Liberum Research’s executive turnover data for July 2014 continued to maintain a positive trend for North America’s economies. CEO, C-level and Board of Director changes monitored by Liberum saw high percentage increases from a year earlier for the same month as well as increases from the previous month of June 2014. The only category that experienced declines was CFOs. In totality, the July executive turnover numbers and overall monthly job growth and level of unemployment continue to point in a positive direction for the North American economy. Both ADP and the U.S. Labor Department’s Bureau of Labor Statistics (BLS) released their monthly employment numbers for July. While neither report was fabulous, the trend continues to remain positive. Liberum expects this will be the case through the Fall months.
ADP’s Employment Report for July 2014 stated,
Private sector employment increased in all four major regions and all nine
U.S. Census Bureau Divisions during the month of July 2014. The ADP National Employment Report(R) reported total U.S. private sector employment increased by a total of 218,000 jobs from June to July.
The U.S. Department of Labor’s Bureau of Labor Statistics (BLS) Employment Report for July stated,
Total nonfarm payroll employment increased by 209,000 in July, and the unemployment rate was little changed at 6.2 percent, the U.S. Bureau of Labor Statistics reported today.
Job gains occurred in professional and business services, manufacturing, retail trade, and construction.
Both the unemployment rate (6.2 percent) and the number of unemployed persons (9.7million) changed little in July. Over the past 12 months, the unemployment rate and the number of unemployed persons have declined by 1.1 percentage points and 1.7 million, respectively.
Below is a breakdown of Liberum’s key executive category percentage changes for July 2014 compared with July a year earlier and the previous month of June 2014.
Below are the overall turnover totals for July. The information is just illustrative of how institutional investors could view executive turnover and its possible relationship with a company’s performance. Using Liberum’s database could offer a totally new perspective on investment and is a potential way to come up with unique special situation opportunities.
79 COMPANIES WITH CEO CHANGES WORTH RE-EXAMINING
According to Liberum’s Management Change Database, a total of 225 CEO related changes occurred during July 2014. Here are 79 from the time period that caught my eye. By significant, I’m looking for situations where I think a particularly strong or weak choice has been made – given the apparent current state of the company – or where there is an interesting special situation.
DATE COMPANY TICKER EXCHANGE MARKET CAP $ MILLIONS
07-11 Accretive Health ACHI OTC 911
07-01 Actavis, Inc. ACT NYSE 38959
07-01 Alere Inc. ALR NYSE 3256
07-17 Amber Road, Inc. AMBR NYSE 384
07-18 American Apparel, Inc. APP NYSE 189
07-14 American International Group, Inc. AIG NYSE 79638
07-24 Arno Therapeutics ARNI OTC 35
07-10 Aurcana Corporati AUN CVE 52
07-08 Axion Power Intl AXPW OTC 32
07-21 Calibrus Inc CALB OTC
07-31 Canadian Imperial CM NYSE
07-01 Cannabis Sativa, CBDS OTC 94
07-16 Cannabusiness Gro CBGI OTC
07-22 Cannlabs Inc. CANL OTC
