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Ideas and Strategies on Investing.

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Pegasystems

8/30/2016

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Pegasystems Inc. is an software company based in Cambridge, Massachusetts, specializing in developing software for customer relationship management (CRM) and business process management (BPM). The company has grown through acquisitions and since 2010 Pegasystems has acquired a number of companies including Antenna Software, Firefly and Chordiant. While it's a small company with large competitors, it's growing fast, has zero debt and a growing dividend.  

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​Pegasystems, Inc. develops, markets, licenses, and supports software to automate complex and changing business processes in the United States and internationally. It provides Pega 7, a unified platform that enables clients to build enterprise applications; and software applications for marketing, sales and on boarding, customer service, and operations, as well as industry-specific business processes. The company also offers customer relationship management applications, including Pega Marketing to manage customer relationships across inbound and outbound channels; Pega Sales Automation to capture practices and guides sales teams through the sales and customer on boarding processes; Pega Customer Service to deliver consistent interactions across channels, improve employee productivity, and adapt changing business requirements; and operations applications to support exceptions and investigations, order fulfillment, claims processing, insurance underwriting, and product development, as well as risk, fraud, and compliance management. In addition, it provides Pega Cloud to develop, test, and deploy its software applications using an Internet-based infrastructure; consulting and implementation support, technical support, and hosting services; and instructor-led and online training courses for project leaders, system architects, and system administrators. The company primarily markets its software and services to financial services, healthcare, insurance, communications and media, public sector, manufacturing, life sciences, and other markets through a direct sales force and a network of business and technology alliances, as well as through partnerships with technology providers and application developers. Pegasystems, Inc. was founded in 1983 and is headquartered in Cambridge, Massachusetts.
(Summary) (Company) (Chart)
28 August 2016
Price $25.94
1yr Target $31.50
Analysts 4
Dividend $0.12
Payout Ratio 24.00%

1yr Cap Gain 21.43%
Yield 0.46%
1yr Tot Return 21.89%

P/E 51.47
PEG 1.84
Beta 1.87
EPS (ttm) $0.50
EPS next yr $1.10
Forward P/E 23.65
EPS next 5yr 28.00%
1yr Price Support $30.80

Market Cap $1.97 Bil
Revenues $734.60 Mil
Earnings $39.90 Mil
Profit Margin 5.43%

Quick Ratio 1.60
Current Ratio 1.60
Debt/Equity 0.00
1yr RevGR 15.71%
3yr RevGR 13.77%
5yr RevGR 15.19%

1yr EarnGR 9.52%
3yr EarnGR 17.80%
5yr EarnGR ---

1yr DivGR 22.44%
3yr DivGR 25.70%
5yr DivGR 14.86%

ROA 6.60%
ROE 12.50%

​History

Alan Trefler founded Pegasystems in 1983 at the age of 28 in his hometown of Cambridge, Massachusetts, where its still located today. Trefler's background as a chess player led him to develop computer systems that could play chess in the early 1980s. He stated in an interview with Forbes that when he started Pega, he wanted to resolve the issues of heavy lifting that business people deal with and more importantly getting a computer to understand how business people wanted things to work. He commented in the same interview, "it turns out to be a fairly hard problem to solve".

During the company's early years, they focused on providing case management, namely for companies such as American Express. Pega, from its early days onwards, focused on using its own cash and returns, instead of looking for outside investment. The company went public in 1996 and began trading on NASDAQ under the symbol PEGA. This move raised millions in finance for the company, meaning they didn't have to pursue venture capital investments from that point forward. Pega entered a period of financial trouble in the late 1990s, following a dispute with its accountants, Ernst & Young. After restating their earnings, Pega faced an investigation by the SEC, which was dropped in 2002.

From 2005 onwards, revenues for the company grew strongly, when compared to the rest of the business process management market. Alan Trefler stated in an interview with Computer Weekly that other BPM companies such as Oracle and IBM, were struggling to make gains in the field at the time. Pega reported license revenues rose 34% year-over-year during 2013, with the news of the performance along with other factors, led to Pega's stock rising by 20% in November 2013.

BNY Mellon announced in 2014 that they would be integrating Pega into their operations as part of an efficiency strategy.

In 2015, the company reported an income of $162 million for the second quarter. This was following a steady rise in the company's share price, which had risen by 12 percent since the beginning of the year. The revenue for the quarter was $10 million higher than predictions and it was a 12.6 percent improvement year on year from Q2 in 2014. The Royal Bank of Scotland announced in 2015, that it was using Pega as part of its revised customer relations strategy. Sprint announced a similar solution later in 2015, with the main aim of using Pega to win back clients through a more focused customer relations strategy.
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​Operations
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Pegasystems believes that business success requires organizations to become digital and that a new generation of strategic applications can accelerate how organizations become modern digital enterprises. They develop, market, license, and support strategic software applications for marketing, sales and onboarding, customer service, and operations, in addition to licensing their Pega 7 platform for clients that wish to build and extend their own applications. The software is designed to assist clients in building, deploying, and evolving strategic enterprise applications, creating an environment in which business and IT can collaborate to manage back office operations, front office sales, marketing, and/or customer service needs.

The company's strategic applications are built on their Pega 7 system, their unified on-cloud and on-premises platform. Pega 7 uses visual models to build applications: process models, predictive analytics, user experience designs, decision logic, etc. This visual, model-based approach is designed to be faster in building, deploying, and evolving strategic applications than traditional programming, and to empower clients to better engage their customers, simplify their processes, and turn the power of change into a competitive advantage.

