Notable Calls Network (NCN) - Welcoming new members

It's been a while since we have opened the books to newcomers but that time is here.


Notable Calls Network (NCN) is open to new members. We're timely, insightful and in the know.

Sharing the flow. We catch them every day.

Want to be part of NCN?

It's easy. Just shoot me a brief email that includes a short description of yourself.

Please do note that contacts via IM are limited to people with:

- 5+ years of trading experience

- Access to quality research/analyst commentary

- Ability to generate and share (intraday) trading calls

NCN will not accept contacts from purely technically oriented traders, penny stock fans or people who have less than 5 years of experience in the field.

Notable Calls Network (NCN) - Books are open

Notable Calls Network (NCN) is alive and well. Today we're opening the books to newcomers.

Just to show what we are about, here are some examples of intraday trading opportunities we have caught over the past couple of days:

- Around 10:00 ET yesterday a senior member of NCN pinged me with the following:

Facebook considering moving cloud storage away from Dropbox to Google, The Information reporting

https://www.theinformation.com/articles/in-reversal-facebook-mulls-switch-to-google-apps

To those familiar with Dropbox (DBX), this read as an outright negative that had the potential to impact the stock price. So I quickly distributed the link to other fellow Notable Calls Network (NCN) members.

Here's what happened:

Over the next 20 minutes the stock price of Dropbox Inc (DBX) took almost a -2pt (-7%) hit as the link made rounds and sellers piled on.



- Last week on July 12, we had another beautiful situation in Shutterfly Inc (SFLY):

Around 10:25 a fellow NCN member pinged me with the following:

Apple discontinues its own photo printing service, recommends third-party Photos Projects apps instead

https://9to5mac.com/2018/07/12/photo-print-products-discontinued/
For those who have been in the game long enough, the SFLY/Apple situation surely brought back some memories of Apple entering the space and destroying SFLY stock in the process. So this was to be perceived as a positive for SFLY.

Here's how it went down:

                      

Over the next 15 minutes the stock spiked +2.5pts as the news made rounds around trading desks and buyers moved in.


This is how Notable Calls Network (NCN) works - sharing the flow. We catch them every day.

Want to be part of NCN?

It's easy. Just shoot me a brief email that includes a short description of yourself.

Please do note that contacts via IM are limited to people with:

- 3+ years of trading experience

- Access to quality research/analyst commentary

- Ability to generate and share (intraday) trading calls

I will not accept contacts from purely technically oriented traders, penny stock fans or people who have less than 3 years of experience in the field.

Cliffs Natural Resources (NYSE:CLF): Actionable Call Alert!

J.P. Morgan Metals king Michael Gambardella is making a major call in Cliffs Natural Resources (NYSE:CLF) this morning upgrading the iron ore miner to Overweight from Neutral with a $40 price target (prev. $35).

- Since mid-September 2012, Cliffs’ peer group is up 17% on average while CLF is down 37% despite a 53% rise in seaborne spot iron ore prices – the current discount between Cliffs’ stock price and iron ore prices is now at the widest spread on record.

Gambardella attributes this substantial relative underperformance to persistent disappointments at Bloom Lake presented to the market piecemeal over the last two years, ultimately culminating in a 20% writedown on the initial $5B purchase price, a threefold increase in Phase II capex, and a 76% dividend cut. Additionally, the recent capital raise diluted shareholders by 15-17% but reinforced Cliffs’ balance sheet to endure future commodity volatility and possibly fund future growth projects.

In his view, Cliffs’ shares reflect this series of negative events and are only pricing in $110/tonne iron ore in 2015, 29% lower than current spot prices, based on the stock’s average EV/EBITDA multiple of 5.6x. Gambardella believes the stock’s reduced sensitivity to rising iron ore prices post 3Q12 earnings and the historically wide gap versus spot seaborne indices should dampen any potential downside if the recent run loses momentum following the end of the Chinese New Year. In his opinion, management has reset Bloom Lake’s expectations to an achievable level and given sentiment appears apathetic at best (9% buys after three recent cuts to neutral/hold) he believes merely meeting guidance at the key project will be enough for Cliffs to begin climbing over a large wall of worry. As this process unfolds Gambardella sees the market re-rating CLF’s valuation higher for its renewed leverage to iron ore prices, which he believes have a positively skewed risk profile in the medium term.

