Category: Technology Stocks

Tech stocks refer to any stock involved in the technology sector, from semiconductor producers to software providers. Tech stocks are often a leading indicator for the economy and the stock market. Technology stocks generally follow the pattern of more innovation in the market & new development of product.

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Technology Stocks

Motorola Solutions Inc. (NYSE: MSI) Increases Guidance Following Strong Quarter, Meeting Prior Expectations; $175 FVE

Our $175 fair value estimate for Motorola is unchanged, as the new outlook aligns with our previous above-guidance expectations for fiscal 2022. We’re also pleased to see continued growth for the firm’s software and services segment, and continue to believe a heavier software mix will drive margin expansion for Motorola through 2025.

Motorola is benefiting from looser security budgets as the U.S. economy rebounds from 2020, and think it will see multi-year demand as state and local governments digest funds from U.S. government stimulus during the pandemic. Still, we think of Motorola as a steady grower, and think the market is painting a more rapid sales growth and margin expansion picture than is reasonable. We currently view shares as overvalued, and would recommend waiting for a pullback to invest. Management commented on its acquisition of Open path that occurred after quarter-end. The $297 million acquisition gives Motorola a stronger position in access control, which is quickly becoming a greater portion of its video segment.

Second-quarter revenue grew 22% year over year to $1.97 billion–2% higher than the top end of quarterly guidance– behind broad-based strength. Motorola’s video business posted 66% annual growth, which we think is resulting from strong market share gains against Axon in the body cam market. Non-GAAP operating margin of 24.5% grew 230 basis points year over year and 130 basis points sequentially, mainly behind higher sales volume and a greater mix of video and command center revenue.

Company’s Future Outlook

It is estimate these to continue increasing as part of Motorola’s mix, and think margin expansion should continue. We maintain our forecast for non-GAAP operating margin to expand 500 basis points through 2025. Command center software lagged the firm’s overall growth profile, but we think it’s primed for an inflection point with the full Command Central suite launching during the quarter, which we expect to augment switching costs a customers over time.

Company Profile

Motorola Solutions Inc (NYSE: MSI) is a leading provider of communications and analytics, primarily serving public safety departments as well as schools, hospitals, and businesses. The bulk of the firm’s revenue comes from sales of land mobile radios and radio network infrastructure, but the firm also sells surveillance equipment and dispatch software. Seventy-five percent of Motorola’s revenue comes from government agencies, while 25% comes from its commercial customers. Motorola has customers in over 100 countries and in every state in the United States.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Grainger recovered its stronger sales growth but margin constraints have emerged in 2021.

investment stockbroker risk analysis using multiple devices. Financial analysis using phone app and laptop. Market trading profit.

The growing prevalence of e-commerce has intensified the competitive environment because of more price transparency and increased access to a wider array of vendors, including Amazon Business, which has entered the mix. 

As consumer preference began to shift to online and electronic purchasing platforms, Grainger invested heavily in improving its e-commerce capabilities and restructuring its distribution network. It is the now the 11th-largest e-retailer in North America; it shrank its U.S. branch network from 423 in 2010 to 287 in 2020 and added distribution centers in the U.S. to support the growing amount of direct-to-customer shipments. 

To address this problem, Grainger rolled out a more competitive pricing model. Lower prices hurt gross profit margins, but volume gains, especially among higher-margin spot buys and midsize accounts, have offset price reductions and helped the company meet its 12%-13% operating margin goal by 2019 (12.1% adjusted operating margin in 2019). Grainger continues to expand its endless assortment strategy, but we’re skeptical of the margin expansion opportunity for this business, given strong competition in the space from the likes of Amazon Business and others. 

Financial Strength

As of the second quarter of 2021, Grainger had $2.4 billion of debt outstanding, which net of $547 million of cash represents a leverage ratio of less than 1.1 times our 2021 EBITDA estimate. Grainger’s outstanding debt consists of $500 million of 1.85% senior notes due in 2025, $1 billion of 4.6% senior notes due in 2045, $400 million of 3.75% senior notes due in 2046, and $400 million of 4.2% senior notes due in 2047. Grainger has a proven ability to generate free cash flow throughout the cycle. Indeed, it has generated positive free cash flow every year since 2000, and its free cash flow generation tends to spike during downturns because of reduced working capital requirements. Given the firm’s reasonable use of leverage and consistent free cash flow generation, we believe Grainger’s financial health is satisfactory.