The company's applications and platform intersect with and encompass several traditional software markets, including: Customer Relationship Management (CRM), Business Process Management (BPM), Business Rules Management Systems (BRMS), Dynamic Case Management (DCM), Decision Management, including Predictive and Adaptive analytics, and the Vertical Specific Software (VSS) market of industry solutions and packaged applications.

Pegasystems also provides consulting services and implementation support, training, and technical support services to help clients maximize their business value from Pegasystem's software. The company's clients include Global 3000 companies and government agencies that seek to manage complex enterprise systems and customer service issues more nimbly and cost effectively. The company's strategy is to sell a client a series of licenses, each focused on a specific purpose or area of operations. 

​Acquisitions

Pega announced in 2010 that it would be acquiring their competitor, Chordiant. The deal was signed on March 15, 2010, with the purchase of the enterprise software company costing around $161.5 million. With the development of the software as a service market, it led Chordiant's growth to stagnate and forced them to look for investors. The acquisition of the company by Pegasystems came soon after, leading some experts to draw conclusions that Pegasystems had acquired the company at "a bargain price". Following the acquisition of Chordiant, Pegasystems integrated the operations of Chordiant into their existing operations.

Three and a half years after Pega acquired Chordiant, came the company's next major acquisition. The mobile application development platform vendor, Antenna Software, was acquired for $27.7 million. The company was located in New Jersey and also had bases in Kraków and Bangalore. The acquisition would allow for Pega to provide a faster time-to-market and increased flexibility in end-to-end mobile application development.

In 2014, the company announced two separate acquisitions. The first was of the Bangalore-based MeshLabs, which operated as an analytics startup. The financial details of the transaction were not disclosed. Their second acquisition of the year came when Pega acquired the Profeatable Corporation. The startup from Philadelphia, Pennsylvania was the company's first real move into the cobrowsing market. It was suggested that the software tool would be used as additional functionality for Pega.
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​Products

Pega’s applications help streamline business operations, connect enterprises to their customers in real-time across channels, and adapt to meet changing requirements. Their applications can be deployed in the cloud or on-premises, providing our clients with the flexibility to operate the software according to their own preferences.

Pega 7. Pega 7 is a unified platform that enables clients to build enterprise applications in a fraction of the time it would take using traditional programming technologies. Pega 7 is engineered to support complex, global enterprises, allowing for application development and deployment on a patented, layered architecture that supports reuse across lines of business, geographies, and customer segments.

The platform features a model-driven, visual, code-free approach to application development that enables business and IT to collaborate, using a visual “language” that models the requirements and design of the application through readily understandable metaphors. This agile approach facilitates continuous improvement methodologies, such as Lean Six Sigma, to effectively manage individual projects or help drive a complete enterprise transformation. All aspects of the application are captured in the model, including business strategy mapping, business processes, data models, case definitions, rules, decisions, reporting, interfaces, intelligent work management capabilities, business activity monitoring, and the UX across both web and mobile devices.

Once defined this way, the finished application and documentation are generated and ready for use. The approach bypasses the error-prone and time- consuming process of manually translating requirements into code. The software application is created automatically and directly from the model, helping to close the costly gap between vision and execution. Changes to the code are made by changing the model, and application documentation is generated directly from the model. The Pega 7 platform is standards-based and can leverage a client’s existing technology to create new business applications that cross technology silos and bridge front and back-office. 

Strategic Applications. Pegasystems also offers purpose or industry-specific software applications built on the Pega 7 platform. These applications for Marketing, Sales and Onboarding, Customer Service, and Operations provide a best-practice starting point as well as industry-specific business processes. As they are built on the Pega 7 platform, these applications deliver flexibility beyond traditional “commercial off the shelf” products. Pegasystems believes that their applications allow their clients to offer differentiated service and value to their customers. Pega 7 enables organizations to implement new processes quickly, refine customer experiences, bring new offerings to market, and provide customized or specialized processing to help meet the needs of different customers, departments, geographies, or regulatory requirements. 

Pega Cloud. Pega Cloud allows clients to develop, test and deploy, on an accelerated basis, the strategic applications and Pega 7 platform using a secure, flexible Internet-based infrastructure. Pega Cloud provides production and development and testing services to accelerate the development and deployment of Pegasystems’s strategic applications and the Pega 7 platform. This allows the company's clients to minimize infrastructure cost while focusing on their core revenue generating competencies. 

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RCI Hospitality

8/26/2016

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An investment in RCI Hospitality may not be suitable for every investor, but they know their audience and the company makes money. But there's more to this story. As Rick's Cabaret, the company pushed the concept of adult entertainment about as far as they could. Then a couple of years ago they decided to expand the company into upscale casual dining. In 2013 they opened Bombshells Restaurants to appeal to the same demographic that Hooter's, the Tilted Kilt, Bone Daddies, Bikini's and Twin Peaks appeals to. And so far it seems to be a success.
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​RCI Hospitality Holdings, Inc. owns and/or operates upscale adult nightclubs serving primarily businessmen and professionals in the United States. The company operates in two segments, Nightclubs and Bombshells Restaurants and Bars. It operates adult nightclubs under the Rick's Cabaret, Tootsie's Cabaret, Club Onyx, XTC Cabaret, Cabaret East, Cabaret North, Silver City, Downtown Cabaret, Temptations, Jaguars, The Black Orchid, Seville, and Down in Texas Saloon. The company also operates five sports bar/restaurants under the Bombshells name. As of March 10, 2016, it operated 43 units. In addition, the company owns a national industry convention and tradeshow; 2 national industry trade publications; 2 national industry awards shows; and approximately 25 industry Websites, as well as publishes trade magazine serving the adult nightclubs industry. The company was formerly known as Rick's Cabaret International, Inc. and changed its name to RCI Hospitality Holdings, Inc. in August 2014. RCI Hospitality Holdings, Inc. was founded in 1982 and is based in Houston, Texas.
(Summary) (Company) (Chart)
26 June 2016
Price $10.75
1yr Target $21.25
Analysts 1
Dividend $0.12
Payout Ratio 10.90%

