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Author Archives: Chris Versace, Chief Investment Officer

About Chris Versace, Chief Investment Officer

I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."
Washington’s Attack on Online Advertising Revenues Disguised as Tax Reform

Washington’s Attack on Online Advertising Revenues Disguised as Tax Reform

When we look at the creative destruction associated with our Connected Society investing theme, on the positive side we see new technologies transforming how people communicate, transact, shop and consume content. That change in how people consume TV, movies, music, books, and newspapers has led to a sea change in where companies are spending their advertising dollars given the consumer’s growing preference for mobile consumption on smartphones, tablets and even laptops over fixed location consumption in the home. This has spurred cord cutters and arguably is one of the reasons why AT&T (T) is looking to merge with Time Warner (TWX).

Data from eMarketer puts digital media advertising at $129.2 billion in 2021, up from $83 billion this year with big gains from over the air radio as well as TV advertising. As a result, eMarketer sees, “TV’s share of total spend will decline from 35.2% in 2017 to 30.8% by 2021.”

That shift in advertising dollars to digital and mobile platforms away from radio, print and increasingly TV has created a windfall for companies like Facebook (FB) and Alphabet (GOOGL) as companies re-allocate their advertising dollars. With our Connected Society investing theme expanding from smartphones and tablets into other markets like the Connected Car and Connected Home, odds are companies will look to advertising related business models to help keep service costs down. We’ve seen this already at Content is King contenders Pandora (P) as well as Spotify, both of which use advertising to allow free, but limited streaming music to listeners. Outside the digital lifestyle, other companies have embraced this practice such as movie theater companies like Regal Cinema Group (RGC) that use pre-movie advertising on the big screen to help defray costs.

As we point out, however, in Cocktail Investing, investors need to keep tabs on developments in Washington for they can potentially be disruptive to business models and that could lead to revisions to both revenue and earnings expectations. Case in point, current Ways and Means Committee Chairman Kevin Brady recently acknowledged that there “may be a need” to look at some of the revenue raisers to complete his 2017 tax reform proposal. One item was revisiting the idea to convert advertising from being a fully deductible business expense – as it has been for over a century – to just half deductible, with the rest being amortized over the course of a decade.

The sounds you just heard was jaws dropping at the thought that this might happen and what it could mean to revenue and earnings expectations for Facebook, Alphabet, Twitter (TWTR), Snap (SNAP), Disney (DIS), CBS (CBS), The New York Times (NYT) and all the other companies for which advertising is a key part of their business model.

Other jaws dropping were those had by economists remembering the 2014 IHS study that showed the country’s $297 billion in advertising spending generated $5.5 trillion in sales, or 16% of the nation’s total economic activity, and created 20 million jobs, roughly 14% of total US employment at the time. Those same economists are likely doing some quick math as to what the added headwind would be to an economy that grew less than 1 percent in 1Q 2017 and how it would impact future job creation should an advertising tax be initiated. It’s hard to imagine such an initiative going over well with a president that is looking to streamline and simplify the tax code, especially when one of his key campaign promises was to lower tax rates.

As we talked on the last several Cocktail Investing Podcasts, there are several headwinds that will restrain the speed of the domestic economy – the demographic shift and subsequent change in spending associated with our Aging of the Population investing theme and the wide skill set disparity noted in the monthly JOLTs report that bodes well for our Tooling & Retooling investment theme are just two examples. Our view is incremental taxes like those that could be placed on advertising would be a net contributor to the downside of our Economic Acceleration/Deceleration investing theme.

That’s how we see it, but investors in some of the high-flying stocks that have driven the Nasdaq Composite Index more than 17 percent higher year to date should ponder what this could mean to not only the market, but the shares of Facebook, Alphabet, and others. In our experience, one of the quickest ways to torpedo a stock price is big earnings revisions to the downside. With the S&P 500 trading at more than 18x expected 2017 earnings, a skittish market faced with a summer slowdown and pushed out presidential policies could be looking for an excuse to move lower and taking the wind out of this aspect of the technology sails could be it.

Macy’s Margins Harbinger of What’s to Come as Amazon Flexes Its Apparel Muscles

Macy’s Margins Harbinger of What’s to Come as Amazon Flexes Its Apparel Muscles

 

Yesterday Macy’s (M) warned that its gross margins are likely to come under pressure in the balance of 2017, which in our view serves as a reminder of the more than challenging retail environment that is a direct fallout of our Connected Society and Cash-Strapped Consumer investing themes. With many households living paycheck to paycheck, consumers want the best price possible and the Connected Society makes price comparison easier than ever, leaving retailers with less and less pricing power while at the same time minimum wage hikes shrink margins even further.

We’ve had other reminders in the last few days of the profound impact of these themes, including Sears (SHLD) closing an additional 72 locations on top of the 180 it announced earlier this year. In sum, these closures will shrink the Sears footprint to roughly 1,200 locations compared to 2,073 five years ago. One-time high flying Affordable Luxury investment theme retailer Michael Kors (KORS) not only recently shared it would shut 125 full-price locations over the next two years, but it guided same-store comps and revenues lower for the coming quarters due to decreased mall traffic and increased promotional activity.

These are just the latest in a series of data points that confirm the current bout of “retail-megaddon” has legs into the all-important holiday-filled second half of the year. Those same data points also confirm our short position thesis in Simon Property Group (SPG). Over the last few years, we’ve seen shoppers increasingly switch to digital commerce, with both online and mobile shopping, at the expense of brick & mortar retailers. While many will rightfully jump to Amazon and its Prime service that has compressed delivery time to customer significantly, other retailers ranging from Nike (NKE) to Under Armour (UA), Williams Sonoma (WSM) and Nordstrom (JWN) are embracing the direct to consumer (DTC) model — some with more success than others.

 

Yet Another Thematic Tailwind for Amazon

We expect to see a continued shift in retailers from brick & mortar to digital, much like we’ve seen at Macy’s and others, but here’s the thing that is likely to hit apparel retailers – Amazon flexing its muscles as it moves into apparel. Even though Amazon has cancelled its Style Code Live show, which served to tout products for shoppers to buy on Amazon, in 2016 it registered the most apparel sales of any online retailer in the US for the 18–34 demographic with more than double the market share of second place Nordstrom.

Clearly, Amazon is looking to leverage the reasons cited by shoppers for switching to Amazon – Prime, convenience, customer service, and reviews – and earlier this year it launched several private label apparel brands with products in men’s accessories, women’s dresses, and handbags followed by its own line of lingerie in April. The company’s latest effort to goose its apparel position can be found in its latest Alexa powered device, the Echo Look, which is, “a gadget with a built-in camera that is being marketed as a way to photograph, organize and get recommendations on outfits.” As part of its recommendation services, no doubt the Echo Look will recommend not only brands that can be bought on Amazon, but more than likely it will include its private label products as well.

To us, the question is not will Amazon succeed in apparel, but rather, is it tracking ahead of expectations? Research firm Cowen & Co. shared its expectations for Amazon apparel sales to account for 8.2 percent of the domestic apparel market this year, up from 6.6 percent in 2016, and 16.2 percent by 2021. To help put some context in and around those percentages, apparel is one of the biggest US retail categories with estimates sizing it up as high as $300 billion. Each market share point gain by Amazon equates to an additional $3 billion in annual revenue for the company — yes, that’s billion with a b.

And while that $ 3 billion in revenue equates to 1.5 to 1.8 percent of expected 2017-2018 revenue for Amazon, it also equates to:

  • 12 percent of Macy’s (M) total expected revenue this year
  • Roughly half of what Wall Street expects Dillard’s (DDS) to generate in revenue this year
  • More revenue than Bon-Ton Stores (BONT) is forecasted to collect this entire year across is 270 stores and 25 million square feet.

Again, that’s each market share point, and Cowen’s forecast calls for Amazon to gain more than 1.5 percentage points in 2017 alone. To paraphrase one time presidential candidate Ross Perot, that giant sucking sound you are hearing is brick & mortar retailers going down the drain.

Back to the topic at hand, the bottom line is Amazon’s apparel market share gains, revenues and profits as part of our Connected Society and Cash-Strapped Consumer investing themes will only exacerbate retail-meggadon, likely leading to even more vacant retail space in malls across the U.S. Spurring this along is a consumer that is increasingly strapped with high and likely raising debt levels combined with little in the way of wage gains. This one-two combination of our Cash-strapped Consumer and Connected Society investing themes paints a not so pleasant picture of fewer retailers and empty storefronts with potentially more people unemployed.

Lastly, as retailers go down the drain, our thematic lens also looks to what could also be washed down with it. We’re talking about the large chain restaurants that tend to favor retail centers, the likes of Darden Restaurants (DRI), Brinker International (EAT) and Bravo Brio Restaurant Group (BBRG) just to name a couple. How those groups pivot to attract diners when malls are increasingly closing or are near empty will be critical as they attempt to avoid “restaurant-mageddon”. Haven’t heard that one yet? We’re already starting to see the Thematic Signals point to it as lunchtime meals have plunged and restaurant sales are showing signs of peaking.

The good news is, we all have to eat, and several restaurant chains are turning to mobile ordering (good news for our Cashless Consumption theme) and new, more healthy menu options that is part of our Foods with Integrity theme. But that’s all for another story, literally.

