Tuesday, August 28, 2012

ASML Holding (NASDAQ:ASML): End of 28nm Foundry Bookings Era? - Deutsche

Deutsche Bank's Semicap Equipment team is making a sizable negative call in the space saying they see downside risk to expectations of robust foundry spending environment in 2013.

Firm is downgrading:

- KLA-Tencor (NASDAQ:KLAC) to Sell from Hold with a $44 price target (prev. $56)

- ASML Holding (NASDAQ:ASML) to Sell from Hold with a EUR 35 price target (prev. EUR 40)

Overall Thoughts
Deutsche sees downside risk to expectations of robust foundry spending environment in 2013 and believes uptick in memory spending would not be sufficient to offset potential foundry weakness driving downside risk to consensus view of flattish WFE spending outlook for 2013. Although bookings momentum could likely remain strong for select WFE names in 1H13, recent positive share price momentum suggests this view is likely discounted in semicap stocks. Moreover, mgmt teams have already been calling for seasonal pick-up in foundry spending from later this year and as such, the firm views the set-up as less favorable for semicap stocks.

End of Foundry 28nm Bookings Era
Peaking smart device momentum, stagnating die size growth along with ~75-80% completion of peak 28nm capacity adds exiting 2012 timeframe suggest 2013 foundry spending could potentially decline 15-20% YoY versus current expectations of flat to up 10%. With 28nm foundry capacity potentially reaching 230-250k wspm exiting 2012 and peak 28nm capacity less likely to exceed 275-300k wspm they see increasing risk of a much more muted foundry bookings environment in 1H13 and do not expect potential increase in 20nm spending to offset 28nm spending decline. Even in a scenario where strong 1H seasonality experienced by the foundries plays out in 2013, the firm sees a sharp decline in 2H13 foundry bookings.

1) Growth rate of mobility devices may have peaked in 2012
Strong growth of mobility devices has been one of the primary growth drivers for the foundry sector. Deutsche agrees that mobility devices growth would likely continue over the next few years. However, when it comes to the chip capacity required to build these devices, they believe there is an important misconception in the market - it is not the absolute number of smart devices built that drives the required silicon wafer capacity.
 
                  

2) Die size growth is also likely stagnating

In addition to device unit growth, another common argument driving foundry spending optimism is the perception that die sizes have been increasing over the past few years and would continue to increase going forward. The majority of discussion about die size growth has been extrapolated from the fact that over the past 3 years, die sizes for Apple’s application processor chips for the iPhone and iPad have grown from 53mm2 (the A4 chip) to 163mm2 (the A5X chip). There have been die size increases for other chips as well (for instance, NVIDIA’s Tegra), but given Apple’s dominance in smart phones and tablets, they believe Apple’s die size increases have disproportionately driven this perception.

Downgrading ASML (covered by Kai Korschelt), KLAC to Sell

Slowing 32/28nm foundry capacity additions and an only modest 22/20nm ramp in 2H13 could drive material foundry bookings decline for ASML over the next 12mths, with 2013 EPS potentially declining YoY, 27% below consensus. Deutsche lowers their price target from E40 to E35. KLAC's 2012 foundry orders imply the foundry segment is on pace to ~150k wspm incremental process control capacity, well above the 90-100k wspm capacity projections from semicap companies. Coupled with the fact that 28nm yields are finally increasing and process control intensity at 20nm node could potentially decline (less process variants at 20nm, no 20nm tool upgrade cycle such as SP3 for 28nm, stagnating die sizes), they see risk of multiple quarters of bookings slowdown in 2013. With shares trading near 52-week highs, at a premium valuation and considering high investor expectations, the firm recommends investors take profits as they see downside to ~$40-$45 levels. Lower price target from $56 to $44.

Notablecalls: This is a big call, DBAB pretty much busts 2 significant myths related to smartphone/tablet and Apple chip momentum and its' effect on Semi capex.

While not mentioned in the above summary of the call, Deutsche is throwing some cold water on ASML's UEV (extreme ultraviolet) revolution saying the Bull case is already pretty much priced in here, despite '15-'16 roadmap. UEV is the reason why Intel and Samsung have made $1bln+ commitments to ASML in recent months helping to push the stock higher.