1yr Cap Gain 97.67%
Yield 1.11%
1yr Tot Return 98.78%

P/E 9.75
PEG 0.24
Beta 0.76
EPS (ttm) $1.10
EPS next yr $1.22
Forward P/E 8.81
EPS next 5yr 40.00%
1yr Price Support $48.80

Market Cap $107.50 Mil
Revenues $136.80 Mil
Earnings $11.20 Mil
Profit Margin 8.18%

Quick Ratio 0.60
Current Ratio 0.70
Debt/Equity 0.79
1yr RevGR 11.99%
3yr RevGR 14.79%
5yr RevGR 14.32%

1yr EarnGR -26.83%
3yr EarnGR 4.83%
5yr EarnGR ---

1yr DivGR ---
3yr DivGR ---
5yr DivGR ---

ROA 4.10%
ROE 9.00%

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​Operations

RCI Hospitality Holdings, Inc. subsidiaries own and operate upscale gentlemen's clubs and upscale casual dining restaurants. In addition, the company operates several websites and a media division.

Founded in 1983, the Rick's Cabaret pioneered the creation of elegant gentlemen's clubs featuring beautiful topless dancers and high quality restaurant service. Since going public in 1995 the company has transformed itself into a leading hospitality holding company. The company's subsidiaries own and operate over forty establishments under multiple brands throughout the US. The company changed its name from Rick's Cabare to RCI Hospitality Holdings, Inc. in 2014.

RCI Hospitality's subsidiaries have built powerful brand name awareness for their upscale environments and exceptionable adult entertainment. Many of the performers eventually went on to become Playboy Playmates and Penthouse Pets.

Forbes named RCI Hospitality Holdings one of America's 200 Best Small Companies. The company has also been profiled in The Wall Street Journal, Fortune, MarketWatch, Corporate Board Member, Smart Money, USA Today, The New York Daily News and other publications. The Rick's Cabaret-NYC Steakhouse is listed in Zagat's New York Nightlife and included in the TONY 100 list of fine Manhattan dining establishments by Time Out New York. 

RCI Hospitality's decision to create the casual dining concept around upscale casual dining and a military environment as well as starting a dividend in March 2016 has stabilized the company's financials and provided sufficient confidence to allow investors to begin to become shareholders.
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​The Way Forward 

I think RCI Hospitality is evolving, and any investment in the company is an investment in that change. I also believe that the change is a direct consequence of bringing into management more responsible businessmen who are adding structure and discipline. And they may be a little more responsible to shareholders. But I'm not naive enough to think that things will change overnight. So I plan to start a small position in this company and see where management takes the company in the next few quarters. I think this company has a lot of entertainment experience will be helpful as the company moves deeper into the restaurant business. If I'm right and they're successful, I expect the company to expand the Bombshell concept rather rapidly. And that should expand both the company's top and the bottom lines.
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Swing Trading Whole Foods

8/25/2016

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Some companies have mediocre fundamentals and an easily identifiable repetitive stock chart. When a trader finds a company's stock chart like that, those stocks become excellent candidates for a swing trade. Such has been the case with Whole Foods Markets. Just one look at the stock chart below and it's obvious that this company could have been traded almost monthly for a 10% return each time. But unlike stocks bought and held for the sole purpose of dividend increases, swing trading significantly more discipline.  
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​Whole Foods Market, Inc. operates natural and organic foods supermarkets. Its stores offers produce, packaged goods, bulk, frozen, dairy, meat, bakery, prepared foods, coffee, tea, beer, wine, cheese, nutritional supplements, vitamins, body care, pet foods, grocery, and household goods. As of January 28, 2016, the company had approximately 434 stores in the United States, Canada, and the United Kingdom. Whole Foods Market, Inc. was founded in 1978 and is headquartered in Austin, Texas.
​(Summary) (Company) (Chart)
22 August 2016
Price $31.01
1yr Target $31.10
Analysts 20
Dividend $0.54
Payout Ratio 37.5%

1yr Cap Gain 0.29%
Yield 1.74%
1yr Tot Return 2.03%

P/E 21.56
PEG 5.13
Beta 0.75
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EPS (ttm) $1.44
EPS next yr $1.51
Forward P/E 20.52
EPS next 5yr 4.20%
1yr Price Support $6.34

Market Cap $9.86 Bil
Revenues $15.67 Bil
Earnings $476.00 Mil
Profit Margin 3.03%

Quick Ratio 1.10
Current Ratio 1.50
Debt/Equity 0.33
1yr RevGR 8.41%
3yr RevGR 9.46%
5yr RevGR 11.31%

1yr EarnGR -5.13%
3yr EarnGR 5.45%
5yr EarnGR 15.66%

1yr DivGR 8.33%
3yr DivGR 22.66%
5yr DivGR ---

ROA 7.70%
ROE 14.10%
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The Way Forward

It's obvious by the chart above that the price of Whole Food Markets stock has vacillated between the high twenties and the mid thirties, so a simple move on only three dollars is equivalent to a ten percent move in the stock. For a swing trader it would be very easy to buy this stock at a price below the twenty day moving average and then sell it at a price above the twenty day moving average which is three dollars higher than the buying price. 

