Tuesday, March 24, 2020

Amid Intense Macro Uncertainty, PRA Group Executing Well

To at least some extent, the Covid-19 outbreak in North America and Europe is an “all bets are off” event for PRA Group (PRAA) that massively complicates modeling over the next year or two. It’s pointless to attempt to collect on debts incurred by people who have no income, and there is still significant uncertainty as to whether there will be additional shelter-in-place orders around the country and when the country will be back to “business as usual”.

It’s not completely accurate to say that PRA Group can just hunker down and wait for conditions to improve – there are ongoing costs to operate the business – but the company’s receivables don’t expire to any meaningful extent. Sooner or later, people will be able to pay again and although Covid-19 is going to limit the company’s near-term earnings potential, the longer-term outlook is still fairly good, particularly so given the progress made in building up the company’s digital and legal collections capabilities.

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Amid Intense Macro Uncertainty, PRA Group Executing Well

Lexicon Pharmaceuticals Moving On From Diabetes And Pivoting Toward Clinical Candidates

While I’m sure die-hards will claim that Lexicon Pharmaceutical’s (LXRX) sotagliflozin still has a future, the company’s recent announcement that it would shut down the SCORED and SOLOIST long-term studies and indefinitely postpone an NDA filing due to an inability to find a partner, after getting its second appeal to the FDA on the Type 1 indication rejected, essentially brings that program to a close.

Theoretically Lexicon could still find a partner for this drug, but the reality is that it’s done as a meaningful contributor to the story. Still, the company’s cupboard is not entirely bare; management has reported encouraging retrospective efficacy for Xermelo in neuroendocrine tumors (or NET), will be reporting initial efficacy data for Xermelo in biliary tract cancer (or BTC) later this year, and will be starting a Phase II proof of concept study in diabetic peripheral neuropathy later this year.

The loss of sotagliflozin is meaningful, but the clinical potential of Xermelo and the pain drug LX9211 can support a fair value above today’s price. Investors should note, though, that these are high-risk opportunities and the company’s balance sheet/funding situation is far from ideal.

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Lexicon Pharmaceuticals Moving On From Diabetes And Pivoting Toward Clinical Candidates

Hurco's Balance Sheet Will Carry It Through These New Headwinds

I had been more bearish, or at least more cautious, than a lot of analysts regarding the outlook for manufacturing stocks in 2020 given the still-weak underlying end-market trends and the prospects of election year disruptions, but I certainly didn’t have the huge Covid-19 impact in my models. With the pandemic impacting economic activity around the globe, investors find themselves in what is basically an “all bets are off” environment when it comes to manufacturing equipment companies like Hurco (HURC).

Hurco’s strong balance sheet is likely its best asset today, as the company’s strong net cash position will help it push on through this unexpected new headwind. Although a downturn on par with fiscal 2009 (when revenue dropped by more than half) isn’t my base-case assumption yet, the company could survive that and demand will eventually recover in key markets like Germany, the U.S., and Italy. I certainly can’t promise that there’s no more downside at this level, but Hurco has navigated tough times before and I expect it will do so again.

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Hurco's Balance Sheet Will Carry It Through These New Headwinds

Monday, March 2, 2020

The Ugly Market Selloff Brings Lincoln Electric Back Into A Long-Term Buy Range

It takes a lot to knock well-respected, high-quality stocks down to attractive valuations, and this ugly market selloff is doing just that for many stocks, including Lincoln Electric (LECO). Make no mistake, current conditions are pretty challenging for this leading welding company, and whatever recovery may come in 2020 is not likely to be particularly strong. Still, this is a company that has been through this before (many times, actually), has a business plan that gives it a lot of cost flexibility, and is going to emerge from this correction in solid condition.

The biggest issues I see with recommending Lincoln here and now are the questions of how the recovery will look and how much further downside there could be from here. I’ve been generally more bearish than most Street analysts on the outlook for the 2020 short-cycle recovery, and Lincoln management’s commentary does seem to support the idea of a shallower recovery (at least in 2020). With that, there could still be some risk to estimates (particularly if Covid-19 pushes the U.S. into recession). Likewise, markets tend to go too far to the good and bad, so I cannot rule out the risk that Lincoln shares will get even cheaper before finding a floor.

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The Ugly Market Selloff Brings Lincoln Electric Back Into A Long-Term Buy Range

In An Ugly Market, Cognex Looking Better

In writing on Cognex (CGNX) in the past, I’ve said that whatever circumstances it would take to make this leading machine vision company look undervalued, they would probably look pretty ugly. And here we are – whether Covid-19 is a valid reason for a widespread market sell-off or just an excuse for institutions to sell off expensive stocks, it has driven a lot of quality names to much more reasonable valuations.

Cognex certainly has near-term risk. Capex in the auto sector remains weak and Cognex management believes that both auto and consumer electronics capex may not rebound strongly in 2020. Economic concerns and the election cycle could likewise weigh on logistics capex investing. Longer term, Cognex now has a new rival to worry about, and so on. Point being, there’s always going to be a reason not to buy Cognex (or almost any stock, really), but I believe that this is a relatively rare chance to buy Cognex at a price that at least appears reasonable on a long-term basis.

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In An Ugly Market, Cognex Looking Better

Veeco Looks More Interesting After A Big Pullback

Veeco (VECO) shares have remained quite volatile since my last update; volatility in smaller, under-covered semiconductor equipment names isn’t that unusual, and the coronavirus outbreak adds yet another factor to the mix. On the other hand, Veeco’s fourth quarter results were pretty good and the business seems to be on track to return to profitability later this year. Add in some interesting longer-term opportunities like tools for EUV mask blanks, VCSEL production, and GaN deposition, and I can see reasons for considering these shares.

Not unlike many other equipment providers, these shares have been hammered since Valentine’s Day, with the stock down almost a third from their high. Veeco isn’t my favorite name for many reasons, including the fact that I see it as more of a hodgepodge of tools and market opportunities and I question the long-term margin potential, but there’s a fair price for all going concerns, and I think Veeco is likely trading below that price now.

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Veeco Looks More Interesting After A Big Pullback

OXXO Carrying The Load For FEMSA

FEMSA (FMX) shares haven’t been particularly strong lately (even before the recent market-wide selloff), and I believe at least part of the reason is increasing investor concern over the company’s capital allocation decisions. Acquisitions in the pharmacy and fueling space have yet to really deliver, and now the company is going even further afield to invest in wholesaling and logistics in the U.S. and Brazil. On the other hand, the core OXXO business remains a fortress business for FEMSA, generating significant cash flow that buys the company time for these other investments to mature and deliver.