All in all, I think ASML and KLAC both will see meaningful amount of supply in the n-t. Both names will be down 3-4% today and more in the coming weeks.

Friday, August 17, 2012

Dendreon (NASDAQ:DNDN): Like What We’re Hearing, Signs of Revenue Uptick Only Missing Element - Baird

Baird biotech team is out with some pretty interesting comments on Dendreon (NASDAQ:DNDN) after hosting a series of investor meetings with management.

- Firm remains Neutral-rated but suggests some exposure given the name’s negative sentiment and low valuation

Remain Neutral-rated, but incrementally positive on DNDN after hosting management meetings in New York. With shares down >60% since February; Provenge down Q-Q; significant management turnover; and a still-outsized cost structure, the firm understands current investor distaste for DNDN shares. However, they think management articulates a credible turnaround plan both on the revenue and expense lines. While they look for tangible signs of revenue uptick as an upgrade signal, some exposure to this name may be warranted here.

Bucking biotech’s bullish trend. After essentially a year of turmoil, shares are off 37% YTD (NBI up 28%), rendering the stock at just 2X 2012E revenue, as investors increasingly question DNDN’s future solvency, let alone growth potential.

Feeling a lot better about things after travel with management. This week, Baird hosted investor meetings in New York with CFO Greg Schiffman and come away incrementally positive on the stock. Specifically, three key points:

- Near-term Provenge under-performance seems fixable. While Baird surveys have indicated some Zytiga impact, they think Provenge’s June downtick was less related to ASCO’s Zytiga pre-chemo data than with DNDN’s own sales vacancies (~18% of territories end of Q212). Given the high-touch nature of this product they are not surprised vacant territories (-30% Q-Q) would see a drop-off. With the sales force back at full-strength, they do think a near-term rebound will do much to assuage concerns.

- MDVN’s enzalutamide may help, not hurt Provenge. Many have speculated two new therapies (Zytiga now, enzalutamide November 22) will relegate Provenge to niche-status in the chemo-naïve CRPC market. DNDN contends there is significant thought-leader excitement over running a large Provenge/enzalutamide combination trial, given enzalutamide’s better combinability with Provenge (no co-administered steroid) and potential immunotherapeutic synergy (enzalutamide increases T-cell counts).

- Cost efficiency programs. Beyond the already-announced restructuring (bringing COGS to 50%) significant opportunity exists around automation (at the hood and in release testing) which could bring COGS closer to 20-30% - a threshold Baird believes could make DNDN a more attractive take-out candidate.

Not a buy yet, but some exposure warranted. Baird recognizes without a Provenge resurgence, DNDN remains a show-me story. Until such time, they remain on the sidelines, but do nonetheless suggest some exposure given this name’s negative sentiment and low valuation.

Neutral, $8 price target.

Notablecalls: So it appears Baird got the wink from CFO Schiffman. Provenge is likely to surprise to the upside next time the co reports. This should take the stock higher in the meanwhile.

I would not be surprised to see a 10%+ move in DNDN in the n-t.

Apple (NASDAQ:AAPL): Checks Indicate iPad Mini Has Gone into Production; Raise Target to $900 - Jefferies

Jefferies & Co analyst Peter Misek is out with some very positive comments on Apple (NASDAQ:AAPL) this morning raising his price target to $900 (prev. $800) while reiterating his Conviction Buy List status for the name.

- Checks Indicate iPad Mini Has Gone into Production; So has iTV.

Based on July Taiwan sales data and their checks, Jefferies believes iPad builds for CQ3 have been raised from 18M to 25M and CQ4 from 22-25M to >30M. They continue to think Apple will have ~15M iPhone 5 handsets by mid-Sep and the iTV will launch in CQ4 or CQ1. They remain significantly above St EPS for FY13 ($63 vs. St $52) and think the iPhone 5 will be the biggest handset launch in history. Firm raises their target to $900 and reiterates their Buy rating.

iPad Mini in production. Hon Hai's July revenues were +5% M/M vs. typical seasonality of flat. They believe Hon Hai is the main manufacturer of the iPad Mini. The new build plans of 25M and >30M for CQ3 and CQ4 compare to they current estimates of 16M and 18M, which do not include an iPad Mini.

