Category Archives: Conservative Strategies

Yum Brands: Operation Thunder Strikes Back And Expansion Continues [Seeking Alpha]

Yum Brands, Inc. (YUM), with a market cap of $30.94B, is a quick service restaurant company based on a number of system units, including KFC, Pizza Hut, and Taco Bell. YUM took another hit with a new strain of bird flu in China while it was trying to recover from controversy over its chicken supply where unapproved levels of antibiotics were given. Despite a swift and decisive effort with “Operation Thunder,” the sales in China are still down 30 percent so far in April.

Good Profit, Missed Revenue

YUM reported Q1 earnings of $0.70 per share, beating analysts’ expectation of $0.60. However, revenue came in at $2.54B, which was below analysts’ prediction of $2.56B. Same-store sales increased 2% in the United States but dropped 20% in China. China’s sales remain a concern as 40% of YUM operating profit comes from China.

Weakness in China, but Expansion Continues

Currently, YUM remains as the largest Western fast-food chain in China with about 5,300 locations. The company is expected to open another 700 restaurants in 2013. The management is confident to overcome the bird flu issue, which happened before in 2005 causing 40 percent sales decline. The management expects its EPS growth to return to double-digit rate in 2014 and beyond. However, after 11 years of double-digit growth, YUM is expecting its EPS to decline in the mid-single digits for 2013 due to its issues in China.

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SanDisk Is Playing Safe Even With Improved Fundamentals [Seeking Alpha]

SanDisk Corporation (SNDK), with a market cap of $13.48B, is a global leader in the NAND flash memory market. SanDisk designs, develops and manufactures data storage solutions in a range of form factors using its flash memory, controller and firmware technologies. SanDisk’s management is expecting a healthy supply/demand balance this year and has raised its 2013 revenue target and given a forecast for June-quarter revenue that beat analysts’ expectations. As reported by Bloomberg, SanDisk is limiting increases in output from its factories and expects enough demand to keep prices healthy this year.

Q1, 2013 Result

Strong SSD Growth

The highlights for Q1, 2013 was the revenue from SSD product, which grew over 200% on a year-over-year basis. Global retail channels also showed strength and produced 34% revenue growth as compare to the last year.

Increasing Retail Mix

As I described last quarter, the company is now reporting the channel mix of revenue as retail and commercial. The commercial channel includes OEM customers, B2B customers, direct enterprise customers and licensees. The total Q1 revenue was 62% commercial and 38% retail, reflecting a year-over-year mix shift toward retail of 6 percentage point driven by strong growth in that channel.

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Kinder Morgan Energy: The Story Of Increasing Distribution [Seeking Alpha]

Kinder Morgan Energy Partners LP (KMP) is a pipeline transportation and energy storage company in North America and one of the largest master limited partnerships. KMP continues to deliver solid results. KMP reported surging profit for Q1, 2013 and had increased its distribution.

Q1, 2013 Results

KMP’s distribution is increased to $1.30 ($5.20 annualized), which is up 8% from Q1, 2012. The earnings before DD&A was $1.276B, up 24% from Q1, 2012. The distributable cash flow per unit (DCF) was $1.46 versus $1.37 for Q1, 2013, with an increase of 7% year-over-year. Below is the segment breakdown:

Natural Gas Segment

While Natural Gas is the fossil fuel of the future, the challenge is to overcome the obstacles in midstream infrastructure to ensure that there is adequate capacity to connect the supply to demand. The management believes KMP is ideally situated to help meet this challenge providing the needed infrastructure in North America. The management is expecting to add about 7,000 miles of gas pipelines.

CO2 Segment

The management expects CO2 segment to be slightly above plan for the full-year 2013 despite wide Midland-Cushing spread on oil prices in January and February, which is now corrected, and lower NGL prices for the quarter compared to a year ago.

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EMC And VMWare: More Reward Than Risk [Seeking Alpha]

EMC Corporation (EMC) is a leading provider for hardware, software and services for enterprise network storage. EMC holds 80% ownership of outstanding shares in VMWare (VMW), the largest global vendor providing virtualization software for server operating systems. Since the announcement of “the Pivotal initiative” on March 13, both EMC and VMW had been declining. A quick preview of EMC and VMW’s upcoming earnings and fundamental analysis will be presented in this article.

Analysts Calls and Earnings Preview

BMO Capital analyst Keith Bachman commented on EMC and VMW heading into earnings, where VMW reports on April 23 after the market close and EMC reports on April 24 before the market open. The analyst sees in-line results for EMC with the same 2013 EPS guidance of $1.85. The analyst maintained an outperform rating with a price target of $35 on EMC and a market perform rating and a price target of $85 on VMW. Keith Bachman stated,

We think that investors have embedded pronounced negative sentiment in storage stocks, such as EMC. Therefore, we believe that, by both EMC and VMW hitting numbers this year, EMC’s stock will move higher.