 

 

WEEKLY ISSUE: Making a Measured Bet on this Guilty Pleasure Gaming Company

WEEKLY ISSUE: Making a Measured Bet on this Guilty Pleasure Gaming Company

In this Week’s Issue:

  • Let Luck Be Our Lady — Adding MGM Resorts to the Tematica Select List
  • Fallout from Apple’s WWDC 2017 Event Has Us Upping Stop-Loss on OLED
  • The Apple Halo Effect Shines on More than Just the iPhone Ecosystem
  • Apple’s HomePod Announcement Also Has Implications on AMZN, GOOGL and NUAN, Leading Us to Instill a Stop-Loss on Nuance

 

Since last week’s issue of Tematica Investing, we have to say that things more or less remain unchanged. All three major market indices are up, led by the Nasdaq and the same group of companies that have powered its outperformance relative to the S&P 500 and the Dow Jones Industrial Average since mid-January. Most of these same stocks — Amazon (AMZN), Alphabet (GOOGL) and Facebook (FB) — have powered the Tematica Select List higher, but we’ve also benefitted from continued climb in Universal Display (OLED), Applied Materials (AMAT), and USA Technologies (USAT), each of which is being driven by its own aspect of our various investing themes.

In the race to reach $1,000, we’ve seen both AMZN and GOOGL shares cross and move back from that would be magical line in the sand. From our perspective, much like a tailor tells us when we cringe at our waist size when getting measured for a new suit – it’s just a number. At least when it comes to our age and waist size!

What matters most when assessing a stock price is whether the thematic tailwinds are still blowing, and in the case of both Amazon and Alphabet, it’s a resounding yes. Even as the shares encroach upon our respective price targets — $1,100 for Amazon and $1,050 for Alphabet — we continue to see signs that the core respective investing themes – Connected Society and Asset-Lite Business Models – show no signs of abating. As we’ve said before, even as we look to once again revisit our price targets, much the way we have with Universal Display shares as its outlook has strengthened over the last several months, these are stocks to own, not trade. That remains our position.

Even as those names have moved higher this past week, we’ve seen investor appetite favor some of our more defensive names, including McCormick & Co. (MKC) and International Flavors & Fragrances (IFF), both of which are up more than 1 percent over the last five days. Not surprisingly, we are seeing these kinds of companies, the ones that have a rising dividend policy and inelastic aspects to their businesses, come back into favor as uncertainty once again creeps back into the market.

Whether it’s the recent happenings in London, fired FBI Director James Comey’s pending testimony before Congress, investigations into Russian meddling, Trump once again trying to pivot his policy efforts to get out of stall speed, the European Central Bank meeting or elections in Britain, there is no shortage of things to preoccupy investors. As we keep one eye and ear on these events, we’ll continue to watch the data unfold and make our moves accordingly with the Tematica Select List. As we shared in this week’s Monday Morning Kickoff and described in last week’s Cocktail Investing Podcast, we are seeing GDP expectations for the current quarter begin to wither and beginning to see downward revisions for 3Q 2017 as well. It’s going to make for an interesting summer, but we’ll be there to guide you through it.

As we get ready for the soon to be on us summer, we’ll be reviewing both price targets and stop losses up and down the Tematica Select List. Now, let’s get to some updates and a new recommendation that centers on our Guilty Pleasure investing theme.

 

 

Let Luck Be Our Lady — Adding MGM Resorts to the Tematica Select List

Our Guilty Pleasure investing theme examines a variety of companies and businesses that range from alcohol, beer and spirits to chocolate, tobacco and gaming. We examine each of these, and when the time is right, meaning a thematic tailwind is blowing and there is sufficient net upside to be had, we’ll add shares to the Tematica Select List. That’s what we’re doing today with MGM Resorts International [stock_quote symbol=”MGM” show=”symbol”] shares.

While widely recognized mostly for its domestic gambling and hospitality business that includes casino, rooms, food and beverage, entertainment and retail-related revenue, we are adding MGM shares to the Tematica Select List primarily because of the positive inflection unfolding in Macau China, per monthly data reported by the Macau Gaming Inspection and Coordination Bureau.

Before digging into MGM’s overseas business, it’s helpful to spend some time understanding the full scale of the company’s domestic business, the bulk of which includes operations within Las Vegas, with properties that include the Bellagio, MGM Grand, Mandalay Bay, The Mirage and Luxor. The company has expanded in recent years outside of Vegas, opening resorts in Michigan, Mississippi, New Jersey and one just last year in Maryland at National Harbor just outside of Washington, DC.

MGM’s domestic casino operations account for roughly 76 percent of the company’s overall square footage and 86 percent of its guest rooms. If you are looking for greater detail, those domestic operations also account for roughly 87 percent of overall slots and 69 percent of overall gaming tables. Viewed somewhat differently, the company’s overall Casino operations generate roughly 55 percent of revenue in the most recent quarter, with the two next largest businesses – Rooms and Food & Beverage – accounting for 21 percent and 16 percent of revenue, respectively. While the company will often discuss its Entertainment and Retail businesses, it’s those three – Casino, Rooms, and Food & Beverage – that are the key levers for revenue and profits.

Monthly data released by the Nevada Gaming Board showed April gaming revenue rose 1.2 percent year over year statewide, even though Las Vegas Strip revenue dipped some 3 percent year over year. For the fiscal year to date, which spans from July 2016 to April 2017, both Las Vegas Strip and overall Nevada gaming is up 3 percent. Forecasts for the just-passed Memorial Day weekend suggest a rebound in Las Vegas for May, as about 328,000 people were slated to descend on Las Vegas from last Thursday to Tuesday, which according to AAA and the Las Vegas Convention and Visitors Authority make Las Vegas the seventh-most-popular destination to kick off the summer travel season. According to the Las Vegas Convention and Visitors Authority, those out-of-town visitors were to spend about $252.6 million on food, hotels and gambling during the Memorial Day weekend, nearly 1 percent more than the same time last year.

Given its presence in Las Vegas, we see MGM’s portfolio of casinos, restaurants and hotels benefiting. With U.S. airlines expecting to carry 234 million passengers from June 1 through Aug. 31 — up from the summer record of 225 million a year ago, according to the trade group Airlines for America — we see MGM’s Las Vegas operations having a solid summer. Lending a helping hand will be MGM’s investments in T-Mobile Arena and the Park Theater. Subscribers know that we here at Tematica love our data, and we’ll be monitoring that from the Nevada Gaming Board each month to make sure the fundamentals are on track. Outside of Vegas, MGM’s domestic business should benefit from full year contributions from MGM National Harbor and Borgata, both of which opened to much fanfare and are using headline entertainment to lure hotel guests and gamblers.

Turning back to the Macau gaming data, the Macau Gaming Inspection and Coordination Bureau recently reported April gross gaming revenue is up more than 23 percent year over year. This marked the 10th straight month of positive growth, and early indications by research firm Bernstein and others peg June growth to be up 20 to 26 percent year over year. Other forecasts have Macau gaming up double digits over the next several months.

For MGM, its Macau operations were a drag on overall profits in 2014, 2015 and 2016, but with gaming revenue and most likely corresponding food- and hotel-related revenue up as well this year, the business is likely to be far less of a drag in the current and coming quarters. From a metrics perspective, while MGM’s Macau business accounts for 1.3 percent of its overall hotel rooms and 3.7 percent of its slots, it has a far more sizable presence in gaming tables (22 percent) and casino square footage (16 percent) as it caters to “high rollers” and VIPs. Channel checks reported by several Wall Street firms indicate “high roller” and VIP customers provided much of the April revenue boost, which bodes well for MGM’s Macau business.

If we look back at the downturn in MGM’s Macau gaming business that spanned from June 2014-July 2016, it not only hit the company’s overall revenue and earnings, but its share price as well. Consolidated revenue fell to $9.19 billion in 2015 from 10.08 billion in 2014 before rebounding to $9.45 billion in 2016 as Macau gaming recovered in the back half of the year. That fall off, which bled through to the company’s bottom line, resulted in MGM shares falling to a low of just over $18 in July 2015 from a high of $28.29 in March 2014.

Off the very bottom of the Macau gaming issues, MGM shares are up roughly 35 percent over the last twelve months, but with solid prospects in both the domestic and Macau operations, MGM’s business is on a roll. Current consensus expectations have MGM’s EPS reaching $1.27 this year, up from $1.14 last year, but with the most difficult year-over-year comparisons in the June and September quarters. With expectations for EPS to grow in the coming quarters and reach the $1.55 to $1.60 level in 2018, based on historical multiples, we see upside to $37. That offers roughly 14 percent upside from the current share price, but doesn’t factor in the company’s new quarterly dividend of $0.11 per share.

MGM instituted the new dividend just a few months ago, and we take that to be a sign of management’s confidence in the business given the understanding with shareholders what is likely to happen should a company cut let alone trim its quarterly dividend. At the current share price, that annualized dividend yield equates to 1.4 percent. Looking at the company’s balance sheet, it exited the March quarter with $1.4 billion in cash and total debt near $13.1 billion. While that debt load may seem high, the company’s cash flow offers sufficient coverage with earnings before interest tax and depreciation running at 4.1-4.6x based on 2017 and 2018 expectations.

  • We are adding shares of MGM Resorts International (MGM) to the Tematica Select List with a Buy rating and a $37 price target. As we begin this position, we would look to scale into it on any weakness near $30, which would also serve to improve the average cost basis.
  • Because this is a new position, we are holding off setting a protective stop loss at this time.

 

 

Fallout from Apple’s WWDC 2017 Event Has Us Upping our OLED Stop-Loss

Yesterday we published our reaction to Apple’s (AAPL) latest World Wide Developer Conference (WWDC), but we held off discussing how the Tematica Select List is benefitting from what many have come to call the Apple halo effect given the expected 2017 refresh of its iPhone line of products. Again, Apple CEO Tim Cook and the rest of his management team said nothing about the expected new iPhone at Monday’s event — which is likely part of the reason that Apple stock has traded up only modestly following the event.

