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12:46 pm SolarEdge Technologies (SEDG)

Shares of SolarEdge Technologies (SEDG) are trading higher by about 8% on the session following a bullish initiation at Cowen and Company this morning, which initiated the company with an Outperform. This comes on the heels of a bullish research note out on September 1 from Roth Capital in which the firm defended SEDG after it hosted investor meetings with the company's CFO. Specifically, Roth commented that investors appeared to be focused on how quickly SEDG could take cost out of its DC optimizer solution. It is their view that the new Gen3 inverter has the potential to enable the company to reach string inverter parity over the next two years, which they believe would be a game-changer.

A Look Back

SEDG went public back on March 26, 2015 to great success. Its' 7.0 million share IPO priced at $18, at the high end of the $16-$18 expected price range, and then opened for trading at $20. The positive momentum built from there as the stock steadily charged higher over its first few months of trading, boosted by a set of bullish analyst initiations on April 20 and then a blow out Q3 report on May 7. The stock ultimately hit post-IPO highs of $43 on June 22, 139% above its IPO price.

After reaching those post-IPO highs, shares rapidly began to slide lower, however, due to a combination of profit taking, a rich valuation, and concerns about falling market prices for its' inverters. On August 12, SEDG issued its fiscal Q4 results and once again easily topped expectations (see below). The stock popped higher at the open, but, was unable to sustain that momentum throughout the session, closing lower by 10%. The downward pressure continued over the next week as the stock plummeted all the way down below $16 on August 24. That day, however, shares mounted a very impressive rally as it opened for trading 20% lower, but closed higher by 3%.

This massive one day reversal spurred a rally in the stock with the two aforementioned bullish analyst notes adding fuel to the fire.

Review of SEDG

SEDG is a developer of an inverter for the collection and managing of power for solar photovoltaic systems. SEDG's direct current optimized inverter system maximizes power generation at the individual PV module level while lowering the cost of energy produced by the solar PV system and providing comprehensive and advanced safety features. Its system consists of power optimizers, inverters and cloud-based monitoring platform and addresses a broad range of solar market segments, from residential solar installations to commercial and small utility-scale solar installations.

Since SEDG began commercial shipments in 2010, it has shipped approximately 1.3 gigawatts of its DC optimized inverter systems and its products have been installed in solar PV systems in 73 countries. SEDG primarily sells its products directly to large solar installers and engineering, procurement and construction firms and indirectly to thousands of smaller solar installers through large distributors and electrical equipment wholesalers. Its customers include leading providers of solar PV systems to residential and commercial end users such as SolarCity (SCTY), SunRun and Vivint Solar (VSLR).

Recent Financial Performance

On August 12, SEDG reported upside fiscal Q4 results with EPS coming in at $0.31, beating estimates by $0.09, as revenue surged 121% year/year to $$98.4 million versus the $95.2 million consensus. Non-GAAP gross margin was 28.9% for fiscal Q4 2015, up from 27.6% in the prior quarter and 19.6% in fiscal Q4 2014. This growth was mainly driven by cost reduction measures that were realized this quarter and reduced use of air shipments to a minimum.

As of June 30, 2015, cash, cash equivalents and restricted cash, totaled $148.4 million, compared to $138.8 million on March 31, 2015. The company does not have any debt either.

The company also issued upside revenue guidance for Q3, seeing revenue of $108-$112 million versus the $101.7 million consensus. It also guided for gross margin of 27-29%.

12:46 pm Looking Ahead: September 4, 2015

Global markets have moved on economic news this week.  No economic news, however, will be deemed as important as the news that comes out of the August Employment Situation report on Friday.  Many are hoping that report will give the market the data-based closure it is seeking to determine whether the Federal Open Market Committee will raise the fed funds rate for the first time since June 2006 at its September meeting.

(1) The Employment Situation Report for August (08:30 a.m. ET)

  • Why it's important
    • First and foremost, market participants are looking to this report to provide a data-based answer for when the Federal Open Market Committee (:FOMC) is most likely to raise the fed funds rate (i.e. September or later)
      • The trend in average hourly earnings will be the most important factor in that assessment
    • This report provides a comprehensive look at the state of the U.S. labor market
    • The employment report helps drive economists' forecasts for GDP primarily by way of the aggregate earnings data that feeds into consumer spending expectations
    • The employment report carries a political charge as (un)employment and earnings trends help shape the policy narrative
      • Now that the 2016 presidential campaign is officially under way, this consideration will carry added weight in coming months 
    • Simply put, the policymaking implications contained in this report give it market-moving cachet both here and abroad

  • A closer look
Fri., Sept. 4 Time of Release Consensus Prior
Nonfarm Payrolls 8:30 ET 225K     217K     215K
Nonfarm Private Payrolls 8:30 ET 220K     210K     210K
Unemployment Rate 8:30 ET 5.4%     5.2%     5.3%
Hourly Earnings 8:30 ET 0.2%     0.2%     0.2%
Average Workweek 8:30 ET 34.6     34.6     34.6


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  • What's in play?