9/12 event likely an announcement of the iPhone 5, possibly of the iPad Mini, and less likely of the iTV. For the iPhone 5, Jefferies remains confident that by mid-September Apple will have ~15M in finished goods inventory. They believe 3GS, 4 and 4S builds continue into Q4. Pricing for all of those models has been slashed already. Total iPhone builds for H2:CY12 are well in excess of 80M vs. our estimate of 81M. The firm does not know if Apple will have a separate announcement event in Oct for the iPad Mini, and while they also think an iTV will be ready for a CQ4 launch, they do not know how many major product announcements Apple would want to cram into Sep/Oct/Nov and see a CQ1 launch as possible.

Believe the iTV is in full production. Recent data out of Sharp, Hon Hai, and other specialty chemical and TV component suppliers support this. Also, JDSU noted that they have a new non-gaming customer for its gesture control modules. They indicated this is a new "living room" based customer. Jefferies believes Apple will leverage AT&T's and Verizon's content deals for the iTV. Additionally, the WSJ's sources indicate Apple may also consider a set-top box version for the cable operators.

Leave estimates unchanged. Firm currently models 2M iTVs in CQ4 at a $1,250 ASP, which equates to $2.5B in revenues. They think Apple would sell at least 8M iPad Minis at a $300 ASP with a similar GM to the iTV, leading to at least a similar revenue and earnings boost. An iPad Mini launch makes a CQ1 iTV launch more likely, but it could still be in CQ4.

Valuation
Jefferies derives their price target from a 12x multiple ex-cash (14x including) on their FY13 EPS vs. CY13 S&P 500 St P/E of ~12x (premium due to higher growth).

Notablecalls: New highs coming for AAPL today as Jeffco's Misek joins Piper's Munster at $900 price target level. Can't stop this chart. Headed to $640-645/sh today?

Tuesday, August 14, 2012

NCR Corp (NYSE:NCR): Downgrading to Neutral from Outperform as Potential FCPA Issues Add Meaningful Risk - Wedbush

Wedbush analyst Gil Luria is downgrading NCR Corp (NYSE:NCR) to Neutral from Outperform this morning while lowering his price target to $23 (prev. $33).

- The move comes after a WSJ report detailing possible FCPA violations (out last night)

Wedbush believes NCR could grow EPS at a 15% CAGR over the next three years if it is able to avoid the impact of potential Foreign Corrupt Practices Act (FCPA) issues. However, pending more visibility into the impact of the issues raised by the Wall Street Journal online, they believe this growth is at risk and are downgrading shares to Neutral from Outperform.

Firm believes immediate implications could be multi-quarter investigation and potential fines with overall price tag in the single millions to tens of millions. They believe that Diebold’s FCPA investigation which has lasted more than two years and has cost several million dollars may end in a significant fine.

If allegations are true and Chinese business is impaired, $200-300 million of revenue in China may be at risk. Luria believes Diebold may have lost as much as $100 million of revenue in Russia alone following its own FCPA investigation.

Possible broader investigation could put overall emerging market growth at risk as well. Wedbush believes much of NCR’s share gains over the last two years have come in emerging markets, which means growth may be at risk if an FCPA investigation restricts current business practices. They point out that NCR grew its ATM business by 15% between 2009 and 2011 while Diebold grew only 3% over the same period. Firm believes that possible new constraints on NCR and Diebold could drive share gains for companies uninhibited by the FCPA such as Chinese based GRG, Korean Hyosung or Japanese ATM makers such as Hitachi.

Reducing price target to $23 from $33 as new risks from a potential FCPA issue reduce visibility into growth. Wedbush' target represents an 11x multiple on 2012 GAAP EPS adjusted for the new pension program and amortization of intangibles of $2.12, a 10% discount to comparable DBD based on the less visibility due to an earlier stage FCPA issues.