Earnings Preview for EMC

Analysts currently have a mean target price of $29.51 for EMC, suggesting 27.86% upside potential based on the closing price of $23.08 on April 16, 2013. Analysts are estimating an EPS of $0.39 with revenue of $5.42B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.86 with revenue of $23.47B, which is 8.10% higher than 2012. In the last 4 quarters, EMC had 1 negative earnings surprise and 2 positive earnings surprises.

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All Financial Signals Indicate Dividend Growth For Southern [Seeking Alpha]

Southern Company (SO), with 4.4 million customers and nearly 46,000 megawatts of generating capacity, is a holding company, which owns Alabama Power, Georgia Power, Gulf Power, and Mississippi Power, each of which is an operating public utility company. In this article, SO’s fundamentals are reviewed to see if its dividend increase is supported.

Dividend Increase

On April 15, 2013, Southern Company announced the increase of its annual dividend by 7 cents per share to $2.03 per share, which marks the 12th straight year of dividend increase. Further, Southern Company increased 1.75 cents per share for the quarterly dividend to 50.75 cents per share, payable June 6, 2013 to shareholders of record as of May 6, 2013, which marks 262 consecutive quarters of consistent dividend distribution.

Analysts Calls and Estimates

On April 15, 2013, Wells Fargo upgraded SO from market perform to outperform. Neil Kalton noted that shares of Southern Co have underperformed since 2011, a move he ties to the company’s nuclear strategy, though these concerns are overblown in his view. Kalton said,

The upgrade of SO to Outperform from Market Perform is largely valuation driven as our assessment of SO’s underlying fundamentals and growth outlook is relatively unchanged.

Analysts currently have a mean target price of $45.75 for SO, which is below the current closing price of $47.36 as of April 15, 2013. Analysts, on average, are estimating an EPS of $0.49 with revenue of $3.75B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $2.76 with revenue of $17.78B, which is 7.50% higher than 2012.

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Wells Fargo And JPMorgan Chase: Buying For Solid Fundamentals And Inexpensive Cash Flow [Seeking Alpha]

Wells Fargo & Co (WFC) and JPMorgan Chase & Co. (JPM) are two large-cap bank stocks with strong cash flow, which comes at an attractive price (P/CF below 8). Both stocks also have stronger ROE and lower P/E compared with peers. WFC and JPM will be reviewed fundamentally and technically in this article. Investing strategies will also be presented.

Wells Fargo & Co

WFC was up 0.24% and closed at $37.30 on March 26, 2013. WFC had been trading in the range of $29.80-$38.20 in the past 52 weeks. WFC has a market cap of $196.60B with a beta of 1.36. WFC remains a great long-term buy with its solid fundamentals and inexpensive cash flow.

Analysts Calls and Estimates

On March 13, 2013, BMO Capital initiated coverage on WFC with a market perform rating and a price target of $40.00. Analysts currently have a mean target price of $39.51 for WFC, suggesting 5.92% upside potential. Analysts, on average, are estimating an EPS of $0.88 with revenue of $21.58B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $3.64 with revenue of $85.61B, which is 0.60% lower than 2012. However, for 2014, analysts are predicting an EPS of $3.89 with revenue of $86.43B, which is 1.00% higher than 2013.

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Westport Innovations: Improving Earnings And Ready For New Emission Standards [Seeking Alpha]

Westport Innovations Inc. (WPRT), with a market cap of $1.56B, is a provider of engine and fuel system technologies, engaged in the research, development and marketing of low-emission engine and fuel injection systems that utilize alternative gaseous fuels such as natural gas, propane or hydrogen. WPRT was down 0.14% and closed at $28.24 on March 26, 2013. WPRT had been trading in the range of $21.93-$45.85 in the past 52 weeks. WPRT is currently 38.41% below its 52-week high and 28.77% above its 52-week low.

EPA Certificate

As reported by Zacks, Cummins Westport, a joint venture between Cummins Inc. (CMI) and Westport, revealed that its ISX12 G engine had received a certificate from the U.S. Environmental Protection Agency. The engine met both the EPA 2013 regulations and the new greenhouse gas and fuel-efficiency rules that are about to take effect next year. Limited production of the ISX12 G engine will be started next month, and full production of the engine will start in August.

WiNG Power Ready on Ford F-Series

Westport announced that the Ford F-Series Super Duty trucks with the Westport WiNG Power System will soon be available to Canadian customers and be ready for delivery to customers by late June 2013.