The reality, however, is that this iPhone product refresh has already led to a ramp-up of industry capacity for organic light emitting diode (LED) displays and the machines that fabricate them. We continue to see the Apple-related demand as part of the overall sea change toward organic LED displays that is benefitting both our Universal Display (OLED) and Applied Materials (AMAT) shares.

To put it into perspective, AAPL shares have been a stalwart thus far in 2017 — the shares are up 33 percent since last October. It’s been a great run, no doubt. Our strategy, however, has been to “buy the bullets, not the gun” and the result has been even better, with OLED shares are up 134 percent and AMAT shares up 27 percent. As the Apple rumor mill kicks back into gear in a few months, we see it propelling OLED and AMAT shares higher.

  • With OLED shares hovering at our $125 price target, subscribers should hold off adding to positions at current levels as we revisit that target. We will be boosting our stop loss to $100 from $85, which will lock in a profit of more than 88 percent.
  • We continue to have a Buy rating on AMAT shares with a $55 price target.

 

 

The Apple Halo Effect Shines on More than Just the iPhone Ecosystem

Buried among the various Apple comments yesterday, however, there were several that were rather positive for our Cashless Consumption investing theme and the USA Technology (USAT) shares on the Tematica Select List. In particular, it appears that 2017 is a rather big year for Apple Pay, as it will be available at 50 percent of retailers within the U.S. by the end of the year. According to Apple, Apple Pay is already the top contactless payment service on mobile devices, and this retailer deployment has the potential to push Apple Pay into the mainstream. As that happens, we see user adoption escalating and a push — pull emerging with vending machines and the self-serve retail market for USAT’s solutions.

Over the last week, USAT shares have climbed more than 13 percent, bringing the positions return to more than 21 percent since being added to the Tematica Select List on April 19. By comparison, the S&P 500 is up all of 3.5 percent. This is but the latest example of the power to be had by recognizing pronounced thematic tailwinds and identifying well-positioned companies.

  • With roughly 10 percent upside to our $6 price target for USAT shares, we’re notching down our rating to Hold from Buy.
  • Given the volatile nature of small-cap stocks like these, we’re going to hold off setting a protective stop loss on USAT shares for now.

 

 

Apple’s HomePod Announcement Also Has Implications on AMZN, GOOGL and NUAN, Leading us to Instilling a Stop-Loss on Nuance

The introduction of Apple’s connected speaker, dubbed HomePod (you have to love the creativity), is raising some eyebrows with more than a few questions as to what it means for existing connected speaker products and voice digital assistants. The two obvious standouts are Amazon’s Alexa and Alphabet’s Google Home.

To begin with, Apple is marketing the HomePod as a music device first, connected speaker second. Granted the speaker quality in Amazon’s Echo products is not the best, but it’s also not the worst given its informational queries. We also suspect Apple’s HomePod positioning reflects current shortcomings with Siri relative to Amazon’s Alexa, which leverages Amazon Web Services and has an ever expanding skill set. If you’ve ever asked Apple’s Siri the same question as you might ask Amazon Alexa, you will quickly realize that Siri isn’t the sharpest knife in the drawer.

HomePod won’t be released until late 2017, which knowing Apple means it won’t be readily available until sometime in early until 2018. Between now and then, odds are we will see at least one iteration of upgrades to the existing competitors. And for those who are sweating this for Amazon, we’d remind you that near-term Alexa is a small part of the Amazon puzzle. We expect that to change over time as Amazon reaps the benefits of licensing deals for Alexa, but for now, Amazon’s main drivers remains digital commerce and Amazon Web Services.

We will say that Apple’s need to catch up in the voice digital assistant market could lead Apple to acquire additional artificial intelligence or related voice technology companies. Whether it’s Apple or another competitor (say, where is Samsung in the voice digital assistant maker?) we continue to suspect Tematica Select List company Nuance Communications (NUAN), given its voice recognition and natural language solutions, is bound to turn up on corporate M&A radar screens.

  • We continue to have a $21 price target on NUAN shares, which offers 10 percent upside from current levels.
  • With the position up more than 23 percent since we added it to the Tematica Select List last December, we are instilling a stop loss at $18, which will lock in a minimum gain of 16 percent.

 

 

 

 

 

Apple’s WWDC17: An event lacking vision from a company without a visionary

Apple’s WWDC17: An event lacking vision from a company without a visionary

Yesterday, Apple (AAPL) held its annual World Wide Developer Conference (WWDC) at which CEO Tim Cook showcased a number of announcements. While we tend to be Apple devotees when it comes to the hardware and its ease of use, in taking a few steps back, our view is this year’s WWDC is it was one largely filled with refinements and incremental additions. Not entirely surprising, given the fact that Apple is now led by an expert operations manager, Tim Cook, and not a visionary like Steve Jobs. As we see it, Apple will either need to bring in some visionary expertise, or perhaps, and more likely, use it’s war chest of $250 billion to buy some vision in the form of acquisitions, but that’s another story.

We have not been buyers of Apple shares as of late — despite being avid fans, if not a lover of its products — given the transition-like nature of the product cycle that keeps Apple arguably reliant on the iPhone. Instead, for subscribers to our Tematica Research premium service, we’ve recognized the Apple-related opportunity from a different perspective – one that intersects with our tendency to “Buy the Bullets, Not the Guns” and several of our investing themes — Connected Society, Content is King, Cashless Consumption and Disruptive Technologies – with great success along the way. Examples include Universal Display (OLED), Nuance Communications (NUAN) and Applied Materials (AMAT), which are up more than 127 percent, 23 percent and 28 percent, respectively since being added to the Tematica Select List.

In our view, Apple is in a tough spot after setting the bar so high for so long. It too now has to compete with how it once wowed audiences and consumers as it updates existing products and tries to find its footing with new ones. Given its size, install base and the fact that its products are for the most part so simple to use, Apple isn’t likely to go the way of Kodak or Xerox anytime soon.

Getting back to the conference, on the smaller side, there were announcements like Amazon’s (AMZN) Prime Video coming to Apple TV and the upgrades to its Mac line. The real interest was in what the latest release of its mobile operating system iOS 11 brings, with a surprise in that this next iteration is likely to make the iPad a device to be embraced for both business as well as personal use. Perhaps the best worst kept secret heading into the event was Apple’s move into the connected speaker market, and yes Apple did take the wraps off HomePod, which looks to be Apple’s second if not a third potential hub in the home. The first two hubs being the iPhone and Apple TV, both of which connect with Apple’s HomeKit.

 

 

Interestingly, Apple is leading HomePod with music first and as a connected device with Siri second. Perhaps this is because if you’ve ever asked Siri the same questions as you might ask Amazon Alexa, one tends to realize that Siri isn’t the sharpest knife in the drawer, as it lacks the backing of Amazon’s Amazon Web Services and artificial intelligence. This strategy is also likely aiming to spur subscriptions to Apple’s Apple Music service; we can’t tell you how many times Apple shared it offers more than 40 million songs during the keynote presentations. Will this be a viable competitor to Sonos’s smart speakers when it comes to sound quality? Could the HomePod spur Amazon or Alphabet to acquire Sonos? Time will answer both of those questions.

Apple did tout Siri Intelligence several times during yesterday’s presentations, but this appears to be an area of continued investment as Apple catches up to Amazon and Google rather than leapfrogging them in the process and redefining the category. With Amazon’s strategy to make Alexa compatible with autos, the likes of Ford (F) and Volkswagen, as well as consumer appliance companies such as Whirlpool (WHR), it looks like the old OS war between Microsoft and Apple could be played out again in the voice digital assistant space. This raises several questions in our minds – Will Apple license Siri for use outside of Apple products? Will Amazon have the same issues Microsoft had with Windows and device compatibility? Fodder for thought and what it may mean for the future of these interfaces.

Yes, there was some cool new Apple stuff, like the Do Not Disturb While Driving feature, the ability to drag and drop with iOS 11, which in our view was sorely missing for the iPad and Apple’s foray into Virtual Reality (VR). But again, the head turning “wow” factor just wasn’t there. Even with HomePod, it will be interesting to see how it stacks up against Amazon’s Echo products as well as Alphabet’s (GOOGL) Google Home in the coming months. One would have to think these companies are prepping newer models, perhaps with better sound capabilities, ahead of the year-end holiday season.

The problem as we see it is Apple is trapped inside a near yearly refresh rate that makes it challenging to deliver breakthrough features each and every year. Even the new iOS name, iOS 11, is uninspiring.

Who has a blowout birthday when they turn 11?

Even the naming conventions for the new macOS and iMac were iterative in nature with Craig Federighi, Apple’s senior vice president of Software Engineering, getting a good nature laugh along the way.

Now with the WWDC keynote behind us, the next event to watch for Apple will be the unveiling of the much-discussed iPhone 8 model later this year. While Apple did sneak peek a few products yesterday, we heard nothing about the next iPhone model and as the news cycle turns away from WWDC we expect investor speculation to run rampant when it comes to this device later this summer. With 66 percent of Apple’s sales coming from the iPhone over the last two quarters, it’s the one product that Apple has to get right. Odds are it will, and that device will keep Apple as one of the key players in our Connected Society investing theme as its other initiatives – Virtual Reality, Apple Pay, Apple Watch and Apple TV – feel the lift of our Disruptive Technology, Cashless Consumption, Fountain of Youth and Content is King themes.

As these tailwinds blow, our Tematica Select List will surely continue to reap the benefits.