07-23 Cash America International, Inc. CSH NYSE 1305
07-07 Cca Industries, I CAW NYSE 25
07-02 Changing Tech CHGT OTC
07-07 Clean Diesel Tech CDTI NASDAQ 30
07-30 Clean Enviro Tech CETC OTC 883
07-09 CryoLife, Inc. CRY NYSE 260
07-28 Darden Restaurants, Inc. DRI NYSE 6203
07-30 Dendreon Corporation DNDN NASDAQ 329
07-02 Deq Systems Corp. DEQ CVE 19
07-02 Echo Therapeutics ECTE NASDAQ 27
07-03 Efactor Group Cor EFCT OTC 50
07-29 Eltek Ltd. ELTK NASDAQ 15
07-07 Empire Global Cor EMGL OTC 20
07-21 Ezcorp Inc EZPW NASDAQ 517
07-11 Fuelstream Inc FLST OTC 188
07-09 Gaming Partners International Corp. GPIC NASDAQ 66
07-29 Genworth Financial, Inc. GNW NYSE 8070
07-08 Headsup Entertain HDUP OTC
07-02 Horizon Lines Inc HRZL OTC 14
07-22 Integrated Drilli IRIG OTC 28
07-16 Intelgenx Technol IGX CVE 40
07-28 Jgwpt Holdings In JGW NYSE 142
07-01 Leidos Holdings, Inc. LDOS NYSE 2888
07-08 Lexicon Pharmaceu LXRX NASDAQ 855
07-31 MAXIMUS, Inc. MMS NYSE
07-30 Meadowbrook Insurance Group, Inc. MIG NYSE 309
07-24 Medbox Inc MDBX OTC 432
07-24 MGPI Ingredients, Inc. MGPI NASDAQ 146
07-10 Micronet Enertec MICT NASDAQ 25
07-24 Neogen Corporation NEOG NASDAQ 1619
07-28 Neurokine Pharm NEUKF OTC 1
07-18 Neurotrope, Inc. NTRP OTC 22
07-31 Northsight Capita NCAP OTC 48
07-28 NTELOS Holdings Corp. NTLS NASDAQ 269
07-02 Omnicare, Inc. OCR NYSE 6575
07-24 Pacific Continental Corporation PCBK NASDAQ 248
07-09 Petromaroc Corp 0LZ FRANCE
07-29 Powerdyne PWDY OTC 2
07-21 Purespectrum, Inc PSRU OTC 263
07-30 RealNetworks, Inc. RNWK NASDAQ 276
07-29 RMG Networks Holding Corporation RMGN NASDAQ 26
07-01 Santa Fe Gold Cor SFEG OTC 8
07-17 Scio Diamond Tech SCIO 20
07-24 Sierra Metals Inc. SMT TORONTO 283
07-08 Sierra Monitor Co SRMC OTC 16
07-31 Silver Predator C SPD CVE 4
07-18 Solera Natl Banco SLRK OTC 13
07-29 Sollensys Corp SOLS OTC 6
07-21 Sterling Group Ve SGGV OTC 3
07-24 Suburban Propane Partners, L.P. SPH NYSE 2716
07-03 Sun Bancorp, Inc. /NJ SNBC NASDAQ 372
07-31 Target Corporation TGT NYSE 38383
07-10 Team, Inc. TISI NYSE
07-21 Tesco Plc TSCO LONDON 222
07-31 The Bon-Ton Stores, Inc. BONT NASDAQ 201
07-21 Tractor Supply Company TSCO LSS 8986
07-21 Trans Energy Inc TENG OTC 56
07-29 Turner Valley Oil TVOG OTC 889
07-29 Vantage Health VNTH OTC 18
07-01 Vape Holdings Inc VAPE OTC 23
07-10 Vapor Hub Interna VHUB OTC 9
07-23 VirtualScopics, Inc. VSCP NASDAQ 12
07-12 Wanderport Corpor WDRP OTC 1
07-07 WebMD Health Corp. WBMD NASDAQ 1953
07-17 Zhone Technologies, Inc. ZHNE NASDAQ 121
C-LEVEL MANAGEMENT CHANGE STATISTICS
GRAND TOTAL – 1570
TOP INDUSTRY SECTORS
> Drugs/Biotech – 155
> Banking – 149
> Business Services – 103
JULY 2014 CEO CHANGE STATISTICS
GRAND TOTAL – 225
TOP INDUSTRY SECTORS
> Drugs/Biotech – 24
> Business Serivces – 18
> Banking – 15
JULY 2014 CFO CHANGE STATISTICS
GRAND TOTAL – 158
TOP INDUSTRY SECTORS
> Drugs/Biotech – 22
> Banking – 15
> Business Services – 13
> Energy – 13
JULY 2014 BOARD OF DIRECTOR CHANGE STATISTICS
GRAND TOTAL – 556
TOP INDUSTRY SECTORS
> Drugs/Biotech – 62
> Banking – 53
> Energy – 32
Investors need to diligently monitor key management changes. Certain management changes should be viewed as a “special situation” that can have a direct and major impact on a company’s performance and share price.