Bull Says

  • With a more sensible, transparent pricing model, Grainger should continue to gain share with existing customers and win higher-margin midsize accounts.
  • As a large distributor with national scale and inventory management services, Grainger is well positioned to take share from smaller regional and local distributors as customers consolidate their MRO spending.
  • Grainger operates a shareholder-friendly capital allocation strategy; it has increased its dividend for 49 consecutive years and has reduced its diluted average share count by over 40% over the last 20 years.

Company Profile

W.W. Grainger (NYSE: GWW) distributes 1.5 million of maintenance, repair, and operating products that are sourced from over 4,500 suppliers. The company serves approximately 5 million customers through its online and electronic purchasing platforms, vending machines, catalog distribution, and network of over 400 global branches. In recent years, Grainger has invested in its e-commerce capabilities and is the 11th-largest e-retailer in North America.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Jacobs Engineering Group Inc. (NYSE: J) after Strong Fiscal Q3 Raises FVE. To $141

Checking Stock market data information graph on screen

he fair value increase reflects the firm’s outperformance, an improved near-term outlook, and time value of money, partially offset by the implementation of a probability weighted change in the U.S. statutory tax rate in our model.

Jacobs’ net revenue was up 10.6% from the prior-year period. Critical mission solutions increased its revenue 0.6% year over year. People & places solutions net revenue grew 1.4%. Lastly, PA Consulting delivered stellar 36% year-over year revenue growth. The firm’s adjusted operating margin expanded by 170 basis points from the prior-year period, with improvement across all business lines.

Management increased its outlook for full-year fiscal 2021 and now expects adjusted EBITDA in the range of $1,210- $1,275 million (up from $1,200-$1,270 million) and adjusted EPS in the range of $6.15-$6.35 (up from $6.00-$6.30). Furthermore, management is optimistic that the company can deliver double-digit adjusted EBITDA growth over the medium term. 

Company’s Future Outlook

We believe the company is poised to capitalize on multiple favorable secular drivers, including infrastructure modernization, space exploration, intelligence analytics, energy transition, supply chain investments (particularly in the semiconductor and life sciences end markets), and the 5G build out. We also think Jacobs is well-positioned to benefit from a likely infrastructure plan in the U.S., given the firm’s strong position in areas such as water and transportation infrastructure.

Company Profile

Jacobs Engineering Group Inc. (NYSE: J) is a global provider of engineering, design, procurement, construction, and maintenance services as well as cyber engineering and security solutions. The firm serves industrial, commercial, and government clients in a wide variety of sectors including water, transportation, healthcare, technology, and chemicals. Jacobs Engineering employs approximately 55,000 workers. The company generated $13.6 billion in revenue and $970 million in adjusted operating income in fiscal 2020.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Micron’s Dividend Initiation Makes Sense Based on Healthier DRAM Fundamentals (NASDAQ: MU)

The cyclicality of the memory industry often led to bouts of weak performance that could threaten the financial health of suppliers such as Micron, thus putting potential dividends at risk. However, management now believes

Micron is enjoying strong and sustainable secular demand across a variety of end markets as well as slowing industry supply growth due to consolidation, slowing of Moore’s Law, and an increasing focus on maximizing ROICs. Specifically, Micron has aligned its capital expenditure plans with stable memory bit supply market share targets while tactically adjusting utilization and holding higher levels of inventory during weaker demand periods. We agree with this thesis that Micron and its memory peers are better equipped to maintain healthy investment levels during downturns as well as a quarterly dividend.

Net capital expenditure as a percentage of revenue is now expected to be in the mid-30s versus low-30s previously. Overall, we think Micron’s DRAM business is well-positioned to generate cross-cycle excess ROICs, thanks to a more consolidated market.

