Whiting Petroleum (NYSE: WLL)
Whiting surprised the market with a reported EPS of US4c. The consensus estimate was for a loss of US4c per share and $US643m in revenue. Oil, NGL and natural gas sales were better as well at $US650.5m.
Q2 production was 15.5 MMBOE, or 170,245 BOE/d as preannounced. This is up 2 per cent sequentially and above the high end of prior guidance net of 8,300 BOE/d. Production composition was 89 per cent crude oil/NGLs.
Guidance for the year is now 6.5 per cent for production growth. This brings the mid-point of production guidance for 2015 to about 59.5 MMBOE. Whiting plans to run eight rigs in 2H15 compared to the original plan of running 11 rigs. The capital budget is now forecast to be $US2.15bn, which is down from a previous expectation of $US2.3bn.
WLL ended the second quarter with $60m in cash and nothing drawn on their $US4.5bn borrowing base. They expect further non-core asset sales by the end of the year.
Q2 discretionary cash flow was $US380.7m, which was 53 per cent above the first quarter.
Management stated that with no further asset sales in 2015, they expect a Q4/15 production rate of about 153,000 BOE/d, an eight rig program (six in the Bakken and two in the Niobrara) in 2016, at assumptions of $US50 per barrel of oil and $US3 per MMBtu NYMEX prices. They expect 2016 capital spending and discretionary cash flow to be approximately equal at $US1 billion and 2016 production to flatten out and average approximately 147,000 BOE/d.
Good results in a very difficult environment but the stock continues to be pressured by a retreating oil price. If you believe oil (West Texas Intermediate) is going back to $US60.00 and beyond as I do, Whiting is a table pounding buy here. Whiting’s asset base and technological and operational expertise are not in question.
It simply revolves on the price and direction of crude.
Walt Disney (NYSE: DIS)
Disney reported earnings that beat analysts’ estimates, as strong box-office and theme-park results countered weakness at ABC TV.
The company posted third-quarter earnings of $US2.5 billion or $US1.45 a share. That’s up 13 per cent Y/Y. Analysts were forecasting $1.41. Sales rose 5.1 per cent to $US13.1bn in the quarter ended June 27, slightly below consensus estimates of $US13.2bn.
Profits at Disney's cable networks, its largest business, increased 7 per cent to $US2.08bn on gains in program sales and higher affiliate revenue, driven by contractual rate increases. Broadcast operating income decreased 15 per cent to $US300 million, mostly the result of higher programming costs, lower advertising revenue and higher labour-related costs. Additionally, management lowered its ‘13 to ‘16 cable segment EBIT growth compound annual growth rate (CAGR) to mid-single digits from high-single digits.
At the company's parks and resorts segment, profits rose 9 per cent to $US922m as an increase in Disney's domestic operations was partially offset by a decrease overseas.
Disney's film studio posted profit growth of 15 per cent to $US472m. Revenue rose 13 per cent to $US2bn, reflecting the strong performance of Marvel's Avengers: Age of Ultron in the latest period, compared with Marvel's Captain America: The Winter Soldier in the year-earlier period.
In the latest period, consumer products revenue grew 6 per cent to $US954m, while operating profit grew 27 per cent. Merchandise licensing revenue growth reflected the performance of merchandise based on Frozen, Avengers and Star Wars.
The company is expecting to get a similar boost, both at the box office and on store shelves, with Star Wars: The Force Awakens, which will be released December 18. Disney is planning to put new Star Wars merchandise on sale September 4.
Disney fell 9 per cent to $US114 the next day. An overreaction in my opinion for such a minor (and temporary) miss, although not unusual in outperforming companies like Disney. Would be an aggressive buyer at these levels.
Cerner (NASDAQ: CERN)
Cerner posted in line earnings per share (EPS) numbers but revenues were slightly below consensus which disappointed some analysts. The main contributing factor was from the services business, where low margin third party services negatively contributed to results. A “one off” most likely.
Overall, Cerner reported a profit of $US115m, or US33c a share, down from $US129m, or US37c a share, a year earlier. Excluding stock-based compensation and acquisition-related charges and other items, profit was US52c, compared with US40c a share a year earlier. Revenue rose 32 per cent to $US1.13bn Y/Y.
Cerner had projected US51-52c a share on $US1.18bn to $US1.23bn in revenue. Earnings in line but revenues guidance a bit light.
Bookings rose to $US1.29bn from $US1.08bn a year earlier, while backlog was $US13.3bn at the end of the quarter, up 37 per cent from the year-ago period. Very solid.
Cerner guided for Q3 revenue of $US1.15-1.2bn (below a $US1.22bn consensus) and full-year revenue of $US4.475-4.575bn slightly below a $US4.72bn consensus.
