Peter Gundermann, President & CEO of Astronics Corporation (ATRO), says his company’s record sales are being driven by products that are in the sweet spot of aerospace trends.
“One of the products that we’re best known for is specialized electrical power systems to deliver electrical power to passengers on airplanes. In the secular world, people are carrying more and more personal electronic devices with them everywhere they go,” Gundermann says.
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Gundermann notes that more people want to use their electronic devices while traveling, especially because there is now Internet connectivity in most commercial aircraft cabins. He says that airlines are recognizing that people need electrical power on airplanes to charge their devices.
“This trend is one that has benefited our company strongly, and we expect it will continue for some period of time. We think there will be a time in the future when the vast majority of seats in the vast majority of planes will have electrical power,” Gundermann said.
Senior VP and CFO Anthony Trunzo of FLIR Systems, Inc. (FLIR) shares highlights from his company’s third-quarter results. Mr. Trunzo says in Q3, the company saw significant growth in its commercial businesses, though is still dealing with headwinds from U.S. government revenue.
“Other than the U.S. government, our revenue grew by about 14% in Q3, which is the fastest we have seen in quite a while. The U.S. government continues to be a bit of a headwind for us from a revenue-growth perspective. It is still our largest customer at around 18% of our total, but that’s down from a high of more than 40% of the total in 2009,” Trunzo said.
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FLIR Systems designs, manufactures and markets thermal imaging systems.
Mr. Trunzo says the company has been able to backfill the decline in government revenue with robust growth in specific commercial businesses.
“In particular, we saw good growth in our commercial security business as well as in our instruments business, and our maritime business had a good quarter as well,” Trunzo said. “Internationally, our government demand is a little bit better, but overall, those businesses are challenged to see growth at this point, after a pretty meaningful spate of growth earlier in the decade.”
Portfolio Manager Jeffrey Cornell of Johnson Investment Counsel bought back Vertex Pharmaceuticals Incorporation (VRTX) this year, and says the stock has appreciated due to achievements in the company’s cystic fibrosis therapy.
“A big upside surprise has been on Vertex Pharmaceuticals. They are a biotech company with drugs that treat cystic fibrosis patients. While that is a fairly small market, there aren’t a lot of drugs that effectively combat the illness,” Cornell said.
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Cornell says Vertex’s drugs open the doorways in the lungs that allow the passing of secretions, therefore attacking the problem of cystic fibrosis rather than just the symptoms. This revolutionary treatment’s progress has been reflected in the company’s stock, Cornell says.
“It’s a revolutionary new treatment, and it has met with some very high success levels — recently receiving the FDA’s breakthrough therapy designation,” Cornell said. “I think the success they had in the FDA testing surprised the Street.”
FRB Capital Markets Analyst Samad Samana believes salesforce.com, inc. (CRM) is well-positioned to continue moving toward its long-term target of $10 billion of revenue. He also thinks the company is on track to be the dominant cloud software company.
“They have also made a commitment to delivering margin expansion, which we believe is an increasingly greater focus for investors even on the growth side,” Samana says. “They continue to diversify their product line and over the last 12 months, they have made some significant changes, they really beefed up their sales force, their internal sales teams, and they have made some changes in leadership.”
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Samana says salesforce.com is the largest cloud software company in the world. Despite its size, he says <a href="CRM, technology,
cloud, computing services, software”>salsforce.com continues to be one of the most innovative and transformative vendors.
“They are diversifying their products; they have already done a commendable job going beyond salesforce automation into areas like service, digital marketing, and now with a Big Data analytics cloud offering on the horizon as well,” Samana says. “They continue to position themselves to be the dominant cloud vendor at least for front office applications for years to come.”
Ed Maguire, Analyst at CLSA, LLC, says he believes platform as a service is the layer in cloud technology that has outsized strategic importance. He says anything that resided in the infrastructure-as-a-service layer was most likely to be subject to forces of commoditization and price pressure, while spending migrates to applications and analytics above the platform layer.
“So we’ve identified a couple of key players and characteristics for winners in the Platform-as-a-Service landscape,” Maguire says. “It’s critical to be able to port applications from on premise to public cloud with minimal rewriting code. This point is something that Microsoft understood very, very early on with Azure.”
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Maguire says he likes Microsoft precisely because of its vision around the evolution of cloud computing.
“[Microsoft’s vision] was attuned to large companies that had a multinational presence that had a variety of needs to run their applications either in a cloud or on-premise, and being able to allow that portability is very important,” he says.
Stifel Nicolaus & Co. Analyst Tom Roderick says Veeva Systems Inc (VEEV) has been a disruptor in the software-as-a-service sector. He says Veeva is one of a few companies emphasizing vertical specialization.