While the share price has declined to a point where the valuation seems very attractive, capital allocation worries remain. Between recent rumors of a potential acquisition in Brazil and a U.S. bond issuance, nobody really believes that FEMSA is done putting capital to work in M&A. While these concerns are valid, FEMSA management’s historical performance should earn it more benefit of the doubt than it is getting, and I believe the shares remain quite attractive.

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OXXO Carrying The Load For FEMSA

The Hits Keep Coming For ING

Dutch multinational bank ING Groep (ING) had already been testing investors’ patience for a while, as the bank has struggled to meet cost targets and offset widely-known rate pressures across its business. While fourth quarter results do hint at stabilization in the business, the subsequent announcement that the CEO Ralph Hamers was leaving for greener pastures at UBS (UBS) was yet another challenge that the company, the stock, and the shareholders really didn’t need.

There’s only so many times you can make a “just be patient, it’ll get better” call on a name, and ING is arguably past that point. With the shares lagging the broader European bank sector over the last couple of years, this has been a bad call. What’s more, this recent market correction has brought many banks down to more interesting valuations, so investors have plenty of choices now. ING still looks undervalued, but it’s likely going to take beat-and-raise quarters before sentiment shifts, and nothing about the macro environment suggests that’s particularly likely.

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The Hits Keep Coming For ING

Turkcell Remains A Good House In A Very Unpopular Neighborhood

Not only is emerging market telco a largely out-of-favor sector, but Turkcell (TKC
) also continues to be hurt by the relative unpopularity of Turkey as an investment destination. I’ve discussed the many and varied issues with Turkey in prior articles and I won’t rehash that here other than to say that there remain substantial valid concerns about the health of Turkey’s economy and the quality of the government. Even so, Turkcell continues to execute well, with strong performance in the consumer post-paid and fiber businesses.

Turkcell still looks undervalued to me, but it also still looks like a potential value trap unless and until the situation in Turkey improves. Positive ongoing execution will certainly help sentiment, and the dividend outlook is likewise good, but even if Turkcell is one of the best options in Turkey today, that’s only worth so much.

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Turkcell Remains A Good House In A Very Unpopular Neighborhood

HollySys Gaining Share In Automation, But Volatility, Execution, And Covid-19 Remain Risks

The HollySys (HOLI) story is no less frustrating than it was a quarter ago, as the company posted mixed fiscal second quarter results, but also appeared to continue to gain share in China’s process automation market. Margins may well remain under pressure for some time, as the company continues to show a willingness to trade margins for market share in automation and as it continues to reinvest in R&D in both the automation and rail businesses.

As for the shares, they continue to look undervalued, with the stock at a five-year low in terms of price/book and EV/EBITDA. This is a profitable business that consistently generates solid free cash flow and sports a healthy balance sheet. Still, it is not particularly well-followed, it’s not particularly large, and the company’s performance has been erratic (and communication with investors has been far less than perfect). Investors attracted to the story and low apparent valuation would do well to at least be aware of the “value trap” risk here, even though the company is leveraged to some attractive trends, including a growing emphasis on self-sufficiency within China’s automation market.

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HollySys Gaining Share In Automation, But Volatility, Execution, And Covid-19 Remain Risks

Ternium Hammered On Risk Aversion And Economic Uncertainty

Ternium’s (TX) performance since my last update has not been good, with the shares down about 17%. That’s better than the performance of steel peers like ArcelorMittal (MT), Nucor (NUE), and Steel Dynamics (STLD), but “less bad” is only worth so much. Honestly, I found the reaction to the company’s fourth quarter miss relatively restrained, but now there are a lot of worries about what the coronavirus may mean for a number of economies, and that’s on top of what was already a lot of uncertainty about the outlook for Mexico in 2020.

I still like the long-term value proposition here, but buying into sharp market declines often feels like playing chicken with a freight train. Ternium remains a well-run steel company with above-average profitability and exposure to attractive markets, but this is not a good stock for nervous investors.

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Ternium Hammered On Risk Aversion And Economic Uncertainty

Near-Term Market Issues Open A Window Of Opportunity At ITT

Good stocks don’t tend to get, or stay, very cheap for very long, and while there are still some meaningful short-term risks for ITT (ITT), the recent declines look like an opportunity to consider. Not only does ITT serve some attractive long-term process markets, but the opportunities to gain share in automotive friction are still significant, and there are some appealing margin improvement drivers that management is working on now.

I don’t know whether Monday’s sell-off on coronavirus fears will continue, or whether this is a long-awaited correction in what I’ve seen as frothy multi-industrial valuations, but with ITT’s prospective annualized return now above 10%, I see enough upside to take a more bullish position on these shares.

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Near-Term Market Issues Open A Window Of Opportunity At ITT

Tuesday, February 25, 2020

Lundbeck's Pullback Makes It Worth Considering Again

Investors often gravitate toward pharmaceutical stocks due to the perception that the sector offers less volatility than other sectors, but that has not been the case for H. Lundbeck (OTCPK:HLUYY) (LUN.KO), and the shares have remained quite volatile as investors try to figure out the confounding trends in both the legacy and growth portfolios, not to mention the potential future contributions of the pipeline.

While Lundbeck’s fourth quarter wasn’t bad, management was cautious with guidance. Coupled with concerns that too much of the recent earnings momentum has been driven by the legacy portfolio, investors have once again sold the stock. Although I can’t call Lundbeck a best-of-sector idea, and it is certainly not as dependable as a company like Roche (OTCQX:RHHBY), I think there may be more value here than the shares currently reflect.

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Lundbeck's Pullback Makes It Worth Considering Again

Lenovo Continues To Execute, But Also Continues To Suffer From Macro Headwinds

I noted in my last article on Lenovo (OTCPK:LNVGY) that the company’s lack of meaningful internal drivers was an impediment to building any real share price momentum and/or shrinking the valuation gap. Moreover, in the absence of meaningful internal drivers, Lenovo is subject to the vagaries of transient macro challenges, the latest being the increasingly global Covid-19 outbreak.

The ADRs are pretty much flat relative to that last article, even though the company delivered yet another better-than-expected quarter, despite a number of macro challenges including the ongoing U.S.-China trade war, supply/component shortages, and the aforementioned outbreak. Although the shares look undervalued on assumptions of low single-digit revenue growth, low-single-digit operating margins, and only minimal improvement in free cash flow margins, it will likely take real improvement in the data center or mobile business to meaningfully shrink that valuation gap.