May Data From ADP and Challenger Offer Confirmation for Several Tematica Select List Positions

May Data From ADP and Challenger Offer Confirmation for Several Tematica Select List Positions

This morning we received the Challenger Job Cuts Report as well as ADP’s view on May job creation for the private sector. While ADP’s take that 253,000 jobs were created during the month, a nice boost from April and more in line with 1Q 2017 levels, we were reminded that all is not peachy keen with Challenger’s May findings. That report showed just under 52,000 jobs were cut during the month, a large step up from 36,600 in April, with the bulk of the increase due unsurprisingly to retail and auto companies.

As Challenger noted in the report, nearly 40% of the May layoffs were due to Ford (F), but the balance was wide across the retail landscape with big cuts at Macy’s (M), The Limited, Sears (SHLD), JC Penney (JCP) and Lowe’s (LOW) as well as others like Hhgregg and Wet Seal that have announced bankruptcy. In total, retailers continued to announce the most job cuts this year with just under 56,000 for the first five months of 2017. With yesterday’s news that Michael Kors (KORS) will shut 100 full-price retail locations over the next two years, we continue to see more pain ahead at the mall and fewer retail jobs to be had.

Sticking with the Challenger report, one of the items that jumped out to us was the call out that,

“Grocery stores are no longer immune from online shopping. Meal delivery services and Amazon are competing with traditional grocers, and Amazon announced it is opening its first ever brick-and mortar store in Seattle. Amazon Go, which mixes online technology and the in-store experience, is something to keep an eye on since it may potentially change the grocery store shopping experience considerably, “

 

In our view, this means the creative destruction that has plagued print media and retail brought on by Amazon (AMZN) is set to disrupt yet another industry, and it’s one of the reasons we’ve opted out of both grocery and retail stocks. The likely question on subscriber minds is what does this mean for our Amplify Snack Brands (BETR) position? In our view, we see little threat to Amplify’s business; if anything we see it’s mix of shipments skewing more toward online over time. Not a bad thing from a cost perspective. We’d also note that United Natural Foods (UNFI) is a partner with Amazon as well.

  • Our price target on Amazon (AMZN) remains $1,100 and offers more than 10% upside from current levels.
  • Amplify Snack Brands (BETR) has an $11 price target and is a Buy at current levels.
  • Our target on United Natual Foods (UNFI) is $65, and the recent pullback over the last six weeks enhances the long-term upside to be had.

We’d also note comments from Chipotle Mexican Grill (CMG) that its recent cybersecurity attack hit most Chipotle restaurants allowing hackers to steal credit card information from customers. In a recent blog post, Chipotle copped to the fact the malware that it was hit with infected cash registers, capturing information stored on the magnetic strip on credit cards. Chipotle said that “track data” sometimes includes the cardholder’s name, card number, expiration date and internal verification code. We see this as another reminder of the down side of what we call both our increasingly connected society and the shift toward cashless consumption. It also serves as a reminder of the long-tail demand associated with cyber security, and a nice confirmation point for the position PureFunds ISE Cyber Security ETF (HACK) shares on the Tematica Select List.

  • Our price target on PureFunds ISE Cyber Security ETF (HACK) shares remains $35.

 

WEEKLY ISSUE: A new contender for our Tooling & ReTooling Investment theme

WEEKLY ISSUE: A new contender for our Tooling & ReTooling Investment theme

In this Week’s Issue:

  • A Quick Economic Recap
  • Data on Tap for the Week Ahead
  • A New Contender for Tooling & Retooling Thanks to Aerospace Mandates!
  • Amazon (AMZN) and Alphabet (GOOGL) both flirt with the $1,000 price line
  • Dycom (DY) shares hit hard, but thematic tailwinds are still strong

 

We here at Tematica hope you had an enjoyable and relaxing holiday weekend that also served as a reminder for all those who fought so we can enjoy the freedoms we have. Three-day weekends serve to help recharge one’s batteries and we’ll need it this week. We have a plethora of economic data coming at us, which will set the stage for the European Central Bank’s next meeting (June 8) as well as the next Federal Open Market Committee meeting (June 13-14). With the Fed’s most recent FOMC minutes indicating the group is looking to determine if the recent economic slump was indeed transitory, we expect there will be much focus on this week’s data.

Odds are that will be a hot topic of this week’s Cocktail Investing Podcast, and if you missed last week’s episode then you missed out on our restaurant pain conversation. Of course, if you head over to TematicaResearch.com you can find that episode there, or you can simply subscribe to the podcast on iTunes – you can guess which one I’d recommend, so you don’t miss out.

 

A Quick Economic Recap

Because there was no Monday Morning Kickoff published this week, let’s recap last week and what it meant for the Tematica Select List. As the market ground higher last week — setting new records for both the S&P 500 and the Nasdaq Composite Index — there were added signs that even though the domestic economy is faring better now than in the first quarter, it’s still not setting the world on fire.

We saw evidence of a struggling economy in Friday’s April core durable goods order data and in disappointing April new home sales earlier last week. While this morning’s April Personal Income & Spending were in-line with expectations, we have to remember April spending benefitted from the late Easter holiday. Digging into the report, the biggest spending increase was for durable goods, while spending on services fell month over month. The personal savings rate remained flat at 5.3 percent for the third consecutive month. Unsurprisingly, the latest Case-Schiller 20-city index, which seeks to measures the value of residential real estate in 20 major U.S. metropolitan areas, rose once again in March reflecting the continued shortage of available homes for sale that is benefitting sellers and helping drive prices higher.

Even the latest Fed minutes that came out last week showed some debate as to the nature of the recent economic slowdown. Then on Friday, St. Louis Fed President James Bullard shared his view that the path of inflation in the U.S., which has started to roll over according to the latest data, is “worrisome.” Bullard, who is not a voting member of the Federal Open Market Committee (FOMC), went on to reiterate his dovish view that the central bank is seeking to hike rates too quickly and by too much. As we have said before, the Fed has historically done a great job of hiking rates right into a recession… hopefully, Fed Chairwoman Janet Yellen realizes this.

From our perspective, we continue to see the prospects for growth challenged by rising debt levels, little to no wage growth and the headwind of an aging population that, over time, will sap the available workforce pool. Per Economics 101, it’s pretty hard to grow an economy if there aren’t people there to work or as another put it this morning, “the reality of an economy slowed by an aging population and a lack of worker productivity growth.”

Despite some early wins on President Trump’s overseas tour, his approval rating remains below 40 percent, according to the latest from Gallup. As if this wasn’t enough, the Congressional Budget Office reported the GOP Health Plan would result in 23 million fewer Americans with health insurance — fodder for the 2017 election season and likely to help embolden Democrats to resist working with the president to instill reforms until at least mid- November. What’s more, it should weigh on GDP and earnings expectations in the back half of 2017.

As we enter the 2017 campaign season, we’ll continue to read the tea leaves in Washington to assess the potential timing of Trump’s policy moves (late 2017-early 2018?) as well as the potential impact on the markets.

 Data on Tap for the Week Ahead

Turning back to the week ahead, as we mentioned above it’s a rather intense one of the economic front, and with the Fed’s comments, it likely means the data will be in focus even more than usual. Luckily, we have no portfolio companies reporting earnings, which will allow us to zero in on the data, and possibly put some more of our cash to work

On deck over the next few days, we have May ISM Manufacturing & Services, the ADP and the Bureau of Labor Statistics May Employment reports, as well as the official PMI data for May from Markit Economics all, arrive over the next few days. Also, don’t forget May auto sales, April construction spending and the Fed’s latest Beige Book. Be sure to check back later in the week at TematicaInvesting.com for our take on the data.

Yep, it’s going to be a humdinger of a week for economic numbers, and making it even more interesting, a few Fed speakers are on tap. As we contend with the what’s ahead, we’ll continue to look for well-positioned companies that shine through our thematic investment perspective and offer a favorable net risk to reward trade-off. In the meantime, should we uncover some well-positioned companies that have some potential, but we need to see the fundamentals firm or the share price come in a bit, we’ll put them on the Contenders List. Speaking of which . . .

 A New Contender for Tooling & Retooling Thanks to Aerospace Mandates!

There are several strategies investors use to uncover companies that are poised to be on the receiving end of improving demand. We can track industry data looking for a rebound or acceleration that point to rising demand, like many do with companies like CSX (CSX) and Norfolk Southern (NSC) for example.

We can look for new and disruptive technologies that are changing the playing field within an industry, and one such example is our Universal Display (OLED), which as subscribers know is poised to benefit from the shift in smartphones, TVs and wearables to organic light emitting diode (OLED) displays from light emitting diode (LED) backed liquid crystal displays (LCDs). Another strategy is to look for pain points and identify those that can solve the chokehold.

There are others of course, including technical tools, but we can also look to regulatory mandates to help uncover potential pain points and the companies that could benefit. While there tends to be some back and forth in DC over regulatory mandates, once they are agreed upon and the timeline is set, we have a line in the sand that results in companies complying or potentially being fined. That line in the sand tends to result in a pull-forward in demand and historically speaking a falloff in demand once the timeline has been achieved.

We’ve seen this demand pull-forward in the trucking industry with new engine emission mandates and in the rail industry with braking technology mandates. We’re in the process of seeing this with another mandate in the trucking industry as fleet operators have until December 2017 to meet the electronic logging device (ELD) mandate to track hours of service. Compliance with this mandate is one factor leading to rising demand for our CalAmp (CAMP)shares, which have climbed more than 29 percent year to date.

Another industry that has its fair share of staged regulatory mandates is aviation. We’ve seen several mandates over the last decade plus, including one to compress the distance between flying aircraft. This was better known as Reduced Vertical Separation Minimum or RVSM for short. Much like mandates for trucks, railcars and others, the addressable market included both new aircraft as well as the existing fleet, which works very well for those companies that serve the after-market. With recent and even newer technologies, we are seeing another round of global mandates that phase in this year, but there is a larger looming mandate for air traffic management in both the US and Europe called Automatic Dependent Surveillance-Broadcast (ADS-B).