“Veeva Systems has proven to be a big disruptor of big traditional CRM and document management systems in the life sciences and pharmaceutical vertical,” Roderick says. “Veeva is so dialed in and so focused on that particular vertical, they understand the enormous compliance and regulatory challenges that are being addressed within the life sciences and pharma vertical.”
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Roderick says he believes Veeva also has the opportunity to be disruptive on the document management side against certain entrenched competitors.
“So I think the idea of being very vertically specific and vertically intelligent has created a platform that’s ripe for disruption, largely because they’re solving problems that those large pharmaceutical companies like Pfizer (PFE) and Eli Lilly (LLY) have been asking larger vendors to solve for years, but they haven’t had necessarily the focus and emphasis,” Roderick says.
Tom Roderick, Analyst at Stifel, Nicolaus & Co, says Informatica Corporation (INFA) is one of his top stock picks. He says he likes the company because of its adaptability in the current environment.
“We’re aware that the shift to Big Data means that you have to adapt to more data sources out there, and Informatica is a company that is adapting reasonably well to that theme,” Roderick says. “They have shifted more and more of their revenue stream from subscription-based cloud data integration assets, and that’s a business that has become close to 10% of their revenue stream today, but is growing much faster than the core of the company — growing greater than 40%.”
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Roderick says Informatica is a tangential play on Big Data, but that the company still stands to gain as the trend plays out.
“They’ve done a nice job of adapting their business strategy to support what’s happening with unstructured data, what’s happening with Hadoop and what’s happening in the cloud,” Roderick says.
Analyst Richard Bove of Rafferty Capital Markets says Regions Financial Corp (RF) is an attractive company due to its book value and potential benefit from an accelerated Gulf Coast economy.
“If we go down to the regional banks, I think Regions Financial is a fairly attractive company because the company also is selling at a discount to book value — which is very important to me in selecting a bank stock. Its book value is solid because it has gotten rid of its problem loans,” Bove said.
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Bove says that because Regions Financial is the biggest bank on the Gulf Coast in the U.S., it will likely gain from the rebuilding occurring there.
“If you think about the BP (BP) oil spill, you quickly realize that British Petroleum has put an estimated $25 billion to $30 billion into rebuilding the Gulf Coast. There may be another $25 billion to be invested. This money stimulates economic activity on the Gulf, and Regions Financial is going to benefit from it,” Bove said.
NASDAQ OMX Group, Inc. (NDAQ) is looking forward to the continued migration and rollout of its next-gen product and the retirement of legacy products, said CFO Lee Shavel. He was speaking at Keefe, Bruyette & Woods’ 2014 Securities Brokerage & Market Structure Conference in New York.
Shavel said he has seen prototypes for the company’s next-gen IR platform, and that they can’t be matched in terms of interface and content. NASDAQ is currently holding roadshows across the country, and the reaction has been positive, Shavel said, with improved retention from clients. He said the company is “looking forward to moving forward with over the course of 2015″ with this product.
In the near term, Shavel said the company is focused on the careful large-scale integration and conversion of clients over 17 platforms to 11, and he expects to continue to see that conversion over the balance of 2014 into 2015. This will be the source of a lot of cost savings as they retire legacy platforms, Shavel said.
Shavel also told shareholders that while there is a misperception that most of their business is driven by the trading business, it was actually only 6% in the third quarter. This “drives a view that we are in a very mature, low-growth industry that has a lot of volatility in it,” Shavel said. He encouraged listeners to look at the company’s organic growth, which was 4% in 2012, 5% in 2013, and year-to-date 2014 is at 5%.
On the leverage front, the company is at the leverage ratio that they think is appropriate, Shavel said. He also said that “share purchases have been a staple for us” and that the company has initiated a dividend, which the board has increased. He said NASDAQ’s board is “certainly very capital-focused” and “investors should feel reassured” they have representation.
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Analyst Richard X. Bove of Rafferty Capital Markets says Bank of America Corp (BAC) is the most attractive universal bank at the moment, and that after dealing with various regulatory issues is ready to seek market share.
“It is selling at a discount to book value, and book value is solid,” Bove said. “The company has paid out $70 billion plus in fines and litigation, and it is not going to be paying out $70 billion in fines and litigation over the next few years. The money, which was going to fines and litigation, is now going to go to profits.”
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Bove says Bank of America gave up market share because it was working through these regulatory issues, but the company has now reached a point where it can start to come back and take market share.
“I believe that the Fortune 500 numbers show that there is no company in the United States that has as much common equity as Bank of America does. The management team has been changed. The company has been forced into a more, if you will, disciplined approach to running its business because it has been fined and sued and litigated so much,” Bove said.