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Lenovo Continues To Execute, But Also Continues To Suffer From Macro Headwinds

Parker Hannifin Is Less Cyclical Than Before, But The Valuation Leaves No Room For Error

Credit where due -- not only has Parker Hannifin (PH) management used M&A to diversify the company, but they have also reduced the cyclical margin sensitivity of the legacy business. That’s no easy feat, and it’s certainly worth something, but Parker Hannifin shares continue to trade out of sync with economic indicators and at a valuation that leaves no room for stumbles.

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Parker Hannifin Is Less Cyclical Than Before, But The Valuation Leaves No Room For Error

ABB Offsetting Challenging Market Conditions With A Self-Improvement Story


The hiring of Sandvik (SVDKY) CEO Bjorn Rosengren has already started benefiting ABB (ABB), with investors increasingly willing to give the company more benefit of the doubt with respect to future margin improvement initiatives; so much so that it was tempting to go with a “Bjorn Again” title for this article. To be sure, Rosengren has proven his capabilities over his career, with his recent performance at Sandvik offering an attractive blueprint for ABB.

I’ve been bullish on ABB for a while on its self-improvement potential, but I do have some concerns that valuations for industrial stocks have gotten too frothy. I like ABB’s exposures to broad markets like electrification and industrial automation, and I see meaningful opportunities for the company to improve its execution. Still, that won’t happen overnight, and I’m concerned investors have overly high expectations for the entire sector.

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ABB Offsetting Challenging Market Conditions With A Self-Improvement Story

More Progress At Societe Generale, But Long-Term Core Growth Remains A Key Challenge

Societe Generale (OTCPK:SCGLY) has continued to outperform its peers since my last update, outperforming other European stocks by about 2%, bringing its trailing one-year outperformance to around 15%. I believe much of this performance has been tied to the relatively quick progress management has made with shoring up the capital position, though some improvement in the French retail business certainly hasn’t hurt.

This French bank remains a challenging bank to recommend, though I do believe it is still undervalued. The company’s efforts to improve its capital ratios have very likely added to the bank’s long-term growth challenges, though markets like Russia and Africa can still offer some upside. Improved visibility on lower capital requirements could help support the shares this year, and expectations are still relatively low, but investors shouldn’t overlook facts like the bank’s inability to earn its cost of equity, nor management’s ongoing downward revisions to ROTE expectations.

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More Progress At Societe Generale, But Long-Term Core Growth Remains A Key Challenge

Sunday, February 2, 2020

Truist Produces The Sound, The Market Provides The Fury

Admittedly, that title is a little overheated, but the market reaction to Truist’s (TFC) first quarter as Truist was not particularly positive, with analysts and investors fretting about a longer timeline to expense synergies and a greater income contribution from non-core amortization. The disappointment moderated somewhat after the call, but the reality is that Truist didn’t offer the sort of positive operating leverage story that investors really want now.

Given the complexity in modeling the merger, I wasn’t going to put much faith in this first quarter, whatever the results. I think this merger still makes a lot of sense from a strategic standpoint, but I also see a lot of execution challenges and management will have to rise to the occasion. With core underlying core earnings growth potential of around 5%, I believe these shares are undervalued below the high $50’s.

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Truist Produces The Sound, The Market Provides The Fury

Roche Still Going Strong, As Pipeline Productivity Fuels Pharma Growth

The fourth quarter was not perfect for Roche (OTCQX:RHHBY), but it was no worse than “good enough” and assuming management is applying their typical caution with early guidance, 2020 is shaping up as a good year. Although I have few if any real concerns with the pharma business, the diagnostics business continues to look rather weak and is an area that needs to be addressed.

Roche shares have risen another 10% since my last update, but I’m still bullish on balance. The prospective returns aren’t what I’d call superior, but I think the risk-adjusted return is still attractive. On balance, I think Roche remains a good buy-and-hold for investors who want pharma exposure, and particularly the kind where management execution (on the pharma side, at least) is not an issue.

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Roche Still Going Strong, As Pipeline Productivity Fuels Pharma Growth

Stanley Black & Decker Comes In A Little Light, But Has Drivers For 2020

The last year has been fairly good for Stanley Black & Decker (SWK) despite significant headwinds from tariffs, the U.S. dollar, and challenging conditions in the auto end-market. Helped by growth in the tools business, Stanley Black & Decker’s organic growth held up better than most multi-industrials, and there has been further progress in the Security business.

When I last wrote about the stock, I recommended picking up SWK shares if and when they fell below $140. Investors got two of those opportunities, and the shares have solidly outperformed the industrial sector and the S&P 500 since the last one. At this point, even with what is likely to be an above-average organic growth profile for 2020, I think the shares are little pricier and I’d be more interested again in the $150’s.

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Stanley Black & Decker Comes In A Little Light, But Has Drivers For 2020

A Few Short-Term Challenges Don't Cancel Ingersoll-Rand's Strong HVAC Results

You can never be quite sure what investors will be willing to just "look past"; investors seem to have taken the suspension of 737 MAX production in stride as it concerns leading aerospace suppliers, and likewise investors seem to not be overreacting to a noisy quarter at Ingersoll-Rand (IR) that was impacted by some short-cycle industrial weakness and a steep downturn in the cyclical (but quite profitable) Thermo King business.

Given the significance of HVAC in global energy consumption (to say nothing of the number of people around the world who don't yet have it), Ingersoll-Rand is not only tied to a very strong underlying multiyear driver, but one that has an appealing ESG angle as well. This has led me to look past some of my valuation concerns, and I still like these shares, though I'd like them a lot more if I had the chance to buy below $120.

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A Few Short-Term Challenges Don't Cancel Ingersoll-Rand's Strong HVAC Results

Stryker Humming Along, But Seems To Be Straining The Sell-Side

However you feel about the valuation, I don’t know how you don’t admire the money-making machine that is Stryker (SYK), and this excellent med-tech company continues to execute at a high level that most other med-techs (if not most other companies in general) could only aspire to reach. The “but” is that once you reach such a high level, feeding the Street’s insatiable appetite for “more” gets harder and harder.

Although transitioning to the next year in my model does boost my fair value assumptions for Stryker, it’s not enough to bring the shares into the realm of “cheap”. It’ll probably take a significant market washout or a real misstep from the company to drive significant derating, though a suppose it’s plausible that just a general “it’s gone as far as it can go” malaise could come into play. Whatever the case, it’s a must-follow if you care about med-tech, but it’s hard to get excited about what looks like a mid-single-digit prospective return, particularly with Stryker likely to be more on the sidelines with growth-driving M&A in the near future.

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Stryker Humming Along, But Seems To Be Straining The Sell-Side

Rockwell Automation Puts Up A Decent Quarter In A Challenging Macro Environment

Automation specialist Rockwell Automation (ROK) reported a decent quarter for its fiscal first quarter (calendar fourth quarter), but Rockwell's valuation isn't predicated on decent results - the valuation embeds expectations of superior growth and margins, and I'm concerned that investors may continue to be disappointed on that front, as the company's reputation can overshadow its reality. On a more positive note, the company's digital industrial initiatives do appear to be gaining some traction.