EPS guidance was stronger, however, predicting Q3 EPS of US54-55c and 2015 EPS of $US2.09-2.15, more or less in line with consensus estimates of US55c and $US2.12.
With the Siemens healthcare acquisition deal providing a lift, Q2 bookings totalled $US1.29bn, 20 per cent Y/Y, and above revenues of $US1.126bn ( 26 per cent) – a new record.
Backlog rose 37 per cent to $US13.3bn. Q3 bookings guidance is at $US1.35-1.45bn.
Shares traded down 4 per cent in the aftermarket but the potential of its recently closed Siemens acquisition, robust bookings with a record number of new clients, and recent high profile wins all suggest the fundamentals of top-line growth are intact. I remain positive on Cerner.
On July 29, the Department of Defense (DoD) awarded its 10-year comprehensive healthcare technology contract (DoD Healthcare Management System Modernization, or DHMSM) to the team including Cerner. I mentioned this possibility in my initial piece on Cerner (see Cerner’s global edge, June 22).
This is certainly a long-term positive for Cerner even if the true size of the award remains unclear. The originally quoted $US11bn value depends on program duration and pricing. The initial contract is likely below this level, though the 10-year value is likely in the multi-billions.
FireEye (NASDAQ: FEYE)
FireEye delivered an excellent set of results as I expected.
FireEye reported 2Q 2015 billings of $US178.3m, 6 per cent above the consensus estimate of $US169m and up 57 per cent Y/Y.
Subscription billings of $US72.5m grew 72 per cent Y/Y, up from 1Q15’s 62 per cent growth, and support billings of $US31.1m grew 67 per cent Y/Y, a significant acceleration from 1Q15’s 46 per cent growth. Product license billings of $US48.8m grew 37 per cent Y/Y slightly down from 1Q15’s 47 per cent growth.
Total revenue of $US147.2m ( 56 per cent Y/Y) was also nicely above the consensus estimate of $US143m. Product and product subscription revenue grew 49 per cent Y/Y.
FireEye raised its FY15 total billings guidance to be in the range of $US840-850m, above the prior street estimate of $US830m and up $US15m at the midpoint from prior guidance. The company also guided FY15 total revenue to $US630-645m, raising the midpoint by $US12.5m from prior guidance.
FireEye closed 30 transactions of more than $US1m in 2Q15, more than four times the seven such transactions closed in the year earlier quarter. Average deal size increased 84 per cent Y/Y to $US294k in Q2. More than 50 per cent of the deals closed in Q2 were for more than one FireEye product. That’s important for expanding the installed base.
FireEye also surprised the market by announcing CFO Mike Sheridan, who has been with the company for four years, is leaving to join a private technology company. Investors shouldn’t be too concerned as Sheridan says he has no issues with FireEye and he tends to work more with early stage companies and then move on.
Surprisingly the shares were weak after the earnings report, down 5 per cent. Concern over the CFO departure is likely the reason.
FireEye continues its “hyper growth” stage, is executing well, and is well positioned in one of the most important and fast moving areas of technology. As a result, I am raising FireEye’s target price from $US46.00 to $US55.00 based on a 2016 10.5X EV/sales multiple.
Fanuc (TSE: 6954)
Fanuc’s results were surprisingly negative due mainly to a sharp and unexpected slowdown in smartphone-related demand both for robodrills and computerised numerical control systems (CNCs) at other machine tool makers. On sales of ¥197.4bn ( 21 per cent Y/Y and -3 per cent Q/Q), operating profit (OP) was ¥73.9bn, much lower than consensus estimates of ¥84.2bn.
Reflecting a weaker-than-expected outlook for smartphone-related demand, Fanuc cut H1 and FY16 guidance considerably. Disappointing!
Factory automation sales were ¥52.3bn (-4 per cent YoY), robomachine sales were ¥79.9bn ( 42 per cent Y/Y but -13 per cent Q/Q), robot sales were ¥45.4bn ( 29 per cent Y/Y and 14 per cent Q/Q) and service revenue was ¥19.8bn ( 14 per cent Y/Y and 3 per cent Q/Q). Fanuc notes that factory automation (FA) sales were strong in Japan and the Americas but weak in China reflecting a drop in smartphone demand. The slowdown in smartphone-related demand also impacted robodrills.
Sales in Japan were hit by the slump in demand for robodrills used for smartphones, but Fanuc was at pains to say that overall CNC demand is upbeat with no loss of share. North American sales were lifted by the weak yen and strong demand for robots. Asian sales were hit by the drop in smartphone demand.