In his opinion, 2015 seaborne iron ore prices have more potential upside price risk in the medium term than reflected in forecasts by J.P. Morgan’s commodity team or consensus estimates.

Some of the more interesting details from the call:

- Execution on Bloom Lake key to stock appreciation... We believe the stock’s muted correlation with robust iron ore fundamentals and record discount to current prices suggest this former prime driver will take a back seat to results delivered by management relative to the new Bloom Lake plan. In our view, Cliffs has likely reset the bar to an achievable level in 2013 after the recent streak of poor performance and a 20% write-down of the initial purchase price perpetually disappointed investors. Given this poor track record, merely meeting the new guidance could be enough to boost sentiment and the share price; we would note the first phase at Bloom Lake exited the year on track with its stand-alone 2013 target.

- … and re-establishing leverage to seaborne prices. We expect Cliffs’ leverage to seaborne prices will gradually increase over the next three years with the addition of Bloom Lake Phase II and long term USIO contracts rolling over into shorter, spot centric agreements. Assuming management delivers Phase II on time and budget, CLF’s valuation should re-link to iron ore prices, which we believe could ultimately remain higher for longer than consensus and our internal commodity team expect.

- Potential value outside of Bloom Lake. Although Cliffs declared the project is the future of the company, we believe management is also in the process of unlocking value in several other areas. We estimate Cliffs could net EBITDA improvements of 10% and 11% versus our 2013 and 2014 forecasts if Wabush operations break-even ahead of our current 2015 timeline. Separately, we believe management could conservatively monetize the estimated $500mm spent on purchasing the chromite properties and bringing the project to feasibility by taking on a partner or selling the stake outright. Additionally, we expect the company will take steps to mitigate material contract expirations at USIO by developing and marketing DRI pellets while potentially expanding its optionality to export more than its estimated current limit of 2mm tonnes of pellets annually.

- We would note holding the current $155.10/tonne iron ore price in 2015 yields a $75 price target utilizing the stock’s long term average EV/EBITDA multiple of 5.6x, 160% above the current stock price.

Notablecalls: Actionable Call Alert!

- Gambo is the Axe in the space. He downgraded CLF back in Sept '12 - 15 pts higher. One of the few analysts that can actually time the market.

- Gambo notes management has reset Bloom Lake’s expectations to an achievable level. Remember this guy has a very good management bullshit detector. Molycorp anyone? So if he says Bloom Lake is good, it's likely good. At it's mostly about Bloom Lake right now.

- It's an out-of-consensus call as Gambo himself notes. There are very few Buy-rated analysts out there. Shorting CLF has been the hip trade. Chart looks awful and I suspect everyone and their mother has been expecting a downside break. Short intrest stands around 20%. They could be in for a nasty surprise if Gambo is right.

- Note Gambo is going against JPM commodities team and Consensus on iron ore pricing. He thinks there's more upside.

- If he is right on iron ore pricing, CLF is a $75/share stock vs. ~$30/share today.

All in all, this call has potential to propel the stock back above the $30 mark and likely closer to $31 today. I say +7%.

Blackberry (NASDAQ:BBRY): Getting Ready for a Grand Blackberry 10 Debut; Upgrade to Outperform, Target Price $22 - Bernstein

Bernstein's Pierre Ferragu is upgrading Blackberry (NASDAQ:BBRY) to Outperform from Market Perform with a $22/share price target.

- They believe Blackberry should trade in the $20-25 range once a decent launch for Blackberry 10 and a stabilised trajectory for FY2014 are priced in.

Bernstein upgrades Blackberry to outperform today as they believe BB10 is set for a strong launch. Even if the long term prospects for the platform are very uncertain, the firm believes all is in place for Blackberry 10 to enjoy a great debut. They see four reasons to model a launch well above current expectations.