    • Everything is in play in the wake of this report because of how it will influence the market's thinking about the timing of a rate hike, not to mention economic growth prospects. The question is, will the response to the report be bullish, bearish, or neutral?

    • Look for increased activity in the following areas:

      • Treasuries, particularly the front end of the yield curve (should be weak if market believes the report signals a September rate hike and strong otherwise)
        • Related ETFs: SHY, SCHO, TLT, TBT, TBF

      • Index ETFs
        • SPDR S&P 500 ETF (SPY)
        • PowerShares QQQ Trust (QQQ)
        • iShares Russell 2000 (IWM)

      • U.S. Dollar (should be strong if market believes report signals a September rate hike and weak otherwise)

      • Commodities (likely to move inversely to the dollar's movement)

      • Fed Funds futures (CME Group Fed Watch, which is based on 30-Day Fed Funds futures prices, shows market assigning only a 27% probability of a rate hike at the September meeting)

      • The utilities sector (should be weak if market believes the report signals a September rate hike and strong otherwise)
        • Related ETFs: XLU, VPU, IDU

      • Banking and insurance stocks (should be strong if market believes the report signals a September rate hike and weak otherwise)
        • Related ETFs: KRE, KBE, XLF, VFH, IYF, KIE

      • Emerging markets and currencies (should be weak if market believes report signals a September rate hike and strong otherwise)
        • Related ETFs: EEM, VWO, IEMG, SCHE

9:49 am Ooma (OOMA)

Ooma (OOMA), a recent IPO which provides internet-based phone services for homes and small businesses, is trading 6% higher today after reporting its first quarter as a public company.

In case you're not familiar, Ooma is a provider of internet-based phone services for homes and small businesses. Basically, a consumer buys Ooma's device (called the Ooma Telo, we saw it on Amazon for $125) and then they get free phone service without a monthly fee. However, the customer must pay applicable taxes and fees as required by law. No computer is needed and there is no software to install. Just hook up the device to your internet connection and plug in your landline phone and you're good to go.

The idea is that you'll get clear, landline quality voice and features like caller-ID, call-waiting and voicemail are included. Also, in most cases, you can keep your old landline number (for a $39.99 one-time processing fee) or register for a new one. Like all other "unlimited services" such as cell phone data plans and other VoIP services, Ooma does have a limit of 5,000 minutes per month (for outbound calling) that can be enforced on a case-by-case basis in the event that a subscriber is clearly abusing the service (i.e. call centers, commercial purposes, etc.). Ooma has never terminated a customer that has used the service for residential purposes.

Another benefit is that your computer does not need to be always on as Ooma is a standalone, low-power, always-on device that works independently of your computer. This saves you from the hassle of installing anything on your computer and from having to leave your computer turned on to make and receive calls.

While the basic service is free once you buy the Telo device, customers have the option of upgrading to the Ooma Premier service for $120/year. It provides a suite of advanced features including Nest Alerts (home monitoring and control), instant second line, backup number (in case internet goes down, calls are forwarded to your cell), you can hear people leave an actual voicemail so you can pick up if want, free calls to Canada, three-way conferencing etc. There is also Ooma Office which is an upgraded service offering for small business clients. OOMA generates most of its revenue from the sale of subscriptions to its premium services.

Turning to the JulQ results, Ooma reported a non-GAAP loss per share of $(0.58), which was much better than expected. Revenue rose 26.3% year/year to $21.1 mln, which was also better than expected. Breaking down that revenue number a bit, subscription and services revenue (which is higher margin) increased 37% YoY to $17.4 mln, accounting for 83% of total revenue. Product and other revenue decreased 8% YoY to $3.7 mln, and represented 17% of total revenue.

This higher proportion of subscription and services revenue helped expand non-GAAP gross margin to 54% from 51% in the prior year period. Ooma describes the JulQ results as "solid" and the company said that its unique hybrid SaaS platform allows it to capitalize on the trend of both small business and home communications moving to the Cloud.