An alternative strategy would be to sell cash secured puts at or near the lower Bollinger Band and covered calls at or near the upper Bollinger Band. This method could also make very good money too! It's usually just a matter of which strategy the traders feels comfortable executing.

I believe my way forward will be to actually swing trade the stock. It takes a lot of effort to swing trade but in this case it could be very lucrative. But just as important, it can be a lot of fun. Wish me luck! 
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SBA Communications

8/24/2016

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SBA Communications Corporation is a leading independent owner and operator of wireless communications infrastructure across North, Central and South America. The company was founded in 1989 and headquartered in Boca Raton, Florida.  

By "Building Better Wireless", SBA generates revenue from two primary businesses - site leasing and site development services. In their site leasing business, they lease antenna space on multi-tenant towers and other structures to a variety of wireless service providers under long-term lease contracts. Their site development business offers wireless service providers and operators assistance in developing their own networks through site acquisition, zoning, construction and equipment installation.

SBA's principal operations are in the US but they also own and operate towers in Brazil, Canada, Costa Rica, Ecuador, El Salvador, Guatemala, Nicaragua and Panama. Expansion is driven by their (1) their consumers’ increased use of mobile applications, particularly data, (2) Wireless service providers seeking to increase the quality and coverage of their networks, and (3) Spectrum auctions, which result in new market entrants as well as additional network deployments from existing wireless service providers.

The company's size, experience, capabilities and resources make SBA a preferred partner for wireless service providers both domestically and internationally. 
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​SBA Communications Corporation owns and operates wireless communications tower structures, rooftops, and other structures that support antennas used for wireless communications in the United States and its territories, South America, Central America, and Canada. It operates through two segments, Site Leasing and Site Development. The company leases antenna space to wireless service providers on towers that it owns or operates; and manages rooftop and tower sites for property owners under various contractual arrangements. As of December 31, 2015, it owned 25,465 towers; and managed or leased approximately 5,500 actual or potential towers. The company also provides a range of site development services, including network pre-design; site audits; identification of potential locations for towers and antennas; support in buying or leasing of the location; assistance in obtaining zoning approvals and permits; tower and related site construction; antenna installation; and radio equipment installation, commissioning, and maintenance. SBA Communications Corporation was founded in 1989 and is headquartered in Boca Raton, Florida.
​(Summary) (Company) (Chart)
21 August 2016
Price $113.21
1yr Target $129.07
Analysts 15
Dividend $0.00
Payout Ratio 0.00%

1yr Cap Gain 14.00%
Yield 0.00%
1yr Tot Return 14.00%

P/E ---
PEG ---
Beta 0.86
EPS (ttm) $-0.30
EPS next yr $1.23
Forward P/E 92.34
EPS next 5yr 17.00%
1yr Price Support $20.91

Market Cap $14.09 Bil
Revenues $1.62 Bil
Earnings $-38.60 Mil
Profit Margin ---

Quick Ratio 0.40
Current Ratio 0.40
Debt/Equity ---
1yr RevGR 7.33%
3yr RevGR 19.52%
5yr RevGR 21.21%

1yr EarnGR ---
3yr EarnGR ---
5yr EarnGR ---

1yr DivGR ---
3yr DivGR ---
5yr DivGR ---

ROA -0.50%
ROE 2.30%
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SBA Communications is a leading independent owner and operator of wireless communications tower structures, rooftops and other structures that support antennas used for wireless communications, which are collectively referred to as “towers” or “sites.” Their principal operations are in the US but they own and operate towers in South America, Central America, and Canada . Their primary business is site leasing which contributed 96.8% of the total operating profit for the year ended December 31, 2015 . This is composed of (1) leasing antenna space to wireless service providers on towers that they own or operate and (2) managing rooftop and tower sites for property owners under various contractual arrangements. As of December 31, 2015, the company owned 25,465 towers. They also manage or lease approximately 5,500 additional towers. Their other business line is their site development business where they other assist wireless service providers in developing and maintaining their own wireless service networks.

Site Leasing Services

SBA's primary focus is the leasing of antenna space on their multi-tenant towers to a variety of wireless service providers under long-term lease contracts in the US, Canada, Central America, and South America. The company receives site leasing revenues primarily from wireless service providers, including AT&T, Sprint, T-Mobile, Verizon Wireless, Oi S.A., Telefonica, Claro, and Digicel. Wireless service providers enter into tenant leases which relates to the lease or use of space at an individual site. The site leasing business generates substantially all of the company's total segment operating profit, representing 96.2% or more of the company's total segment operating profit for the past three years.  Their site leasing business is classified into two reportable segments, domestic site leasing and international site leasing.

Domestic Site Leasing. As of December 31, 2015, SBA had 15,778 sites in the US.  For the year ended December 31, 2015, the company generated 83.5% of their total site leasing revenue from these sites. The company received domestic site leasing revenues primarily from AT&T, Sprint, Verizon Wireless, and T-Mobile. In the US, wireless service providers typically enter into tenant leases which relate to the lease or use of space at an individual tower. Tenant leases in the US are generally for an initial term of five to ten years with five 5-year renewal periods at the option of the tenant. These tenant leases typically contain specific rent escalators, which typically average 3- 4% per year , for both the initial and renewal option periods .  Our ground leases in the US are generally for an initial term of five years or more with multiple renewal terms of 5 year periods, at our option, and provide for rent escalators which typically average 2 - 3 % annually.

