MB Financial (MBFI) has improved its credit over the last year and enhanced analyst expectations of loan growth, all while still trading at a reasonable valuation relative to peers and maintaing healthy levels of capital, says Brian Martin, Vice President and Research Analyst at FIG Partners.
“The company has done a good job of improving credit over the last year,” Martin said. “They’ve done some remixing within the portfolio and reduced nonperforming assets over the last couple of years, which has taken a little bit steam out of the net loan growth number, but my expectation was that loan growth would be positive for this company.”
Martin says MB Financial continues diversifying its revenue stream, where their fee income was about 30% total in the past quarter, and a recent acquisition is expected to continue bolstering this revenue source. He also says the company has healthy levels of capital, allowing the bank to return some of it to shareholders.
“The diversification of revenue was a catalyst,” Martin said, “and the fact that they’ve got a very low cost of funds to begin with should help their margin, and the opportunity for loan growth are all positive, on top of a share repurchase program that they had announced and just healthy capital levels that will give them flexibility as they move forward.”
Gulfport Energy Corporation (GPOR) has core acreage in the southern part of the Utica shale, one of the U.S. unconventional resources which has evolved, and the company is becoming the core Utica proxy for the market at this point, says Cameron Horwitz, Director of Exploration and Production at U.S. Capital Advisors LLC.
“The initial productivity of that play looks phenomenal. I think there are still a lot of questions as to what are the ultimate recovery, ultimate reserves, ultimate economics of that play, but at first glance and making some reasonable assumptions, we think that’s going to be a highly economic area, and an area where we’ll continue to see ramp-up in activity, delineation and M&A activity,” Horwitz said.
Horwitz says he likes Gulport Energy‘s evolution in the Utica shale. He says the company encountered some struggles along the way of developing this resource, but he says the company’s involvement in the southern part of the shale has brought new life to the company, and he adds that the Utica is one of the key areas to watch very closely in 2013.
“One of the areas for 2013 we’ll continue to watch very closely, and I think could continue to surprise to the upside, is the Utica. That’s a play that has now started to evolve. It came out of the gate strong, sputtered with some of the initial results and then has really been reinvigorated, principally by what Gulfport has done in the southern half of the play,” Horwitz said. “ Gulfport is a name that we like.”
KeyCorp (KEY) CEO Beth Mooney looks to turn around the bank’s business by growing market share in its core markets, and although expenses were higher than expected in the last quarter, the company continues showing progress, says Mark Palmer, Managing Director and Equity Analyst for BTIG LLC.
“The transaction that KeyCorp did with First Niagara (FNFG) last year, in which it acquired HSBC (HBC) branches and consequently was able to significantly increase its market share in Buffalo and Rochester, New York, was a good example of the type of transaction that will help KEY to address that core problem of penetration,” Palmer said.
Palmer also says KEY is growing its lending book, and the company, along with Comerica (CMA), maintains one of the best capital ratios in the industry, positioning KEY to return significant amounts of capital to shareholders.
“We believe that they will have little trouble having their requests for capital return approved by the Fed this year, and we’re in the middle of the CCAR process, which is the process for having the Fed approve the various banks’ capital plans,” Palmer said.
Cimarex Energy Co. (XEC) is changing its previous organic production track record and improving its execution in the Permian basin, one of the U.S. unconventional assets with the most upside from a resource estimate perspective, while trading at a lower valuation than some of its group peers, says Cameron Horwitz, Director of Exploration and Production at U.S. Capital Advisors LLC.
“[XEC is] now deploying more than half of their capital budget in the Permian. I think that stands to increase even further as we move into 2013. All that said, the stock is trading at about 4.4 times our 2013 EBITDA estimate, while some of their higher-growth Permian peers are trading at about seven times,” Horwitz said.
Horwitz says Cimarex could change its historical norms of having a difficult time posting organic growth, and it could grow volumes in the double digits. He also expects the investment the company has made in the basin to result in a positive surprise for XEC shareholders.
“We think Cimarex can grow oil volumes by almost 20% in 2013, because of the increased investment in the Permian basin. That’s a deviation from historic norms, and I think that would be a positive surprise relative to expectations and allow the stock to go through a rerating process and multiple expansion,” Horwitz said.
Pioneer Natural Resources (PXD) owns large amounts of acreage in the Permian basin, one of the resources with the most upside potential from a resource estimate perspective due to the multistack pay nature and various horizontal targets, as well as better wells as the company moves north to develop its acreage, says Cameron Horwitz, Director of Exploration and Production at U.S. Capital Advisors LLC.
“The company has about 900,000 acres in the Permian basin with the potential for a multipay stack oil concept, whether it is the Wolfcamp, the Cline shale, the lower Spraberry formation or others. There are several opportunities for horizontal oil development and a lot of capital, a lot of running room ahead of that,” Horwitz said.
