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Insurance

Globe Life (GL): A Speculative Play on Short Covering and Market Reactions

source

This is a speculative trade article from an analyst on Seeking Alpha, looking for a short covering bounce, so keep that in mind, when you make your decision.

Globe Life did get a positive report this morning from an analyst, Edward Vranic on Seeking Alpha, suggesting that there would be enough short covering and likely winding up of the speculator’s positions, since they have achieved their short target of $64.

Like most professional short sellers Fuzzy Panda, has used all the alleged corrupt practices at Globe Life to paint a negative picture. As the analyst writes, they didn’t compare it to Primerica, which has a similar problem, and this could be an industry problem.

  • Policies Written for Dead and Fictitious People. 
  • Forged Signatures. 
  • Funds Withdrawn from Consumers’ Bank Accounts without Approval
  • Fictitious Bank Accounts are used to Fund Numerous Fake Policies, so Agents hit their bonuses.

Quoting from the report

  • Fuzzy Panda held a $64.35 price target. GL has dropped below that mark.
  • GL now has valuation metrics well below the industry average and significantly below PRI, it’s most directly comparable as a life insurance company with an MLM sales structure.
  • I believe that the stock price will bounce back to $80 or higher due to short sellers covering their positions and bullish investor speculation.
  • What Fuzzy Panda managed to do was paint GL as a dysfunctional organization filled with frat boys and “crypto bro” types that undertake aggressive sales tactics, show off online, and engage in perverse and questionable behaviors. What it didn’t do is assess how much of this is outside of an industry standard. It wouldn’t be the first time that 25-year-old men out of college bragged about their $100,000 cars, and the company leveraged that as a recruitment tactic. Isn’t the whole point of a growing company to make itself appealing? Should GL be punished for being more honest and upfront about the type of people it believes will do well in selling insurance at its company? If there is something wrong with it, then where are the regulators? Not just over the past five years, for when Fuzzy Panda believes this behavior at GL has accelerated. But over the last 100 years, when a rich lifestyle and fast cars as a financial products sales guru was portrayed as an American dream.
  • The behaviors undertaken by certain employees and management teams of life insurance companies have been unfortunate. However, up until today – and even in the case of GL up until April 11th – few people on Wall Street cared. For whatever reason, the market reaction was quite pronounced on Fuzzy Panda’s report. Even though it was essentially an aggregation of previously disclosed and/or publicly accessible information along with the opinion of a handful of self-proclaimed experts and investigators. I think that reaction went too far, leading to a speculative buying opportunity on GL.
  • Fuzzy Panda and associates will cover their shorts. Short interest was 2.75 million as of March 28th and short-marked volume was over 2.2 million between that date and April 10th. It was over 5 million on April 11th, the day of the report. Some shorts are likely already covered on April 12th. One report shows that a significant put option position was opened, and then closed on the 11th. I believe that momentum will continue into this week as the remaining shorts who shorted high will take their profits, while those who are late to the game and entered in at a low price will be squeezed. I remind readers that Fuzzy Panda’s “generous” target was $64.35. Unlike other short reports I have seen, it did not quantify an impact of any potential restatements of financials nor come up with a target of $0 or close to it. Given the relative softness in terms of price targets compared to other reports I have seen, I believe that this firm will be more likely to take profits than to push the narrative for more gains at a lower price.
  • Therefore, $80 is a reasonable near-term speculative price target on GL and I have positioned myself accordingly.

Here is the link if you want to read the full article.

https://seekingalpha.com/article/4683754-globe-life-betting-on-a-bounce-to-80

Categories
Semiconductors

Nvidia (NVDA) Update: Exceeding Expectations but Facing Margin Challenges

source:nvdia

Nvidia’s results exceeded expectations as usual, kind of becoming a habit! The previous quarter’s (Jan 2024) revenue beat by $1.6Bn and it guided Q1-FY25 (April 2024) revenue 10% or 2Bn higher to $22Bn.

Shares took off from $675 to $725. Everybody’s happy. 

Now comes the tough part.

Nvidia had a net profit margin of 55% = $12.2Bn in profits on $22Bn in sales. That is drug lord margin territory! Simply, they can charge whatever they want for the H100s, the new Grace Hopper, and the H200s that are coming down the pike. I’m confident that these margins will continue for at least a year untill competitors get their act together.

However, to assume that these margins will continue beyond that is difficult to swallow, and most of the street estimates for earnings are based on at least 52% in NPM, which if not achieved can be a huge disappointment.

So I modeled earnings at a 40% Net Profit Margin, which is similar to a big pharma company’s patented drug margin that also charges as much as the market can pay for it.

With that NPM, Earnings come down naturally; three years down the road in the 40% model, EPS is  $26 compared to the street estimate of $33. Assigning a P/E of 40, that gets us to $1,030 from today’s price of $725 or an annualized gain of 12%. And if the street is correct, we’re looking at 40*33 =$1,320 or an annualized gain of 22%.

The counter argument to the lower margin thesis is – Nvidia can lower prices and sell more, and at some point this is likely to happen – the overall growth doesn’t reduce – especially if you’re changing the whole paradigm of accelerated computing replacing the way data centers are built now.

At the moment, I’m not planning to add any more, my exposure to Nvidia is already very high, and the long-term thesis doesn’t change.

Palo Alto Networks (PANW) Update: $268 – HOLD Amid Revenue Guidance Cut

source:paloalto

Palo had a horrible drop of about 30%, or $100 from yesterday’s close of $365 to about $265 today, most of the damage happening after hours after weak revenue guidance. Markets punishing the stock for 15-16% growth forecasted instead of the earlier guidance of 19%.

Sales forecast for the year ending July 2024, is now expected to grow only 16%  between $7.95B and $8B, down from a prior view of $8.15B to $8.2B.  Also Street estimates FYJuly 2025 are about 9.22Bn, implying a revenue growth of just 15% – another slow year. 

How did this happen – Billings growth faltered dropping some $0.8Bn as Palo couldn’t a) close on Federal contracts b) extended discounts by allowing 3-6 months free usage before billing commenced. 

A drop of 3% annualized revenue growth with a sales multiple in excess of 18x is a tough pill to swallow for a company that is still not GAAP profitable – analysts downgrades followed this morning as expected.

What’s next after the finger-pointing – analysts not diligent enough with primary research, checking with customers management not nimble enough to manage expectations, or both?

CEO Nikesh Arora was right, in my opinion of discounted selling and free usage to sign new contracts, it’s a delay and a small price to pay upfront than to lose contracts – share price be damned, share prices usually come back.

On 2/13 I recommended selling Palo as profit-taking and subsequently sold 15% of my holding at $365. But after this, it becomes a “Show Me” story and I’ll wait.