Rockwell shares are down a little from my late November update, modestly lagging the industrial peer group over that very brief time frame (though Rockwell has also underperformed a bit over the past year). That hasn't brought the shares to what I'd call an undervalued level, but I can say that the shares aren't all that more expensive than many other high-quality industrials these days in terms of prospective returns.

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Rockwell Automation Puts Up A Decent Quarter In A Challenging Macro Environment

Mellanox More Than Biding Its Time Into The Nvidia Deal Close

With Chinese approval of the proposed Nvidia (NVDA) acquisition of Mellanox (MLNX) still an “any day now” event, there’s been no new developments since my last update for arguably the most important driver of Mellanox shares now. I had hoped that approval would come before the Chinese New Year, but that didn’t happen, and with the added issue of the coronavirus outbreak, Mellanox and Nvidia shareholders may have to sit tight a little while longer.

I continue to believe that there’s little long-term risk in playing this opportunity. Yes, I expect Mellanox shares would be weak in the immediate aftermath of a deal cancellation, but with the strength seen in Mellanox’s business lately, investors look likely to come out ahead either way.

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Mellanox More Than Biding Its Time Into The Nvidia Deal Close

Fanuc Still Under Pressure From The Automation Slowdown

Since my last update on Japanese factory automation specialist Fanuc (OTCPK:FANUY) (6954), the shares have declined about 6% - broadly in line with other Japanese automation plays like Yaskawa (OTCPK:YASKY) and THK (OTCPK:THKLY), but lagging Western players like Rockwell (ROK) and ABB (ABB). Fanuc has also been one of the weaker stocks in the group over the past year, an issue that I believe ties back just as much to the overheated valuation as fundamental deterioration in the business.

I still see a lot of challenges for Fanuc. The company’s extensive investments in capex have created a lot of operating overhead, and it’s no better than unclear to me as to whether significant increases in R&D spending over recent years have really improved product vitality and competitiveness. Worse still, I see more competition eroding the company’s former strength in CNC controls and I haven’t been all that impressed with the company’s leverage to opportunities like cobots or industrial IoT.

Fanuc still enjoys a strong reputation as arguably the go-to name in Japanese automation, and I think that is reflected in the share price. I expect business to pick up significantly in the coming years, and I see significant potential to improve FCF margins, but I can’t make the valuation work.

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Fanuc Still Under Pressure From The Automation Slowdown

Positive Commentary Around China Has Reignited Hope For Accuray

If you look at a long-term chart of Accuray (ARAY), you’ll see a few spikes - periods where investors thought that the company had finally gotten its various ducks in a row and was about to start generating real share growth and leverage. There’s a new hope around Accuray again, but it’s up to management to follow up with a sequel more like The Empire Strikes Back than The Holiday Special.

I still want Accuray to succeed, but the reality is that for all of the good things this management team has done, executing on growth opportunities has proven elusive thus far. Maybe the China opportunity will finally unlock the potential that long-suffering long-term investors have held on to, and it’s certainly true that even with this recent spike in the share price, the valuation doesn’t anticipate an especially significant, durable growth ramp. If Accuray can execute (and build) on what management has characterized as a $100 million-plus opportunity in China over the next couple of years, further upside is certainly possible.

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Positive Commentary Around China Has Reignited Hope For Accuray

FirstCash Doing Pretty Well Through A Challenging Period

There was no reason to expect FirstCash’s (FCFS) fourth quarter to be strong, as management had warned investors about the impacts of curtailing the consumer lending business (payday lending) and social programs in Mexico that were impacting pawn loan demand. While I wouldn’t call the results “strong”, I think they do demonstrate that FirstCash management is able to effectively manage the company through both the boom times and the challenging times, neither of which last forever.

FirstCash shares have recovered from their lows but still appear to offer double-digit upside on a long-term discounted cash flow basis. The U.S. operations will be a cash cow, generating cash for dividends and buybacks, while the company continues to reinvest the cash flow generated by the Latin American operations into further store growth across the region. All told, while this is a stock with above-average risk, I think it’s a name worth considering.

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FirstCash Doing Pretty Well Through A Challenging Period

Maxim Among The First To Deliver A Real Recovery, But Expectations Were Already Steep

“First in, first out” seems to be working out for Maxim (MXIM), as this diversified chip company chose to make hard decisions earlier in the cycle that punished growth at the time, but now leaves the company ahead of many of its peers as the recovery begins. I also like the leverage Maxim has to multiple growth opportunities, including autos, factory automation, data centers, and 5G, not to mention a strong margin profile and clean balance sheet.

Maxim’s beat-and-raise quarter was a welcome sight, but I am a little concerned about the sustainability of the outperformance in wireless. Then again, this is hardly a Maxim-specific issue. The bigger issue for me remains valuation. Multiples are high across the chip sector, all but demanding beat-and-raise quarters to sustain, let alone drive, share prices, but again this is not a Maxim-specific issue. I’d rather own STMicro (STM) at current prices, but Maxim is definitely a name I’d consider on a pullback.

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Maxim Among The First To Deliver A Real Recovery, But Expectations Were Already Steep

Thursday, January 30, 2020

Nucor Beats Its Self-Lowered Bar For Q4

There’s an emerging trend of Nucor (NUE) and Steel Dynamics (STLD) lowering guidance at their mid-quarter updates only to later beat those projections. Draw your own conclusions from that, but at a minimum it suggests low visibility into the business, which is why I think it’s a little funny that at least some sell-side analysts take guidance from these companies as though it were fait accompli.

As I said in my review of STLD’s earnings report, I don’t think the U.S. steel market is going to be as accommodating to these steel companies as managements are projecting. I believe underlying demand is still soft and I think the recent price surge is going to fade after the first quarter. That said, I still respect the operating quality of Nucor and I like it’s leverage to higher-value areas like long products and the consolidated U.S. rebar market.

When I last wrote on Nucor, I said that I preferred Steel Dynamics and Ternium (TX) to Nucor. Since then, both have outperformed (or performed less badly, more accurately), with roughly 5% declines to Nucor’s 14% decline. I still see better relative value in Steel Dynamics and Ternium at this point.

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Nucor Beats Its Self-Lowered Bar For Q4

Atlas Flinches

Investors waiting for that rare opportunity to buy Atlas Copco (OTCPK:ATLKY), one of the best-run multi-industrial companies out there, on a pullback … need to keep waiting. While the shares have already pulled back more than 10% from their high established in mid-January, the prospective return from here still isn’t all that good and I will be holding off in the hope that further derating brings the shares back to a more reasonable entry point.

