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

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

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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Technology Stocks

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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Technology Stocks

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)

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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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.

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Despite a large year-over-year improvement, Gentex’s second quarter was hampered by parts shortages

Male gamer in headphones holds joystick and playing videogame on console or desktop PC, gaming lifestyle, cybersport. Computer games player in his room with neon light, streamer

, but sales fell by nearly 9% versus second-quarter 2019. Gentex shipped about 2 million less units than it expected at the start of the quarter, which caused diluted EPS of $0.36 to miss the Refinitiv consensus of $0.45.

The industry’s supply chains are in turmoil due to the semiconductor shortage impacting chip availability, but other disruptions unrelated to Gentex, such as foam shortages following Texas winter storms, caused automakers to change production at the last minute or refuse shipment of mirrors because other non-Gentex parts never arrived at the automakers’ assembly plants. This supply problem in our view will improve throughout 2021, and the worst of it is occurring in second quarter and early third quarter.

Gentex’s Revenue Growth

The lost production caused management to issue second-half 2021 guidance that implies lower full-year guidance than given in April. Revenue guidance is now $1.88 billion to $1.98 billion, instead of $1.94 billion to $2.02 billion, and we believe that second-half gross margin guidance of 37.5%-38.5% means April’s full-year guidance of gross margin between 39%-40% is not possible. We agree with management’s optimism around 2022 revenue growth being 10%-15%. Gentex’s cash-loaded and debt free balance sheet make times like this easier to get through management seems to be willing to continue share repurchases and spent $115.9 million on that in the second quarter.

Company Profile

Gentex was founded in 1974 to produce smoke-detection equipment. The company sold its first glare-control interior mirror in 1982 and its first model using electrochromic technology in 1987. Automotive revenue is about 98% of total revenue, and the company is constantly developing new applications for the technology to remain on top. Sales from 2020 totaled about $1.7 billion with 38.2 million mirrors shipped. The company is based in Zeeland, Michigan.

(Source: Factset)

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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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Coke implementing post-pandemic ambitions: leveraging process, innovation, and technology

The runway for growth is supported by ample room for share gains as well as geographic tailwinds. We estimate Coke derives more than 40% of sales from developing or emerging economies with burgeoning middle classes and low per-capita CSD consumption. We expect commercial drinks will become a larger portion of beverage consumption globally, and see the company executing against each of its market-specific strategies.

In developed markets, where Coke has firmly established the resonance of its brands, its strategies are geared toward profit growth driven by innovation. In developing markets, where its trademarks are visible but competition is rife, differentiation and eventual migration into higher-margin offerings is key. In emerging markets where the firm is less established, it is focused on driving volume growth even at the expense of modest margin dilution. We view these approaches as prudent and believe the decision to cull peripheral brands (going from 400 master brands to 200) will facilitate execution.

Financial Strength

We believe Coca-Cola is in stellar financial health. The firm deliberately skews its capital structure toward debt, on the premise that the lower-cost financing ultimately increases returns to shareholders. Coke regularly generates free cash flow above $8 billion (in the high teens to low 20s range as a percentage of sales), even amid the disruption caused by COVID-19. Even higher levels are driven by improving margins and working capital initiatives. Management has made commendable strides toward top-tier receivable and payable management, and the supply chain initiatives combined with a reworked bottler system should yield modest improvements in inventory management.

Moreover, Coca-Cola boasts strong coverage ratios above its peers. Coke’s financial strength is its ability to operate one of the larger domestic commercial paper programs. Issuing commercial paper is an integral part of the company’s cash management strategy, and the fact that investors and financial institutions are consistently willing to finance the company at such low rates lends credence to the reliability of its cash flows.

Bull Says

  • By volume, Coke is almost 3 times the size of its next largest competitor in the global nonalcoholic ready to- drink market, which begets scale benefits.
  • Despite a greater focus on marketing efficiency, its ad budget is still unparalleled and should help maintain consumer awareness and brand relevance.
  • The recently established platform services group should allow Coke to more effectively leverage data and improve technological capabilities across its mammoth production and go-to-market system.

Company Profile

Coca-Cola is the largest nonalcoholic beverage entity in the world, owning and marketing some of the leading carbonated beverage brands, such as Coke, Fanta, and Sprite, as well as nonsparkling brands, such as Minute Maid, Georgia Coffee, Costa, and Glaceau. Operationally, the firm focuses its manufacturing efforts early in the supply chain, making the concentrate (or beverage bases) for its drinks that are then processed and distributed by its network of more than 100 bottlers. Concentrate operations represent roughly 85% of the company’s unit case volume. The firm generates most of its revenue internationally, with countries like Mexico, Brazil, and Japan being key markets outside of the U.S.

(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

Hardwire Positions in the Project Long-Term Benefits for Harley, but Near-Term Risks Remain Pervasive

While still a significant market player, Harley’s market share fell roughly 800 basis points, to 42.1% in 2020 from above 50% in 2019 (although it has recovered 2.5% of share through June). With the launch of “The Hardwire” strategy, CEO Jochen Zeitz is chasing the highest ROI opportunities for Harley. This is versus the firm’s goal calling for 7%-9% motorcycle operating margins in 2021 (in line with our 9% forecast, if it can mitigate EU tariffs).

Financial Strength

Harley-Davidson carries more debt on its balance sheet than as leverage is required to finance its HDFS arm and offer loans to customers. HDFS generates increased financial risk and weaker profitability when credit standards tighten or credit markets become less liquid. The firm had $1.7 billion in cash and equivalents at the end of June; it has historically strived to hold enough liquid assets to cover its liquidity needs for 12 months.

However, with the consolidation of securitization interests, that ratio jumped to 73% in 2009. The company worked this down to 64% at the end of 2013, but the ratio has risen again above 75% since 2015 with the issuance of incremental debt. The company still has financial flexibility thanks to a $707.5 million revolver (expiring in 2023), a $707.5 million revolver (expiring in 2025), as well as its $350 million facility, which helps address the seasonality of production and shipments. Additionally, Harley maintains flexibility in its capital structure through stock repurchases and dividends (currently at $0.15 per share per quarter).

Harley’s Brand Awareness

  • Harley-Davidson’s brand is more than 115 years old and resonates globally with a wide consumer base, particularly its core market (men over 35). Efforts to reconnect with its core consumer could lead to a unit demand uptick faster than we anticipate.
  • The firm has historically generated strong free cash flow, and we expect it to continue doing so after the pandemic, generating a mid-single-digit average FCF yield over the next decade.
  • Harley has high brand awareness and robust market share in custom and touring segments domestically, two of the most profitable motorcycle categories.

Company Profile

Harley-Davidson is a global leading manufacturer of heavyweight motorcycles, merchandise, parts, and accessories. It sells custom, cruiser, and touring motorcycles and offers a complete line of Harley-Davidson motorcycle parts, accessories, riding gear, and apparel, as well as merchandise. Harley-Davidson Financial Services provides wholesale financing to dealers and retail financing and insurance brokerage services to customers. Harley has historically captured about half of all heavyweight domestic retail motorcycle registrations, a metric it has ceded in 2020 as it has repositioned the business. The firm recently expanded into the middleweight market with the launch of the Pan America model.

(Source: The Motley Fool)

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.