Senior Portfolio Manager Mark Vitelli of Compass Capital Management says his firm has earned a decent return on Accenture Plc (ACN) since buying the stock five years ago, and they continue to like the company for its earnings and dividend growth.
“The company has grown earnings over time in the low teens. They initiated a dividend about six years ago and have increased it nearly 30% annually. They have zero debt on the balance sheet, and the dividend yield is 2.5%,” Vitelli said.
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Accenture’s net profit margin is in the double digits, Vitelli says, and the company’s foreign revenue makes up 52% of total revenue. Vitelli was also encouraged by how Accenture came through the recession.
“If you look back in 2008 to 2009, the business held fairly steady. They were able to maintain their margins on a very modest drop in revenue while maintaining their level of profitability in dollars, and then came out the other side of the recession and continued to grow nicely,” Vitelli said.
Analyst Ben Isaacson of Scotiabank Global Banking and Markets is paying attention to CF Industries Holdings, Inc. (CF), as the stock was not adversely affected by the decline in the nitrogen market, and the company is positioned to increase shareholder value in the future because of a number of factors.
“100% of CF’s EBITDA is based on nitrogen, and even though we’ve had a downturn in the last couple of months in the nitrogen sector, the stock has not moved proportionally lower,” Isaacson said.
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Additionally, Isaacson points to an activist investor who may have driven several changes at the company over the last year.
“Many believe [this investor] caused, one, the old CEO exit; two, a 150% dividend increase in the last year; and three, advocated for the company to sell off its noncore — phosphate — assets,” Isaacson said.
“In addition to strong free cash flow growth, there are quite a few catalysts left for CF to realize greater shareholder value over the next year or so. We do like the name,” Isaacson added.
Richard P. Smith, President and CEO of TriCo Bancshares (TCBK), said the bank’s merger with North Valley Bancorp will create double-digit EPS accretion beginning in 2015.
Smith spoke on July 29 at the KBW Community Bank Investor Conference.
“We are continuing to be a steady dividend payer over long periods of time, for decades,” Smith said. “We still think that’s an important component of rewarding our shareholders.”
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Smith said the $3.5 billion community bank will have about 80 branches from Bakersfield, Calif., to the Oregon border, with market share in the top three for 15 of the combined bank’s 26 counties of operation.
Cost savings from the merger are expected to reach 40% of North Valley’s 2013 third quarter annualized core NIE of $36.1 million.
The bank’s average cost of deposits of 0.19% and its NIM of 4.19% position the bank for revenue growth, Smith said.
Deposits include 30% in noninterest bearing deposits and 36% in savings, Smith said… Market share of all branches is about 8.34%, ranking the bank fourth in its markets behind the much larger Wells Fargo, Bank of America and Rabobank.
Noninterest income has consistently represented a little over 25% of the bank’s total revenues, Smith said. Nearly 55% of the bank’s loan portfolio is in commercial real estate, with 18.99% in consumer HELOCs. Residential real estate lending represents about 12.25% of the book.
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Joseph H. Towell, Chairman of the Board of Yadkin Financial Corporation (YDKN), said the bank’s recently completed merger with VantageSouth Bancshares gives the combined institution a solid market capitalization of nearly $600 million (pro forma).
Towell spoke on July 29 at the KBW Community Bank Investor Conference.
“There has been high quality, very focused dialogue and key decisions have been made in putting the two companies together,” Towell said. “We’re right on track there. I don’t think there will be any surprises.”
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One of the keys to the merger’s success is the management teams coming together in the merger integration, Towell said.
The bank’s presence in Raleigh-Durham and Charlotte gives it two “bookends” to future growth, he noted. The Raleigh MSA is expected to grow 8.2%, or twice the national average over the next five years, and Charlotte’s population is expected to grow 6.3% in the same period. Charlotte is the third fastest-growing big city in the U.S., Towell pointed out.
More than half of Yadkin’s deposit base is concentrated in the top 10 MSAs in North Carolina, with 41% in Raleigh and Charlotte, Towell said.
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Walter T. Kaczmarek, President and Chief Executive Officer of Heritage Commerce Corp. (HTBK), reported net interest income was up 13% in the second quarter of 2014 compared to last year, and net income was up 19% compared to 2013. He spoke on July 29 at the KBW Community Bank Investor Conference.
“The company’s been known for years for its strong deposit base,” Kaczmarek said. “The loan portfolio is very diversified, as community banks go.”
Commercial and industrial lending represents 42% of the bank’s portfolio, and another 22% is in owner-occupied commercial real estate, Kaczmarek said.
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Kaczmarek said the 20-year old bank’s strategy is to build a “full franchise” in the northern California market catering to small and medium-size businesses. The bank is attempting to build its franchise through organic growth, and will build de novo branches and is looking for M&A opportunities.
