvements could bring, but margins have been weak for a while despite an ongoing effort to restructure. Likewise, while I like the diversification that Aclara brings, lighting remains a tough market. The perception of Hubbell as a late-cycle play should aid sentiment, and the shares do have some upside on an EV/EBITDA basis, but the overall long-term return potential looks more or less in line with most other industrial names.

Read more here:
Hubbell Looking To Self-Help And A Cyclical Boost

Microchip Looks Undervalued, But There Are Short-Term Challenges To Consider

Buying good companies on stumbles is a time-tested strategy, but one that stills carries risk – it’s not always easy to separate a stumble from a prolonged tumble down the stairs. In the case of Microchip (MCHP), while issues related to its recent Microsemi purchase loom larger in the short term, I’m a little more concerned about the potential impact of extended lead times and weakening demand in important end-markets.

I believe Microchip has proven itself to be a well-run chip company, and I like the company’s diverse capabilities across microcontrollers (or MCUs) and analog, as well as the new opportunities brought in with the Microsemi deal (including FPGAs, timing products, data center products, and so on). Although this may not be the ideal time to buy given sentiment toward the semiconductor space, the long-term value proposition makes this a name worth considering for more value-driven investors.

Continue here:
Microchip Looks Undervalued, But There Are Short-Term Challenges To Consider

Dover's Analyst Day Offers Some Encouraging Signs

Dover (DOV) hasn't been my favorite industrial name, largely because of what I believe to be inefficient operations and bloated expenses (leading to less impressive returns on capital) and arguably a less than ideal collection of business. With a new CEO coming into the company from outside (previously the CEO of CNH Industrial (CNHI)), I'd hoped that the company might become more dynamic in addressing its cost issues and perhaps consider more portfolio restructuring activities. While the September 11 analyst day doesn't suggest any dramatic changes are coming, I like the overall direction and philosophy the new CEO is taking with Dover.

Valuation is a little more challenging now. The shares have outperformed industrial peers since the second quarter, in part I believe on improved guidance and healthy orders, but also in anticipation of the analyst day announcements. Although the shares look pretty fully valued on the basis of near-term numbers, successfully executing on cost cuts/margin enhancement efforts and deploying capital toward buybacks could significantly increase EPS in 2020 and beyond relative to current expectations.

Read more here:
Dover's Analyst Day Offers Some Encouraging Signs

Pacific Biosciences Inching Closer To A Key Event

The summer has been good to Pacific Biosciences (PACB) (or "PacBio"), as the shares have risen from $2.50 in late May to a recent high of just over $5 a share. I attribute some of this positive momentum to a strong market overall for more speculative med-tech stocks, but also to the approaching launch of PacBio's ZMW 8M cell - a major step forward for the productivity of the company's systems that should drive a significant step-up in the utility and popularity of the system, particularly for more advanced applications like structural variant analysis.

PacBio's just announced financing is unlikely to get the company through to cash flow breakeven, but it takes liquidity off the table as a risk through the launch of the ZMW 8M - long enough, I believe, to see the start of a meaningful inflection in demand that could allow for a "top off" financing on better terms ahead of cash flow breakeven (which I estimate in 2022). Valuation is complicated by the sluggish recent pace of revenue growth, but if PacBio can scale up towards $125 million in revenue in 2019 and $160 million in 2020, forward revenue multiples north of 6x could (if not should) come into play and drive further gains, but executing on the ZMW 8M opportunity is absolutely critical.

Click here for more:
Pacific Biosciences Inching Closer To A Key Event

Inphi Shares Pricing In Significant Growth In Data Center And Optical

There is a long list of companies in the chip and networking space leveraged to meaningful growth in optical deployments (long-haul and metro) and expanding adoption of higher-speed networking technologies in the data center. Inphi (IPHI) is uncommonly focused on this market; while adoption of 200G and 400G technologies is important to Mellanox (MLNX), Broadcom (AVGO), Finisar (FNSR), MACOM (MTSI), MaxLinear (MXL), and Semtech (SMTC) to varying degrees, Inphi is intensely focused on DSPs, drivers, TIAs, and PHYs used by equipment companies like Cisco (CSCO), Huawei, as well as hyperscale data center customers like Microsoft (MSFT) and Amazon (AMZN), and lacks the diversification of rivals like Broadcom.

There have been more than a few bumps in the road for Inphi, as data center deployments haven’t always matched up with bullish projections, and the company has been vulnerable to volatile spending patterns in markets like Chinese optical deployments. What’s more, the shares aren’t exactly cheap, as they already factor in meaningful revenue acceleration over the next three years and significant margin expansion. While Inphi does have strong technology and engineering capabilities, and I believe there is likely an M&A “backstop” to valuation, the markets Inphi participates in are intensely competitive.

Click here for more:
Inphi Shares Pricing In Significant Growth In Data Center And Optical

Marvell Not Getting Enough Credit For The Progress It Has Made

Marvell Technology (MRVL) isn’t quite in the clear just yet. While management has led what I believe to be an impressive turnaround since Matt Murphy became CEO in the summer of 2016, and the decision to exit mobile baseband (which occurred before the new CEO came on board) was a good one, the shares have nevertheless lagged the SOX over the past two years, with the gap having widened recently on growing concerns about the health of the recently-acquired Cavium business.

At its core, I think Marvell has a decent, if not good, business – the storage controller business is a solid cash flow generator and the company’s Ethernet business should be able to expand from its low-to-mid-range enterprise core into more attractive data center opportunities. While Cavium’s recent performance has certainly been disappointing, I think it’s premature to write off this business and the growth opportunities in areas like multi-core processors, Ethernet and fibre channel adapters, ARM processors, and security processors and adapters. I’m certainly not as bullish as the sell-side seems to be, but I think expectations are low and solid execution can drive better margins and a fair value into the low-$20s in the short term and into the mid-to-high $20s a little further down the road.

Continue here:
Marvell Not Getting Enough Credit For The Progress It Has Made

Renesas Seals The Deal With Integrated Device Technology

It didn’t take long for the rumors of Renesas Electronics’ (OTCPK:RNECY) (6723.T) interest in Integrated Device Technology (IDTI) to bear fruit, with the two companies announcing late Monday night that Renesas had agreed to acquire IDTI for $49/share in cash. The deal structure is a fairly straightforward cash transaction, with Renesas anticipating a deal close in 2019 pending regulatory approvals.

Although Renesas is paying a little more than I expected, management’s target for post-merger revenue synergies was higher than I had modeled. Even with a modest discount to those projections (though Renesas has exceeded expectations with its Intersil integration), this looks like an accretive, worthwhile deal for Renesas that will augment its auto business, add valuable analog/mixed-signal capabilities, and better diversify Renesas’s auto-heavy business mix. Although Renesas shares have been hammered this year as the company goes through a tough inventory adjustment cycle, the long-term value looks interesting at these levels.

Click here to continue:
Renesas Seals The Deal With Integrated Device Technology