1 - Blackberry has drained channel inventories over the last 12 months and is in a very strong position to start shipping its new devices. Channel inventories came down by over 10m units over the last 12 months, which means most distributors and operators will take on significant initial orders (Exhibit 1)

                        

2 – Blackberry 10 will propel up device gross margins. Bernstein believes the company currently sells high end devices at negative gross margins. As these devices are replaced by positive margin Blackberry 10 ones, Blackberry’s P&L should swing back into the black in 1QF14. They  are at this stage convinced initial Blackberry 10 shipments will carry gross margins in the region of 30%.

3 - The Blackberry 10 launch is supported by most operators. In their recent discussions with operators the firm noted a very broad support, with operators willing to give the platform a good push.

4 – Initial Corporate demand will be strong. Bernstein recognises rapid share losses for blackberry in corporate, as "Bring Your Own Device" becomes the norm, but the brand still benefits from a significant user base equipped with ageing smartphones. They have anecdotal evidence that a number of corporate clients have been waiting for Blackberry 10 to refresh their installed base, which will support shipments meaningfully in the first months of the launch. If only 10% of Blackberry’s 30m corporate users refresh their phone within the first 6 months of the launch, this would represent ~3m units alone.

The strength of this launch is overlooked by investors, creating strong opportunity to buy Blackberry.

- Bernstein conservatively expects shipment of 1m units for January and February, in the current quarter, and thereafter 1m units per month in March to May, generating 3m units of BB10 sales in the first fiscal quarter of 2014. As a reference, the current sell through run rate of Blackberry is close to 3m units a month.

- They assume ~$550 ASP and 30% gross margins for BB10 devices, which is in line with communicated selling prices and their channel checks. This would drive gross profits 24% above current expectations for 4QF13, 32% above expectations for 1QF14.

There is no bear case related to the evolution of Service revenues.

- For the last two years, Blackberry's service revenues have remained stable, in the region of $1bn a quarter, driven by a stabilising user base and resilient ARPU.

- It is well understood that the migration to Blackberry 10 will create some pressure on Service revenues, most likely for some consumer segments. Bernstein models an average service revenue per BB10 user 50% below the current average. On that basis they see two potential scenarios, and the stock working well for both!

- Either Blackberry 10 is a slow launch, driving limited upside. In that case, older contracts will continue to form the vast majority of Blackberry’s user base. Blackberry will continue to benefit from the service revenue cushion. In that scenario, Blackberry’s business model is much more resilient than consensus expectations imply.

- Or Blackberry 10 is a success, and in that case, there is a risk that service revenues come under meaningful pressure. The irony is that if Blackberry 10 is a success, some pressure on Service revenues would be the least of Bernstein's concerns and more than compensated by a recovery in the device business.

Notablecalls: Ferragu has been a major bear in Blackberry since '10 with a couple of stints on the Market Perform side along the way. Now he is making a rather significant call saying the stock should trade ~100% higher. This will not go unnoticed.

His views regarding the Services side potentially ending in a  win-win situation are also quite interesting and should work to calm investor fears.

With the stock down 5 pts from the $18+ highs I suspect a strong case for a long trade can be made here. Potential 10%+ move in the cards.

Finisar (NASDAQ:FNSR): Overblown Fears on “Silicon Photonics” Misconstrue Technical Merits and Market Segmentation—Reiterating Buy

Following the scathing downgrade from Jefferies on Friday Finisar (NASDAQ:FNSR) is getting some supportive comments from Needham's Networking team.

- Overreaction to “Silicon Photonics” fears—they think hype and innuendo drive fears more than technical merits do.

It appears that Silicon Photonics advances from Intel are being used to imply co’s CPAK is a threat to Finisar. Needham strongly disagrees. They do not see CPAK as superior to Finisar’s current or future technology. Firm points out that Intel’s technology is applicable to very short PCI Bus architectures and has tightly constrained distance limitations. The physical limitations of silicon, lasers and composite chips limit Intel’s design to very short distances for connectivity within a single rack where optics are not used. It is replacing copper in a rack, and is not replacing any Finisar offerings.

