Sirius XM Radio Inc (SIRI) is continuing on a high-growth trajectory as the company successfully monetizes listenership, generating $130 per listener per year compared to Pandora Media Inc’s (P) $8 per listener, and is also seeing a significant growth opportunity in the used car market, says James Marsh, Managing Director and Senior Research Analyst at Piper Jaffray & Co.
“For SiriusXM, I think they could have an excellent business model. They have figured out how to monetize listenership, and they are generating $130 per listener per year. If you compare that to Pandora, Pandora is probably extracting about $8 per listener per year. So it’s very high monetization of listeners. They have a lot of exclusive content,” Marsh said.
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Sirius is also generating a significant amount of free cash flow, as the company already has its satellite network in place and won’t need to invest in the network for a few years, Marsh says. Additionally, SIRI is looking a growth opportunities in the used car market, which could be even larger than the new car market.
“You already have a satellite network in place; don’t need any material investment to that satellite network until 2017. It is a huge free cash flow machine, and it used to be largely reliant on new car sales, but now you have a large installed base of radios in the used car market. So that’s going to be a huge growth opportunity for them, and we think over the next few years that used car market could be bigger than the new car market with a lot more subscriptions through the used car channel than from the new car channel…now, basically 70% of all cars that roll off the road have a satellite radio,” Marsh said.
Liberum’s executive turnover data for October 2013 appeared a bit more positive for the American economy than the previous month of September. Three out of the four key executive turnover categories (CEOs, CFOs, C-level Execs and Board of Directors) saw percentage increases from the same month a year earlier and from the previous month of September 2013. The more positive trend for October, however, was not evidenced in the latest monthly employment numbers released last week by ADP’s October Employment Report.
According to the ADP October Employment Report:
“According to ADP National Employment Report findings, the U.S. private sector added a total of 130,000 jobs during the month of October, well below the average of the last twelve months,” said Carlos Rodriguez, president and chief executive officer of ADP. “Small business growth was down from the previous month, while payrolls among large enterprises showed an increase.”
Mark Zandi, chief economist of Moody’s Analytics, said, “The government shutdown and debt limit brinkmanship hurt the already softening job market in October. Average monthly growth has fallen below 150,000. Any further weakening would signal rising unemployment. The weaker job growth is evident across most industries and company sizes.”
The U.S. Department of Labor’s Bureau of Labor Statistics (BLS) released its employment numbers last Friday, a week late due to the recent government shutdown. Liberum analysis of our executive turnover totals has coincided more closely with the BLS’ latest numbers which were much better than those reported by ADP and originally expected by most analysts.
Below is a breakdown of Liberum’s key executive category percentage changes for October 2013 compared with October a year earlier and the previous month of September 2013.
Below are the overall turnover totals for October:
KEY CEO CHANGES – OCTOBER 2013 32 COMPANIES WITH CEO CHANGES WORTH RE-EXAMINING
According to Liberum’s Management Change Database, a total of 210 CEO related changes occurred during October 2013. Here are 32 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
10-02 Altair Nanotech, Inc. ALTI NASDAQ 30
10-02 Ener Core Inc ENCR OBB 106
10-02 Pyramid Oil Co PDO NYSE 25
10-03 United Online, Inc. UNTD NASDAQ 739
10-04 Farmers National FMNB NASDAQ 116
10-06 Basic Energy Srvcs. BAS NYSE 510
10-06 Blacksands Petrol BSPE OTN 36