Richard Matros, CEO of Sabra Health Care REIT Inc (SBRA), says his company has recently experienced increased competition from financial buyers in the senior housing space. He says that trend is creating some price dislocation, particularly on smaller portfolios.
“It’s interesting because they’re entering the market at what some would think of as a peak, if not a bubble,” Matros says. “Since those financial buyers have five- to seven-year horizons, it’s a little bit perplexing why they’re doing what they’re doing because they are paying 15% to 20% more than most of the rest of us will pay for the same assets, and when they have to exit in five to seven years, they’re not going to get that.”
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However, Matros says many of the deals that Sabra does are sale/leasebacks, where operators want to stay in place. Those operators, he says, are more inclined to continue a long-standing relationship than to take more money from a financial buyer.
“But for those transactions where operators are staying in place, and they are just recapitalizing or cashing in some equity, then we’re still in good shape there,” Matros says. “And that’s a lot of the deal activity that’s out there, so our pipeline — despite all that — has remained healthy, but it’s definitely created some dislocation.”
WBB Securities Analyst Steve Brozak says one of the biotechnology stocks he is recommending is Cytori Therapeutics Inc. (USA) (CYTX). He says the company’s latest product, which he expects to be marketed in the near future, transcends biotechnology.
“Cytori’s device extracts stem cells from a patient’s fat, or adipose cells,” Brozak says. “Candidly, it is something where we see this as being the first practical application of stem cells in regenerative medicine that we think will hit the markets in short order.”
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Brozak says Cytori’s device is used to draw and process a patient’s stem cells, but also includes a biologic process because the cells are used on the same patient to solve a medical issue.
“They’re testing these cells right now for use in patients that have severe burns. As a matter of fact, Cytori was awarded a BARDA contract to research and develop their technologies in burns and wound healing,” Brozak says. “They’ve been used commercially overseas for breast reconstruction in women who have had breast surgery for oncology purposes. They’ve been used for closing and healing tough-to-treat wounds because these cells obviously lend themselves to adhere and promote healing on open tissue, and we think that’s an exciting area.”
Bob McNamara, CFO of LDR Holding Corp (LDRH), says that for the time being, the company is focused on growing its revenue. He says management has chosen not to be profitable at this point in order to invest in the company’s future.
“To address the growth perspective, both lumbar and cervical are growing at double-digit growth,” McNamara says. “We had over 20% growth over the last three quarters. Since going public, and certainly last year, lumbar grew 15% and cervical at 34%.”
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McNamara says management views its Mobi-C product as a unique opportunity for future growth. He says the product has a superiority claim that competitors don’t have.
“If you think about generally what it would take to be profitable, I would say, revenues of approximately $180 million to $200 million,” McNamara says. “And so if you consider our growth rate, you can calculate when we might be there, but right now, we are focusing on investing into topline growth.”
Senior Portfolio Manager Michael Simpson of Sentry Investments says though Sun Life Financial Inc. (USA) (SLF) had a challenged 2008, 2009 period, the company has improved operations and is looking toward growth in several areas.
“We think that they improved operations by getting out of some of the more problematic insurance products, the variable annuities,” Simpson said. “They’ve got a gem of an asset in the U.S. called MFS; they own 93% of it, and it keeps on producing very good results.”
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Simpson says Sun Life is planning to build out its Canadian wealth operations again, as well as increase its dividend payout.
“The CEO is committed to a higher level of a dividend payout — going from about 35% to 40% to about 45% to 50%. So we think, starting in 2015, you’ll see some nice dividend increases, and I think overall, it’s a well-managed company,” Simpson said.
“They also have growth in emerging Asian nations like Vietnam, Malaysia and Indonesia, which I think bodes well for them long term,” Simpson added.
DexCom, Inc. (DXCM) CEO Terrance Gregg says the company recently penetrated the pediatric market. He says DexCom received a pediatric label expansion, allowing the company to promote its glucose monitors for pediatric patients as young as two.
“And we’ve never before actually called on that pediatric prescribing base, so that allowed our field sales force now to open up a new market,” Gregg says. “Going into 2014, our installed base of less than 18 years of age was about 8% to 10%, but of course that was off-label use by the prescribing population.”