In sum, this was a good first quarter for Ooma as a public company. Granted, expectations were low as the stock has had a difficult time thus far. It made its IPO debut in mid-July but the deal was not well received. Ooma priced its 5 mln share IPO at $13 per share, well below the expected $16-$18 range. Heading into this report, it had already fallen to the $9 area.

A concern is that this is a highly competitive area. Alternative communication companies like 8x8 (EGHT), magicJack VocalTec (CALL), RingCentral (RNG) and Vonage (VG) all provide similar services. Voice quality is probably pretty comparable, so all they can really compete on is price. That tends to push prices lower over the long term, so that's a concern. Also, the company seems to be a long way away from profitability.

With that said, investors seems pleased with the Q2 (Jul) results. They reported a loss, which was expected, but it was much narrower than analysts had been expecting. Revenue also was better than expected but the upside was not as pronounced. This tells us that margins came in better than expected. This was likely caused by subscription and services revenue increasing as a proportion of total revenue (83% vs 76% in the prior year period). There are still significant competitive concerns for Ooma but investors like what they saw for this quarter.

9:33 am Generic drugmaker Lannett (LCI)

Lannett (LCI) is trading sharply higher this morning after announcing last night that it signed a definitive agreement to purchase Kremers Urban Pharmaceuticals, the US specialty generic pharmaceuticals subsidiary of Belgium-based UCB S.A., for $1.23 billion plus potential contingency payments.

For some context, LCI is a generic drugmaker that sells a wide range of products. Its main drugs include the thyroid treatment levothyroxine, digoxin for congestive heart failure, and butalbital for migraine headaches. LCI has been growing strongly for several years, due to a combination of robust organic growth in multiple categories, aggressive price hikes due to some product shortages, and M&A. However, as the shortages ease and the company laps difficult comparisons, quarterly growth rates have been decelerating of late.

Circling back to this morning's acquisition of Kremers Urban for $1.2 billion, this is a sizable deal for LCI, whose market cap isn't much larger at $1.8 billion. LCI management calls this a "transformational" acquisition, as it essentially doubled the combined company's revenues to $800 million over the last 12 months, adds 18 commercialized products and 28 product candidates to LCI's pipeline, and is expected to be accretive to earnings. Specifically, LCI management says that the transaction is accretive to adjusted EPS in fiscal 2016 (June) in the mid- to high-single digits, and by 20-25% in FY17.

During the conference call, LCI management said that the transaction will further diversify LCI's product portfolio, giving the combined company more than 100 marketed products that include both prescription and over-the-counter products. In terms of the pipeline, the combined company will have 39 product applications pending at the FDA and 64 products in development.

9:28 am Geron Surges Following Highlight Of Imetelstat

Geron (GERN 3.05) is trading sharply higher this morning after the publication of two papers in The New England Journal of Medicine that highlight the potential of imetelstat in hematologic malignancies.

The company announced the publication of two papers in The New England Journal of Medicine (:NEJM) in which the company's telomerase inhibitor, imetelstat, was shown to have disease-modifying activity thought to be associated with selective inhibition of the malignant progenitor cell clones responsible for the underlying disease in two hematologic myeloid malignancies, essential thrombocythemia (ET.TO) and myelofibrosis (:MF). The papers are available online in the September 3rd issue at

In the Phase 2 clinical study evaluating imetelstat in ET, all patients achieved a hematologic response, with the majority achieving a hematologic complete response. Rapid and substantial molecular responses observed in the study suggested therapeutic activity of imetelstat on the growth of malignant progenitor cell clones that drive ET.

In the Phase 2 pilot study evaluating imetelstat in MF patients, unprecedented complete and partial remissions, including reversal of bone marrow fibrosis and molecular responses, were observed. These results suggest the potential value of telomerase-targeting strategies for the treatment of MF, and identify imetelstat as an active drug in this disease.

In November 2014, Geron entered into an exclusive license and collaboration agreement with Janssen Biotech, a Johnson & Johnson (JNJ) company, to develop and commercialize imetelstat worldwide for indications in oncology, including hematologic myeloid malignancies, and all other human therapeutics uses.

Before today's news, the stock has fallen over 31% since July 23. Pre-market, shares are back over  $3.50/share, currently up 17.4%.

