EasyJet EZJ (LSE) the European discount airline, as it has done so in the past, has gone outside the company for a new CEO with no experience in the airline industry. Yesterday the company announced it has selected Carolyn McCall as its next CEO. McCall currently is the CEO of the struggling Guardian Media Group, the company that publishes the UK’s Guardian and Observer newspapers. McCall has overseen most of the restructuring efforts that the newspaper group has undertaken to survive in the latest troubles facing the newspaper industries worldwide. McCall replaces Andy Harrison who will become
the CEO of the Whitbread PLC , the hotel and restaurant group. While McCall leaves one troubled industry for another in which she has no experience, the selection still has merit. According to a story by Robert Lea and Susan Thompson in the Times Online who quoted an EasyJet insider,
“The airline has been looking for someone who has experience of a highly competitive market, someone from a consumerfacing industry, someone at home with the transition to the internet and someone adept at government lobbying. Carolyn McCall was a very impressive candidate.”
The airline has seen a number of management changes over the last few months. Back in January the com
pany put in place a new chairman, Sir Michael Rake chairman of BT Group PLC and CFO, Chris Kennedy an EMI executive.All the management changes have taken place after one of the company’s major shareholders and its founder Sir Stelios Haji-Ioannou expressed his objections to the company’s aggressive plans for expansion at the expense of dividends. McCall is expected to toe the line with regard to the founder’s needs. She also appears to be a very interesting choice. Stay tuned
With some analysts predicting consumer behavior will be forever-changed after this past economic recession, dollar store and single-price point concepts may stand to benefit even as many consumers begin to spend more freely.
“An analyst at my firm recently surveyed about 1,800 dollar store customers and asked them questions about how they were feeling about their current economic situation, would they trade out of the dollar store space if things got better, those kinds of things,” said Patrick McKeever, a senior analyst at MKM Partners LLC, who covers Dollar Genera (DG), Family Dollar (FDO), Dollar Tree (DLTR) and 99 Cents Only (NDN), in addition to several off-price retailers.
“What she found was that a very small percentage of these core dollar store customers actually intended to trade out of the space as the economy improves; it’s only about 4%,” McKeever said. “The vast majority said that they would spend the same or spend more at the dollar stores in a recovering economy.”
Because McKeever believes the U.S. will see a moderate economic recovery in lieu of strong growth, he predicts those consumers who traded down to discount store concepts in the heart of the recession will spend more at these stores rather than trade out.
“Consumers are spending less at the stores. So as we start to see an improvement in jobs growth, I think you’ll see the average ticket start to rise across the different areas of retail that I cover,” McKeever said. “And even if the traffic diminishes, I think the growth in average ticket will offset it.”
In this excerpt from TWST‘s interview with Michael Cherny, a vice president and research analyst at Deutsche Bank Securities, Inc., Cherny discusses the impact of the American Recovery and Reinvestment Act (ARRA) on the health care IT industry, and points out which stocks he believes stand to benefit the most from government stimulus dollars.
TWST: How would you say the political situation in Washington will affect the health care IT industry now?
Mr. Cherny: I think the biggest movement you see for the industry is the funding related to the HITECH Act included in the American Recovery and Reinvestment Act, which provided $19 billion – upwards of $30 billion if you take some of the other sources involved in the stimulus – to help drive EHR adoption. I apologize if I interchange EHR and EMR – I mean, the same thing. There is a very clear pace that Obama wants to continue on the mandate originally set out by both President Clinton and President Bush before him to try and get the United States to a point where we have every American having some sort of EHR. This is the first time that you’ve had a significant source of funding to help try and support that drive. So very clearly, technology is a major focus of this administration in terms of the ability to deliver better health care.
TWST: Are there any particular companies in this base that you think are setting themselves up well to meet the anticipated demand?
