Revenue Growth Not an Issue at Synaptics
June 28, 2013
After persistent rumors surrounding weakness in Samsung Galaxy S4 sales weighed on the stock, touch-screen control supplier Synaptics (click ticker for report: ) raised its fourth quarter outlook Tuesday. The increase wasn’t a small one either–the firm increased its revenue outlook to the range of $227-$230 million, much higher than the initial guidance calling for revenue in the range of $190-$205 million. Gross margins are expected to be around 50%, which will be a modest improvement from the previous quarter. Though no company ever likes to see demand cuts from one of its largest customers, it doesn’t appear that the cut will have much impact on Synaptics. The firm provides technology for all sizes of touch screen experiences, and it
DirecTV to Correct Overstated Subscriber Numbers
June 28, 2013
Best Ideas Newsletter holding DirecTV (click ticker for report: ) announced Thursday that it had over-reported Latin American subscribers by approximately 100,000 accounts at the end of 2012. The error came from the 93%-owned Sky Brasil, which continued the practice into 2013, leading to subscribers being over-reported by 200,000 accounts at the end of the first quarter. Unfortunately, it appears these customers also received service without paying after the inflated accounts were improperly terminated. Needless to say, we’re not pleased with the artificial account inflation, which not only boosted raw subscriber numbers but also lowered churn. DirecTV anticipates churn will increase during the second quarter in Brazil, but it will have no impact on the rest of the business. The
Precision Castparts Scoops Up Permaswage; Commercial Aircraft Orders Keep Rolling In
June 28, 2013
On Thursday, Best Ideas Newsletter portfolio holding Precision Castparts (click ticker for report: ) acquired California-based aerospace supplier Permaswage for $600 million. Permaswage specializes in swage fittings, and its technology is included in almost every major commercial and military aircraft program. The deal is right in Precision Castparts’ wheelhouse as it improves dollar-content per aircraft and enhances the firm’s already-robust product suite. Precision Castparts’ CEO Mark Donegan should have no problems folding in the firm’s state-of-the-art operations and driving material synergies across the board. Though profitability disclosures are limited, we have a high degree of confidence that cost-savings and revenue enhancements will trump any meaningful premium that may have been paid above the entity’s fair value. We also think the deal strengthens Precision Castparts’ position in separable
Dish Won’t Go to War Over Clearwire; What’s Next?
June 27, 2013
Late on Wednesday afternoon, news hit the tape that Dish Network (click ticker for report: ) would end its pursuit for Clearwire (CLWR), paving the way for Sprint (click ticker for report: ) to assume full control of the company for $5 per share (in line with our fair value estimate). Although we thought as well as the market thought (since shares of Clearwire were trading above the Sprint buyout price prior to the withdrawal) that Dish Chairman and founder Charlie Ergen would make a higher offer for Clearwire, Ergen may have known a bit more than he led onto during the bidding process, given that the FCC just approved draft rules for the auction of additional spectrum one day
Positive US Housing Data Persists; The Recovery is Real
June 27, 2013
Through the course of this week, we’ve received a number of positive data points suggesting the US housing recovery is well on its way. Long-time Valuentum members know that we’ve been very bullish on the housing turn since early 2012 (view the January 2012 edition of our Best Ideas Newsletter here). The S&P/Case-Shiller Index kicked off the week’s events with a 12% year-over-year price increase in the 20-city composite index for April (there’s a two month lag in the data). The 10-city index also rose 11.6% year-over-year. Both metrics have recovered to 2004 levels, but both remain well below the 2007 all-time (“bubble”) highs. Image Source: S&P Dow Jones Indices Image Source: S&P Dow Jones Indices We were also very
Verizon Might Jump Into Canada
June 26, 2013
After weeks of mounting speculation, US telecom giant Verizon (click ticker for report: ) has allegedly offered a deal valued at $700 million to acquire Canadian mobile provider Wind Mobile. In addition to potentially acquiring Wind Mobile, Verizon is also in talks to acquire another carrier, Mobilicity, and it could enter the bidding for government spectrum offers. Why is Verizon interested now? For years, Canadian regulations have previously disallowed a foreign entity from fully-owning a domestic telecom business, but it has only been recently that ownership rules have started it loosen. Still, the country remains dominated by the “Big Three” in the mobile carrier space: Rogers Communications (RCI), BCE (click ticker for report: ), and Telus (TU). However, Canadian regulators
Weak Food Sales Spoil Walgreens’ Third Quarter
June 26, 2013
The US’ largest drug store chain, Walgreens (click ticker for report: ), reported lackluster third quarter results Tuesday morning, but the results did not deviate enough from our forecast to warrant a change in our valuation. Revenue increased 3.2% year-over-year to $18.3 billion, falling slightly short of consensus estimates. Earnings per share were also a bit lighter than consensus expectations, increasing 18% year-over-year to $0.85 per share on a non-GAAP basis. Although results were only marginally below consensus estimates, we believe the negative reaction can be attributed to the weak comparable-store sales growth in front-end items (candy, soda, etc.), which carry higher gross margins. Front-end same-store sales increased just 0.4% in the third quarter, even though the company benefited from
Poor Weather Punishes Sonic
June 25, 2013
Fast-food franchise Sonic (click ticker for report: ) reported a lackluster third quarter Monday as the firm dealt with lousy weather throughout the US. Revenue decreased a modest 2% year-over-year to $146 million, falling short of consensus expectations. Earnings per share increased 8% year-over-year to $0.26 per share, roughly in-line with consensus estimates. Management continues to anticipate that the firm will generate $45-$50 million in free cash flow for fiscal year 2013. The story for Sonic during the third quarter was weak same-store sales growth. Aggregate same-store sales grew an anemic 0.1% year-over-year, with franchise-owned locations sales up 0.2% and corporate-owned sales down 1.1% year-over-year. The main culprit behind the decline was weather, which the firm believes accounted for 300-400
Rio Tinto Doesn’t Sell Its Diamond Business
June 24, 2013
In a slightly surprising move, Best Ideas Newsletter portfolio holding Rio Tinto (click ticker for report: ) announced that it will no longer pursue selling its diamond business. Miners have been looking to divest non-core assets to lower debt loads and increase returns to shareholders, so Rio’s decision to hold on to the business will obviously not help to achieve those goals. We’ve long cautioned that the impact of BHP (click ticker for report: ), Anglo American, and Rio selling assets at the same time could work to depress asset values, and that appears to be the case with respect to Rio’s diamond business. Rio Tinto wanted $1.3 billion for a business that was unprofitable in 2012 and only marginally
Sprint May Be Settled But What About Clearwire?
June 22, 2013
After a drawn-out saga, Dish Network (click ticker for report: ) dropped its pursuit of Sprint (click ticker for report: ) Friday. Sprint seems intent on accepting SoftBank’s offer, and we do not believe Dish could afford to offer more for the US’ third-largest wireless company. Yet, a dropped bid for Sprint does not mean Dish is out of the running for Clearwire (CLWR). On Thursday, Sprint raised its bid for Clearwire to $5 per share, a move valuing Clearwire at $14 billion (and something we had anticipated). Many may suspect that Dish’s decision to end its pursuit of Sprint as a declaration of peace, but we aren’t sure that is the case. Dish founder/chairman Charlie Ergen is well aware