International Site Leasing. As of December 31, 2015, the company owned 9,687 towers in international markets, including Brazil, Canada, Costa Rica, Ecuador, El Salvador, Guatemala, Nicaragua, and Panama. The company receives international site leasing revenues primarily from Oi S.A., Telefonica, Claro, Digicel, and TIM. Their operations in these countries are solely in the site leasing business but the company expects to continue to expand operations through new builds and acquisitions. Tenant leases in Canada typically have similar terms and conditions as those in the US. Tenant leases in the Central American and South American markets typically have an initial term of ten years with multiple five year renewal periods.  In Central America contracts have similar rent escalators to leases in the US and Canada while leases in South America typically escalate in accordance with a standard cost of living index.  In Brazil, site leases are typically governed by master lease agreements, which provide for the material terms and conditions that will govern the terms of the use of the site. Site leases in South America typically provide for a fixed rental amount and a pass-through charge for the underlying ground lease rent. Ground leases in Canada, Central America and South America generally have similar terms and conditions as those in the US, except that the annual escalators in the South American ground leases are based on a cost of living index.

Domestic and International Expansion. SBA expands their tower portfolio, both domestically and internationally, through the acquisition of towers from third parties and through the construction of new towers. In their tower acquisition program, they pursue towers that meet or exceed internal guidelines regarding current and future potential returns. The majority of the international markets typically have less mature wireless networks with limited wireline infrastructure and lower wireless data penetration rates than those in the US. Therefore the company's expansion in these markets is primarily driven by (1) wireless service providers seeking to increase the quality and coverage of their networks, (2) increased consumer mobile data traffic, such as media streaming, mobile apps and games, web browsing, and email , and (3) incremental spectrum auctions, which have resulted in new market entrants, as well as incremental voice and data network deployments. In the company's new build program, SBA constructs towers (1) in locations that a re strategically chosen or (2) under build-to-suit arrangements. Under build-to-suit arrangements, SBA builds towers for wireless service providers at locations that they have identified. Under these arrangements, SBA retains ownership of the tower structure and the exclusive right to co-locate additional tenants. When SBA constructs towers in locations chosen by the company, they utilize their knowledge of customers’ network requirements to identify locations where multiple wireless service providers need, or will need, to locate antennas to meet capacity or service demands. During 2016 , the company intends to build between 590 and 610 new tower structures, domestically and internationally.

Site Development Services

​The company's site development business, which is conducted in the US only, is complementary to the company's site leasing business and provides SBA with the ability to keep in close contact with the wireless service providers who generate substantially all of the company's site leasing revenue and to capture ancillary revenues that are generated by site leasing activities, such as antenna and equipment installation. The company earns site development services revenues primarily from the full range of end to end services the company provides to wireless service providers or companies providing development or project management services to wireless service providers. Services include: (1) network pre-design; (2) site audits; (3) identification of potential locations for towers and antennas; (4) support in buying or leasing of the location; (5) assistance in obtaining zoning approvals and permits; (6) tower and related site construction; (7) antenna installation; and (8) radio equipment installation, commissioning, and maintenance. 

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​The Company's Strategy

SBA's primary strategy is to continue to focus on expanding the site leasing business due to its attractive characteristics such as long-term contracts, built-in rent escalators, high operating margins, and low customer churn. The long-term and repetitive nature of the revenue stream of the site leasing business makes it less volatile than the site development business, which is more cyclical. By focusing on the site leasing business, the company believes that they can maintain a stable, recurring cash flow stream and reduce their exposure to cyclical changes in customer spending. Key elements of our strategy include:

Maximizing Use of Tower Capacity. SBA has constructed or acquired towers that accommodate multiple tenants and a majority of their towers are high capacity towers with significant capacity available for additional antennas. The company believes that an increased use of towers can be achieved at a low incremental cost. As of December 31, 2015, the company had an average of 1.8 tenants per tower structure.

Disciplined Growth of our Tower Portfolio. The company believes that tower operations are highly scalable and that they will be able to increase their tower portfolio without proportionately increasing selling, general, and administrative expenses. During 2016 the company intends to grow their tower portfolio domestically and internationally through tower acquisitions and the construction of new towers. 

Capitalizing on our Scale and Management Experience. SBA is a large owner, operator and developer of towers, with substantial capital, human, and operating resources and have been developing towers for wireless service providers in the US since 1989 and owned and operated towers for ourselves since 1997. The company believes that their size, experience, capabilities, and resources make them a preferred partner for wireless service providers both in the US and internationally. 

Controlling our Underlying Land Positions. SBA has purchased or leased the land that underlies their towers at commercially reasonable prices and that these will increase their margins, improve our cash flow from operations, and minimize exposure to increases in ground lease rents in the future. As of December 31, 2015 , approximately 73% of their tower structures were located on land that they own or control for more than 20 years. The average remaining life of those ground leases, including renewal options under our control, was 33 years. As of December 31, 2015, approximately 5.8% of our tower structures have ground leases maturing in the next 10 years.

Using our Local Presence to Build Strong Relationships with Major Wireless Service Providers. Given the nature of towers as location-specific communications facilities, all that the company does is best done locally. As a result, the company has a broad field organization that allows the company to develop and capitalize on experience, expertise and relationships in each of their local markets which in turn enhances customer relationships. 