Notablecalls: FCPA could be a major overhang, not to mention it remains unclear if the DOJ, SEC or Department of the Treasury currently have investigations under way. Last thing investors want to see is international growth slowing (that's where growth is!).

Another thing to consider is that Mr. Luria is rather well respected in the space. He has been a NCR bull since early 2011 and rightly so. So with him telling clients to sell (with a below market target), the stock will trade down.

Back in 2011 the stock produced a 7-10% move in 2 days on the Luria upgrade.

Also note that Diebold (NYSE:DBD) gapped down 5 pts (-20%) after announcing possible FCPA violations back in 2010. Here's the release.


I'm thinking the stock will hit Luria's $23 price target and move below that in the n-t.


Posting it around open.

Thursday, August 09, 2012

Cisco Systems (NASDAQ:CSCO): Upgraded at Piper and Goldman; Checks reveal surprising strength

Cisco Systems (NASDAQ:CSCO) is getting some analyst love this morning as both Piper Jaffray and Goldman Sachs are upgrading the stock.

- Interestingly, both firms say their checks revealed better than expected enterprise demand


*Piper Jaffray is upgrading CSCO to Overweight from Neutral with a $22 price target (prev. $20) saying they believe Cisco will report respectable FQ4 results with revenues inline with consensus, but better margins and cost controls providing upside to EPS.

Their confidence is based on proprietary channel checks and data points from distributors, coupled with Cisco’s recent improved execution. Firm expects Cisco will provide some cautious commentary regarding macro headwinds in Europe and the Fed vertical, but believe these concerns are already factored into expectations and the current stock valuation. They believe CSCO’s stock will work higher with investor interest in networking stocks returning and estimates likely moving higher (accretive acquisition and cost controls). Piper also also believes CSCO’s stock offers downside protection if markets turn negative with an attractive valuation (5.5x CY13 EPS ex-cash) and nearly 2% dividend yield.

Favorable Channel Checks –
Based on proprietary channel checks, data points from distributors and their recent VARs survey, Piper believes Cisco will meet or slightly beat revenue expectations and tight cost controls should drive better than expected EPS results. They anticipate Enterprise sales were above plan, with the sluggish sales from service providers preventing limiting upside in the quarter.

2H Carrier Expectations - Piper believes 2H spending from North American service providers will increase over the 1H. While the rate of growth is likely below historical trends, they believe this will aid Cisco's ability to exceed the 2H estimates that are currently reflecting below historical seasonality.

Firm believes CSCO shares will trade higher throughout the remainder of CY12 given improving investor sentiment and upward EPS revisions.


*Goldman Sachs is adding CSCO to their Conviction Buy Listi with a $24 price target representing 40% return potential. According to the firm they believe believe its fundamentals are inflecting positively, with both their recent IT Survey and their just-published channel survey pointing to stronger than expected growth in enterprise networking, and switching in particular, as well as to a stronger competitive position for Cisco.

Moreover, North America capex appears set for above-seasonal growth in 2H 2012. Separately, they think longer-term concerns such as software-defined networking (SDN) are overdone, with Cisco’s 1.3X EV/S implying the market is pricing in rapid margin degradation from the current 28%, which they view as unlikely.

Catalyst
Goldman expects Street estimates for Cisco to move up post F4Q (Jul) earnings next week, and their next two quarters’ EPS estimates are 6-7% above consensus on stronger growth in switching (due to the 10 Gb upgrade cycle) and routing (100 Gb upgrade cycle in core, share gains in edge), cost controls, and accretion from NDS (GSe $0.05 in FY13), which the Street
hasn’t yet modeled. They also think Cisco can gain share in service provider video (8% of sales) given Google’s reported plans to sell Motorola Mobility’s set-top box business. Further out, Goldman expects Cisco’s analyst day in September and upcoming investor conferences to clarify its SDN strategy and alleviate investor fears of imminent and significant margin declines, which they expect will lift its multiple to low double digits, consistent with their 8.5% EPS CAGR expectation for CY2011-14.