Mr. Cherny: Yes, the one company that we focus on, that we think is well positioned for the impact of the stimulus, is athenahealth (ATHN). They grew up or kind of started the company as a revenue cycle management, a company that then branched out into the electronic health record market. They go to market with software as a service, or as they refer to it, as software-enabled service solution, which tends to be lower priced, easier to deploy, more flexible. Those qualities are something that we have seen from our channel checks that physicians in the smaller end of the market, which is by far the most under-penetrated area of EHRs, view as the kind of quality they want in their technology. So athena, which has close to 20,000 physicians already using its athenaCollector, or revenue cycle management product, and less than a thousand in their EHR product, has a very strong retail opportunity to help drive further adoption of its own product.
Activist Investor Ron Burkle, a major investor in Barnes & Noble (BKS) NYSE, has been pressuring Barnes & Noble’s board for some time. A few weeks back, Burkle accused B&N’s board of protecting the controlling family’s interests in the company after he tried unsuccessfully to increase his share in the company. Burkle has been viewed by the board and many others as work
ing to take over the struggling book retailer. Today, shortly after the latest major dust up with Burkle, the firm announced that William Lynch would succeed Steven Riggio as CEO. Riggio, who is a member of the controlling family, after he leaves his CEO position will remain as the vice chairman of the firm. The company’s press release stated Riggio would remain actively involved in the company.
Lynch, who has run the firm’s ecommerce business, has been viewed as the person responsible for launching B&N’s eReader the Nook which has been intended to compete with Amazon’s Kindle and now Apples iPad. Besides the promotion of Lynch, the company also announced that the firm’s chief operati
ng officer, Mitchell Klipper, would be promoted to CEO of the firm’s retail group.
Most analysts will likely view the latest moves as way to thwart further attempts by Burkle to get his way with the firm. There is no way this recent move puts an end to the drama playing out behind the scenes for control of the firm. In addition to Burkle, another activist investment firm recently bought a large portion of the firm as well. 
Stay tuned.
With the certainty of American Recovery and Reinvestment Act stimulus dollars increasing demand for health care IT products, the biggest question mark currently facing the industry is how will management teams ride out the rising tide that lifts all boats?
“Half of the game is the demand itself, and nurturing and driving sales. And the other half of the game is preparing the infrastructure and organization to deal with that demand,” said Leo Carpio, senior analyst at Caris & Company.
Now that the industry’s former hockey-stick growth scenario has pared down to a more somber and tempered ramp-up, health care IT management teams must walk a fine line between building up capacity and investor expectations, and preparing for a more conservative demand growth curve.
“In terms of very good management teams, the ones I would highlight again would be Eclipsys (ECLP). Their management team has been very focused on the opportunities with a very conservative viewpoint, and it’s a seasoned management team,” Carpio said. “I think the way they are approaching the issue in terms of resources, and the wealth and organization strength seems to be the right way.”
Carpio also points to Allscripts-Misys Healthcare Solutions (MDRX) as another company that’s targeted its focus on long-term opportunities.
“They have been very good at tempering expectations, building a recurring revenue base, good cash flow and creating visibility for earnings,” he said. “So they are taking the right approach also in preparation.”
In this excerpt of TWST‘s interview with Joseph Gladue, senior equity research analyst at B. Riley & Co., Gladue discusses his coverage of California-based ethnic-oriented banks, comparing their performance to that of peers within the Western and Pacific banking sector.
TWST: You mentioned the ethnic-oriented banks. How have they performed in comparison to conventional banks?
Mr. Gladue: Chinese banks were some of the banks that were harder hit by the troubles in residential construction. East West Bank (EWBC) had a lot of problems in that area, as did their biggest rival, UCBH (UCBH.PK). Of course, UCBH was taken over by the regulators, and ultimately most of their operations were sold to East West Bank. East West has been pretty aggressive on writing off their problem loans, and they benefited from the FDIC-assisted transaction of UCBH. That transaction is probably the poster child for the benefits of doing an FDIC-assisted deal. East West had some big gains from accounting for that transaction, and it looks like it is going to be pretty accretive to East West’s operations going forward. Cathay Bancorp (CATY), the other big Chinese-oriented bank, didn’t have quite as big a problem with construction lending as East West or UCBH did, but they still ran into some problems with asset quality as well. Both East West and Cathay have done some capital raises; they seem to be relatively healthy on the capital front now.
