OUTLINE:
*Each target price is (1) computed using CGFS' proprietary valuation and simulation approach and (2) adjusted within 3 standard errors of the estimate. Assumption and computation details are inserted at the end of each write-up.
This Week's Picks:
- Our Weekly Stock Picks*
- The Bond Report, What's next, & Key Earnings
*Each target price is (1) computed using CGFS' proprietary valuation and simulation approach and (2) adjusted within 3 standard errors of the estimate. Assumption and computation details are inserted at the end of each write-up.
This Week's Picks:
Nanometrics is an industry leader in metrology systems and software used to measure consistency in producing semiconductors and other electronic devices. Nanometrics has experienced a growth in customer base over the past several years, leading to an increase in revenue. If Nanometrics can continue to increase their revenue and EBITDA margin, then double digit stock can be expected in the coming months.
Semtech is well positioned within an industry experiencing rapid growth. Semtech has a major differentiator in its LoRa technology, which is expected to grow exponentially as the world becomes more connected than ever. The company has continued to make revenue additive acquisitions to reduce bottlenecks while maintaining debt levels consistent within the industry. These factors among others will lead to price growth in the future.
Despite high trading multiples, Arista Networks continue to show strong sales momentum and increase customer base expansion as well as organic growth. In my opinion, Arista is currently undervalued and due to their growing industry, and their ability to meet customer’s needs compared to the competition. Arista will capture around 20% of the data center switching market by 2020, and continue growing. Arista’s advanced technology in their Ultra-high-speed Ethernet switches will guarantee Arista’s success in their market. Arista’s constant revenue growth and the inevitable demand for could solutions in the current market will enable Arista to continue beating earnings expectations and to become more dominant in their industry.
Through the analysis of Planet Fitness, I believe that the stock is underpriced. They are the main sponsor for the New Year’s Eve celebration and are planning on coming out with new technology to make treadmills more interactive. I believe that since the new year is coming around and the openings of new franchises their stock price will go up a few dollars, however I believe that it should only be a short term buy. After the first few months of the year and especially before the third quarter where the price goes and earnings go down, I suggest we sell it because their long term debt will catch up to them.
Gentex is a company that has had the opportunity to create revenue in a number of different ways in the past couple of years. Gentex prides themselves on the ability to make a profit in three main segments. Those segments include the car industry, fire protection, and aircrafts. Gentex is expected to have a growth between six and ten percent this upcoming year, and would be a great addition to our portfolio.
Monster Beverage Corporation is an aggressive competitor within the Beverage industry. With a market cap of just below $32 billion, this company has endless upside with Coca-Cola as a strategic partner. Compared to the soft drink index and competitor Dr. Pepper in the price chart above, anyone can see how fast Monster’s stock price is increasing. With consistent revenue growth and rising margins in quarter 2, this trend will continue forward. New product development is a crucial part of Monster’s sales growth as well, constantly removing non-performing products and introducing new flavors. Analysts are forecasting double-digit expected earnings growth within the upcoming year. The main driver of this is Monster’s international presence. With 73% of total sales currently in the United States, the company realizes the potential profitability from expansion throughout Europe and Asia. Monster has already started launching new operating units in countries such as China, Hong Kong, and Macau. China is currently the world’s second leading Energy Drink market taking up 16% of consumption. Monster launched 14 new operating units in China during the second quarter. With Coca-Cola’s knowledge of the international market, Monster could be looking at easy double-digit earnings growth.
Euronet Worldwide is a global leader in electronic payment and processing solutions that serves a wide range of customers such as financial institutions, retailers, service providers, and the individual consumer. Euronet is poised to continue to expand their business portfolio of electronic payment and processing solutions both domestically and internationally through electronic financial transaction services, epay, and money transfer businesses. The expansion of ATM services and POS systems in emerging markets such as India along with the global trend of increasing electronic money transfer and transaction volumes will put Euro net in an exceptional position to gain market share in an increasingly globalized economy. Through managements continued strategy of acquisitions and expansion into high margin regions internationally, Euronet can expected to see continued growth into the near future.
FireEye will continue to increase their revenue with an expanded number of customers and product offerings. FireEye will continue to add new customers through their trial program. FireEye has continued to reduce their operating expenses, which has increased their operating margins. FireEye is positioned for growth in an industry that is expected to grow in the 8-10% range until 2021. The implementation of Helix will separate FireEye from any other cybersecurity company. The new product implementations that FireEye has introduced will meet the increased demands of cybersecurity, thus driving up the stock price in the short and long term.
AE has strong growth potential in the future as the technology industries continue to explode. They have organic growth coming from the industrial side of their business, as well as strong revenue growth year over year. Being the industry leader in semis, they control a majority of the market share and have pricing power within this segment.
Verint Systems Inc. is a worldwide leading force in the expanding actionable intelligence market and will continue to drive organic growth within its Customer Engagement and Cyber Intelligence segments. With over 14,000 professionals working in Research & Development, Verint consistently develops its artificial intelligence platform, allowing organizations to drive efficiencies and cut costs over time. In a risky geopolitical environment, with cyber security threats at an all-time high, Verint can expect revenue growth from a large increase in demand in its cyber intelligence segment. With its Customer Engagement segment, Verint has opportunity for organic growth as industries increasingly shift more towards automating operational activities. Verint’s ability to attract new customers through its innovation and flexibility will create internal value and drive the company’s stock price.