My Perspective

​The three communication tower companies recently viewed demonstrate what a critical and powerful industry this  really is. There's obviously a lot of money to be made here in any of the three companies and a more thorough and current review should be made by any individual thinking about investing in this industry. At this point in time I believe that American Tower is probably the better of the three companies but that may be splitting hairs and may drastically change in the months and years ahead. 

I really believe that the internet of the future is a wireless internet not tethered to a specific location. The idea that an individual has to find a connection to the internet will come to an end as the internet will be everywhere wirelessly. But I also believe that the internet will be even more critical in the future and it will never be free. There will be plenty of money to be made and the tower companies will be a large part of that business.

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American Tower Corporation

8/23/2016

3 Comments

 
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Founded in 1995, American Tower is one of the largest global real estate investment trusts (REITs) and a leading independent owner, operator and developer of multitenant communications real estate. Their primary business is leasing space on communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. In addition, they offer tower-related services in the United States, including site acquisition, zoning and permitting and structural analysis, which primarily support their site leasing business, including the addition of new tenants and equipment.

The company's portfolio consists of towers that they own and towers that they operate on long-term lease arrangements, as well as distributed antenna system (DAS) networks, which provide seamless coverage solutions in certain in-building and outdoor wireless environments. In addition to the communications sites, they manage rooftop and tower sites for property owners under various contractual arrangements.

They also hold property interests that they lease to communications service providers and third-party tower operators. The company's communications real estate portfolio of over 100,000 sites as of December 31, 2015, included over 40,000 communications sites in the United States, over 15,000 communications sites in Asia, over 12,000 communications sites in Europe, Middle East and Africa (EMEA) and nearly 33,000 communications sites in Latin America. 

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​American Tower Corporation is a real estate investment trust. It invests in the real estate markets across the globe. The firm engages in leasing of space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. American Tower Corporation was founded in 1995 and is headquartered in Boston, Massachusetts.
​(Summary) (Company) (Chart)
17 August 2016
Price $114.56
1yr Target $129.22
Analysts 18
Dividend $1.99
Payout Ratio 122.83%

1yr Cap Gain 12.79%
Yield 1.73%
1yr Tot Return 14.52%

P/E 70.93
PEG 2.36
Beta 0.58
EPS (ttm) $1.62
EPS next yr $2.78
Forward P/E 41.27
EPS next 5yr 30.05%
1yr Price Support $83.53

Market Cap $48.49 Bil
Revenues $5.25 Bil
Earnings $691.30 Mil
Profit Margin 13.16%

Quick Ratio 0.80
Current Ratio 0.80
Debt/Equity 2.76
1yr RevGR 16.36%
3yr RevGR 18.19%
5yr RevGR 19.17%

1yr EarnGR -29.5%
3yr EarnGR -4.09%
5yr EarnGR 8.91%

1yr DivGR 29.28%
3yr DivGR 25.93%
5yr DivGR ---

ROA 2.50%
ROE 10.30%

​Overview of the Business

American Tower is one of the largest global real estate investment trusts and a leading independent owner, operator and developer of multi-tenant communications real estate. Their primary business is the leasing of space on communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. They refer to this business as their property operations, which accounted for 98% of total revenues for the year ended December 31, 2015. They also offer tower-related services in the US, including site acquisition, zoning and permitting and structural analysis, which primarily support their site leasing business, including the addition of new tenants and equipment. The company refers to this business as their services operations.

The company's portfolio primarily consists of towers that they own and towers that they operate on long-term lease arrangements, as well as distributed antenna system (“DAS”) networks, which provide seamless coverage solutions in certain in-building and outdoor wireless environments. In addition to the communications sites, the company manages rooftop and tower sites for property owners under various contractual arrangements. They also hold property interests that they lease to communications service providers and third-party tower operators. The company's communications real estate portfolio of 100,615 communications sites, as of December 31, 2015, included 40,426 communications sites in the U.S., 15,074 communications sites in Asia, 12,176 communications sites in Europe, Middle East and Africa (“EMEA”) and 32,939 communications sites in Latin America.

American Tower Corporation was originally created as a subsidiary of American Radio Systems Corporation in 1995 and was spun off into a free-standing public company in 1998. Since inception, they have grown their communications real estate portfolio through acquisitions, long-term lease arrangements and site development. In 2015, they significantly expanded their portfolio by (1) obtaining the exclusive right to lease, acquire or otherwise operate and manage 11,449 wireless communications sites from Verizon Communications Inc. in the US and (2) acquiring 4,716 communications sites in Nigeria from certain subsidiaries of Bharti Airtel Limited. In addition, in October 2015, the company signed a definitive agreement pursuant to acquire a 51% controlling interest in Viom Networks Limited, a telecommunications infrastructure company that owns and operates over 42,000 wireless communications towers and 200 indoor DAS networks in India.

American Tower is a holding company and conduct their operations through their directly and indirectly owned subsidiaries and joint ventures. Their principal domestic operating subsidiaries are American Towers LLC and SpectraSite Communications, LLC. They conduct their international operations through the subsidiary, American Tower International, Inc., which in turn conducts operations through its various international holding and operating subsidiaries and joint ventures.

