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Technology

Rivian (RIVN) Analysis: Navigating Challenges Ahead of Earnings Call

source:rivians

Rivian – (RIVN) $16.15 HOLD. Going to wait till 2/21 Earnings call to make a better judgment, too many conflicting signals to take a position.

Several weaknesses abound

Economies of scale – With about 57,,000 vehicles sold annually (double the previous year), it needs at least double that to break even or drastically increase prices, which is impossible, given that Tesla has decreased prices. 

Inventory appears to be piling up.

GM and Ford have called out weakening EV demand and slowed production.

Amazon didn’t pick up as much last year.

Highly capital intensive – the chances of dilution and/or debt piling up are high.

On the other hand…it’s not curtains yet..

Amazon has a goal of deploying 100,000 EV trucks by 2030, and this is a huge under penetrated market.

Seems as though their potential competition is also weak and fading away. Lordstown (another EV pickup) and Arrival (another ”last mile” EV delivery van) faltered. 

There is likely to be consolidation in this space amongst non Tesla start ups. Tesla itself faces difficulties and could buy up their competitors to fill out the gaps in their global lineup.

Reduction in Lithium input costs and other critical metals needed for the batteries, which made up a large share of the production costs and as these savings could start to show up in the manufacturing lines.

The valuation is not terrible, but I would like to see some progress against the current demand headwinds before taking a call.

Categories
Technology

Amazon (AMZN) Analysis: Valuation Insights and Growth Potential

Amazon (AMZN) $173, A little overpriced – Buy below $160 – 3 Year Price Target $210 -245, 12-14% annual return.

Yes, it has become a bit expensive like everything else, but a lot of positives and growth is trending higher for the next 3 years.

There is an important focus on profits, and renewed emphasis on costs. As a result, I can see them growing earnings in the mid thirties to about $7 a share by 2026, so assigning a multiple of 30 to 35 gets us to $210 to $245, with a midpoint of $230.

AWS growth resumed to 14%, and forecasted cloud end-user growth worldwide to around 20%. Plus AWS contracted obligations grew faster than sales – over 25% so that will show up in higher revenues down the road. AWS is currently at a run rate of over $100 Bn, and remains the market leader. If AI has to succeed, the cloud has to play an important role and vital role, you need that kind of processing power.

I also like Anthropic collaboration with Amazon for AI – that could be a big winner down the road.

Categories
Finance/banking

Why BlackRock is a Strong Investment Bet at $798: Diversified Exposure, Steady Growth, and Competitive Advantages

source:black rock

As an asset manager,  Blackrock would be a better bet at $798.

Their diversity is a lot better, exposure to real estate is lower to China and they have the same competitive advantages of scale, network, proprietary data, etc. They are the largest, overall with over $10 Tr AUM

Plus, the quality of earnings is better – steady 8% earnings growth in the last 10 years and a decent yield of 2%. Forward earnings forecasts are 11% and revenue growth of 9%, but these are recurring, fee-based.

It quotes 19X earnings, with 11% growth.

The charts below are also quite revealing.

Categories
Pharmaceuticals

Eli Lilly (LLY) Analysis: A Buy on Declines with Strong Growth Prospects

source:lilly

Eli Lilly – (LLY) $740 Buy on declines, Long term annual return 11-16%.

Eli Lilly’s forecasted earnings and revenue growth for the next three years are very impressive at a CAGR of 28% and 16%, respectively. To put that in context, it’s a lot higher than the 11% and 6%, 10-year average. 

Why?

Three blockbuster drugs mainly

Mounjaro, weight loss grew 8X 

Verenzio, Breast Cancer grew 56%

Jardiance, Blood Sugar grew 33%.

A big chunk of this is already priced into the stock, which has doubled from last year and quotes an expensive 58x earnings or a PEG of over 2. So we’re late to the party. However, given the higher multiples afforded to Big Pharma, specially the ones with massive pipelines that keep bringing new drugs to the market, Eli could still quote 35-40X 2027 earnings of $29, or between $1,015 to $1,160. That translates into an annual gain of 11% to 16%. That’s still quite good given the pedigree and size.