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Atlas Flinches

BorgWarner Makes A Bold M&A Move

I didn’t see this one coming.

Yes, I thought, and wrote, that the auto supplier industry was likely to see consolidation, particularly in areas like internal combustion engine (or ICE) components, where pressures from eventual hybrid/electric adoption and R&D were going to reward scale. I likewise thought there’d eventually be consolidation in hybrid/EV-related components, as companies who waited too long to move (or made the wrong moves) tried to correct.

Still, while it makes a great deal of sense to me, I didn’t expect BorgWarner (BWA) to pony up and acquire Delphi (DLPH). Part of the reason was that I expected a negative reaction from investors, and that’s exactly what BorgWarner shares saw after the deal, but also because BorgWarner management had been pretty adamant that they had what they needed in terms of hybrid/EV positioning.

I like this deal. I like the synergy in combustion powertrain, and I like the synergy in hybrid/electric, where Delphi’s power electronics business (inverters in particular) meaningfully improves BorgWarner’s leverage to BEVs. The market clearly doesn’t like the deal, and while there will be plenty of execution challenges and risks, I’d buy BorgWarner on this weakness.

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BorgWarner Makes A Bold M&A Move

3M Running Lukewarm-To-Cool, But The Turn Should Be Coming

It’s still a challenging time to be an industrial company. While the early consensus does seem to be that the second-half rebound story is still in play, it’s sounding more and more like the magnitude of that rebound is going to be less than hoped and the first half of 2020 is likewise going to be tougher than expected. In that respect, then, 3M’s (MMM) fourth quarter results and 2020 guidance don’t appear all that unusual.

I still have very mixed feelings about 3M. The company has frittered away a lot of balance sheet optionality on questionable M&A (and arguably oversized buybacks), and I think the latest restructuring effort (we seem to be averaging one a year now) falls short of the more radical change the business needs. On the other hand, 3M’s high R&D spending establishes high walls around a lot of its businesses and all but ensures healthy margins and cash flows. I’d very much like to see a deeper “re-think” of what 3M should look like 10 years from now, but the valuation today is not demanding and business conditions should improve from here.

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3M Running Lukewarm-To-Cool, But The Turn Should Be Coming

Graco Pulls A Strong Quarter Out Of A Tough Macro

Graco (GGG) is a pretty special company for a lot of reasons, not the least of which is its ability to outgrow sometimes challenging industrial markets through price realizations and innovative product development. While nothing so far in this reporting season suggests underlying conditions were easier than expected (the opposite, if anything), Graco managed a stronger-than-expected quarter by once again executing to its strengths.

While they're very different businesses, stocks like Graco, Illinois Tool Works (ITW), and IDEX (IEX) put me in a bind when it comes to valuation. Graco is hands down an excellent company and clearly deserves a premium, but with the shares already above 18x forward EBITDA, it's difficult to construct a positive bull case other than "just think of the leverage when the economy turns back up".

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Graco Pulls A Strong Quarter Out Of A Tough Macro

Synovus's Performance Has Not Been Good Enough To Shift Sentiment

The line between “patient, long-term investor” and “wrong” can be fuzzy in the best of times and is sometimes only visible in hindsight. That’s something to keep in mind with Synovus (SNV), as these shares are down about 30% from the time of the announcement of the FCB deal and have just not worked as a long call. Although I had said back at the time of the deal that, “Synovus is likely to be sitting in the doghouse for a while now”, and “the overhang from the deal announcement will likely last a while”, this is rather more than I had in mind.

I do believe there is a good bank here with better-than-average growth potential, but management’s decision to increase spending in 2020 to take advantage of disruptions and opportunities in its operating footprint (particularly, but not exclusively, the Truist Financial Corp. (TFC) deal) is not what investors wanted to hear. I believe the shares are undervalued on a mid-single digit long-term core growth rate, but this is a stock that really needs some beat-and-raise quarters to boost sentiment.

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Synovus's Performance Has Not Been Good Enough To Shift Sentiment

PerkinElmer Meeting Expectations, But Not Going Much Beyond

For a company with rich expectations embedded into the valuation, I’d say the reaction to fourth-quarter earnings and 2020 guidance from PerkinElmer (PKI) was fairly restrained. The stock has weakened a bit since earnings, but only after an impressive climb from under $80 in early October to over $100 around the time of the JPMorgan Healthcare Conference.

There are certainly attractive growth opportunities in front of PerkinElmer. I see good potential in the Chinese food testing market, the U.S. market for EUROIMMUN, and in the company’s vision of end-to-end solutions for highly-regulated industries. Vanadis could also be a real winner, given its potential value-for-performance argument. The “but” is that a lot of that already seems to be in the share price. Double-digit EBITDA and FCF growth are appealing, but shouldn’t you expect that from a stock already trading at more than 17x forward EBITDA?

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PerkinElmer Meeting Expectations, But Not Going Much Beyond

Crane's Results And Guidance Were A Relief, But The Growth Outlook In 2020 Isn't Great

Judging by the reaction to Crane’s (CR) reported results and guidance for 2020, I think investors were largely relieved that things weren’t worse. The suspension of production of the 737 MAX is going to hurt the Aerospace business in the near term, and Crane’s Fluid Handling business is seeing the expected slowdown in process-oriented industries. Amidst that, the performance of the Payments business is still something of a wildcard.

I like Crane primarily for the valuation, but the markets tend to reward growth and margin leverage and both could be lacking for Crane in 2020 as the process slowdown and the MAX suspension push the progress on those fronts out a year. Calling this a “neutral” for the next quarter or two would probably be better for my own performance numbers, but that’s more of a trading call and I still see underlying value in this business.

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Crane's Results And Guidance Were A Relief, But The Growth Outlook In 2020 Isn't Great

Strong Results Ease Some Worries About East West Bancorp, But Valuation Is Still Appealing

With meaningful exposure to China and worries not only about the long-term health of the U.S.-China trade relations, but also concerns about asset sensitivity and credit quality, the wall of worry has been higher of late for East West Bancorp (EWBC), leading to pronounced underperformance over the past year. Strong fourth-quarter results should help ease some of those fears, but credit costs will be an ongoing concern in 2020.

East West Bancorp is a riskier-than-average bank investment idea, and I use a higher discount rate as a result. Even with that higher discount, though, I think the market is undervaluing what I see as mid-single-digit core earnings growth prospects over the next decade, not to mention opportunities to return more capital to shareholders and/or acquire within its existing footprint.