The use of Taxable REIT Subsidiaries (TRS) enables the company to continue to engage in certain businesses while complying with REIT qualification requirements. As of December 31, 2015, the company's US REIT qualified businesses included the company's US tower leasing business, most of our operations in Costa Rica, Germany and Mexico and a majority of the services segment and indoor DAS networks business.
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Property Operations 

American Tower's property operations accounted for 98% of their total revenues for each of the years ended December 31, 2015, 2014 and 2013. Company revenue is primarily generated from tenant leases who lease space on the company's communications real estate, where they install and maintain their individual communications network equipment. Rental payments vary considerably depending upon numerous factors, including, but not limited to, tower location, amount and type of tenant equipment on the tower, ground space required by the tenant and remaining tower capacity. American Tower's costs typically include ground rent (which is primarily fixed, with annual cost escalations) and power and fuel costs,  property taxes, repairs and maintenance expenses. Property operations have generated consistent incremental growth in revenue and have low cash flow volatility due to the following characteristics:
  • Long-term tenant leases with contractual rent escalations. In general, a tenant lease has an initial non-cancellable term of ten years with multiple renewal terms, with provisions that periodically increase the rent due under the lease, typically annually, based on a fixed escalation percentage (approximately 3% in the United States) or an inflationary index in our international markets, or a combination of both. Based upon foreign currency exchange rates and the tenant leases in place as of December 31, 2015, the company expects to generate over $30 billion of non-cancellable tenant lease revenue over future periods, absent the impact of straight-line lease accounting.
  • Consistent demand for our sites. As a result of rapidly growing usage of wireless services and the corresponding wireless industry capital spending trends in the markets we serve, the company anticipates consistent demand for their communications sites. They believe that their global asset base positions them to benefit from the increasing proliferation of advanced wireless devices and the increasing usage of high bandwidth applications on those devices. They have the ability to add new tenants and new equipment for existing tenants, which typically results in incremental revenue. Their legacy site portfolio and established tenant base provide them with a solid platform for new business opportunities, which has historically resulted in consistent and predictable organic revenue growth.
  • High lease renewal rates. Tenants tend to renew leases because suitable alternative sites may not exist or be available and repositioning a site in their network may be expensive and may adversely affect the quality of their network. Historically, churn has been approximately 1% to 2% of total property revenue per year. 
  • High operating margins. Incremental operating costs associated with adding new tenants to an existing communications site are relatively minimal. Therefore, as tenants are added, the substantial majority of incremental revenue flows through to gross margin and operating profit. In addition, in many of the international markets, certain expenses, such as ground rent or power and fuel costs, are reimbursed and shared by the tenant base.
  • Low maintenance capital expenditures. On average, the company requires relatively low amounts of annual capital expenditures to maintain their communications sites. 

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Communications Sites. 

Approximately 95%, 95% and 96% of revenue was attributable to the communications sites for the years ended December 31, 2015, 2014 and 2013, respectively. American Tower leases space on their communications sites to tenants providing a diverse range of communications services, including cellular voice and data, broadcasting, mobile video and a number of other applications. Their top tenants (by revenue) are the following for the year ended December 31, 2015:
  • U.S.: AT&T, Verizon Wireless, Sprint and T-Mobile accounted for an aggregate of 87% of U.S. property segment revenue.
  • Asia: Vodafone, Idea Cellular, Airtel and Aircel accounted for an aggregate of 73% of Asia property segment revenue.
  • EMEA: MTN Group Limited, Airtel, Cell C and Vodafone accounted for an aggregate of 82% of EMEA property
    segment revenue.
  • Latin America: Telefónica, AT&T, Nextel International and Telecom Italia accounted for an aggregate of 70% of Latin America property segment revenue. 

In addition to their communications sites, the company also owns and operates several types of managed network solutions, provide communications site management services to third parties, manage and lease property interests under carrier or other third-party communications sites and provide back-up power sources to tenants.

Managed Networks. American Tower owns and operates DAS networks in the US and certain international markets. They obtain rights from property owners to install and operate in-building DAS networks, and they grant rights to wireless service providers to attach their equipment to those installations. They also offer outdoor DAS networks as a complementary shared infrastructure solution for tenants in the US and in certain international markets. Typically, the company designs, builds and operates their outdoor DAS networks in areas in which zoning restrictions or other barriers may prevent or delay deployment of more traditional wireless communications sites. They also hold lease rights and easement interests on rooftops capable of hosting communications equipment in locations where towers are generally not a viable solution based on area characteristics. In addition, they provide management services to property owners in the US who elect to retain full rights to their property while simultaneously marketing the rooftop for wireless communications equipment installation. As the demand for advanced wireless devices in urban markets evolves, American Tower continues to evaluate infrastructure solutions, including small cells, that may support our tenants’ networks in these areas.

Property Interests. American Tower owns a portfolio of property interests in the US under carrier or other third-party communications sites, which provides recurring cash flow under complementary leasing arrangements.

​Shared Generators. American Tower has contracts with certain tenants in the US on which the company provides access to shared backup power generators. 

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Services Operations

American Tower offers tower related services, including site acquisition, zoning, permitting and structural analysis services. Services operations support their leasing business, including the addition of new tenants and equipment on their sites. This segment accounted for 2% of the company's total revenue for each of the years ended December 31, 2015, 2014 and 2013.

Site Acquisition, Zoning and Permitting. American Tower engages in site acquisition services for themselves in connection with their tower development projects, as well as on behalf of tenants. The company typically works with tenants’ engineers to determine the geographic areas where new communications sites will best address the tenants’ needs and meet their coverage objectives. Once a new site is identified, we acquire the rights to the land or structure on which the site will be constructed, and we manage the permitting process to ensure all necessary approvals are obtained to construct and operate the communications site.