10-08 Det Norske DETNF OTN 1885
10-09 Cognitiv Inc COGV OTN 188
10-09 Wave Systems Corp WAVX NASDAQ 42
10-10 Arcis Resources C ARCS OTN 2
10-10 Lyris Inc LYRI OTN 12
10-11 American Railcar ARII NASDAQ 859
10-14 Burberry Group Pl BURBY OTN 10113
10-15 Superior Indust Int’l SUP NYSE 499
10-15 Ucp Holdings, Inc UCPH OTN 12
10-16 Circa Enterprises CTO Canada 4
10-16 Citrix Systems, Inc. CTXS NASDAQ 10619
10-16 Usell.Com Inc USEL OTN 22
10-17 Cca Industries, I CAW NYSE 22
10-17 McDermott International MDR NYSE 1786
10-21 Dussault Apparel DUSS OTN 424
10-24 Ixia XXIA NASDAQ 1123
10-24 Maxwell Tech. Inc. MXWL NASDAQ 239
10-25 Lassonde Industri LAS-A.TO 649
10-25 VirtualScopics, Inc. VSCP 13
10-28 Lorus Therapeutic LOR TOR 13
10-28 Sed International SED NYSE 5
10-29 AZZ incorporated AZZ NYSE 1136
10-30 Randstad Holding RANJF OTN 9676
10-30 Teva Pharmaceutical Ind TEVA NYSE 32600
10-31 Maxcom Telecom Ad MXT NYSE 205
OCTOBER 2013 MANAGEMENT CHANGE STATISTICS
C-LEVEL MANAGEMENT CHANGE STATISTICS
GRAND TOTAL – 1486
TOP INDUSTRY SECTORS
> Drugs/Biotech – 146
> Energy – 120
> Metals/Mining – 89
OCTOBER 2013 CEO CHANGE STATISTICS
GRAND TOTAL – 210
TOP INDUSTRY SECTORS
> Drugs/Biotech – 22
> Energy – 21
> Banking – 13
OCTOBER 2013 CFO CHANGE STATISTICS
GRAND TOTAL – 210
TOP INDUSTRY SECTORS
> Drugs/Biotech – 21
> Metals/Mining – 20
> Energy – 17
OCTOBER 2013 BOARD OF DIRECTOR CHANGE STATISTICS
GRAND TOTAL – 514
TOP INDUSTRY SECTORS
> Drugs/Biotech – 60
> Energy – 55
> Metals/Mining – 39
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.
CBS Corporation (CBS) has overcome secular challenges in the television broadcast industry by finding new ways to monetize content, from retransmission fees from cable systems to developing new shows with digital partners, and is seeing high profit margins on these new revenue streams, says James Marsh, Managing Director and Senior Research Analyst at Piper Jaffray & Co.
“CBS, I think, has done a particularly good job taking share from other broadcast networks, and they have also shifted their strategy and moved away from just ad-based television business to making sure that they are monetizing their content and all these different windows. They are kind of the poster child for an evolving television broadcast business,” Marsh said.
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CBS has been able to extract fees from cable systems, called retransmission content fees, and has also been successful in selling its content into new digital windows such as Netflix and Amazon, Marsh says. Additionally, CBS saw success in the summer with the launch of a new show with Amazon, and has seen high profit margins on each new revenue stream.
“The CBS management team has done an outstanding job basically creating new revenue streams, and whether it’s the retransmission content fees that we talked about, whether it’s syndicating old reruns that didn’t have much value but are valuable to an Amazon or a Netflix or doing creative things like we mentioned with ‘Under the Dome,’” Marsh said. “The compelling thing about all these new revenue streams are their extremely high profit margins. The retransmission consent fees are effectively 100% incremental margin…it really has helped the EBITDA growth story there, and management there I think has just been very disciplined about just returning cash to shareholders, and the investors like it. The stock has been a good performer; we think it’s going to continue.”
Omnicell (OMCL) pursues growth globally by offering hospitals a simplified and comprehensive advanced automation solution to manage medications and supplies, aiming to increase domestic penetration, as well as adoption in international markets, says Rob Seim, Executive Vice President and Chief Financial Officer.
“The marketplace is about 65% penetrated in the United States and outside United States, barely penetrated at all,” Seim said. “About 90% of the hospitals have some degree of medication automation in place somewhere, so a lot of our opportunity is in deepening the automation penetration of existing customers.”