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Strong Results Ease Some Worries About East West Bancorp, But Valuation Is Still Appealing

Tuesday, January 28, 2020

Huntington Bancorp Looking More Undervalued, But Still Driver-Poor

When I last wrote about Huntington Bancorp (HBAN), I damned it with the faint praise that although it is a high-quality bank that was trading at a double-digit discount to fair value, I saw no real positive catalysts that would shrink that valuation discount. Seven months later, the shares have barely moved on a net basis (they were up as much as 17% at one point), lagging the broader peer group by around 5% and weakening significantly since earnings.

I didn’t really think the earnings or guidance were that bad, but it brings back that earlier point – what’s going to get investors to reconsider these shares and shrink that valuation gap? I think Huntington will have a relatively better run when it comes to pre-provision profits, and those deposit repricing opportunities will certainly help, but investors are going to need to be patient here. I do see risk from a “it’s going down, so sell it/avoid it” trend, but with the discount to fair value close to 15%, I’m getting more bullish on this as a “it doesn’t deserve to be this cheap” trade.

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Huntington Bancorp Looking More Undervalued, But Still Driver-Poor

Commerce Clicks Off Another Quarter, But Value Is Hard To See


I admit that Commerce Bancshares’ (CBSH) valuation is a puzzle to me. I appreciate the virtues of a bank with very strong fee-generating businesses, low asset sensitivity, and strong core operations in a challenging part of the cycle like this, but the market seems to value that to an excessive degree in the case of Commerce. Not that it has hurt performance, though, as these shares have been a standout performer in the space going back as far as 15 years (with respectable outperformance since my last update as well).

I’m still not comfortable with the valuation, and that’s pretty much a deal-breaker for me. But as far as investors who are/were already comfortable with the valuation here, I don’t really see anything in the fourth quarter results that should shift sentiment.

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Commerce Clicks Off Another Quarter, But Value Is Hard To See

Franklin Financial's Restructuring Work Pays Off With A Good Buyout Offer

In doing some prep work ahead of earnings, I’d flagged Franklin Financial Network (FSB) as a name to cover given what I thought would be an increasing likelihood of a buyout as management cleaned up and repositioned the balance sheet. Turns out that was the right assumption, as Franklin Financial announced in conjunction with fourth quarter earnings that it had accepted a buyout offer from FB Financial (FBK), a fellow Tennessee-based bank company.

I think Franklin Financial shareholders are getting a pretty good deal here. Even though FB Financial shares have sold off a bit, the approximately $38/share effective deal price as of this writing is about 1.4x tangible book value – a small premium to the highest ROTCE Franklin has posted in recent years and a hefty premium to the current financial performance. For those investors who don’t want to sell out, FB Financial isn’t a bad bank, though I don’t see the shares trading at a significant discount today unless management can really work some synergy magic with Franklin.

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Franklin Financial's Restructuring Work Pays Off With A Good Buyout Offer

Monday, January 27, 2020

Steady Performance At Umpqua, With Some Possible Upside From Opex

Having lagged a bit leading into my last piece, Umpqua (NASDAQ:UMPQ) came back strongly, rising as much as 14% before declining into and after earnings, following the sector lower as earnings reports and guidance have failed to live up to investor hopes and expectations. Still, the shares reflect a little more of the underlying value I saw, and management continues to execute relatively well against their targets.

Looking to 2020 and beyond, my feelings are a little mixed. Fundamentally, I think this is a solid bank with a solid core deposit base. I also think it’s a bank with growth potential across the West Coast, particularly on the commercial side. The “mixed” part is that, while I see ongoing opportunities to execute better on costs, management has come up short so far, and I’m likewise a little concerned about the below-expectation trend in loan growth. While I see upside towards $20, these shares are not quite so undervalued as before and management needs to execute better on cost initiatives.

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Steady Performance At Umpqua, With Some Possible Upside From Opex

Coronavirus May Drive Extra Attention Toward GenMark, But Adoption Trends Are Critical

It’s at least a little ghoulish to read the reports of the coronavirus outbreak in China and think “how can I profit from this?”, but the reality is that outbreaks like these can be stock drivers. While I think the financial impact to GenMark Diagnostics (GNMK) will be limited, it may drive more investor attention toward the stock and shrink some of the valuation gap I see.

The big challenge for GenMark remains driving sales and profitability of its core ePlex offering. A limited testing menu is definitely a challenge to adoption, and management has not been producing the sort of beat-and-raise guidance you’d like to see, but the Street is not factoring in much chance at of long-term success.

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Coronavirus May Drive Extra Attention Toward GenMark, But Adoption Trends Are Critical

Sandy Spring Bancorp Growing Its Footprint, Making Progress On Funding

Two things I was looking for when I last wrote on Sandy Spring Bancorp (SASR) were improvements in the funding mix and some activity on the M&A side, and the company delivered both in 2019. Looking into 2020, loan growth prospects are still pretty healthy and the bank management believes they can continue to improve the funding mix. The shares have done okay since the time of that last article, outperforming regional bank indices, but underperforming the S&P, and I still see value in the shares today.

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Sandy Spring Bancorp Growing Its Footprint, Making Progress On Funding

F.N.B. Corp. Comes Up A Little Short In Q4, But The Growth Story Is Intact

A lot of smaller banks have come up a little short in terms of core earnings growth this quarter, and F.N.B. Corp. (FNB) ("FNB") is no exception. While FNB's overall spread performance and loan growth was not this quarter, results did come up a little short of expectations and next year could be a challenging one for positive operating leverage.

Longer term, though, there's a lot to like here. FNB has improved its capital meaningfully, offers good expense leverage for a bank its size and has legitimate growth opportunities in attractive markets like North Carolina, particularly with a chance to benefit from any merger fallout from Truist (TFC). With fair value of around $13 to $14, this is a name worth considering for investors who want exposure to a growing Mid-Atlantic bank.

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F.N.B. Corp. Comes Up A Little Short In Q4, But The Growth Story Is Intact

Sterling Bancorp Isn't Valued For What It Really Is

Investors are nervous about banks with significant exposure to New York’s commercial real estate market, and multifamily in particular. While Sterling Bancorp (STL) certainly does make loans in both of those categories, the shares trade more like a risky multifamily monoline lender than the more diversified lender it really is, to say nothing of giving the bank credit for an above-average deposit base and expense efficiency.

I do have some concerns that management’s guidance for loan growth and operating leverage in 2020 could be too bullish, but I do think the shares are undervalued on the basis of the company’s long-term growth opportunities. With fair value in the low-to-mid-$20’s, I think this is a name worth considering at today’s price.

