Oracle : Analyst Day Update

ORCL : NASDAQ : US$38.27

BUY 
Target: US$48.00

COMPANY DESCRIPTION:
Oracle develops, licenses and services database and
middleware software, applications software, and
hardware systems worldwide. The firm is the world’s
second largest application software firm, and a top five
systems vendor. Oracle was founded in 1977 and is
headquartered in Redwood City, CA.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Infrastructure
A MYTHBUSTER-THEMED ORACLE ANALYST DAY
Investment thesis
Our view on Oracle is simple: the company is not as troubled as the stock’s
valuation reflects. There are enough good things – new products, new
markets, new business models – coming down the pipe that we expect ORCL
shares to see a 1-2 multiple point expansion over the next year, which implies
10-20% upside from here. For a large cap stock, that is more than sufficient to
justify our BUY rating.
Investment highlights
  Oracle’s analyst day as part of its OpenWorld
User Conference. A couple hundred financial types were in the room.
 Incremental takeaways. The firm outlined and explained multiple
attributes that are better than consensus opinion – in other words, Oracle
was busting myths. The firm’s near-term ARR cloud pipeline tops $2
billion and is growing 30%+, meaningful upgrades in the firm’s core,
highly profitable database are on tap, and financial engineering in terms
of share count repurchases will remain material and fairly aggressive.
 Why the stock works. One way to make money in stocks is to buy shares
of companies on which investors soften too bearish opinions. This is the
crux of our BUY rating on ORCL. Yes, Oracle has vibrant competition, but
the firm simply is not as endangered, at least in the next year or so, as
hyperventilating cloud competitors assert. We have seen meaningful
rallies for Microsoft and HP as investor perception went from dire to at
least neutral. We believe a similar transformation awaits ORCL shares.
Valuation and price target
Our unchanged $48 price target is based on a 13x multiple applied to our
F2016 non-GAAP EPS estimate of $3.26 plus approximately $5.00 in
prospective net cash per share

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Sierra Wireless Update Buy

SWIR : NASDAQ : US$17.12
BUY 
Target: US$20.00

COMPANY DESCRIPTION:
Sierra Wireless, Inc. provides wireless solutions for the mobile computing and machine-to-machine (M2M) markets.
All amounts in US$ unless otherwise noted.

Technology — Communications Technology — Wireless Equipment
WELL POSITIONED LONG-TERM FOR STRONG M2M SALES, BUT SLIGHTLY SLOWER NEAR-TERM GROWTH
Investment recommendation

Sierra Wireless announced solid Q3/13 results with sales consistent with our estimates and earnings above our estimates due to solid gross margin and expense controls yielding leverage along with a one-time tax recovery. However, Q4/13 guidance excluding the AnyDATA acquisition was below our expectations due to a weaker European macro impacting the OEM division. Despite these trends, our long-term thesis is unchanged.

We believe Sierra is well positioned to benefit from strong long-term industry growth rates for the M2M market given strong global trends in Sierra’s core automotive, networking, energy, and sales & payment verticals and our belief Sierra’s automotive OEM sales growth will reaccelerate in 2H/14. In addition, we anticipate continued faster growth for Sierra’s higher margin Enterprise Solutions and believe management will soon deploy some of its $190M in cash as they continue to evaluate margin-accretive acquisition targets that could drive additional growth and leverage. We reiterate our BUY rating, but lower our price target to $20 due to the slower near-term growth reflected in our estimates.
Investment highlights
 Sierra Wireless reported Q3/13 revenue of $112.3M and pro forma EPS of $0.11 versus our $113M/$0.06 estimates. Enterprise Solutions sales were $16.4M and OEM Solutions sales were $95.9M versus our $15.1M/ $97.9M estimates. Due to very strong higher-margin Enterprise sales (up 38% Y/Y) versus our estimates that offset slower module sales, non-GAAP gross margin of 33.4% increased 330 bps Y/Y.
 Q4/13 guidance midpoints of $114M in sales and $0.09 pro forma EPS were well below our $121.5M/$0.12 estimates, even when removing $2M in AnyDATA sales that were included in our prior estimates. Management guided to a similar gross margin and operating expense levels to Q3/13 and we anticipate leverage on the modest sales growth.
October 13 we noted “Well positioned for M2M growth trends in 2014/15; AnyDATA acquisition adds new customers and channels”  thus our unchanged long-term thesis.
 With strong Q3 results offsetting Q4 guidance, our 2013 pro forma EPS est. remains $0.20; we lower 2014/15 from $0.72/$1.25 to $0.55/$1.12.
Valuation:

Our $20 price target is based on shares trading at roughly 7x our 2015 EV/EBITDA estimate

Numerex Raising Target Price to $18

NMRX : NASDAQ : US$11.92
BUY 
Target: US$18.00

COMPANY DESCRIPTION:
Numerex is a leading provider of machine-to-machine (M2M) business services, technology, wireless network
connectivity, and products used in the development and support of M2M solutions for enterprise and government
markets worldwide.

Technology — Communications Technology — Wireless Equipment
STRONG Q3/13 RESULTS, WELL POSITIONED FOR LONG-TERM M2M GROWTH
Investment recommendation

Numerex reported strong Q3/13 results with 31% Y/Y subscriber growth, slightly higher Q/Q ARPU, and improved
subscription gross margins consistent with our estimates. Additionally, hardware sales – a precursor to future recurring revenue growth – beat our estimate.

Following disappointing Q2/13 results, the strong Q3/13 results,management’s reiteration of its 30-35% Y/Y subscription growth and 18- 23% recurring revenue growth guidance ranges for 2013, and our expectations for higher ARPU managed services contracts to ramp during 2014 increase our confidence in our strong 2015 estimates.

We maintain our belief Numerex’s vertically integrated Device Network Application (DNA) M2M offering is well positioned in key M2M verticals such as security, remote monitoring, and asset tracking. Further, we believe an increasing mix of high-margin recurring services revenue should drive accelerating 2014 subscription revenue growth, increased ARPU, operating leverage, and expanding EBITDA margins. We reiterate our BUY rating and increase our price target from $15 to $18 due to our introduced 2015 estimates.
Investment highlights
 Numerex reported Q3/13 recurring and hardware revenue of $13.5M and $8.5M, respectively, vs. our  13.5M/$6.7M estimates. Subscribers totaled 2.31M exiting Q3/13, up 31% Y/Y, or consistent with our
estimates. Further, comparable recurring revenue gross margins of 56.0% improved 140 bps Q/Q with increased scale and improved operational efficiencies. We believe these improvements are sustainable.
 We believe an expanding deal pipeline and strong subscriber growth positions Numerex for healthy long-term recurring revenue growth and expanding margins. In fact, we are modeling adjusted EBITDA margins expanding from 8.7% in 2013 to 17.1% in 2014 and 24.3% in 2015.
 Due to slightly lower hardware sales, we lower our 2014 pro forma EPS estimate from $0.85 to $0.73. We introduce our 2015 estimate of $1.30.
Valuation

Our $18 price target is based on shares trading at roughly 12x EV/EBITDA, based on our 2015 adjusted EBITDA estimate.

LinkedIn BUY Target $ 200

Image via CrunchBase

LNKD : NASDAQ : US$176.95
BUY 
Target: US$200.00

COMPANY  DESCRIPTION:

LinkedIn is the world’s largest professional network on the Internet with more than 200 million members in over 200 countries and territories. LinkedIn generates revenue through selling Hiring Solutions to corporations, Marketing Solutions to Advertisers, and Premium Subscription to members and recruiters.

Investment recommendation

We areincreasingly confident in the company’s strategy, opportunity, competitive position and long-term outlook. We note greater interest in
the transition occurring within Marketing Solutions and the timing of when growth might reaccelerate, and we will be watching the company’s progress with feed-based Sponsored Updates advertising for signs of inflection later this year.
Investment highlights
 We continue to expect Marketing Solutions (MS) revenue growth to be relatively flat sequentially for Q2 and Q3, as ~$8-10 million per quarter in “legacy” ad revenue rolls out of the model; we believe Sponsored Updates can return MS to growth by Q4.
 Member engagement continues to climb, and our new engagement index shows a doubling of per-member activity over the past five quarters.
 The transition to in-house hosting could contribute to as much as 500 bps of gross margin expansion over the next four years, although we are only modeling 300 bps.
Valuation
Our $200 price target is unchanged and is based on 60x our 2016 EPS estimate of $4.96 discounted to present at 11%.

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