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Omnicell is number two in the market in terms of total overall sales, according to Seim, who feels the company is significantly ahead of their competition technologically.
“We have the only system in the market that can handle virtually 100% of drug distribution through an automated software product, SinglePointe,” he said. “In addition, we’ve got a number of safety features that our competition do not offer.”
Seim says Omnicell is focused on three growth strategies based around expansion into new markets, staying ahead of the competition with superior products and continuing a rich history of successful acquisitions.
“We’ve stated that we want our strategies to deliver 15% operating margin, and we’ve worked up to that over the years,” he said. “Investors should look to that as the continuing performance of the company. Investors should, of course, look for us to continue to be innovative. We’ve got many unpenetrated opportunities that are substantial in size.”
Pebblebrook Hotel Trust (PEB) is shaping up to be the most profitable of lodging REITs, as the company is expected to have sector-leading revenue growth, 10% EBITDA growth and up to 20% earnings growth over the next couple of years, says Rod Petrik, Analyst at Stifel Nicolaus & Co., Inc.
“My favorite company is Pebblebrook. I think that they have one of the best portfolios. Their RevPAR is second only to Strategic (BEE). From a profitability standpoint, I might argue they have the best. I think they have the best management team, and I think they are relentless in their asset management,” Petrik said.
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Petrik expects PEB to lead the sector in revenue growth in the next couple of years, and as the company continues to improve margins it will also see significant EBITDA and earnings growth, with an estimated $35 a share replacement cost.
“If the industry forecasts are 4% to 7% RevPAR, I think they’d run at 1 point, 1.5 points higher than that. They continue to improve margins. I would expect EBITDA growth to be close to 10%, and I would expect earnings growth to be 15% to 20%. Our estimated replacement cost for Pebblebrook is, say, $35 a share, and in prior cycles, particularly in 2007 and 1998, it wasn’t uncommon that your higher-quality companies traded on top of the replacement cost, and I believe that Pebblebrook will be one of the first companies to get to that level,” Petrik said.
Alexandria Real Estate Equities Inc (ARE), the largest life science real estate company, is on track to have a record year in leasing, with its tenants garnering over 50% of FDA approvals last year and 69% to date this year, says Joel S. Marcus, Founder, Chairman and Chief Executive Officer of Alexandria Real Estate Equities, Inc.
“We are on pace to have a record year in leasing. Rental rates in most of the markets are trending upward,” Marcus said. “What’s driving that is record FDA approvals last year, 39 approvals, of which our tenants garnered well north of 50% of those. This year the pace is also pretty brisk, and to-date our tenants have garnered 69%. So it’s a great credit to our underwriting of product approvals and Alexandria tenants.”
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Alexandria Real Estate focuses on assets adjacent to major academic and medical institutions which generate breakthrough technologies in life science, Marcus says, and the company has benefited from a solid year in the industry at the capital markets level.
“Our world of pharma and biotech doesn’t generally make space determinations based on the general economy, they do it on event-driven needs, so if they have a new product or they have a big area that they are going after, that’s when they expand. The industry has probably had the best year in more than a decade at the capital markets level, and in valuations this has been a real boom year,” Marcus said.
Medidata Solutions Inc (MDSO), a cloud-based software player in the clinical research segment, is gaining share and seeing accelerated revenue growth and margin improvement as it adds functionality to its core data-capture product, says David H. Windley, Managing Director at Jefferies & Company, Inc.
“[Medidata] has, in the clinical research world, a better mousetrap, and the customer base is recognizing that. Medidata is gaining share, displacing its competitors and seeing its revenue growth accelerate as a result. With that stronger revenue growth, it is also seeing margin improvement, which we think is important,” Windley said.
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Medidata is seeing benefits as a cloud-based software company, Windley says, and is also developing more functionality to its core data-capture product, Rave, to aid clinical research operations in managing their activities.