9:01 am Joy Global Down Sharply Following Quarterly Results/Reduced Outlook

Joy Global (JOY 22.11) reported third quarter adj earnings of $0.54 per share, excluding excess purchase accounting, acquisition costs, restructuring charges and pension items of $14 million, which came in worse than expectations. On the top line, revenues fell 9.5% year/year to $792.2 million, which also came in below expectations.

The company said these results reflect an end market environment that is one of the most challenging seen in decades.

The further step down in commodity prices resulted in projects getting delayed and a lock down on cash from its customers which impacted its service business. The company is accelerating its facility optimization plans and taking additional cost reduction actions to align with lower market demand.

Consolidated bookings in the third quarter totaled $635 million, a decrease of 31% versus the third quarter of last year. Original equipment orders decreased 66% while service orders were down 16% compared to the prior year.

Bookings were reduced by $46 million from the impact of foreign currency exchange movements versus the year ago period, a $2 million decrease for original equipment and a $44 million decrease for service bookings. When adjusting for foreign currency exchange, orders were down 26% compared to the third quarter of last year, with original equipment orders down 65% and service orders down 9%.

Bookings for both underground mining machinery and surface mining equipment decreased sharply in the quarter, -26% for underground, -33% for surface mining. Underground mining service orders fell 13% compared to the prior year, with decreases in all regions except Eurasia.

Surface mining service orders decreased 18% compared to the prior year, with declines in all regions except Latin America, which was flat, and Africa.

Looking ahead, there isn't too much to get excited about.

For the full-year fiscal 2015, the company reduced its earnings guidance to $1.80 from low end of $2.50-3.00, which now falls far below current expectations. On the top line, revenue expectations was reduced to approximately $3.1 billion, from low end of $3.3-3.6 billion, and is now below expectations.

Market Outlook: Global macroeconomic trends have weakened further over the last several months and have resulted in lower estimates for growth in 2015. A slower than expected first half in the U.S., along with slowing growth in China are largely responsible for the revised outlook.

The Eurozone has stayed resilient in the face of the Greek and Russian issues, with growth in the region tracking at 1.5% for 2015. Further decline in commodity prices and rebalancing in China will weigh on growth through the remainder of 2015.

8:08 am Five Below Getting Clipped on Disappointing Q2 Sales and Q3 Outlook

Specialty retailer Five Below (FIVE 38.01) is indicated to open approximately 10% below yesterday's closing price after the company disappointed investors with its second quarter results and third quarter outlook.

Net sales for the 13-week period ended August 1 rose 19.5% to $182.2 million.  That was at the low end of the company's guidance range and came up short of analysts' average expectation. Comparable store sales, meanwhile, increased 3.0%.  While that marked the 37th straight quarter of comparable sales gains, the increase for the second quarter was below the company's guidance range of 4% to 5% growth.

The company pretty much only had itself to blame for its second quarter sales disappointment and it did just that, pinning the weaker than expected sales performance on a temporary delay in store receipts that resulted from moving out of an older East Coast distribution center to a newer, larger distribution center, and an unsuccessful advertising plan.

Specifically, Five Below tested a strategy where it removed a newspaper circular in June and went with a digital-only advertising campaign that anniversaried a print ad in the prior year.  That didn't prove to be effective as the company acknowledged its weaker than expected sales performance was concentrated in the latter half of June.

Management said it learned from the experience and is going to embrace newspaper circulars as well as digital advertising in key seasons like Easter, summer, and holiday.

This understanding has been built into its plans for the second half of the year, yet the second quarter disappointment has planted some seeds of doubt about whether Five Below can quickly regain its stride, particularly since the company's third quarter guidance is on the conservative side of things.

After reporting a profit of $0.13 per diluted share in the second quarter, which was at the high end of the company's guidance range but down 13% from the same period a year ago, Five Below is forecasting third quarter earnings to be $0.06 to $0.07 per diluted share versus a profit of $0.06 per diluted share in last year's third quarter.

The high end of the guidance range is just below analysts' average expectation and is predicated on net sales ranging from $164 million to $167 million and comparable store sales increasing 3% to 4%.

Five Below left its full-year guidance unchanged, saying it sees FY15 GAAP earnings of $1.03 to $1.06 on net sales in the range of $820 million to $828 million and an approximate 3% increase in comparable store sales. 

Clearly, Five Below remains quite profitable despite its recent sales disappointment, but at roughly 36.5x estimated FY15 earnings, the disappointment and conservative guidance have given investors reason to question the stock's premium earnings multiple.

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