Horwitz says PXD is developing assets in places like the Midland horizontal Wolfcamp, and the company is going into locations with better extraction potential. He says the development of resources remains a problem for E&P companies, but he says companies may choose to partner up to develop their acreage.
“As operators move north, which is where Pioneer is dominant, we think there are better rock properties, potential for better wells, higher estimated ultimate recoveries and ultimately better capital productivity,” Horwitz said. “Pioneer is currently drilling their first horizontal well in Midland County, which I think will be a pretty big data point for that company. We continue to like that name.”
EOG Resources (EOG) captured acreage in the Eagle Ford shale, one of the most economic resource plays in the U.S., and among the large caps the company is demonstrating potential for capital efficiency accretion, scale, efficiency and improving capital productivity, says Cameron Horwitz, Director of Exploration and Production at U.S. Capital Advisor LLC.
“We think one of the large-cap names that has not only captured the resource, but is demonstrating potential for capital efficiency accretion would be EOG, really driven by their core position in the Eagle Ford shale,” Horwitz said. “I think the core of the Eagle Ford shale is probably the most economic resource play in the country, and that’s what is driving EOG.”
Horwitz says there is further potential for inventory upgrades as EOG tests tigher well placing in the Eagle Ford, and in ancillary activities in places like the Bakken and the Permian, the company also shows some improvement from a productivity standpoint, and it currently trades a relatively inexpensive multiples.
“EOG is starting to see some improvement from a productivity standpoint,” Horwitz said. “We continue to like EOG. It’s obviously a name that worked in 2012. The stock is trading at about five times our 2013 EBITDA estimate, so it’s really not expensive. The historic average has been about 5.5 times and the industry median is at about six times.”
On Assignment (ASGN) doubled the percentage of its its IT staffing with the acquisition of private firm Apex Systems, going from 45% to 75% of its offerings exposed to this growing vertical of the staffing market on a pro forma basis, says Jeffrey M. Silber, Managing Director at BMO Capital Markets Corp.
“I mentioned IT staffing being the hottest vertical; they are certainly making a bet that that’s going to continue. The stock has done extremely well. In 2011, it was one of the best performing staffing stocks, if not the best performing staffing stock, up about 37%. And in 2012 year to date, the stock is up another 70% or so — one of the better performing staffing stocks this year,” Silber said.
Silber says the earnings growth has more than kept up with ASGN‘s growth, and that the stock is trading below it peer group’s earnings multiple, and he expects upside from the stock. “We think not only will you have positive earnings estimate revisions going forward, but you will see some multiple expansion as well, so that’s a stock we think can continue to work,” Silber said.
ASGN‘s President and CEO, Peter T. Dameris, recently discussed the Apex Acquisition and the company’s future growth prospects. The company grew about 18% in 2012, and he expects secular trends to continue driving the company’s growth.
“For our business, it is actually the perfect blend of a supply/demand imbalance and secular changes. The oddity is that the staffing industry for public investors typically has been a cyclical play — we’re the first to recover coming out of a recession and the first to go into a recession, and the business model operates very well when you have GDP growth. Well, today we’ve had four years of outstanding growth without any help from GDP growth, because GDP growth right now is pretty anemic at around 1.5%,” Dameris said.
The current Chief Operating Officer of Herbalife (HLF), Rich Goudis, has interviewed twice with The Wall Street Transcript, both times while Mr. Goudis was the Chief Financial Officer. The first interview was published on June 6, 2005.
TWST: What compels investors to review Herbalife and include HLF in their current portfolios as well as in their longer-term investment strategies?
Mr. Goudis: It’s a couple of things. One, if you are looking for a company that has tremendous geographical diversification, Herbalife, as I mentioned, is in 59 markets. Our top 10 countries where we do business represent about 67% of our sales. So we’re tremendously diversified in our holding. We grew in the first quarter over 14%. So for those people who are growth oriented, I think we present a very good growth story, and that’s even before our entry into China.
For those people who are value-conscious, we provide a great opportunity in that we are trading at a discount to some of our more formidable peers from a multiple standpoint, and I think we have a lot more to offer than some of those companies, but just a matter of being public, proving ourselves, developing a track record of consistency. Hopefully, we’ll eclipse that multiple over some short period of time here. And then lastly, it goes back to, if you want to be in the health and wellness field, if you want to have international exposure or if you are looking for the benefit of FX, foreign currency, we do derive some of that benefit these days with the dollar being where it is. So I think there are many different facets and different views that you can look to play HLF.
The second interview was published on May 29, 2006, and included this excerpt.
TWST: What are the elements in your own background that led you to what you are doing now?