Enterprise spending on network equipment is on more solid footing than feared
While there is still a high level of consternation among investors on end demand trends in the networking segment, recent datapoints suggest that demand is better than expected. Goldman's June IT survey, which polls 100 IT executives from Global 2000 companies, showed that 53% of respondents expect to increase their spending with Cisco over the next 12 months. Importantly, this represents the highest level since 2H 2008, putting this data series back into the 50-70% range that they have historically considered “healthy” for Cisco. Meanwhile, the percentage of respondents expecting spend to be flat or down declined meaningfully since the firm last asked that question in September 2011. For context, enterprise spending (not including SMB) drives about a third of Cisco’s bookings.
       
                    
   
Similarly, Goldman's just published VAR survey points to stronger than expected growth for network infrastructure in 2012  and for Ethernet switching in particular. Recall that VARs are particularly important for Cisco, given that about 80% of its revenues come from the channel.


Notablecalls: This could be something - two separate firms out with positive channel checks. Goldman is actually making a positive sector call with a survey report titled "Channel survey shows surprising strength; Buy CSCO and ARUN".
Definitely out-of-consensus stuff.

I expect CSCO to see meaningful buy interest in the n-t. The stock could trade close to $18 today if the tape cooperates.

Wednesday, August 08, 2012

CF Industries (NYSE:CF): CF Industries: 2012 Is Not the Peak; Stock worth $305/share - Don Carson

Susquehanna uber-analyst Don Carson is making a big call on CF Industries (NYSE:CF) raising his price target to a Street high of $305 (prev. $240).

- His new price target represents ~48% upside from current levels.

Susquehanna is raising their 2012/13 EPS to $27.70/$28.00 from $26.70/$21.25 and their 12-month price target to $305 from $240. They now see 2013 EPS above 2012 driven by an improved nitrogen pricing outlook in 2013 due to elevated grain prices leading to increased acreage planted and N demand, a minimum of $2.00 in EPS accretion from the acquisition of the minority stake in the cost-advantaged Medicine Hat, Alberta N plant, and the benefits of a lower share count due to share repurchase. Firm notes they had lowered their target multiple on Nitrogen segment EBITDA to 5.0x from 6.0x following the lack of share repurchases in Q1, but are reverting back to the 6.0x multiple used for other N producers in firm's coverage universe which accounts for $47 of the $65/share price target increase.

* Also note that Morgan Stanley is raising their price target to $250 (prev. $215) noting they expect consistent, measured, share repurchases, absent market dynamics that would encourage more aggressive action. Over time, they expect the consistency of this process to be viewed similar to a dividend, likely leading to a narrowing of CF’s significant valuation gap with nitrogen MLPs.


                     


Investment Case
While some investors are questioning what’s next for CF now that the capital allocation debate has come to a very positive conclusion, Morgan Stanley challenges investors to find a more attractive equity investment. CF Industries:

1. Has a sustainable feedstock cost advantage and is positioned in the highest nitrogen price end market in the world;

2. Unequivocally benefits from recent trends in US agriculture. The US farmer will likely plant as much if not more corn in 2013 as in 2012 and he will buy nitrogen, no ifs ands or buts;

3. Has almost zero exposure to Europe from a sales perspective and developments in Greece, Spain et al will not change corn or nitrogen supply / demand dynamics;

4. Is in the process of a substantial recapitalization through share repurchases that minimizes the risk of share price downside;

5. Will grow through highly accretive low risk tack on M&A and low risk / high reward brownfield projects offsetting risk of the nitrogen cycle “peaking” and making an ultimate “soft landing” that much more likely; and

6. Trades at a very undemanding ~4-times EBITDA.

MSCO's Bull Case target moves to $300.

Notablecalls: Don Carson is the Axe in the space. Back in the day he was voted Institutional Investor's #1 analyst in his space for 6 consecutive years. People still very much listen to what he has to say.

With Carson out with a new Street high target the stock is off to the races, I believe. Just take a look at the chart - it's so close to a breakout.

The comments from MSCO are also very encouraging.


I'm thinking $210+ today. Possibly much higher in the coming weeks.

Posting it around market open.