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Gilead Sciences: Stribild Recommended, Great Long-Term Hold [Seeking Alpha]

Gilead Sciences, Inc. (GILD), with a market cap of $68.16B, is a research-based biopharmaceutical company, which develops and markets therapies to treat life-threatening infectious diseases with the core portfolio focused on HIV, liver diseases, such as hepatitis B and C, and cardiovascular/metabolic and respiratory conditions. GILD was down 1.16% and closed at $44.98 on March 25, 2013. GILD continues to be bullish and has gained 10.90% since my last focused article of “Gilead Sciences: A Great Long-Term Buy And Heading Bullishly Into Earnings.” In this article, recent development will be updated for GILD and new investing strategy will be presented.

Stribild Recommended

As reported by Zacks, GILD announced that the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) recently rendered a positive opinion on its HIV combination pill, Stribild (formerly known as Quad). Stribild is a combination of elvitegravir, cobicistat and Truvada (combination of Viread and Emtriva). As quoted, “The CHMP recommended the approval of Stribild for treating HIV infected adults who are either antiretroviral-na├»ve or are HIV infected without known mutations associated with resistance to any of the components of Stribild.” The CHMP’s positive recommendation will be reviewed by the European Commission, which has the authority to approve medicines for use in the 27 countries of the European Union (EU).

GILD expects a final decision on its Marketing Authorisation Application (MAA) for Stribild in the coming months. As reported by Business Wire, Stribild has received marketing approval in the United States, Canada, South Korea and Australia. Gilead has also granted its Indian manufacturing partners and the Medicines Patent Pool the right to develop and distribute generic versions of Stribild in 100 developing countries.

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EMC And Activision Blizzard: Buy For Cheap Cash Flow [Seeking Alpha]

EMC Corporation (EMC) and Activision Blizzard, Inc. (ATVI) are two solid technology companies, both with high margins and inexpensive cash flow, as well as healthy balance sheets. Both stocks are currently trading below analysts’ target prices and received positive updates from analysts recently. EMC and ATVI will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.

EMC Corporation

EMC is a leading provider for hardware, software and services for enterprise network storage. EMC holds 80% ownership of outstanding shares in VMWare (VMW), the largest global vendor providing virtualization software for server operating systems. EMC was down 1.70% and closed at $23.74 on March 25, 2013. EMC had been trading in the range of $22.75-$30.00 in the past 52 weeks. EMC has a market cap of $49.96B with a beta of 1.02. EMC remains a great long-term buy for its attractive cash flow despite the short-term pullback.

On March 11, 2013, Longbow Research initiated coverage on EMC with a buy rating and a target price of $30.00. Analysts currently have a mean target price of $29.47 and a median target price of $30.00, suggesting 24.14%-26.37% upside potential. Analysts, on average, are estimating an EPS of $0.39 with revenue of $5.42B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.86 with revenue of $23.47B, which is 8.10% higher than 2012.

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Nokia And Sprint: Great Potential For Turnaround [Seeking Alpha]

Nokia Corporation (NOK) and Sprint Nextel Corporation (S) are two telecom related companies that had been under-stressed in the past few years. Sprint had been gaining positive momentum with its announcement of SoftBank and Clearwire deal. However, despite Lumia’s positive feedback, NOK continued to decline in the past two months. Both companies have great potential for strong turnarounds and will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.

Nokia Corporation

NOK was down 2.10% and closed at $3.26 on March 25, 2013. NOK had been trading in the range of $1.63-$5.57 in the past 52 weeks. NOK has a market cap of $12.21B with a beta of 1.58. Despite the positive feedback for Lumia phones, NOK’s share price continues to decline in the past 2 months. Investors need to watch closely for the short-term technical supports before establishing the long-term position.

On February 27, 2013, Argus upgraded NOK from hold to buy with a $6 price target. Analysts currently have a mean target price of $3.69 and a median target price of $3.13 for NOK. Analysts, on average, are estimating an EPS of -$0.05 with revenue of $8.70B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $0.06 with revenue of $38.36B, which is 3.30% lower than 2012. However, for 2014, analysts are predicting an EPS of $0.15 with revenue of $38.52B, which is 0.40% higher than 2013.

In early March, IDC had forecasted global smartphone shipments to total 918.6 million units in 2013. The total is an increase of 29 percent when compared to a year ago, but has slowed from last year’s annual growth rate of 44 percent. Emerging markets will be the key areas for expansion, which including India, Brazil, and China (account for 33 percent of all smartphone shipments in 2013). NOK’s share price had been declining since mid-January and Stoxx Ltd. had recently stated that NOK, the Finland-based company, will be removed from the Euro Stoxx 50 index.

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