Automatic Dependent Surveillance–Broadcast (ADS-B) helps pilots and air traffic controllers create a safer, more efficient National Airspace System (NAS) relies on aircraft avionics, a constellation of GPS satellites, and a network of ground stations across the country to transmit an aircraft’s position, ground speed, and other data to air traffic controllers. Compared to existing radar, the coverage area and accuracy is greater and it can be used in areas where radar coverage is not possible, such as over the Gulf of Mexico. ADS-B also transmits surveillance information about an aircraft in flight or while on the ground. In the US, the Federal Aviation Administration has mandated that aircraft operating in most controlled U.S. airspace be equipped for ADS-B Out by January 1, 2020 and in Europe retrofit compliance is set for June 8, 2020.

Per data from Boeing there were 22,520 jet airplanes in service during 2015, and the over the next 20 years that figure is slated to rise to more than 45,000. This bodes well for those companies like Honeywell (HON) and Rockwell Collins (COL) that serve the OEM aircraft market, but those more than 22,000 planes offer a meaningful retrofit opportunity.

One of the companies that benefitted from the RVSM mandate several years ago was Innovative Solutions & Support (ISSC), which saw its shares climb to more than $24 in 2005 during the height of RVSM compliance. In a nutshell, the company is an avionics company that saw its revenue swell to more than $63 million in 2005, up from just over$28 million in 2003 before rolling over to roughly $18 million in 2007. Over the years, the company continued to innovate with new avionics products, including flat panel displays, and despite the revenue fall off from the RVSM heydays, the company has continued to generate respectable gross margins while still funding new product development.

Currently, there is one lone analyst covering the stock and no published earnings estimates, which can make valuing the shares a little challenging. It can also mean the shares are a potential diamond in the rough.

  • As we look to get a better understanding of the ADS-B and other pending aerospace/avionics mandates, we’re adding Innovative Solutions & Support (ISSC) shares on the Tematica Contender’s List, which is where we list companies that we’re doing more work on and in some cases we’re waiting for the risk to reward trade-off to reach a more appetizing level.
  • We’ll keep you posted on our analysis as we zero in on our valuation of ISSC shares and decide when to move them from a contender to a player.

 

 Amazon (AMZN) and Alphabet (GOOGL) both flirt with the $1,000 price line

From our perspective, we see Amazon crossing that mark on a sustained basis first as it continues to expand its purview on both a service/product offering and a geographic one. Make no mistake, we see Alphabet shares crossing that line too, it’s just likely to take a bit longer as it contends with growing competition in the digital advertising space from the likes of Facebook (FB) and now Amazon (AMZN). That said, as we see advertisers continue to embrace our Connected Society investing theme it means more ad dollars flowing to streaming and digital platforms, which bodes well all three of these companies.

  • Our price target on AMZN shares remains $1,100, which offers just 10 percent upside and this has us reviewing both our price target and potentially our Buy rating on the shares.
  • Following the strong share price runs for both GOOGL and FB, we continue to rate both Hold. Please note, that is not code for Sell, but rather a true Hold as all three of these are stocks to own, not trade.

 

 Dycom (DY) shares hit hard, but thematic tailwinds are still strong

Last week, following the company’s quarterly earnings report that offered a softer than expected near-term outlook, Connected Society player Dycom Corp (DY) shares came under significant pressure, dropping over 25 percent. Of course, we’re still up slightly from when we initiated our positions back in September and October of last year, all of which spells opportunity.

The issue with DY shares essentially boils down to a combination of timing and investor expectations. During the quarter, the mild winter weather allowed Dycom to pull forward projects from the current quarter, and odds are investor enthusiasm for 5G deployments has gotten a tad ahead of itself helping DY’s share price soar to a 52-week high of $110 this month from the low $80s in January.

DY shares are now back at early January levels, but from a fundamental perspective, we continue to see both cable and mobile operators expanding existing network capacity and launching new, next-generation networks to meet the nearly unquenchable demand for data. The silver lining in all of this is Dycom is seeing a broadening set of customer opportunities that are in the initial stages of planning, engineering and design and deployment. Also noted on the company’s earnings call, the company is continuing to win contracts, as customers work to improve their network capabilities and performance.

This brings us back to timing, and that means keeping tabs on Dycom’s customer base and respective network-capacity additions and new technology deployments, such as fiber to the home and business as well as 5G backhaul. We’ve seen timing bumps like this in the past with Dycom and other companies like it, and these pullbacks tend to present a buying opportunity — provided the fundamentals remain intact. Based on what we are hearing and seeing from the consumers and Dycom’s customers, we believe that to be the case.

  • We continue to rate DY shares a Buy with a $115 price target.
  • Subscribers that missed DY shares earlier this year should use the recent drop to either add to or begin a position in DY shares.

 

 

WEEKLY ISSUE: Deploying Several Defensive Measures to Protect Gains

WEEKLY ISSUE: Deploying Several Defensive Measures to Protect Gains

In this Week’s Issue:

  • Deploying Several Defensive Measures to Protect Our Gains
  • Alphabet (GOOGL), Asset-lite Business Models
  • Applied Materials (AMAT), Disruptive Technology
  • Universal Display (OLED), Disruptive Technology
  • Dycom Corp. (DY), Connected Society
  • Facebook (FB), Connected Society
  • USA Technologies (USAT), Cashless Consumption

 

Amid the market’s choppy behavior over the last week, the reality is it was little changed as measured by the performance of the S&P 500. In recent days, the market’s focus has once again turned to Washington, first with Treasury Secretary Steve Mnuchin testifying to the Senate Banking, Housing, and Urban Affairs Committee in which he reiterated that the Trump administration’s goal of 3 percent or better GDP is achievable provided “we make historic reforms to both taxes and regulation.” That was followed up this week with the release of President Trump’s 2018 budget, titled A New Foundation for American Greatness, which includes $639 billion slated for military spending that would allow the Pentagon to bolster its ranks by more than 56,000 troops, buy more helicopters and trucks for the Army, boost the Navy’s fleet and pay for more stealth warplanes for the Air Force.

From a thematic perspective that is shot in the arm for another aspect of our Safety & Security investing theme following last week’s high profile WannaCry ransomware attack. While we have PureFunds ISE Cyber Security ETF (HACK) on the Tematica Select List, we’ll look to uncover well-positioned “bullets” for the Select List in the coming days to round out our exposure to this spending tailwind.

Speaking of our Safety & Security investing theme, if you missed last week’s Cocktail Investing Podcast in which Tematica’s Chief Macro Strategist, Lenore Hawkins and I discussed the WannaCry attack, ransomware and cyber spending with Yong-Gon Chon, CEO of cyber security company Focal Point, click here to download it on iTunes. My advice would be to subscribe on iTunes so you get every podcast each and every week, and remember they are absolutely free.

Deploying Several Defensive Measures to Protect Our Gains

As the stock market has moved higher and higher, it’s not lost on us that a number of holdings on the Tematica Select List have been inching up week after week, closing the gap on our respective price targets — that’s a nice problem to have, isn’t it?

Obviously, we’re not really going to complain about positions like Dycom (DY)or Universal Display (OLED) outperforming the market so far in 2017, but we will look at remaining upside to our price targets with an eye to protect subscribers from piling in at levels that don’t afford sufficient upside to warrant taking on potential risk. Yes, it’s the RISK and REWARD that we look at when assessing whether a position makes the cut onto the Select List.

With less than 10 percent upside to respective price targets, we are downgrading several stocks to “Hold” from “Buy.” Unlike Wall Street traders, our Hold rating is just that – maintain the position to capture additional upside, not “Hold means Sell.” For example, even though there is just 8 percent upside to our Alphabet (GOOGL) price target, there are enough tailwinds blowing that could lead to us to revise our price target upward over the coming months. With that mind, we are now rating shares of Alphabet, CalAmp (CAMP), International Flavors & Fragrances (IFF), and Facebook (FB) as Holds. As we do this, we’ll be mindful of pullbacks in the market that offer buying opportunities as well as potential upside to existing price targets.

We’re also making some prudent changes with regard to stop losses, and with that in mind we will make the following adjustments:

  • Boost our stop loss on IFF shares to $125 from $115, which will lock in a nice profit given our $120ish entry price.
  • Raise the stop loss on our PowerShares Exchange-Traded Fund Trust (PNQI) shares to $98 from $90, which cements at least a 17 percent return in the shares.
  • Increase our stop loss on Universal Display (OLED) shares to $85 from $70, which will ensure a minimum return of 60 percent given our $53 entry point.
  • Finally, with our GOOGL shares, we’re stepping the stop loss up to $900 from $800, which will give us a minimum return of just over 22 percent in the shares.

One last item of note, during the past week our position in AMN Healthcare (AMN) was stopped out when the shares crossed below our $37 stop loss level leaving us with a modest profit. Despite that happening, the drivers that led us to initially add the shares to the Tematica Select List – the intersection of the current nursing shortage and the demand for healthcare workers that is a part of our Aging of the Population investing theme – remain intact. As such, we’ll add AMN shares to the Tematica Contender List while we look for a favorable re-entry price.

 Updates Updates Updates

Below are some happenings for those companies on the Tematica Select List that we found noteworthy over the last week. As 1Q 2017 earnings season finally begins to die down, we expect to resume our quest to find new positions for the Select List or at least the thematic bullpen that we affection call the Tematica Contenders List. Two companies that I’m starting to roll my sleeves up on include MGM Resorts International (MGM) as part of our Guilty Pleasure investing theme and CSX (CSX), which falls under our Economic Acceleration/ Deceleration investing theme.