Still, Q1 saw a 29 per cent YoY jump in robot sales to ¥45.4bn, led by strong auto-related demand in North America and China. In Japan, demand for CNCs and servo motors was solid and the CEO says there has been no loss of share.
At end-June, net cash stood at ¥900bn ($US7.2bn) and the company has yet to begin its promised share buyback program. In addition, the dividend yield is now 2.5 per cent.
Fanuc’s shares traded down 11 per cent after the earnings report and are currently providing a good entry point for patient investors although the market may remain spooked for a time by the company’s lack of visibility for their smartphone related machines. Some analysts see a pickup in smartphone capex in spring 2016. Let’s keep an eye on Apple and Samsung’s capex announcements.
Fanuc is a world class company and seldom disappoints. I expect robotics and factory automation to continue to be a growth area where Fanuc is a major player.
Xilinx (NASDAQ: XLNX)
Xilinx reported 1Q16 revenue of $US549m, down 3 per cent Q/Q (but in-line with guidance of down 2-6 per cent), slightly below consensus of $US555m, pressured by softness in communications infrastructure markets.
The company beat consensus EPS of US53c by US2c on a record-high gross margin (up 100bps to70.9 per cent), disciplined opex spending, and a low tax rate (12 per cent).
In terms of end markets, wireless infrastructure spending remains weak as base station rollouts in China continue to be muted and North America service provider Sprint slowed down deployments in the June quarter. I still believe this to be temporary and we’ll see some pick up in 2H15 and 2016.
Automotive and defence was up 3 per cent Q/Q as Xilinx’s industrial division achieved record quarterly revenue with growth in new applications in motor control and industrial “internet of things” (IoT) activities.
Automotive and data centre remain bright spots of growth. While flat Q/Q, sales in automotive applications grew 50 per cent Y/Y, amounting to 7 per cent of total company revenue in the Jun-Q. Management flagged the platform nature of automotive applications where customers are likely to use the same solution for both high-end and low-end vehicles.
As for data centre, Xilinx is adopting an ARM architecture that makes its FPGA solutions friendly to non-x86 applications and is therefore widening its appeal to new users.
In the June quarter, revenues from 20nm products exceeded $US10m, up 50 per cent from $US5m in the previous quarter while 16nm FF taped out as planned. Xilinx has decided to skip the 10nm node altogether and is directly working with TSMC on 7nm continuing its lead over competitors like Altera/Intel. Another bright spot for the company.
I’m happy to continue recommending Xilinx in spite of muted communications markets in China and elsewhere since I believe this to be temporary in nature.
Xilinx has an unassailable position in FPGAs, is delivering record margins and is diversifying more into industrial, automotive and IOT and away from its legacy businesses.
Ezion (SGX: EZI:SP)
Ezion Holdings announced a 9.3 per cent fall in its first-quarter profit to $US41.01m from $US45.25m for the year-ago period, as falling oil prices squeezed its business.
Ezion, the biggest Singapore-listed oilfield service firm by market value, also reported a 4.6 per cent drop in revenue in the three months ended March 31, 2015, to $US90.12m.
Neither was unexpected. A decent result considering.
According to the company, part of the shortfall was also due to the absence of contribution from the marine and offshore logistic support services division as the projects in Queensland, Australia did not go into additional trains as originally planned.
It added that the operating environment has been made “challenging following the drastic drop in the prices of fossil fuel over the last seven months. Several of its service rigs have been made to work at their limits resulting in more wear and tear and higher maintenance. In addition, the group also needed to incur additional cost to further upgrade a few of its newer units to meet clients' additional requirements.”
In terms of guidance, the company said it expects a stronger performance for the rest of the year, when some of its service rigs that have been under maintenance and inspection are redeployed before the end of June. It said several other new rigs that are undergoing modification are also expected to be progressively deployed starting from the same period.
I continue to recommend Ezion for investors who can see a recovery in the oil price over the medium term as it is an under-appreciated, undervalued oil services play. Ezion’s lift boat exposure is geared toward production support and not drilling capex. It has a significant contract back log, cash flow visibility (not a single contract sees reduction of tenure so far) and is still generating positive earnings per share.
Ezion also has compelling valuation metrics: 4.0 X 2016E P/E and selling below book value and with an 18 per cent ROE.
As with Schlumberger and Whiting it’s all about the oil price. Fundamentally and operationally these companies are doing well.
Amazon: Change in target price (NASDAQ: AMZN)
After a review of Amazon’s recent earnings release (see Global equities scorecard: Beating the street, August 3) I am raising my Sum of the Parts (SOTP) assumptions.
I am raising the GMV multiples for North America and International Retail and putting a 10X 2016 EV/sales on Amazon Web Services (AWS). I now get a target price of $US650.00.