Featured Articles

Financial Services

XL Capital: Short Interest Poised to Drop – Will the Stock Pop?

About: XL

XL Capital is a company that the market loves to hate. Its stock price has plummeted by 94% over the last twelve months, mainly over concerns about its investment portfolio. The stock could tick up a bit in connection with the unwinding of hedges related to forward share purchase contracts that settle on February 17th. The company’s fourth quarter earnings call on February 11th could also bring positive news that lifts share prices, perhaps accelerating the hedge unwinds, and potentially leading to further short covering….. View Full Article


Reinsurer Stocks: A Fear-Driven Market Creates Opportunity

About: ACE, AXS, PRE, VR, XL

Catastrophes both natural and man-made have been hitting reinsurance companies, but the outlook is good. Shares have recently retested their lows as the dysfunctional capital markets – especially for mortgage- and asset-backed securities – overshadow improving fundamentals for the group. This has created opportunity for the intrepid value investor…. View Full Article

(Skip to sections on ACE, AXS, PRE, VR or XL)


AIG’s Bond Sale is No Cause to Celebrate

About: AIG

The latest installment of the AIG “Bailout” is not the good news that one might imagine from reading AIG’s press release. It does not provide as much financing as originally anticipated. More importantly, it is a reminder that, so far, the U.S. government has done much more to minimize losses for AIG’s counterparties than to maximize value for AIG…. View Full Article


AIG’s Bailout Needs a Bailout:
A $150 Billion Problem

About: AIG

AIG could hardly support its pre-bailout debt, let alone an additional $115 billion of debt and dividend-bearing preferred stock. For AIG’s balance sheet to be healthy again, leverage needs to come down by approximately $150 billion. It appears unlikely that this can be achieved through asset sales. AIG needs more immediate attention, and the company’s franchise value erodes each day that a permanent fix is delayed…. View Full Article

Restaurants & Retail

Jamba Inc. – New CEO Gives Company a Boost

About: JMBA

The market’s valuation of Jamba Inc. (JMBA) seems to reflect a consensus view that this chain of 729 smoothie stores will not survive. After a review of JMBA’s fourth quarter and full-year 2008 results, and several calls with management, I disagree. I predict that this company will not only survive but thrive…. View Full Article

See prior articles on Jamba Inc.:

Private Equity Group Takes Stake in Jamba

Jamba Juice Should Bear Fruit by Mid-2009



Consumer Products

Cott Corp. to Lose Wal-Mart Exclusive

About: COT

Cott Corporation announced that Wal-Mart has decided to terminate its existing 10-year old exclusive supply agreement for carbonated soft drinks. While the ultimate outcome is unclear and discussions between Cott and Wal-Mart are reported to be ongoing, this is certainly not good news for Cott. Wal-Mart represents 35%-40% of Cott’s sales. If Wal-Mart were to move its business to other suppliers, Cott could have difficulty servicing its debt…. View Full Article

See prior articles on Cott:

Mysterious Silence from Cott Corporation

Cott Corp. – Could go Far, But Somebody Needs to Grab the Wheel



Technology

JDA Software: Outlook Improves as Pipeline Grows

About: JDAS

JDA Software Group, Inc. (JDAS) reported its first quarter earnings on April 20th. Particularly notable on the earnings call was management’s renewed confidence in the company’s sales pipeline. I am keeping my 12-month price target at $18.00, but I have more confidence in this figure now, and believe there is more upside than downside…. View Full Article

See prior articles on JDA:

JDA’s Retrade is Justified

Copyright © 2008-2009 by John G. Appel. All rights reserved. You may link to any Content on this website. You may not republish, upload, post, transmit or distribute any Content without prior written permission. If you are interested in reprinting, republishing or distributing Content, please contact John Appel via the e-mail address shown on this website to obtain written consent. Modification of Content or use of Content for any purpose other than your own personal, noncommercial use is a violation of our copyright and other proprietary rights, and can subject you to legal liability. Disclaimer: This website is provided for informational purposes only. Nothing on this website is intended to provide personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. You are solely responsible for any investment decisions that you make. Terms of Use: By using the site, you agree to abide by the Terms of Use, which includes further copyright information and disclaimers.
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JDA Software: Outlook Improves as Pipeline Grows

jda-value-jpgJDA Software Group, Inc. (JDAS) reported its first quarter earnings on April 20th.  Particularly notable on the earnings call was management’s renewed confidence in the company’s sales pipeline.  I am keeping my 12-month price target at $18.00, but I have more confidence in this figure now, and believe there is more upside than downside.