Alphabet (GOOGL), Asset-lite Business Models

GOOGL shares were largely unchanged this past week on the heels of its annual Google I/O event. There were several notable announcements there, including new hardware and augmented reality (AR) developments, as well as the news that Google Home will be available in more countries outside the U.S. over the coming months.

Earlier in the week Alphabet announced its Waymo division would team up with Lyft to commercialize its driverless technology, which increases the potential for Waymo to go from investment mode to perhaps revenue generating over the next several quarters. Should that happen, Alphabet could either redeploy those investments to other projects and if not we could see a reason to contemplate upside to EPS in 2019-2020.

Getting back to the here and now or at least the nearer term, we continue to see Alphabet as extremely well positioned for the continued acceleration in our increasingly connected society toward digital search (desktop and mobile), advertising dollars shifting to digital platforms (Google, YouTube) and consumer appetite for streaming content. At the same time, the company continues to exhibit a more focused view on delivering profits, something we appreciate as shareholders.

  • Our price target is $1,050, which offers roughly 8% upside from current levels.
  • Even as GOOGL shares approach our target, much like we say with Amazon (AMZN) shares, GOOGL shares are ones to own, not trade.

 

 

Applied Materials (AMAT), Disruptive Technology

Last week Applied Materials (AMAT) reported better-than- expected earnings on in-line revenue due primarily to robust margin expansion versus year-ago levels. Furthermore, given prospects for continued margin improvement and underlying order strength, the company guided the current quarter above consensus expectations. Per the quarterly report, Semiconductor Systems sales rose more than 50 percent year over year, benefiting from the ongoing digitization that has chips becoming the new “fabric” of lives — Connected Car, Connected Home, the Internet of Things (IoT) and wearables. Applied is also benefiting from rising semiconductor capacity in China as well as strong demand for organic light emitting diode displays that led its display equipment sales to spike more than 100 percent in the quarter.

  • On the underlying strength in the current demand up-cycle and prospects for further margin improvement, we are boosting our price target to $55 from $47, which offers upside of 22 percent from current levels.
  • We continue to rate AMAT shares a Buy

 

 

Universal Display (OLED), Disruptive Technology

You probably noticed in our Applied Materials comments earlier that one of the drivers to its strong quarter was robust demand from the currently capacity constrained organic light emitting diode market, or OLED’s for short and not to be confused with Universal Display’s ticker symbol, which is also OLED. If you didn’t feel free to scroll back up and re-read them.

During AMAT’s earnings conference call, the management team gave a rather bullish endorsement for our position in OLED shares when it said, “we see investment in mobile OLED getting stronger as confidence in the adoption rates of OLED technology increases. Recent forecasts indicate that two-thirds of new smartphones could have OLED displays by 2021 and screen manufacturers are accelerating their investment plans accordingly.”

With more applications — ranging from smartphones to TVs and wearables — embracing OLEDs in the coming quarters and ramping industry capacity to meet that demand, the outlook for Universal’s chemicals and licensing business looks very bright.

  • We are reassessing our current $125 price target with an upward bias.

 

 

Dycom Corp. (DY), Connected Society

This morning, our shares of Dycom Corp. (DY) are getting hard hit following the company’s mixed quarterly earnings report. The good news is for the April quarter, Dycom crushed expectations with $1.30 per share in earnings on revenue of $786.3 million compared to consensus expectations of $1.19 and $736.2 million, respectively. Organic revenue nearly 15 percent year on year, while business acquired in the last year contributed $23 million. While details in the pre-earnings conference call press release were scant, we see the year over year growth speaking to the continued build out of next generation networks at core customers like Verizon (VZ), Comcast (CMCSA) and our own AT&T (T).

Now for the less than good news that is pressuring the DY shares  – the company’s outlook for the current quarter. Dycom is forecasting contract revenue to be in the range of $780-$810 with EPS between $1.35-$1.50, which falls short of consensus expectations that were looking for revenue $845-$850 million with EPS in the range of $1.76-$1.79. As we suspected, the culprit given the nature of the company’s business is the timing of projects, and in this case, the mild winter led to some pull forward, hence the part of the better than expected April quarter revenue. The other driver for the April quarter revenue beat was one industry participant has begun to invest in the wireline infrastructure required to enable fully converged wireless-wireline networks. As we’ve seen before, this tends to result in copy-cat spending by competitors, which in our view bodes well for Dycom in the coming quarters.

Stepping back, we see both cable and mobile operators expanding existing network capacity and launching new, next-generation networks to meet need the near unquenchable demand for data. On this morning’s earnings call, Dycom shared that it is seeing a broadening set of customer opportunities that are in the initial stages of planning, engineering and design and deployment. While this has helped temper near-term spending expectations, the company is continuing to win contracts as customers continue to improve their network capabilities and performance. This brings us back to timing, and that means keeps tabs on Dycom’s customer base and respective network capacity additions and new technology deployments, such as fiber to the home and business as well as 5G backhaul. We expect the Wall Street community will trim back near-term revenue expectations, but given the 18 percent drop in DY shares this morning, we would argue those cuts are largely factored into the stock price.

Keeping one eye on the medium to longer-term view as these networks get built out over the next few years (not quarters), we’re inclined to use the pullback in the shares to round out the portfolio’s position size as the shares settle down provided our suspicion over the guidance miss is on point.

  • Given the initial purchase prices on the Tematica Select List at $72.89 and $80.47, we’re going to be patient with this position.
  • For those subscribers that missed the initial run in DY shares, we see this as an excellent jumping on point.

 

 

Facebook (FB), Connected Society

In the last few days, Facebook (FB) was fined by the European Commission just over $100 million on its acquisition of WhatsApp. That’s nothing to sneeze at, but there was far bigger news concerning the social media giant this week.

First, Facebook is expanding its video offering, inking a deal to broadcast a live Major League Baseball game each Friday for the rest of the season. All in all, that’s a 20-game package that begins tonight.

Second, Facebook’s “Order Food” option on both the web and mobile is now in beta testing. This initiative is an expansion of a deal from late last year with Delivery.com and Slice in which users could place orders with supported restaurants from their own Facebook pages. In our view, this speaks to the monetization across Facebook’s multi-platform offering that is benefiting from ongoing feature upgrades.

In the coming months, we’ll look to see if the slowdown in digital advertising, cited on Facebook’s earnings call, is occurring or if the shift to mobile advertising continues to be robust.

  • Our price target remains $160.
  • For now, we would suggest subscribers look to add to FB positions below $145.

 

 

USA Technologies (USAT), Cashless Consumption

Last week, USAT shares rose more than 2 percent during a quiet news week for the company. Despite the relative silence, comments from Alphabet (GOOGL) at its annual I/O developer conference revealed Android Pay was expanding into new markets: Brazil, Canada, Russia, Spain, and Taiwan. As mobile payments expand across the globe, much the way credit and debit cards have, we see an expanding target market for USA’s payment solutions.

  • We intend to be patient investors and hold USAT shares as mobile-payment adoption grows.
  • Our price target remains $6 and the shares are a Buy at current levels.

 

 

 

 

 

WEEKLY ISSUE: “WannaCry” cyber attack impact on our Safety & Security investment theme

WEEKLY ISSUE: “WannaCry” cyber attack impact on our Safety & Security investment theme

In this Week’s Issue:

  • Checking the data, the economic data that is
  • WannaCry makes HACK shares jump for joy
  • Disney (DIS) held movie hostage?
  • Alphabet (GOOGL) and Lyft team to commercialize self-driving cars
  • Amazon’s (AMZN) at it again, this time with furniture
  • Getting ready for earnings from Applied Materials (AMAT) and what it means for Universal Display (OLED)

 

It’s been a much welcomed slower week of economic data and corporate earnings, but Mother Nature sensing we might like the lull after the last few weeks, many across the globe had to contend with the WannaCry ransom ware cyber attack – more on that below and what it means for our Safety & Securityinvestment theme position in PureFunds ISE Cyber Security ETF (HACK) shares. We’ve also got a number of updates to share, so away we go…

 

Checking the data, the economic data that is

Before we dish on WannaCry, let’s recap the economic data received this week, which included the May reading on manufacturing under the purview of the NY Fed, as well as April data for Housing Starts and Industrial Production. Let’s start with the good news, which was manufacturing activity per the April Industrial Production report ticked higher month over month, but even though this took a bite out of excess manufacturing capacity, manufacturing capacity remains underutilized. Moving over the April Housing Starts, single-family homes were flat month over month, while multifamily units fell more than 9 percent compared to March.

 

On the back of that data, the Atlanta Fed boosted its 2Q 2017 GDP reading to 4.1 percent from the prior 3.6 percent reading. Then we received the Empire Manufacturing Index for May, which clocked in at -1.0, well below the expected 7.5 reading and down compared to April’s 5.2 showing. Not exactly supportive of the Atlanta Fed’s revised forecast, and candidly more in line with the slowing evidenced in the majority of the economic data.

 

 

Tomorrow (Thursday), we’ll get the Philly Fed Index and we’ll be matching the May figure against 22.0 in April and consensus forecast of 18.5 for May. As we digest that data point, we’ll be looking for the next 2Q 2017 GDP update from the NY Fed and its Nowcasting model. As a reminder the most recent Nowcasting reading pegged 2Q 2017 GDP at 1.9 percent, down from 2.9 percent at the end of March.
 