The Trade Desk is a relatively new company that has experienced tremendous growth over the past few years. The $650 million advertising industry is in need of a product that can eliminate unnecessary spending and provide a better representation of what works for a specific company in their marketing efforts. The Trade Desk’s technology platform has demonstrated the ability to be this product. Clients of the company have shown their satisfaction through a high retention rate and continued spending on the platform. The Trade Desk is also positioned to profit off of the shift from traditional TV to Connected TV. The Connected TV channel is seen as a better and faster growing alternative. With the continued efforts in opening sales offices internationally, The Trade Desk will be more diversified and will have a better market share of this massive $650 billion industry.
Demand within the electricity efficiency segment of power generation is becoming a national concern. As demand increases, there is trending movement by consumers toward more efficient methods of electricity transportation. This trend stimulates from the increased expenses consumers are realizing. The market itself is growing and modernizing by a global push for “more green” energy. Traditional methods such as gas and coal generation systems, long-line transmission systems, and local distribution are beginning to change in how electricity is transmitted through each segment. The Willdan Group is at the heart of this, focusing its targets on their energy efficiency and engineering segments on a national scale. Users are looking for more cost efficient means of obtaining their needed kilowatt’s (KWH), while lowering CAPEX expenses associated with electricity. Large-scale users are becoming more reliant on analytical research, gathering of data, strategized systems, and integrated planning for efficiency programs. The Willdan Group currently holds the industry leading technology in transmission analytical data. With a well-known reputation in civil engineering The Willdan Group has taken its previous business model, diversified it, and synchronized their expertise to become an emerging leader within the energy efficiency industry. Through acquisition, research and development, and analytically backed strategy, The Willdan Group will see rapid growth within two of its four segments.
Altra Industrial Motion has strong growth factors due to their diversified portfolio of products catering to a wide variety of sectors within the industrials industry. Altra will experience further organic growth through the increasing favorable industry trends. Their profitability and margins will continue to improve through the integration of their recent acquisitions, as well as their restructuring and cost-saving strategies.
Dycom Industries, Inc. is a leading provider of specialty contracting services throughout the United States and Canada. Dycom is in an optimal market position and are currently operating in a niche market that creates opportunities constantly. Dycom is currently experiencing strong organic growth and has established a successful capital allocation strategy. Going forward Dycom can expect synergies both internally and externally that will increase margins and allow Dycom to gain more market share and blow past their competitors.
Hexcel Corporation is a global leader in composite materials. The cost reduction composite material brings to aircrafts provides stability for Hexcel as there is little threat of substitute to their leading product. Their long standing relationship with major industry players such as Boeing and Airbus will allow Hexcel to succeed adjacently with them in a booming industry. Future earnings will be driven by the intense capital expenditure period that the company just exited. The operational excellence and customer base Hexcel has portrayed will allow the company to continue serving as a best-in-class composite supplier.
Shake Shack Inc. is taking the casual dining industry by storm. Their Shack burger is considered the best in the industry, which has granted them a following that produces lines that wrap around the corner. Shake Shack is continuing their steady and healthy expansion strategy both domestically and internationally. Since the company has went public in 2015, they have consistently generated positive revenues while effectively limiting their costs.
Comfort Systems USA, Inc. is in an industry that will always be around and has secured its spot as one of the top leaders. FIX recently released their third quarter 2017 results, and have proved to their investors that they are growing in revenue and cash flow performance. CEO Brian Lane says in Q3 results, “We are pleased to report third quarter results marked by strong earnings and cash flow performance. Margins continued to benefit from solid field execution, and we are reporting the highest third quarter cash flow in our history.” With the south having major disasters in the recent months, Comfort Systems USA will have plenty of business because every building you see needs the work done that Comfort Systems USA provides.
Throughout the past few years, MKS Instruments has established itself as a powerhouse within its industry, becoming the worldwide leader on technology solutions in all the markets it operates. Looking forward, the margins of improvement for the company are significant. The company enjoys a diversified product portfolio, giving it a chance of growing from different areas. In particular, the semiconductor and the laser and power solutions are very promising. In addition, MKS’ commitment to decrease its costs and achieve greater operational efficiencies have brought several benefits on the last couple of quarters and the trend is that it may continue to do so as the company works towards achieving additional cost synergies with Newport Corp, a company acquired about a year ago. Lastly, the announcement of Q4 earnings is another key element to keep in mind. MKS beat the last 8 estimates and investors have historically responded positively to such surprises. MKS is off to another outstanding quarter where revenues are estimated to grow at least 5% sequentially, which would be the achievement of another quarterly record.
Overstock.com Inc. is an online retailer of various goods and services through direct channels and channels utilizing the relationships of partners. In late 2014, the company began to make its way into the blockchain and cryptocurrency space, through which it has become a leader in developing and utilizing new technologies, to enhance its business strategy. This early move into the space, coupled with innovation and associated efficiencies as well as increased demand for blockchain utilization and the likely appreciation of crypto value will allow the company to become an industry leader in a developing industry and will translate to an increase in shareholder value.