Company’s Future Outlook

Our fair value estimate for Micron remains $90 per share, and we think shares look modestly undervalued at current levels. Management also updated its capital allocation plan. While the firm continues to target the return of 50% of cross cycle free cash flow, Micron will now pay a dividend that it intends to grow in addition to a more opportunistic approach to share repurchases In contrast, Micron’s NAND business is likely to continue to face more severe swings in profitability. Given that DRAM accounts for over 70% of Micron’s revenue, we expect the firm will be able to sufficiently fund its dividend.

Company Profile

Micron historically focused on designing and manufacturing DRAM for PCs and servers. The firm then expanded into the NAND flash memory market. It increased its DRAM scale with the purchase of Elpida (completed in mid-2013) and Inotera (completed in December 2016). The firm’s DRAM and NAND products tailored to PCs, data centers, Smartphone, game consoles, automotives, and other computing devices.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Micron’s Dividend Initiation Makes Sense Based on Healthier DRAM Fundamentals (MU: NAS)

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Technology Stocks

Twitter’s Mix of Direct Response and Brand Offerings Continues To Improve

. Twitter is an open distribution platform for (and a conversational one around) short-form text, image, and video content. Its users can access real-time information regarding a wide array of topics or news events. They can also share information and content, interact with content, and express their reactions to other Twitter users. These types of interactions allow Twitter to compile more data about its users, their interests, and their behavior, which is then licensed and/or utilized by Twitter and advertisers to launch online brand and targeted ads.

Product enhancements such as the Explore tab may have helped increase initial user engagement and improve user retention, but the firm’s network effect is weakening considerably as its user base shrinks in size relative to rivals. As the likelihood of Twitter attracting more users via content improvement and increasing focus on more live premium content will probably decline (due to significant competition on both fronts), so will the firm’s access to more user data. As a result, more advertisers will increasingly gravitate toward other platforms that offer better targeting capabilities.

Financial Strength

Twitter reported excellent second-quarter results that exceeded our expectations and the FactSet consensus estimates. In addition, some of the firm’s latest non-ad offerings could gain traction in the long run and slightly reduce dependence on advertising, while contributing a bit to revenue growth. Our higher projections resulted in a $58 fair value estimate, up from $52. We recommend new investors to wait for a margin of safety before investing in Twitter as the stock increased 6% in after-hours, trading at 1.27 times our fair value estimate, and 10 times and 35 times our 2021 sales and adjusted EBITDA projections, respectively.

Twitter posted total revenue of $1.19 billion, up 74% from the pandemic-ridden second quarter of 2020, with ad revenue up 87% to $1.05 billion and data licensing and other revenue up 13% to $137 million. The firm’s user count increased 11% to 206 million, with U.S. and international users up 3% and 13%, respectively. The firm has also begun to help small and medium-size businesses launch direct response campaigns based on location, age, and gender. While we had expected such a feature, referred to as Twitter’s Quick Promote, to be available much earlier, it will still likely attract more advertisers.

The firm generated operating income of $30.3 million (2.5% margin) driven by revenue growth, compared with an operating loss of $273.9 million last year–which included a $150 million fine by the FTC regarding usage of phone numbers and email addresses for target marketing. Management guided for $1.22 billion-$1.3 billion in revenue during the third quarter, and operating losses between zero and $50 million. Twitter expects operating expenses to grow by 30% and revenue growth to exceed that. The firm also expects share-based compensation expense of $600 million and capital expenditure of $900 million-$950 million this year.

Twitter has a strong balance sheet with net cash of $5.9 billion. The firm generates cash from operations, and we expect it to generate free cash flow going forward. Twitter’s free cash flow to equity/revenue ratio averaged 18% over the past three years, and we project this ratio to improve to over 26% in 2025.

Company Profile

Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%).

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Seagen Reports Solid 2nd Quarter Results within Expectations; Maintaining FVE to $144

Operating expenses remain elevated compared with the previous year, which reflects Seagen’s investments to support the European launch of Tukysa and continued development of its pipeline. R&D expenses for the second quarter were $235 million and SG&A expenses were $165 million, representing increases of 19% and 31%, respectively.