WannaCry makes HACK shares jump for joy

Over the last five days, shares of the PureFunds ISE Cyber Security ETF (HACK)rose more than 2 percent bringing the position return to more than 6 percent since being added to the Tematica Select List in early February. As we saw over the last few days, we are seeing a pronounced pick-up in cyber attacks, which include WannaCry and the more than 300,000 computers across over 150 countries that it violated as well as other attacks on hospitals and even clothing retailer Brooks Brothers.

From time to time, we tend to settle in following a headline-worthy cyber attack and complacency returns. We’ve seen this several times, and it tends to result in a demand spike for cyber security stocks, only to see them level off over the coming months. By comparison, we continue to see a growing frequency of cyber attacks both large, medium and small, which is fueling demand and driving revenue for cyber security companies. If one were to postulate, this demand is one downside to our Connected Society investing theme. We would agree, as one company’s tailwind can be another’s headwind, and that pain point can create an opportunity for others. Pretty much what we see here, and it keeps us bullish on HACK shares given our $35 price target.

We’ll be doing a deeper dive on this week’s Cocktail Investing Podcast when Tematica’s Chief Macro Strategist, Lenore Hawkins, and I talk with Yong-Gon (“Young Gun”) Chon, the CEO of Focal Point Data — consulting firm that advises CEOs and Boards on cyber risk.  Be sure the check the website for when the podcast is posted, or subscribe on iTunes to automatically receive each and every episode. While the Cocktail Investing podcast is free – it is, unfortunately, a “BYOB” event.

 

 

Disney (DIS) held movie hostage?

During a town hall meeting with employees, Bob Iger CEO of The Walt Disney Co (DIS) shared “hackers have claimed to have stolen a movie and are threatening to release it in segments until their demands, which include a pirate-like ransom paid with Bitcoin, are met.” While Iger did not identify the would-be stolen film, chatter suggests it to be the new “Pirates of the Caribbean” sequel, which is set to open on May 26. This is the latest film in a franchise that has grossed grossing nearly $3.73 billion worldwide. Disney is currently working with federal authorities to investigate the attack, and we’ll continue to monitor developments and what they may means for the company’s film business in the near-term.

  • The recent post-earnings pullback offers 16 percent upside to our $125 price target at current levels.
  • With a robust movie slate, declining capital spending and a super-sized $10 billion buyback program, we continue to favor the House of Mouse.

 

 

Alphabet (GOOGL) and Lyft team to commercialize self-driving cars

Amid its skirmish with Uber over self-driving technology that it is developing at Waymo, this week Alphabet’s (GOOGL) partnership with ride-hailing startup Lyft took a new turn as they agreed to work together to develop products and technology for autonomous autos. While terms and other details of the arrangement were not disclosed, there are several thoughts on what this could mean for Alphabet’s Waymo. The most obvious of which is a path to commercialization. Even Warren Buffett commented on the threat that driverless cars and trucks pose to several of Berkshire Hathaway’s businesses at the annual shareholder meeting this year, couching his remarks with “at some point.”

As we see it, the arrangement with Lyft has the potential to bring Waymo’s driverless technology to commercialization as it leverages Lyft’s network of taxis operating in more than 300 cities across the United States. What’s Lyft’s motivation in this? Reducing its largest cost, which are the drivers that get as much as 80 percent of fares, not to mention cash subsidies to retain those drivers. With other companies ranging from Apple (AAPL) to Mobileye (MBLY)vying for a slot in the driverless car market, we’ll continue to watch developments.

  • Our price target on GOOGL shares remains $1,050, which offers just under 10 percent upside from current levels.
  • With the market trading at stretched valuations, we would hold off adding to GOOGL positions at current levels.
  • That said, GOOGL shares are ones to own as we move deeper into the Connected Society.

 

 

Amazon’s (AMZN) at it again, this time with furniture

Turning to Amazon, there were two announcements that caught our eye – the first deals with Amazon’s expanding into furniture, while the other is the dismal brick & mortar retail landscapes. We commented on the later in last week’s Roundup, but we’re seeing reminders of retail-megaddon this week in TJX Companies (TJX) dismal earnings report. Our view remains Amazon is net share gainer as it expands its product and geographic footprint. That brings us back to our first point, the expansion of its furniture offering. While Amazon has sold furniture online for years, much like apparel, it is it stepping up its game as it offers a wider variety of selection — Ashley Furniture sofas and chairs and Jonathan Adler home decor. What Amazon is looking to do is tap into the growth prospects for online furniture sales, which eMarketer sees growing to more than $55 billion by 2020, up from $36 billion this year.

  • Our AMZN price target remains $1,100, which offers just under 14 percent upside from current levels. As with GOOGL shares.
  • AMZN shares are one to buy and hold, and that’s exactly what we aim to do.

 

 

Getting ready for earnings from Applied Materials (AMAT) and what it means for Universal Display (OLED)

Applied Materials (AMAT) will report its quarterly earnings after Thursday’s (May 18) market close. Heading into the weekend consensus expectations call for the company to deliver EPS of $0.76 on revenue of $3.54 billion. As we digest the company’s earnings, we’ll be focusing on bookings and backlog with an eye for potential upside to our price target. With that report, we’ll get another take on ramping OLED industry demand. All signs point to rising capacity, and we’ll be listening to Applied’s comments not only for incremental capacity additions but the timing for those new facilities going from beta to commercial production. With more applications ranging from smartphones to TVs and wearables embracing OLEDs in the coming quarters and ramping industry capacity to meet that demand, the outlook for Universal Display’s (OLED)chemicals and licensing business looks very bright.

We’d note the price moves in these two shares have been strong, and both have continued to encroach on our respective price targets. While we anticipate an upbeat quarter and outlook from Applied, we also think expectations are running high into the earnings report. In our view, to justify the Buy ratings on both stocks, we would need to see upside to $52 for AMAT shares and near $135 for OLED shares, respectively, from current levels. We’ll dial into AMAT’s quarterly report and make our next move based on those findings. With OLED shares, we suspect we’re likely to see a series of rising price targets over the coming months as we wait for the initial sales data on Apple’s next iPhone. Odds are Apple will once again under-produce relative to demand, resulting in the headlines touting yet again another new iPhone selling out. Up over 120 percent as of last evening’s close, we will continue to hang onto our OLED shares for the ride that is to come.

 

 

 

 

 

Walmart and Amazon Clash on Free Shipping, But Only One Has Multiple Thematic Tailwinds

Walmart and Amazon Clash on Free Shipping, But Only One Has Multiple Thematic Tailwinds

 

 

The battle for the digital consumer is on with Amazon responding to Walmart’s attempts to grow its online and mobile business. Back in February, Amazon cut its free shipping price from $49 to $35 and this week is slashed that down to $25, which compares to Walmart’s current $35 minimum for free shippping. We can understand using this tactic to entice non-Prime customers, but in our view a few orders gets you to Prime and that’s before you consider all the services Prime members get like streaming audio, video, storage and  others.

While Walmart is looking to compete with Amazon when it comes ot the Connected Society, Amazon’s Content is King, Cashless Consumption and Disruptive Technology tailwinds more than make up the difference.

Amazon.com Inc (AMZN) said on Tuesday it cut the threshold for free shipping to $25 from $35, upping the ante against Wal-Mart Stores Inc (WMT) in a hotly contested battle for ecommerce supremacy.

The world’s biggest retailer, Wal-Mart, has been building up its ecommerce business through acquisitions such as Jet.com, as it looks to narrow the massive gap with Amazon.

Wal-Mart started its own membership program called ShippingPass last year, which offered free two-day shipping for $49 a year. However, the company ended the program in January, replacing it with free two-day shipping on orders of $35 or more.

Source: Amazon cuts free shipping minimum to $25 | Reuters

WEEKLY ISSUE: Several stocks capitalizing on strong thematic tailwinds

WEEKLY ISSUE: Several stocks capitalizing on strong thematic tailwinds

In this Week’s Issue:

  • Disney Delivers an EPS Beat, But Reaffirms 2017 is a “Transitional” Year
  • Amplify Snacks Serves Up a Healthy Quarter
  • USA Technologies: Riding the Cashless Consumption Wave
  • March JOLTS Report Confirms Our Stance on AMN Healthcare (AMN) Shares

 

As we noted in the Monday Morning Kickoff a few days ago, this week was going to be yet another barn burner in terms of activity, with yet another 1,000 companies reporting earnings. We’ve gotten some incremental economic data points, but the main ones for the week – the April reports for PPI, CPI and Retail Sales – all come later in the week.

As we sifted through hundreds of earnings reports over the last two days, we also saw further downward revisions by both the Atlanta Fed and the New York Fed for their respective 2Q 2017 GDP forecasts. Hardly surprising, given the readings from ISM and Markit Economics as well as the April data supplied by regional Fed banks, but once again here we are. What made headlines yesterday was the comments from Commerce Secretary Wilbur Ross that the US economy “won’t achieve the Trump administration’s 3 percent growth goal this year and not until all of its tax, regulatory, trade and energy policies are fully in place.”

Given Ross’s comments that the growth target “ultimately could be achieved in the year after all of President Donald Trump’s business-friendly policies are implemented” but that “delays were possible if the push for tax cuts was slowed down in Congress,” odds are there is some DC-style politicking going on. Even so, the reality is without a jolt to the system odds are the US economy will remain in low gear.

As we’ve shared previously, the economy is facing several headwinds associated with our Aging of the Population and Cash-strapped Consumer investing themes that are likely to keep it’s growth range bound. As such, we continue to see current GDP expectations as somewhat aggressive for the coming quarters, and the same holds true for S&P 500 earnings expectations. That said, we are not buyers of the stock market, but rather those companies that are well suited to capitalize on the tailwinds associated with our investing themes. You’ll see confirmation of that in our comments below on Disney (DIS), Amplify Snacks (BETR), USA Technologies (USAT) and AMN Healthcare (AMN), as well as Amazon (AMZN) and Alphabet (GOOGL) in the next paragraph.