There are really four large Korean banks. The largest in terms of assets is Hanmi (HAFC). Hanmi is a little bit different than the other three. They’re less focused on commercial real estate lending and had a bigger exposure to C&I lending, but they have had some big asset-quality issues, and they do need to raise capital. There have been some rumors in the papers, some emanating out of South Korea, that one of the big South Korean banks was interested in investing in Hanmi. That has not come to pass yet, but that rumor is still out there. The other three large Korean-American banks – Wilshire (WIBC), Nara (NARA) and Center Bank (CLFC) – all are more focused on commercial real estate. They’ve all had some growth in their non-performing assets, but the pain hasn’t been as bad in that segment so far, as it was in the residential area. All three of those banks seem to be able to raise capital from existing shareholders and from within the Korean-American community. There has been some speculation that if Hanmi doesn’t find outside investors, that Nara or Wilshire could end up being the ultimate acquirer of that bank, but that’s a little premature at this point.
Westjet WJA (TSX), Canada’s second largest airline and for some time considered its most successful, Monday announced the sudd
en resignation of its CEO Sean Durfy. Durfy took over the company’s CEO position back in 2007. He has been with the airline since 2004 when he joined to head the airline’s marketing, sales and airport operations. While Durfy has been instrumental in much of the low cost airlines success over the last few years, he has also been in charge of its efforts to grow which have seen a number of bumps in the road lately. The low cost airline has been experiencing ongoing implementation problems with its new reservatio
ns systems and has found itself straining under its continuing efforts to grow.
Durfy’s resignation announcement was coupled with the airline’s appointment of Gregg Saretsky as Durfy’s successor. Saretsky, the company’s current executive vice president of operations and vice president of WestJet Vacations, will take over as of April 1. Saretsky has only been with the firm since June 2009. He came to WestJet from Alaska Airlines where he worked for a decade. Prior to Alaska Airlines, Saretsky worked for the defunct Canadian Airlines.
Durfy announced his resignation yesterday. In the press release he was quoted,
“This was a very difficult decision for me; however, after careful consideration, I have decided that this is best for me and my family,” … “Those things I set out to accomplish at WestJet have now been achieved and I believe this is an appropriate time to allow others to carry the torch while I spend more time with my young family.”
After an agreed upon transition period up to September 1, Durfy will leave the firm and resign from the board of directors.
Despite many of the growing pains the airline has experienced lately, overall Durfy appears to have done a good job in managing the company. It will be very interesting to see what type of stamp Saretsky will put on the firm.
Stay tuned.
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Positive domestic data and gaping growth opportunity overseas may help electronic payments companies like Visa (V) and MasterCard (MC) beat expectations through 2010 and into 2011.
According to Signal Hill Capital Group Senior Analyst Mayank Tandon, emerging markets, particularly those in Latin America and Asia-Pacific, are the perfect playing grounds for companies that wish to latch on to increasing card penetration trends.
“Based on the industry data that we track, card penetration is about 3.5 cards per capita, for example, in the U.S., and it’s less than 0.5 in emerging markets, such as China and India,” Tandon said. “As we look forward, we expect card transactions, both credit, debit and prepaid, to grow at a low-double-digit rate worldwide, with Latin America and Asia Pacific leading the way with high-teens growth rates because of its very low penetration levels today.”
Domestic retail sales data also gives Tandon reason to be optimistic, with evidence of improving consumer spending and positive fourth-quarter retail sales figures emerging.
“While the jury is still out on whether the consumer will continue to spend, recent trends are encouraging,” said Tandon, adding that good news doesn’t mean the payments processing industry is out of the woods yet. Stalled or reverse consumer spending trends would force these companies to once again turn introspective and closely manage costs.
“These companies are already running pretty lean and mean, but at the same time, what they’ll have to do is manage operating expenses and also target those markets, the markets that we talked about, internationally that might offer better growth opportunities than the developed markets of the U.S. and Western Europe,” Tandon said. “But to reiterate, these companies did a very good job of managing expenses during the recession and therefore were able to grow earnings even in the face of very slow revenue growth or down revenue growth.”