This was a much better call than the Q4 call.  On the Q4 call, it seemed that the bulk of the large deal prospects in the sales pipeline had been realized in 2008, and that with a diminished pipeline and the economy in turmoil, management had little visibility into 2009.  Management said they would no longer provide annual guidance – just guidance on the coming quarter – saying they would rather do this “than set potentially unnecessarily pessimistic [full year] expectations, which as a financially conservative company we might otherwise feel inclined to do.”

Management sounded much more confident this time, stating that they have now “rebuilt” their “large deal pipeline.”  In a bit of chest thumping, JDA’s CEO twice made a point of bashing the competition, going so far as to say that they believe the quarter was a “disaster” for a number of their competitors.

Upside Opportunities

The primary opportunities for growth and value creation beyond the forecast figures appear to be:

  • Large deal wins: JDA’s solutions for retailers and CPG companies continue to be recognized as best-in-class.  JDA should win its share of new deals, so there is upside if industry demand picks up more than expected.
  • Recovery of sales momentum in Pacific Asia and EMEA: JDA has been “retooling” regional management for some time and last year was hopeful that these actions would pay off in 2009.  Q1 was still weak in these regions, so it seems there is more work to be done.  The projections do not assume any significant progress, so this remains an opportunity.
  • Increased sales to manufacturing companies: This was supposed to be one of the benefits of the Manugistics acquisition, but JDA has not yet fully leveraged the acquired products and brands.
  • New Managed Services offering: This was barely mentioned on the call, but in its new investor presentation, dated as of today, the company states that it believes that its clients spend over $2 billion per year managing JDA solutions.  JDA now wants to capture a percentage of this services business, leveraging its new CoE infrastructure.  With targeted operating margins of 30%-40%, this could have a significant impact on JDA’s business in the coming years.

Financial Summary and Projections

The forecast below assumes revenue near the low end of management’s guidance in Q2, and modest growth in the second half.  The resulting adjusted EBITDA for Q2 is also at the low end of the guided range.  Forecast cash flow from operations is a rough estimate, factoring in the seasonality of deferred revenue (40% of maintenance fees are generally collected in Q1, contributing to the high cash flow from operations for the quarter).

The resulting $17.41 projected share price is based on year-end results, so an $18 12-month price target still seems conservative.  This target is not materially different from the consensus target of $17 published by analysts Andrey Glukhov of Brean Murray, Brad Reback of Oppenheimer, and Richard Williams of Cross Research.  However, by going through the forecasting process independently, I gained more insight into the likely range for full-year financial results, and into the upside and downside around the price targets.  My sense is that analysts are erring on the conservative side, given that Q1 came in at the low end of prior guidance.  However, management seems to have more data on which to base its guidance this time around, so the conservatism may be unwarranted.

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(Disclosure: The author is long JDAS)

Copyright © 2009 by John G. Appel. All rights reserved. You may link to any Content on this website. You may not republish, upload, post, transmit or distribute any Content without prior written permission. If you are interested in reprinting, republishing or distributing Content, please contact John Appel via the e-mail address shown on this website to obtain written consent. Modification of Content or use of Content for any purpose other than your own personal, noncommercial use is a violation of our copyright and other proprietary rights, and can subject you to legal liability. Disclaimer: This website is provided for informational purposes only. Nothing on this website is intended to provide personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. You are solely responsible for any investment decisions that you make. Terms of Use: By using the site, you agree to abide by the Terms of Use, which includes further copyright information and disclaimers.