Mr. Goudis: I primarily have a financial background. I spent most of my youthful years at United Technologies in their financial management training program. I worked through some of their different divisions, and then got into the consumer product business in finance in companies like Sunbeam and Rexall Sundown. Rexall was where I also got thrust into being a Chief Operating Officer and got a real hands-on understanding of the nutritional supplement business. So I think I bring a unique experience and financial acumen in dealing with public companies and investors, while at the same time understanding the nutritional supplement business.
Mr. Goudis biography in The Wall Street Transcript illustrates his background and credentials at the time of the interviews:
Rich Goudis, Chief Financial Officer of Herbalife Ltd., has global responsibility for all financial and accounting activities for the company’s business operations in 62 markets around the world. Mr. Goudis brings a breadth of experience in many financial disciplines as well as a depth of understanding of the nutrition industry and network marketing. He has more than 20 years of financial management experience with industry leading companies such as Pratt & Whitney and Sunbeam Corporation and senior executive experience as Chief Operating Officer of Rexall Sundown. While at Rexall Sundown, Mr. Goudis was a member of the executive team that led the company through tremendous sales growth, including the expansion of Rexall Showcase International throughout Asia, while improving overall profitability. Most recently, Mr. Goudis was a Principal in Flamingo Capital Partners formed by former senior executives of Rexall.
In the latest proxy filing with the SEC for Herbalife, Mr. Goudis bio is as follows:
Richard Goudis is Chief Operating Officer of the Company and has held this position since January 2010. Mr. Goudis joined the Company in June 2004 as Chief Financial Officer after serving as the Chief Operating Officer of Rexall Sundown, a Nasdaq 100 company that was sold to Royal Numico in 2000, from 1998 to 2001. After the sale to Royal Numico, Mr. Goudis had operations responsibility for all of Royal Numico’s U.S. investments, including General Nutrition Centers, or GNC, Unicity International and Rexall Sundown. From 2002 to May 2004, Mr. Goudis was a partner at Flamingo Capital Partners, a firm he founded in 2002. Mr. Goudis also previously worked at Sunbeam Corporation and Pratt & Whitney. Mr. Goudis graduated from the University of Massachusetts with a degree in Accounting and he received his MBA from Nova Southeastern University.
Rexall Sundown designed several business initiatives that seem relevant to Herbalife’s business model including, including Turnkey.com as described in this South Florida Business Journal article.
Rexall Sundown was later sold to Royal Numico, which two and a half years later put it up for sale again, as described in this article in the Sun Sentinel.
Previously, Mr. Goudis worked at Sunbeam. In his book “Mean Business: How I Save Bad Companies and Make Good Companies Great,” Albert Dunlap describes Mr. Goudis as one of his “go to” executives: “Rich Goudis led the team that went into Nesoho, the small Missouri town where we manufacture our grills.”
Demand for payment processing from MasterCard (MA) and Visa (V) is growing secularly both domestically and abroad as merchants are moving away from the age-old tradition of cash and into electronic transactions, making Kevin D. McVeigh, Analyst at Macquarie Group Limited bullish on these stocks.
“Ideas that we are focusing on include great secular plays on the processing side of our coverage, including MasterCard and Visa, where there’s a great secular shift away from traditional forms of physical cash payment into credit as well as debit, and just very good secular growth drivers,” McVeigh said.
McVeigh says economic growth bodes well for payment processors. He expects strong growth domestically in the second half of 2013, and he says this year could be the year Europe stabilizes, which would be a positive for the global economy, to the point it would offset the uncertainty of U.S. health care law changes.
“One area that we would focus on from a potential negative perspective is, as people start to get a sense of what the impact of this health care law will be, whether or not that causes some slowdown in hiring,” McVeigh said, but adds that “the impact of Europe in 2013 if we start to see some stabilization there, coupled with a positive contribution from housing and continued benefit from auto, hopefully will be enough to offset any of the negative impacts from this health care law.”
Verizon Communications (VZ) is expected to continue gaining market share in the wireless space, and although the stock has reached a relative level of full value, the stock can present investors with a defensive play if macroeconomic conditions were to worsen, says Christopher C. King, Director at Stifel, Nicolaus & Co., Inc.
“The third quarter, the entire U.S. wireless industry added 1.3 million postpay contract subscribers, and Verizon added 1.5 million. In other words, the rest of the industry combined lost postpay subscribers, and Verizon accounted for all of the growth in the industry,” King said.
King has a “hold” rating on VZ due to valuation but likes it from an operational standpoint. Besides the company gaining market share, he says VZ is increases its dividends modestly every year and generates a significant amount of free cash flow, and investors may benefit from their stability.
“They are likely to outperform the market when the market begins to fall apart, when the market is scared or jittery, when there are global macro concerns. These stocks are going to outperform because these are safe havens, they are bellwethers and are not going anywhere. They generate a ton of free cash flow and have very healthy balance sheets,” King said.