Adcetris for lymphoma contributed $182 million in sales for the quarter, representing an increase of 9% compared with the prior-year period. Padcev for metastatic bladder cancer contributed $82 million in sales, representing growth of 44% from the second quarter of 2020. The FDA granted regular approval for Padcev in July 2021 and added a new indication for locally advanced or metastatic urothelial cancer. Tukysa for breast cancer reported revenue of $83 million, growing 427% year over year since the drug received FDA approval in April 2020. Seagen could gain regulatory approval later this year for its fourth-approved product, Tisotumab vedotin, or TV, for metastatic cervical cancer.

Company’s Future outlook

We believe Adcetris and Padcev provide ample near-term diversification, which we anticipate will further improve with additional label expansions and approvals of other indications. We expect Tukysa will gain steady market share as the drug recently received approval in the EU. We also anticipate a steady stream of licensing and collaboration revenue from its various partners. Our forecast implies a five-year projected revenue CAGR of about 16%.

Company Profile

Seagen Inc. (formerly known as Seattle Genetics) is a biotech firm that develops and commercializes therapies to treat cancers. Seagen’s therapies are based on antibody-drug conjugate technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. The company’s lead product, Adcetris, has received approval for six indications to treat Hodgkin lymphoma and T-cell lymphoma. Other approved products include Padcev for bladder cancer and Tukysa for breast cancer. The company has several other oncology programs in pivotal trials. Seagen also licenses its antibody-drug conjugate technology to several leading biotechnology and pharmaceutical companies.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Signs of a Successful Second Quarter for Digital Realty its conversion to a Connectivity Platform is going well.

the types of services it historically didn’t provide but has entered via acquisitions in the last several years. We believe the ability to connect enterprises (smaller deployments) to hyper scalers like cloud a provider is what make data centers differentiated and that the ability to do it on a global scale is attractive for customers. Digital’s portfolio seems to be in the sweet spot to provide these abilities, and we think it can close the gap with Equinox as the premier global data center provider for connectivity.

Total revenue grew 10% year over year. Like its peers, Digital’s revenue was boosted by higher reimbursements for power costs. If utility reimbursement had grown at the same pace as rental revenue (10%), total sales growth would’ve been just under 9%. The higher pass-through revenue likely weighed on margins a bit. The adjusted] EBITDA margin was 55%, down more than one percentage point from last year’s second quarter but generally consistent with where the margin has been since the March 2020 Interxion acquisition.

Bookings in the quarter totaled $113 million in annualized revenue, including $13 million in interconnection revenue, a figure that has remained fairly constant each quarter since the Interxion acquisition. Leasing in the Americas accounted for more than half of the total bookings, with Europe and Asia Pacific each making up about a quarter. Two very encouraging results in the quarter were the improvement in pricing, as shown by renewal spreads, and the proportion of bookings made up of smaller deployments.

Company Future Outlook

We are raising our fair value estimate to $130 from $127. We believe the stock is moderately overvalued but more reasonably priced than peers and the first data center firm we’d look to on a pullback. We believe that Digital’s transformation should provide it with pricing power, so we expect to continue seeing better renewal spreads over time. However, we expect these spreads to remain choppy even as they trend up, so we are under no illusions that we’ve seen the last leases having to renew at lower rates.

Company Profile

Digital Realty owns and operates nearly 300 data centers worldwide. It has more than 35 million rentable square feet across five continents. Digital’s offerings range from retail co-location, where an enterprise may rent single cabinet and rely on Digital to provide all the accommodations, to “cold shells,” where hyper scale cloud service providers can simply rent much, or all, of a barren, power-connected building. In recent years, Digital Realty has de-emphasized cold shells and now primarily provides higher-level service to tenants, which outsource their related IT needs to Digital. Digital Realty has also moved more into the co-location business, increasingly serving enterprises and facilitating network connections. Digital Realty operates as a real estate investment trust.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Sonic Has a Record Second Quarter, Joining the Dealer Space.

Modern financier with papers sitting in front of computer monitor with chart and graph of sales rate

We are raising our fair value estimate to $60 from $58. The change is from the time value of money, higher revenue growth based on how 2021 is unfolding, and a 20 basis point increase in our midscale operating margin including floor plan interest to 3%. We made the latter change to reflect our expectation of better overhead cost leveraging long-term due to the chance that inventories will be lower than pre-pandemic levels after the] semiconductor shortage ends, which should enable better pricing power long-term. Sonic is also due to introduce a digital commerce platform in the fourth quarter that will start at the Echo Park used vehicle stores but likely be rolled out companywide over time. This platform could enable further overhead cost efficiencies long-term.