FOR MORE INFORMATION ON THIS INTERVIEW CLICK HERE.
Gregg says DexCom can now use on-label promotion within the pediatric community, and has already seen an uptick in use of its products by pediatric patients.
“And in fact, today, about 20% to 21% of our shipments are going to that pediatric community, which is a particularly strong community in adoption of this type of technology,” Gregg says.
Charles Kummeth, who became CEO of Bio-Techne (TECH) in 2013, says the company has gone from negative 1% growth to 3.5% organic growth over the last three quarters under his leadership. Kummeth cites his acquisition strategy and managerial decisions as contributors to that growth.
“For example, we did a deal with Fisher to enhance our market channels for our products,” Kummeth says. “We’ve hired sales people, both in China as well as in key regions of the U.S. We’ve improved our website and continue this process. I’ve brought in additional talent, such as the Head of Commercial Operations that came from Life Technologies.”
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Kummeth says he also wants to build out new testing platforms. He says Bio-Techne currently only sells reagents that go into tests, which have limited value given the small amounts used per test.
“These consumables provide for a very profitable business, but additional value comes from having control over the testing technology,” Kummeth says. “In so doing, I would like for us to provide more full solutions to our customers. We have a lot of in-house talent, and experts in many different laboratory activities and processes — things like recombinant protein expression, biological activity assessment, antibody generation, immunoassay development, multiplexing, Western blotting, flow cytometry, etc. We do all of this here.”
Lead Portfolio Manager Jacques Elmaleh of Steinberg Global Asset Management says AbbVie Inc (ABBV) has been a good investment due to its successful HUMIRA drug, high dividend, and most recently, an attractive deal with Shire PLC.
“They have exclusivity on it on their [HUMIRA] patent I think until the end of the decade,” Elmaleh said. “In the meantime, they have a lot of cash flow. They are paying a high dividend, and you take a little more risk because most of the earnings were coming from HUMIRA, but the idea was that they were going to be able to diversify the company over the decade and diversify the risk away from that.”
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AbbVie recently announced a merger with Shire PLC, Elmaleh says, which is a tax inversion and an attractive deal for both sides.
“There’s a decent premium for Shire, and it’s accretive for AbbVie and their cash flow, and it diversifies their risk because Shire is a pretty good firm on their own, but with AbbVie’s pipeline and HUMIRA, I think they could be a good combination,” Elmaleh said.
Lead Portfolio Manager Jacques Elmaleh of Steinberg Global Asset Management says ENSCO PLC (ESV) is a more cyclical stock than he would normally invest in, but he was reeled in by the dividends.
“The stock is going to pay about $3 in dividends per year. They raised it, and that is what caught our attention and brought us into this stock,” Elmaleh said.
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Elmaleh says ENSCO is an inexpensive stock, and though the industry is a bit cyclical, the dividend is well-covered and he’s expecting a good yield.
“Although there is a little bit of a low in the offshore drilling market, when it does turn, we are getting paid to wait, and there’s a lot of upside there,” Elmaleh said. “In the meantime, we are getting a yield that’s almost 6%.”
Lead Portfolio Manager Jacques Elmaleh of Steinberg Global Asset Management says Lockheed Martin Corporation (LMT) is a timely investment, as the company has been aggressive about raising its dividend and has reached a favorable part of the cycle.
“The company generates very strong cash flows, and it’s a very asset-light business, surprisingly,” Elmaleh said.” They are having a tailwind now on some of their pension costs. The way their pensions work, they pay out the pensions, but then the federal government pays it back, and the government has been a bit slow about it. Now there is some legislation that provides them a catch-up period. So during this catch-up period, their cash flows are going to be very strong.”
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Elmaleh also points to Lockheed Martin’s position in the product cycle, which is translating into a good stock price, he says.
“They spend a lot of money with new projects like the F-35, and the upfront costs are very high. But as they move to different stages of their maturity, the cash flow and the margins start to expand. Their mix of projects is reaching a favorable part of the cycle. They are getting more mature, and they are able to sell some more internationally. And that’s a higher-margin business for them,” Elmaleh said.
“Also the dividend yield is very strong, and they have been able to raise it,” Elmaleh added.