Eli is also very profitable with great operating margins of 30%.

This should also give us some diversification from the heavy reliance on tech and semis, two sectors that are getting overpriced.

Categories
Aerospace

Boeing at $208: A Duopoly with Persistent Quality Issues and Cyclical Upside Potential

source

Boeing (BA) $208

Boeing (BA) has been a chronic underperformer – its last 10-year total return is just 63% – that’s 5% a year, despite being a duopoly, quality issues have constantly dogged its performance.

That said – Boeing will likely recover about 15-20% from this price. It has done that several times in the past and is currently working with regulators fixing its quality problems with the Boeing 737 Max 9, which suffered the explosive decompression accident in January and has been grounded till quality issues are sorted out.

Besides, it’s a duopoly with $125Bn worth of order inflows – demand is solid, customers have nowhere else to go, and they have a lot of deliveries planned for 2024.

However, this is at best, a mediocre cyclical long-term investment, you have to constantly look over your shoulder for quality and delivery issues. Even in 2023, they fell 10% short of delivery performance, due to quality issues at Spirit AeroSystems, one of their key suppliers.

Boeing has not given guidance for 2024 – they should not, as an investor I would prefer that they focus on solving their safety problems first instead of rushing through. And as Dhierin Bechai one of the better Boeing and Aerospace analysts at Seeking Alpha, said

“It is widely considered that the problems at Boeing originate from a financially focused mindset where the focus is on financial numbers rather than engineering and manufacturing strength.”

Categories
Fintech

PayPal at $58: Is This Aging Incumbent a Value Trap or Opportunity?

source:paypal

Paypal (PYPL) $58 HOLD

Paypal took a beating of 8%, following lackluster results and guidance. Overall the stock has been a chronic underperformer with a negative 30% return in the last 5 years, and negative 24% in the past year. And this too in a booming market.

Most of the underperformance was because of overpricing, Paypal routinely fetched a P/E multiple of over 30, and a P/S ratio of over 6, in the Cathy Woods, buy everything tech, pandemic stimulus era. But with 5 year earnings and revenue growth slowing to the mid teens, the luster wore off, and in 2023, Paypal grew earnings by only 8% and recurring operating income by 11%.

What’s Ahead: In 2024, Adjusted EPS will be flat at $5.1 per share, while revenue is expected to grow 6.5%. Similarly 3 year forecasts are for only 7% revenue and earnings growth. Again, very mediocre growth.

Compared to its growth, Paypal is not unreasonably priced at 12X, Adjusted forward earnings ($60/5.1), and the PEG (Price Earnings / Growth) is 1.7 (12/7). Not that expensive. Block (earlier Square) (SQ) at $67, quotes 40x adjusted earnings, but grows faster at 30% – its PEG is actually lower at 1.33 (40/30)

In my opinion, Paypal’s stock could grow from here, the price is close to rock bottom, but the bigger problem is the whole payment processing sector is a commodity business, there is no product differentiation and Paypal has a lot of competition not just from Square, there’s Zelle, Stripe, Apple Pay and so on… the list gets bigger. It’s like the older, aging incumbent. Stock returns even from $58 could be just about the market average or we could get stuck in a value trap.

There is a new sheriff in town, let’s see how the new CEO Alex Chriss performs, and take another look next quarter.

Categories
Technology

Indie Semiconductor: Why I’m Continuing to Buy Despite Short-Term Volatility

Indie (INDI) I have been continuing to buy in the past two weeks as the stock kept getting lower. The long term story is intact and very strong, but because it’s a loss-making tiny growth stock ($345Mn revenue in 2024), the stock tends to be volatile. Besides, there is a large short interest of over 13%.

Management’s guidance of $1Bn in revenues by 2028, implies a 5 year growth of 35% – they have the $6.4Bn pipeline so I suspect that’s a conservative estimate.

Qualcomm’s auto tech revenues grew over 30% so that’s reassuring but Mobile Eye’s was a disaster, they had too much inventory, so mixed bag there.

I’m very confident of the long term potential, but it is going to be a bumpy ride, as it often is with early stage growth stocks.