Second-quarter results were in our view strong and we are encouraged to see same-store revenue up 24.9% compared with the second quarter of 2019. The lucrative service business also did well with same-store service gross profit up 6.9% versus second-quarter 2019. We see more upside this year from this nearly 50% gross margin business because the warranty side of it has not rebounded yet from the pandemic while customer pay has; and management said its California stores, which made up 26.4% of 2020 total revenue, have not rebounded as much from the pandemic as the rest of Sonics stores.

Company’s Future Outlook

Echo Park lost $14.4 million in pretax income for the quarter as high auction prices made sourcing inventory more expensive. Management now sees Echo Park annually selling two million vehicles once it is mature sometime in the 2030s. The more noteworthy news though is Sonic’s board is “considering a full range” of alternatives for Echo Park and has hired Lazard and Kirkland & Ellis as advisors, though no deal may occur. We’d prefer to see Echo Park get larger over time before a divestiture so Sonic shareholders could benefit but it is possible that a sale or spin-off, should it occur, could unlock value for Echo Park not currently recognized by the market. The downside, in our view, of divesting Echo Park is once it’s gone from Sonic; Sonic will not have an exciting growth story to talk about beyond its franchise business. We have about $36 billion of Echo Park revenue modeled for 2021-25.

Company Profile

Sonic Automotive is by our estimate the sixth-largest public auto dealership group in the United States by new-vehicle unit sales. The company has 84 franchised stores in 12 states, primarily in metropolitan areas in California, Texas, and the Southeast, plus 25 Echo Park used-vehicle stores. In addition to new- and used-vehicle sales, the company derives revenue from parts and collision repair, finance, insurance, and wholesale auctions. Luxury and import dealerships make up about 88% of new-vehicle revenue, while Honda, BMW, Mercedes, and Toyota constitute about 60% of new-vehicle revenue. BMW is the largest brand at over 24%. 2020’s revenue was $9.8 billion, with Echo Park’s portion totaling $1.4 billion.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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BioMarin Maintaining FVE in the Quarter 2 as the 2021-22 Launches Approach

despite the headwind from generic Kuvan. BioMarin raised guidance for each of these drugs based on sales in the first half of the year, leading to expected non-GAAP income of $190-$240 million for the year, up from prior guidance of $170-$220 million.

Recent data indicates that Roctavian has continued durability of efficacy through five years, although factor VIII levels continue to decline over time, hinting that the efficacy of BioMarin’s gene therapy will not last a lifetime. Despite this, we think there is still a place for Roctavian, especially considering its significant lead over other gene therapy programs as well as the likely positive reception from patients.

Company’s Future Outlook

Two drug candidates continue to drive our expectation for significant increases to revenue growth beginning in 2022. BioMarin expects European approval of Voxzogo (vosoritide for achodroplasia) in the third quarter and Roctavian (hemophilia a gene therapy) in the first half of 2022. In the U.S., we expect Voxzogo to gain approval by its PDUFA date in November 2021, and Roctavian should be filed with the FDA in the second quarter of 2022, once two-year data from the phase 3 studies is available in early 2022.

In addition, the Institute for Clinical and Economic Review also determined that a potential price tag of $2.5 million would be cost effective based on three years of efficacy data, which gives us confidence in our blended global price tag of roughly $1.2 million per patient.

Company Profile

BioMarin’s focus is on rare-disease therapies. Genzyme (now part of Sanofi) markets Aldurazyme through its joint venture with BioMarin, and BioMarin markets Naglazyme, Vimizim, and Brineura independently. BioMarin also markets Kuvan and Palynziq to treat the rare metabolic disorder PKU (in addition to long-standing U.S. rights, BioMarin has reacquired international rights for Kuvan and Palynziq from Merck KGaA). BioMarin’s Roctavian (hemophilia A gene therapy) and vosoritide (treatment for achondroplasia) are poised to potentially launch in the 2021-22 timeframe.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.