Bank core clients are companies ranging in sales from $5 million to $150 million, with borrowing needs from $3 million to $7 million, Kaczmarek said.
Credit quality metrics are “excellent,” Kaczmarek said. NPAs to total assets are at 0.59%.
The bank’s management team is highly experienced. Senior managers have 29 or more years of banking experience, and regional line managers average more than 20 years of experience in the market, said Kaczmarek.
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James Woodyatt, President of XG Technology Inc (XGTI) says the company is currently targeting the first-responder market. He says President Obama signed an order requiring first responders to have fail-safe communications by 2016.
“This is a big problem because, if you think about it, fail-safe means that you must be able to bring communications capabilities with you, set them up and be operational really fast,” Woodyatt says. “So in the case of Hurricane Katrina, all of these wireless systems had cabinets at the base of their towers. Then, water covered all the cabinets and that was the end of that.”
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Woodyatt says XG Technology’s xMax technology can be installed on top of ambulances, police cars and fire trucks to automatically provide communications to the first responders.
“There are not too many competitors that are able to offer a mobile voice, data and video system over unlicensed spectrum that will self-organize, at the moment,” Woodyatt says.
Lumos Networks Corp (LMOS) CEO Timothy Blitz says one of the key components of the company’s growth strategy will be to expand its enterprise network to more buildings in its footprint, including data centers. Currently, he says Lumos is connected to nearly 1,500 on-net buildings and 14 commercial data centers.
“In early July, we announced our connection into the Peak 10 data center in Richmond, Virginia. We recently released our near-net building list of 15,000 buildings that are within a half-mile of our fiber network — to which we can easily extend fiber at the request of our partner on behalf of their customer,” Blitz says. “We believe that this formalized building list can help to accelerate the progress of our carrier end-user strategy.”
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Blitz adds that the primary driver for Lumos’ growth will be fiber to the cell. And, he says he also sees an opportunity to grow the company’s end-user channel as part of its partner channel program.
“Simply, we offer our network to their partner’s customers,” Blitz says.
Mavenir Systems Inc CEO Pardeep Kohli says the company’s revenue is on the rise as customers migrate to voice over LTE networks. In the first quarter, revenue increased 28%, which Kohli says is a result of some customers switching from voice over Wi-Fi to voice over LTE networks.
“These customers have been working with us over the last few years to get ready for these launches, and as they come closer to the launch, they have to build capacity and provide enough coverage so that they can serve the customers in multiple cities,” Kohli says.
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The migration to voice over LTE networks is still in the early stages, Kohli says. The U.S., Japan and Korea are the only countries in where announcements have been made that customers have launched the new networks.
“There are a lot of other customers who are in the process of building these networks,” Kohli says. “They will be launching toward the end of this year and early next year.”
Dave Schaeffer, CEO of Cogent Communications Group, Inc. (CCOI) says the there are two major trends occurring simultaneously in terms of data usage. The first is the “product substitution” of Internet over every other telecommunication service and product.
“Everything is moving to the Internet. Voice is going over the top in VoIP, video is going over the top, and people are turning off linear video channels to replace them with on-demand using the Internet,” Schaeffer says. “That is driving unit volume growth, but because of technological advancement, price per bit continues to fall.”
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The other key trend, Schaeffer says, is that Internet is becoming the primary mechanism to deliver video. Schaeffer believes both trends are positive for Cogent in part because the company doesn’t have a legacy business that is being eroded.
“Anything that causes growth in the Internet is a positive for us. In fact, our corporate business has grown organically sequentially for 36 consecutive quarters as a public company at an average growth rate of 3.3%. Our service-provider business has grown at an average of 2.7% sequentially quarter over quarter.”
Additionally, Schaeffer says Cogent has a cost structure that enables the company to sell at low prices while generating high cash flow.
“We have been fortunate in that we have been producing free cash from operations for eight years,” he says. “We pay a dividend, and we have grown that dividend every quarter sequentially since issuing it.”
Analyst Ben Isaacson of Scotiabank Global Banking and Markets says Agrium Inc. (USA) (AGU) is a misunderstood story, because unlike most publicly traded fertilizer producers, 50% of Agrium’s EBITDA comes from its retail business.
“Retail is known for providing investors with stable and more predictable free cash flow. Over time, as they continue to build up their retail business and dilute their wholesale commodity business, we expect that the stock will get a re-rating as investors reward Agrium with a higher multiple for that more stable free cash flow,” Isaacson said.
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Isaacson believes Agrium’s free cash flow can grow from zero today to nearly $1 billion in 2015 and potentially up to $1.5 billion in 2016. The second part of the story, he says, is what Agrium does with that cash.
“We think cash generated should be returned to shareholders, in the form of dividend hikes and share buybacks, rather than continuing to empire build. In summary, we think Agrium can increase its dividend to $4 per share from $3 per share over the next 18 to 24 months,” Isaacson said.