Indie reports on 2/22 – will update.

Categories
Enterprise Software

Confluent Stock Pops 25%: Why I’m Buying on Declines Despite the Earnings Surge

source

Confluent (CFLT) the stock popped 25% to $30 on great results and guidance. 

My last few recommendations in the past two weeks, when the price was $24, was to buy up to $26, with a 1-year target of $28, with a return potential of over 25% in the next 3-5 years. 

Wouldn’t advise trying to jump in over $30, there was a short interest of 11% yesterday, so that contributed a ton to the post-earnings pop, but given the performance, I will buy on declines – I still see annual gains over 20% from here – some of the gains have been pulled forward with this jump.

Here are my forward estimates:

3 Year Revenue growth expected 27% – Current P/S 9, drops to 5.6 by 2026, 

3-Year Adjusted Earnings growth expected – Management has guided to adjusted operating break even in 2024, and post-2024, I expect at least 35% to 40% operating profit growth (analysts’ estimates are even higher).

Summary of 2023 earnings 

Q4 Non-GAAP EPS of $0.09 beats by $0.04.

Revenue of $213M (+26.0% Y/Y) beats by $7.72M.

  • Fourth quarter subscription revenue of $203 million, up 31% year over year; fiscal year 2023 subscription revenue of $729 million, up 36% year over year
  • Fourth quarter Confluent Cloud revenue of $100 million, up 46% year over year; fiscal year 2023 Confluent Cloud revenue of $349 million, up 65% year over year
  • Confluent Crowd is their big growth catalyst
  • 1,229 customers with $100,000 or greater in ARR, up 21% year over year
  • Q1- 2024, Confluent guidance:
  • Total revenue between $211 million and $212 million VS $210.54M consensus
  • Subscription revenue between $199 million to $200 million
  • Non-GAAP operating margin of approximately negative 4%
  • Non-GAAP net income per diluted share between $0.00 to $0.02 vs $0.02 consensus
  • Fiscal year 2024, Confluent guidance:
  • Total revenue of approximately $950 million $935.29M consensus;
  • Non-GAAP operating margin of approximately 0%
  • Non-GAAP net income per diluted share of approximately $0.17 vs $0.17 Consensus
Categories
Cybersecurity

Fortinet (FTNT) at $74: HOLD as Price Target Met, 10% Post-Earnings Pop Overdone

source

The long term story remains intact – it is currently fully priced to add more.

Fortinet released Q4-23, earnings after market yesterday.

While the results and guidance were good and met expectations, the 10% pop from $67 yesterday is overdone. In the previous quarter, Fortinet under performed and the stock was pummeled 25% – last evening’s reaction was more of a sigh of relief that results met expectations. As you can see below, there’s nothing extraordinary.

  • Q4-23
  • Revenue of $1.42B (+10.9% Y/Y) beats by $10M.
  • Billings1: Total billings were $1.86 billion for the fourth quarter of 2023, an increase of 8.5% compared to $1.72 billion for the same quarter of 2022.
  • For Q1-2024  Everything is in line with expectations and forecasted analysts estimates.
  • Revenue $1.300 billion to $1.360 billion vs $1.38B consensus – In line.
  • Billings in the range of $1.390 billion to $1.450 billion
  • Non-GAAP gross margin in the range of 76.5% to 77.5% – In line
  • Non-GAAP operating margin in the range of 25.5% to 26.5% – In line
  • For 2024, Fortinet : These are also in line with previous guidance and forecasts.
  • Revenue $5.715 billion to $5.815 billion vs $5.94B consensus – Just over 10% growth.
  • Service revenue in the range of $3.920 billion to $3.970 billion
  • Billings in the range of $6.400 billion to $6.600 billion
  • Non-GAAP gross margin in the range of 76.0% to 78.0%
  • Non-GAAP operating margin in the range of 25.5% to 27.5%
  • Service Revenue growth was impressive and the highlight of the quarter. Service revenue was $927.0 million for the fourth quarter of 2023, an increase of 24.8% compared to $742.9 million YoY.