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Sterling Bancorp Isn't Valued For What It Really Is

Teradyne Still On Fire, With 5G And Memory Test Chipping In

Even by the standards of semi equipment, Teradyne (TER) has been on a tear, with the shares more than doubling over the past year (compared to the paltry nearly 70% gain at Applied Materials (AMAT) and 75% gain at ASML Holding (ASML)). Then again, with Advantest (OTCPK:ATEYY) up about 180% and FormFactor (FORM) up more than 100% as well, it’s pretty safe to say that the wafer testing market has been a good place to be, as demand from logic customers has definitely improved heading into 2020.

Sustainability and valuation were my primary concerns going into this quarter, and they remain my primary concerns. Management’s guidance suggests a year weighted to the first half, and it may well prove to be the case that 5G demand in China was artificially elevated by concerns about future restrictions on access (essentially pulling demand forward). As far as valuation goes, I know growth and momentum investors won’t care, but it’s tough to reconcile today’s price with a reasonable set of long-term growth expectations. The best I can do is to say that, within the spectrum of where semi equipment stocks trade today, the company’s valuation is not so unreasonable. Make of that what you will.

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Teradyne Still On Fire, With 5G And Memory Test Chipping In

STMicroelectronics Delivers A Beat-And-Raise Quarter, With Long-Term Upside Still In Play

I’ve liked STMicroelectronics (STM) (“STMicro”) for a while now, based on the company’s leverage to multiple higher-value growth opportunities, including power management in auto and industrial markets, MCUs in auto, industrial, and IoT markets, and 3D sensing and MEMS across a range of markets, as well as margin leverage from improved utilization, higher-value business, and internal efforts like 300mm wafer use. Thus far, that’s worked out alright, with the shares up another third or so since my last update.

Although I’m worried that the chip sector (analog in particular) has come too far too fast in this rally, I’m less concerned about that with STMicro. The reason for that is that I see the company having comparatively better revenue growth opportunities as it enters new growth markets and gains share, as well as better margin leverage opportunities. My margin-driven EV/revenue model still shows upside into the low-to-mid $30s, but I wouldn’t be too surprised to see the sector cool off at some point in the near future.

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STMicroelectronics Delivers A Beat-And-Raise Quarter, With Long-Term Upside Still In Play

Sunday, January 26, 2020

KeyCorp Still Not Getting Much Love From The Street Despite Better Prospects For 2020

Sometimes you find a relative valuation situation that’s a head-scratcher, and I think that’s the case with KeyCorp (KEY). I don’t exactly love this bank from an operational standpoint, but management has made a lot of good moves over the years – cutting the efficiency ratio from the high-60%’s to the high-to-mid-50%’s, diversifying/growing the consumer lending business, adding digital platforms – but doesn’t seem to get full credit for it. True, the bank has outperformed the sector over the last five years (with strong outperformance over the last year), but it still looks curiously under-valued.

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KeyCorp Still Not Getting Much Love From The Street Despite Better Prospects For 2020

Fees Boost M&T Bank, And Expenses Look Better Heading Into 2020

Valuation and a recent trend of missing operating expense estimates were my biggest concerns when I wrote about M&T Bank (MTB) last quarter, and even after a big post-earnings pop, the shares haven’t moved much beyond the price of that last article. Since then, though, M&T has posted a pretty good fourth quarter report, including real progress on expenses and commentary that loan run-off pressures should start abating in 2020.

I don’t have any quality issues with M&T Bank, but I still don’t find the valuation compelling for a bank that will likely only produce low single-digit pre-provision profit growth for a couple of years (and 2021 could still see a contraction). M&T is a decent enough hold, but with several quality banks out there trading at meaningful discounts to fair value, I’d shop around before buying this one.

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Fees Boost M&T Bank, And Expenses Look Better Heading Into 2020

Wobbly Pricing And Uncertain Demand Weigh On Steel Dynamics

I haven’t been very bullish on U.S. steel companies, and I don’t feel like I’ve missed out on much, with Steel Dynamics (STLD) and Nucor (NUE) both down almost 10% over the past year. Steel Dynamics’ share price is getting more interesting again, but I’m concerned that the market will take the restocking demand we’re seeing now as a new starting point and overestimate potential volume and price growth in 2020. To that end, I think Steel Dynamics management is probably overly optimistic with respect to its demand and pricing expectations for the year.

Even though I’m concerned about where expectations are now for the sector, I do see some potential value here. I’d rather let the reset play out first, as I think Steel Dynamics shares will retest the $20s, but if and when that happens, this would be a name to reconsider.

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Wobbly Pricing And Uncertain Demand Weigh On Steel Dynamics

A Lull At Nidec Looks Like An Opportunity

There’s a reason I don’t really like investing with a “valuation doesn’t matter” philosophy, and Nidec’s (OTCPK:NJDCY) (6594.TO) recent performance is an example of why. While I love the long-term potential of this leading motor manufacturer, the shares weren’t exactly conventionally cheap around the time of the October earnings report and the shares have languished since, underperforming U.S. industrial stocks by about 10%.

Although Nidec isn’t as cheap as I’d like, I think it’s still priced at a level where long-term investors can earn a market-beating return from Nidec’s efforts in electric vehicles, robotics, factory automation, and efficient appliances. Double-digit long-term revenue expectations are by no means conservative, but a strong position in EV traction motors alone can drive much of that, to say nothing of opportunities in automation and energy efficiency.

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A Lull At Nidec Looks Like An Opportunity

Saturday, January 25, 2020

First Bancshares Is Aggressively Building Its Footprint, But Organic Loan Growth Is Lacking

It’s been a while since I’ve written about First Bancshares (FBMS), and the shares of this Mississippi-based bank have not performed particularly well in the meantime, with the shares falling about 15% and definitely lagging their community bank peer group. Not only has First Bancshares been pursuing a growth-by-acquisition strategy at a time when acquisitions have generally been frowned upon, the company hasn’t been doing a particularly good job of generating organic loan growth from that expanding footprint, with disappointing results for three straight quarters.

I believe that when investors start shifting more from defense (who will suffer the least during this period of spread headwinds and tough loan growth) to offense, First Bancshares will get more of its due, but I won’t underplay the need for improvement in organic loan generation. Although I think the fair value range extends close to $40, the shares may wait on signs of better internal execution.

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First Bancshares Is Aggressively Building Its Footprint, But Organic Loan Growth Is Lacking

Texas Instruments Sees Stabilization, But The Street Expects So Much More

At this point, chip stock bulls really need to hope that there’s not so much as a stumble for the growth trajectories for new cars, 5G, new smartphones, and industrial automation, as the stocks by and large already reflect a very robust rebound scenario that leaves little room for disappointment. Texas Instruments (TXN), which does admittedly lean toward the conservatism with its commentary, didn’t exactly fan the flames, acknowledging with fourth-quarter earnings that its markets have largely “stabilized”, while offering guidance that was slightly above expectations for the first quarter of 2020.