Nick Majendie, director and senior portfolio manager of Majendie Wealth Management at Scotia McLeod, the brokerage arm of The Bank of Nova Scotia, is targeting dividend-paying stocks as a major component of his portfolios. And it comes as no surprise to him that the best names in the dividend-paying category are Canadian.
“What I would like to highlight here is that Canada does have a much greater proportion of solid dividend-paying companies where we see the potential for sequential increases in dividends over the next five years,” said Majendie, whose calculations show an average five-year earnings growth rate of just under 7% for the 30 companies in his balanced portfolio, which excludes commodities. “And the dividend-per-share growth rate, we estimate over the next five years, will be 5%. If you take the current yield plus the long-term earnings growth rate, if P/E multiples don’t change, you should get a healthy double-digit return from that type of portfolio.”
Majendie also points out the dividend yield on the S&P/TSX is similar to Canada’s bond yield, whereas U.S. stocks are much less competitive with U.S. bonds on a yield basis.
“In Canada, the S&P/TSX, which has 200-odd stocks in it, has a yield of almost 3% – about 2.9% to be precise – whereas the Government of Canada 10-year bond yields about 3.5%,” Majendie explained. “When you compare [dividend-paying securities] with competing bond yields, some of these companies, particularly in Canada, have very attractive dividend characteristics; and this is one of the key themes that they are espousing not just for this year but also for the next number of years.”
Also take into account the fact that Canada’s banks are in a much better position than their U.S. counterparts – and that Canada’s TSX has outperformed the U.S. every year since 2000 – and it seems some of the highest-yielding stocks have gone north.
“If you did consider the change in currency, the Canadian dollar in 2000 was in the mid- to high 60s and it is now in the mid-90s,” Majendie said. “Thus, as a Canadian investor, you would have been a further 30% better off by investing in Canada versus the U.S. We think that’s the overall context.”
In this excerpt from TWST‘s interview with Tristan Gerra, a senior analyst covering semiconductors at Robert W. Baird, Gerra outlines the challenges currently facing the semi supply chain, highlighting how this may impact the industry going forward.
TWST: What is the status of the semiconductor component sector right now?
Mr. Gerra: We continue to expect an upcycle for most of this year, which would be a continuation of what we saw since last February of 2009. The reason we believe the cycle would extend a few more quarters is that the inventory levels remain at historic lows in the supply chain. We’ve seen a slow resumption in true end demand, and the supply chain hasn’t been able to catch up. So we think that until we see the supply chain normalizing, we think trends are going to continue to be above seasonal for semiconductor companies.
TWST: What are the challenges in the supply chain?
Mr. Gerra: Because the supply chain to some extent overreacted late 2008/early 2009 by drastically cutting down inventories below what was the real trend of end demand, the supply chain is trying to catch up with the ongoing recovery in end demand but hasn’t been able to do that. So lead times, as a result, have expanded pretty drastically for some components. In some cases, lead times are stretching over 20 weeks, and we’re not at a point yet – even after a few quarters, where we are seeing replenishments – where lead times are coming down. So we are in an environment where demand is stronger than supply at this point.
TWST: Did supplies go down because of the economy?
Mr. Gerra: Well, the triggering point was retail sales in the U.S. well below expectation in October and November of 2008, and that was in the context of people having significant concerns about the economy and what was happening in terms of banks. So as soon as people saw the weakness, they drastically cut orders in order to reduce inventory levels.
TWST: What else is happening in the component sector?
Mr. Gerra: I think we are likely to see potential increases in wafer pricing this year, which is the result of utilization rates being around 100% at some of the major foundries in Taiwan; that’s one issue. Component pricing could pick up a little bit, particularly on the commodity side, which would be the first time in several years we have seen that. So net-net, it’s about ramping capacity but gauging what real end demand is, and being in a situation where we could potentially have overcapacity again exiting this year.