As a quick reminder, later this week we’ll get the April Retail Sales Report, which could see favorable comparisons year over year given the late Easter holiday. As usual, we’ll be digging in below the headlines to get a better sense of consumer spending for not only what they are buying, but where. We once again suspect the report will confirm the accelerating shift toward digital commerce that is power our Amazon (AMZN) and Alphabet (GOOGL) shares. We continue to rate both Buy with $1,100 and $1,050 price targets, respectively.

Now let’s dig into the earnings reports for several positions on the Tematica Select List…

 

 

 

Disney delivers an EPS beat, but reaffirms 2017 is a “transitional” year.

Last night Disney (DIS) reported March 2017 results, which included better than expected EPS, revenue that came in a tad shy of expectations and sober forward guidance, which reminded investors that 2017 is a transitional year for the company as it targets better growth in 2018. EPS for the quarter came in at $1.50, $0.09 ahead of consensus expectations as revenue rose 2.8 percent compared to the year-ago quarter hitting $13.34 billion, shy of the $13.44 billion that was expected.

Heading into 2017, we noted the first half of the year would likely be a more subdued one and so far that is proving to be exactly the case. As we enter the company’s fiscal second half of 2017, Disney has a far stronger movie lineup, which should continue into 2018 and beyond. Higher costs at ESPN and investments in new park attractions, however, are likely to be gating factors over the next few quarters. We see Disney as investing today to leverage its vast array of characters and tentpole films that will drive incremental business at its parks, for its merchandise and other businesses in the coming quarters.

Our price target remains $125, but we’ll continue to revisit that target based on box office strength in the coming months. Odds are the quarter’s results will take some of the wind out of Disney’s sails, but with the company set to continue to leverage its Content is King strategies, we’re inclined to be patient.

Breaking down the company’s segment results from the March quarter we find:

  • Cable Networks revenues for the quarter increased 3 percent to $4.1 billion and operating income decreased 3 percent to $1.8 billion. The decrease in operating income was due to a decrease at ESPN due to higher programming costs because of the timing between College Football Playoff (CFP) bowl games and NBA programming, which was partially offset by increases at the Disney Channels and Freeform. Programming costs are expected to be 8 percent higher this year due in part to the new NBA contract.
  • On a positive note, Disney continues to make progress in transitioning ESPN by expanding its reach into streaming services like those from Sling TV, Sony’s (SNE) PlayStation Vue, YouTube TV (GOOGL), Hulu and DirecTV Now from AT&T (T). While Disney is seeing favorable momentum, it’s still not enough to totally offset the slide it is seeing in cable subscriptions. As we discussed recent, Disney is focusing on live mobile content, which should help drive incremental viewing compared to the 23 million unique users who collectively spent 5.2 billion minutes engaging with ESPN on its mobile platforms in the March quarter.
  • Parks and Resorts revenues for the quarter increased 9 percent to $4.3 billion and segment operating income increased 20 percent to $750 million. We’d note that segment benefited from price increases taken in prior months, but this was offset by the later than usual Easter holiday this year.
  • As expected construction is underway on Star Wars attractions at both Disney World and Disney Land, a great example of how the company’s film content will drive park attendance and merchandise sales. Management commented that in a few days the 10 millionth guest will pass through Shanghai Disney and the park is tracking to break even this year as Disney downshifts investing in the park compared to year-ago levels.
  • Studio Entertainment revenues for the quarter decreased 1 percent to $2.0 billion and segment operating income increased 21 percent to $656 million. Despite having two films that grossed more than $1 billion each during the quarter – Rouge One from the Star Wars franchise and remake of Beauty and the Beast – the quarter faced stiff year over year comparisons given the success of last year’s Star Wars: The Force Awakens and Zootopia and in essence making them a victim of their own success. On the earnings call, as expected management talked up Friday’s Guardians of the Galaxy 2 release, which took the top spot at the box office and raked in more than two times the first installment of the Guardians franchise. Disney reminded investors it has four Marvel films coming over the next 14 months, as well as the next installment of the Pirates of the Caribbean franchise and Cars 2 dropping in the next few months before The Last Jedi lands in December. Longer-term, there will be more Marvel, Pixar and Lucasfilm tentpole properties, but on the call Disney shared that Frozen 2 will be released in 2019.
  • Broadcasting revenues for the quarter increased 3 percent to $1.9 billion and operating income increased 14% to $344 million led by greater sales of Marvel TV programming content to Netflix (NFLX) and others.
  • Consumer Products & Interactive Media revenues for the quarter decreased 11% to $1.1 billion and segment operating income increased 3 percent to $367 million.

On the housekeeping front, during the March quarter, Disney repurchased about 18.6 million shares for about $2 billion. Over the last two quarters (better known as the company’s fiscal year-to-date), its repurchased 41.5 million shares for approximately $4.4 billion. Citing lower than expected capital spending needs and improved operating cash flow, Disney once again increased its share repurchase target by $2 billion to $9 billion to $10 billion for the year. As the company chews through this program, it should help improve year over year EPS comparisons, but we’ll still be monitoring both operating profit as well as net income growth when contemplating how to best value the shares.

The bottom line on DIS shares:

  • Given the appreciation in the shares price over the last five months, we would not add to positions in the Walt Disney Co (DIS) at current levels and thus are changing our rating to a Hold at this point in time.
  • Rather, we would look to commit fresh capital to DIS shares between $100-$105 if the shares pull back in the coming days, while over the longer term we still maintain a price target of $125 for the shares.

 

 

Amplify Snacks Serves Up a Healthy Quarter

After last night’s market close, Foods with Integrity theme company Amplify Snacks (BETR) reported 1Q 2017 results that included EPS of $0.06 vs. the expected $0.06 on revenue of $87.2 million vs. the consensus expectation of $87.6 million and up more than 60% compared to $54.3 million in the year-ago quarter. The one wrinkle in the quarter was the company’s gross margin line that contracted year over year, which we attribute to short-term initiatives to grow the company’s business further. For example, during the quarter the company launched its SkinnyPop Ready-to-Eat popcorn in the U.K., carried a full quarter of both the Oatmega and Tyreell acquisitions, and introduced new SkinnyPop product extensions (popcorn cakes, popcorn mini-cakes and microwave popcorn).

As these initiatives bear fruit over the coming months and longer term as Amplify brings Tyrrell chip products to the US in the back half of 2017 and 2018, the good news is the company continues to expand its distribution. Exiting the quarter, its ACV (a widely recognized distribution measure) hit 81 points up from 73 in the same period last year. The year over year improvement reflects new distribution across grocery, mass and convenience channels as those companies embrace our Foods with Integrity investing theme and expand their healthy snacking alternatives.

Given stronger prospects for the domestic business, Amplify amended its tax guidance which has led to a modestly higher tax rate than previously expected. This, in turn, has led the company to ever so so slightly trim its 2017 EPS outlook to $0.42-0.50 versus our prior expectation of $0.43-0.51., which in our view is a very minor change relative to the growth prospects to be had over the coming quarters.

  • Exiting the company’s quarterly earnings report, we continue to rate BETR shares a Buy with a $10.50 price target.

 

  

USA Technologies: Riding the Cashless Consumption Wave

Yesterday, USA Technologies (USAT) reported inline EPS expectations for the March quarter on better than expected revenue. USA Technologies 1Q 2017 revenue rose 30 percent year over year as the company continued to grow the number of connected to its ePort services, up 26 percent to 504,000 connections. As the adoption of mobile payments continues to spread, USA expanded its customer base by another 500 to reach 12,400 exiting the quarter, a 15 percent increase year over year. The company also issued a more upbeat outlook calling for 2017 revenue of $95-$100 million, a tad higher than the $95-$97 consensus expectation derived from the three Wall Street analysts following the shares.

On the earnings call, the company shared a number of confirming data points for investment thesis on USAT shares including:

  • USAT is working with Ingenico to provide customers with more hardware options and where Ingenico will be able to leverage USA’s quick connect service as well as ePort Connect platform for use with its NFC/contactless unattended payment solutions. As way of background, Ingenico was the first international multi-billion-dollar mainstream payments hardware company that have entered the unattended retail market.
  • During the quarter, USA also launched an alliance with vending company Gimme Vending as also announced a stand-alone loyalty program that integrates with Apple’s (AAPL) Apple Pay.
  • Digging into 1Q 2017 revenue, the company had 105 million total transactions representing 203 million in transaction volume increases of 28% and 34% respectively from last year.
  • License and transaction fees rose 19% year over year to $17.5 million compared to $14.7 million last year. We call this out because the segment includes recurring monthly service as well as transaction processing fees, which offer good visibility and predictability. As the percentage revenue derived from license and transaction continues to climb from 66% of total revenue in 1Q 2017, the company’s visibility should similarly improve.

With the continued migration toward a cashless society, we continue to rate USAT shares a Buy with a $6.00 price target.

 

 

March JOLTS Report Confirms Our Stance on AMN Healthcare (AMN) Shares

Yesterday we received the March Job Openings and Labor Turnover Survey and once again it showed not only a strong year over year increase in healthcare job openings, but also the number of open healthcare jobs significantly outweighs the number of positions filled. Granted the data lags by a month, but given the April jobs data, we rather doubt there has been any meaningful change in the metrics over the last month. We continue to see the far greater number of healthcare job openings compared to the available talent pool as driving demand for AMN Healthcare’s (AMN) healthcare workforce solutions.

  • With more than 20% upside to our $47 price target, we continue to rate AMN shares a Buy.