“Medidata benefits from the efficiency of deploying software solutions through the cloud. It is also developing complementary functionality to its core product, Rave, which is a data-capture tool. You could kind of think of it as the EMR for clinical trials. Medidata is trying to surround that with other functionality that helps the research enterprise manage its broad spectrum of activities,” Windley said.
MedAssets, Inc. (MDAS) is seeing potential for multiyear growth, as the company is providing hospitals with technology-enabled products and services that include useful tracking software and cost-saving Saas and cloud-based systems, says Leo Carpio, Senior Research Analyst at HM Global, LLC.
“The MedAssets story has two components: They are both revenue cycle management and supply chain. Revenue cycle management accounts for 40% of the business as a percentage of revenues. They provide software that helps the hospital with billing and tracking patients, everything from inpatient admission into ER all the way through the discharge. The software tracks the patient’s care, ensures that they’re properly billing for the patient’s care, and helps them get the best return and reimbursement possible,” Carpio said.
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MedAssets‘ supply chain management side is 60% of the business and uses analytical software to help hospitals reduce costs while improving outcomes, Carpio says. Additionally, because the company’s systems are SaaS and cloud-based, hospitals are seeing value with MDAS as they work to improve operating expenses.
“Because the system is SaaS, all these systems are SaaS and cloud-based, it’s system-agnostic. It can attach itself to any existing IT infrastructure, pull the data from it and deliver the necessary data analytics. That means hospitals don’t need to rip and replace their existing IT investments; they just buy the needed modules and then reap the benefits,” Carpio said. “Because MedAssets products are SaaS-priced, it’s mostly viewed as an operating expense. Since hospitals are going to be focused on improving operating expenses and the top line over the next decade, I can easily a multiyear growth track for this company.”
International Business Machines Corp. (IBM), is seeing a significant opportunity in its IBM Healthcare business around the Smarter Care initiative, which addresses how social and environmental factors impact health in order to provide clients with information and tools to provide the best treatment for individual patients, says Sean Hogan, Vice President at IBM Healthcare.
“We are working with clients to drive smarter decisions through practical application of technology across health care industry challenges. That’s what the Smarter Care model is all about. Health care organizations need information to provide the best possible treatment for an individual patient. That’s where a tool like IBM Watson can make a tremendous impact, helping doctors make evidence-based decisions and to get the right care to the right patient,” Hogan said.
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IBM‘s Smarter Care initiative aims to understand how social and environmental factors impact health, Hogan says, so that clients can better understand the factors that cause chronic illness and acute care episodes. This increasing interest in population health is driving organizations to look at IBM Healthcare‘s tools and solutions, Hogan adds.
“Organizations are looking at IBM’s analytic tools to help them tap into new sources of data, and to deal with greater volume of data and different types of data. That data might be structured and unstructured, as with social media or doctors’ notes. We offer solutions to gain insight, to identify and understand populations, and then we can help apply programs that are effective in dealing with the issue,” Hogan said.
Allscripts Healthcare Solutions Inc (MDRX) is gearing up to be a turnaround story as new leadership recognizes the urgency to drive the integration of the Eclipsys acquisition, positioning MDRX well to compete in the market with its complementary hospital and physician businesses, says Charles Rhyee, Managing Director and Senior Research Analyst at Cowen and Company.
“The one that we’re really recommending is Allscripts. I think it’s a very interesting turnaround story. It’s one where you have new leadership. On paper it makes sense, because these are complementary businesses. Old management, I don’t think, recognized the urgency to drive the integration. I think new management has come in understanding that and is helping push that process along,” Rhyee said.
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Allscripts was originally a maker of electronic health records for physician practices, and with the acquisition of Eclipsys now has exposure to the hospital market, Rhyee says, and an opportunity to turn its business around and compete in the marketplace.
“I think they have all the pieces to be successful. It’s a question of whether they have enough time to get it all together to become competitive. I think they do. And while I don’t think they have to be in the same league with Epic and Cerner (CERN), I do think this market is still diverse and broad enough that there’s room for more than two players,” Rhyee said.