Cisco’s CPAK CMOS technology cannot scale down—as monolithic designs are shipped they believe Finisar can deliver lower power, tighter density and lower costs than CPAK. First generation CPF LR4 100G devices are not yet monolithic. As the more integrated versions ship, Needham expects them to easily surpass Cisco’s CPAK CMOS Silicon Photonics offerings even before they ship. This is simply not a threat to Finisar, in firm's opinion.

Reiterate Buy—Silicon Photonics not a threat. FUD (fear, uncertainty, doubt) is a problem and the technology is difficult to explain, but it won’t impact revenues and profits, Needham says. Reiterates their Buy rating and $18 price target.

Notablecalls: Just a FYI. Now pick your side.

Finisar (NASDAQ:FNSR): Actionable Call Alert!

Jefferies & Co analyst James Kisner is making a major negative call on Finisar (NASDAQ:FNSR) downgrading the optical module maker to Underperform from Hold with a Street low $7.50 price target (prev. $14.00).

- Checks with Intel suggest the they can now build 100G transceivers at “high volume” and with a “good yield”. Bad news for Finisar.

Investor Summary: Jeffco's checks and a recent public announcement from Intel suggest that the ultimate commercialization of highly deflationary silicon photonics technology in data centers is likely no longer in doubt – bad news for manufacturers of “traditional” MSA-based, manually assembled optical transceivers for the data center such as Finisar. They believe current Street expectations for Finisar in FY14 and FY15 are likely too high as they likely do not contemplate the impact of silicon photonics-based products on the 100G CFP market, of which Finisar may have as much as an 80% share. The business currently trades at 18x firm's new CY14 EPS estimate of $0.95, a premium to industry peer JDSU (which trades at ~14x CY14). Firm arrives at their new $7.50 target price (down from $14.00 previously) by applying an 8x P/E multiple to our CY14 EPS estimate – reasonable in their opinion given Finisar’s relatively lower medium-term growth profile. (They now expect revenue growth in the low to mid-single digits over the medium- to long-term.)

* Cisco and Others Are More Significant Near-Term Threat. While Jeffco suspects it will be a while before we see optical transceivers from Intel, their checks suggest a number of players, including Cisco, are likely to launch silicon photonics-based transceivers for 100G applications in the data center in 2013 and 2014.

* Finisar may now have as much as an 80% share of the 100G CFP market, and Jeffco estimates that 100G CFPs represent around 10% of Finisar’s business today. However, they would note that: 1) CFPs are currently among the highest margin, fastest growing products in Finisar’s Datacom Portfolio; 2) Conversations with industry contacts suggest that silicon photonics technology can scale to higher speeds (400Gbps and beyond) relatively easily – thus the broad adoption of silicon photonics technology puts the long-term growth prospects of Finisar’s datacom business in jeopardy.

* Acknowledge a Lot of Unknowns
Kisner acknowledges there remains significant uncertainty around timing, pricing, and breadth of customer adoption of silicon photonics technology. He also admits there may be lack visibility into various ways Finisar might participate in the deployment of this technology (including potential acquisitions). Nonetheless, on balance, he believes that the threat of silicon photonics is now tangible and skews the risk/reward offered by Finisar shares to the downside.

Notablecalls: This is a big fundamental call that will serve as a overhang for the foreseeable future. Having Intel and Cisco as competitors (with better tech!) simply can't be good. A structural problem that's not going to go away.

Kisner's no stranger to making big negative calls in the space. He downgraded Finisar back in Feb after Cisco announced the $300 mln Lightwire deal sending the stock down ~50% over the next 4-5 months.

With Kisner saying competition is now on the doorstep and slashing his estimates and target way below Consensus, this is going to generate ample fear and selling interest. Don't get me wrong - every FNSR watcher out there has been aware of the looming competition for quite a while but Kisner says it's coming earlier than many expected.

All in all, I suspect FNSR will be down 10%+ today and trade toward recent lows in the coming months. Don't chase it too low, let it come to you.

Actionable Call Alert!

Dendreon (NASDAQ:DNDN): Provenge Doesn't Seem to Be Fading; Could DNDN Be One of 2013's Best Performers? - Porges

Bernstein's uber analyst Geoffrey Porges is making a big biotech call upgrading Dendreon (NASDAQ:DNDN) to Outperform from Market Perform with a $10 target (prev. $7).