I’ve written before that I believe a number of quality chip companies, including Infineon (OTCQX:IFNNY), Microchip (MCHP), Maxim (MXIM), ON (ON), and STMicroelectronics (STM) have run up too aggressively in anticipation of this recovery, leaving upside tied to further acceleration in end-market demand – an acceleration that may be at risk giving what companies are saying about their 2020 outlooks. In any case, specific to TI, I can’t say that I see much value here, and if I had to own an overpriced chip stock, I suppose TI’s well above-average quality would be an argument in its favor.

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Texas Instruments Sees Stabilization, But The Street Expects So Much More

Friday, January 24, 2020

Fifth Third Still Lackluster In A Few Important Respects

Credit where due - Fifth Third's (FITB) integration of MB Financial appears to be going well, and the bank is producing good fee-based income growth, which is an important consideration in an environment where spread revenue growth opportunities are limited. Unfortunately, the company is not really distinguishing itself on loan growth nor pre-provision profit growth, and those were concerns that had me neutral on the stock back in the summer (the shares are down slightly since then, underperforming the sector by around 5%).

Fifth Third is another of those situations where the valuation seems too low now, but I wonder and worry about the likelihood of weak loan growth and pre-provision profit growth limiting the gains. Management's guidance seems relatively encouraging on that score, but I'm worried about reports of ongoing defections from the bank and what they may say about long-term loan growth in the now-key Chicago market.

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Fifth Third Still Lackluster In A Few Important Respects

Fulton Financial Puttering Along, But Doesn't Have Much Growth Or Value Appeal

Back in July I thought that Fulton Financial (FULT) shares were fairly priced and didn’t offer much upside outside of M&A, as the near-term prospects for pre-provision profit growth were pretty lackluster. Since then, the company has made a wealth management acquisition but pre-provision profit performance has indeed been “meh”, and the shares have lagged the broader regional bank sector by about 3%, as well as the Russell 2000 and Russell 3000 by a wider margin (as a smaller company, I’d argue the Russell indices are fairer comps than the S&P 500).

I still don’t have all that much love or enthusiasm for Fulton. Guidance for 2020 sounded a little better than expected, and growth in the commercial loan pipeline is encouraging, but I think loan growth in the Pennsylvania/New Jersey/Maryland operating area could be challenging in 2020, and another rate cut is definitely a possibility. Valuation still looks pretty ordinary, though Fulton has the capital to make accretive acquisitions and there are targets out there.

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Fulton Financial Puttering Along, But Doesn't Have Much Growth Or Value Appeal

Restocking Could Help Universal Stainless & Alloy Products, But Leverage Proves Elusive

It's been a long wait for Universal Stainless & Alloy Products (USAP) to gain much leverage with customers, particularly in the high-value premium alloys that would drive significant margin leverage from their higher ASP and better capacity utilization. Unfortunately, the numbers tell the story - revenue has grown only about 3% CAGR over the past five years and gross and operating margins are both lower. Granted, five years is perhaps an arbitrary period to examine, but the best that can be said about USAP's stock market performance is that Allegheny (ATI) has done worse and Haynes (HAYN) about as poorly in the market over the past five years (while Carpenter (CRS) has done "less bad" more than better).

USAP is still arguably undervalued on multiple valuation approaches, but I just don't see the momentum in the business that I expected to see by now. USAP should benefit from restocking in 2020 (I think we saw some of that in Q4'19) and maybe there are still opportunities to win meaningful business with its premium alloys, but I can't get excited about a company that serves a commodity market without some apparent edge on the cost, production, and product design side.

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Restocking Could Help Universal Stainless & Alloy Products, But Leverage Proves Elusive

A Guidance Hiccup Barely Registers With ASML

Semiconductor equipment stocks have come roaring back on strong logic/foundry orders and anticipation that memory orders will soon come back in force. That hasn’t left many bargains, but this is a momentum-driven sector now. To that end, ASML (ASML) has been quite strong since my last update, rising almost 30% and more or less keeping pace with an assortment of semi equipment names like Advanced Energy (AEIS), Applied Materials (AMAT), and VAT Group (OTCPK:VACNY), while Lam Research (NASDAQ:LRCX) has done even better over that time.

I’ve been pretty straightforward in the past that these momentum situations are not my preferred investment environment and that’s just how it often is with semiconductor equipment names – they sell-off too much in the downturns and shoot back too far when spending recovers. Be that as it may, ASML still has a lot going for it, including a monopoly in the nascent EUV lithography market and upside to over EUR 20 billion in revenue in five years. I will say that ASML’s valuation is reasonable today in the context of its peer group, but the entire group is trading at a premium to normal drivers like near-term margins and revenue growth.

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A Guidance Hiccup Barely Registers With ASML

Pinnacle Financial Is Seeing Some Challenges, But Entering Atlanta Is A Major Opportunity

This has been a challenging quarter for many banks, and Pinnacle Financial Partners (PNFP). While the fourth quarter financial results were less than I was hoping for, there were still a lot of positives in the quarter and I remain bullish on the company’s long-term prospects. Management’s recent announcement that it is launching a de novo growth strategy in Atlanta is just one step on that long-term road, and one that I believe will ultimately go well for the company.

The shares have been lackluster performers since my last update (up slightly and down a bit versus broader bank indices), but I continue to see value below the mid-to-high $60’s.

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Pinnacle Financial Is Seeing Some Challenges, But Entering Atlanta Is A Major Opportunity

PTC Hitting Its Marks As It Transitions To An Industrial Digitalization/Automation Growth Story

CAD and PLM software specialist PTC (PTC) picked an interesting time to convert to a growth company, as weak PMIs across the globe don’t really bode well for sales to industrial and auto companies. Even so, the company has been rebuilding credibility with some solid quarters, and I remain bullish on the potential in leveraging IoT partnerships with Microsoft (MSFT) and Rockwell (ROK), as well as leveraging growing interest in IoT and augmented reality (or AR) as invaluable tools within a range of end-markets.

These shares have shot up almost 30% from my last article, helped by a strong reaction to fiscal first quarter earnings (a clean quarter with some guidance upside). Although the stock isn’t so compelling anymore from a FCF/DCF perspective, I still see some multiple-driven upside and I think annualized recurring revenue (or ARR) growth will be the driving factor in how the stock performs in the near term.

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PTC Hitting Its Marks As It Transitions To An Industrial Digitalization/Automation Growth Story