- Porges now convinced Provenge is not dead; Raises his estimates significantly; Sees $1+ EPS power by 2016 yielding significant upside for the stock.

The basis for his upgrade is the feedback he and his firm received from urologists in recent months as part of Bernstein's ongoing monitoring of the adoption of Medivation's Xtandi and its positioning against JNJ's Zytiga. That feedback, particularly from community urologists, convinces them that Provenge is not going to disappear, and in fact is more likely to return to modest but steady growth once the turbulence in the market (and the company) stabilizes. When the market (and industry observers) realizes that this is occurring, Porges expects the stock to offer significant upside given current low expectations.

Dendreon has been one of the worst performing stocks in biotech for the past two years, languishing between $4 and $5.50 since mid 2012 compared to prior highs of $40 to $45 in 2011. The last 18 months have seen the progressive disaster of poor forecasting, reimbursement challenges, slowing revenue growth, insider selling, excessive cash burn, shareholder class action suits, changes in management and board membership and finally restructuring. Most traditional healthcare and biotech investors have abandoned the company, and the stock now reflects a significant probability of extinction, in Bernstein's view. Investors have endorsed the dogma that the firm outlined in their coverage initiation a year and a half ago, which suggested that new prostate cancer drugs such as Zytiga and Xtandi will crowd out Provenge and gradually reduce its revenue opportunity, such that Dendreon fails to ever achieve sustained profitability.

- To explore the impact of these competing drugs, and how perceptions of Provenge are evolving, Bernstein recently conducted a series of one-on-one detailed phone interviews with urologists who are current users of Provenge – their thesis was that if Provenge is going to disappear, current users should be reducing their patient numbers now, or expecting to in the future.

When they contacted urologists with significant experience with Provenge, the firm found the opposite of these bleak expectations. The busiest urologist Provenge prescribers have been increasing their use, and recruiting colleagues and peers to use the product as well. These high volume users acknowledge some hiccoughs, but are adamant that they will recommend the drug to a significant and growing minority of advanced PC patients. Not only do they not expect any reduction in the frequency of use, but instead expect a 10-20% increase in the frequency of use in 2013, compared to 2012, and a further increase in 2014. These findings differ from Bernstein's prior research and other opinions about Provenge because they come from current users of Provenge; however, they are consistent with Dendreon's own comments and information (+15-25% sequential growth in urologists' use) from the last three quarterly conference calls.

- Based on these findings they are increasing their revenue forecast for Provenge; They  now forecast peak revenue for Dendreon of $799mm by 2017, compared to $580mm previously with a significant contribution from ex US markets.

- They expect the company's cash expenses to now match revenue by mid 2013, and for the company to report full year positive earnings in 2014. Firm's adjusted EPS estimates are now for pro forma earnings of $0.17 in 2014, then $0.54 in 2015 and $1.14 in 2016. These are all significantly higher than recent consensus;

This call is consistent with Bernstein's more cautious stance about the higher quality mid cap biotech stocks toward the end of 2012. Porges believes there may be more opportunity in the disliked "out of favor" names (of which Dendreon is the poster child) than in chasing new highs for the recent sector leaders.

Given the cost and complexity of Provenge, Porges thinks Dendreon is unlikely to be a free standing company long term.

Notablecalls: There are several reasons why this is a big call and likely to have significant positive impact on the stock:

1) Porges is the probably the most respected analyst in the space; He is the Axe.

2) Dendreon has been left for dead by almost everyone except some die hard cult followers; Short interest stands at 30%.

3) Porges is now saying outright Provenge is going to survive and even thrive; His estimates are now way above Consensus.

4) EPS power of $1+ in '16 will yield in a $20-25/share stock = huge upside.

5) Porges is making a very sensible bet saying out-of-fav names are going to be the place to be in 2013. DNDN is the prime candidate.

6) This call is a huge surprise. I bet there are analysts out there today telling their associates to get on the effin phone and start talking to docs. If the feedback they are going to get is anything similar to what Porges recieved there are going to be more upgrades.


All in all, this call is likely to take the stock above $6/share today and toward $7 in a few weeks.