Structural Analysis. The company offers structural analysis services for wireless carriers in connection with the installation of their communications equipment. American Tower's team of engineers can evaluate whether a tower structure can support the additional burden of the new equipment or if an upgrade is needed, which enables the company's tenants to more accurately assess potential sites before making an installation decision. The company's structural analysis capabilities enable the company to provide higher quality service to their existing tenants by reducing the time required to achieve operational readiness, while also providing opportunities to offer structural analysis services to third parties. 
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3 Comments

Crown Castle International

8/21/2016

0 Comments

 
Founded in 1994, Crown Castle provides wireless carriers with the infrastructure they need to keep people connected and businesses running. With approximately 40,000 towers and 14,000 small cell nodes supported by approximately 7,000 miles of fiber, Crown Castle is the nation’s largest provider of shared wireless infrastructure with a significant presence in the top 100 US markets.
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​Crown Castle International Corp. owns, operates, and leases shared wireless infrastructure in the United States and Australia. The company provides towers and other structures, such as rooftops; and distributed antenna systems, a type of small cell network (small cells). It provides access, including space or capacity to its towers, small cells, and third party land interests via long-term contracts in various forms, including license, sublease, and lease agreements. In addition, the company offers network services relating to wireless infrastructure, primarily consisting of antenna installations or subsequent augmentations, as well as site development services relating to wireless infrastructure. As of December 31, 2013, it owned, leased, or managed approximately 39,600 towers in the United States, including Puerto Rico; and approximately 1,700 towers in Australia. The company was founded in 1994 and is headquartered in Houston, Texas.
(Summary) (Company) (Chart)
16 August 2016
Price $94.80
1yr Target $105.81
Analysts 16
Dividend $3.54
Payout Ratio 354.00%

1yr Cap Gain 11.61%
Yield 3.73%
1yr Tot Return 15.34%

P/E 94.42
PEG ---
Beta 0.35
EPS (ttm) $1.00
EPS next yr $1.44
Forward P/E 65.65
EPS next 5yr -0.70%
1yr Price Support ---

Market Cap $31.92 Bil
Revenues $3.76 Bil
Earnings $336.90 Mil
Profit Margin 8.93%

Quick Ratio 0.90
Current Ratio 0.90
Debt/Equity 1.79
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1yr RevGR 3.53%
3yr RevGR 14.47%
5yr RevGR 14.29%

1yr EarnGR 325.00%
3yr EarnGR 89.21%
5yr EarnGR ---

1yr DivGR 307.92%
3yr DivGR ---
5yr DivGR ---

ROA 1.50%
ROE 4.70%
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Overview

Crown Castle owns, operates and leases shared wireless infrastructure, including: (1) towers and other structures, such as rooftops and (2) small cell networks supported by fiber. Their core business is providing access, including space or capacity, to their shared wireless infrastructure via long-term contracts in various forms, including license, sublease and lease agreements. They increase site rental revenues by adding more tenants on a shared wireless infrastructure which will produce significant incremental cash flows from relatively fixed operating costs.

Effective January 1, 2014, the company began operating as a REIT. As of December 31, 2015 the company owned, leased or managed approximately 40,000 towers and 16,000 fiber miles in the US. Approximately 56% and 71% of their towers are located in the 50 and 100 largest U.S. metro areas. The company owned, including fee interests and perpetual easements, land and other property interests on which approximately one-third of their site rental gross margin is derived. They also leased, subleased, managed and/or licensed the land interests on which approximately two-thirds of their site rental gross margin is derived. The leases for the land interests under the towers had an average remaining life in excess of 30 years.

For the year ended December 31, 2015, Crown Castle's customers included AT&T, T-Mobile, Verizon Wireless and Sprint which collectively accounted for 90% of their rental revenues. Site rental revenues represented 82% of 2015 consolidated net revenues and site rental gross margin represented 88% of the company's consolidated gross margin. Site rental revenues are of a recurring nature, and typically in excess of 90% have been contracted for in a prior year (excluding the impact of current year acquisitions). 

Site rental revenues typically result from long-term leases with (1) initial terms of five to 15 years, (2) multiple renewal periods at the option of the tenant of five to ten years each, (3) limited termination rights for our tenants, and (4) contractual escalations of the rental price. Exclusive of renewals at the tenants' option, the company's tenant leases have a weighted-average remaining life of approximately six years and represent $20 billion of future cash inflows.
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The Company
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Following the sale of CCAL in May 2015, virtually all of the company's operations are located in the US, and substantially all of the company's operations are conducted through subsidiaries of Crown Castle Operating Company. 

Site Rental. The company's core business is providing access, including space or capacity, to their shared wireless infrastructure in the US. This predominately consists of towers and small cells. They provide access to wireless carriers under long-term leases for their antennas which transmit a variety of signals related to wireless connectivity. To a lesser extent, they offer fiber solutions including dark fiber and lit fiber. Crown Castle believes their wireless infrastructure is integral to their customers' networks and to serve their customers.

The company acquired ownership interests or exclusive rights to the majority of their towers from the four largest wireless carriers through transactions consummated after 1999, including transactions with (1) AT&T in 2013, (2) T-Mobile in 2012, (3) Global Signal Inc. in 2007 which had originally acquired the majority of its towers from Sprint, (4) companies now part of Verizon Wireless during 1999 and 2000, and (5) companies now part of AT&T during 1999 and 2000. The small cell assets include those acquired from NextG Networks, Inc. in 2012 and the Sunesys Acquisition in 2015.

Crown Castle generally receives monthly rental payments from tenants, payable under long-term leases. The company has existing master lease agreements with most wireless carriers, including AT&T, T-Mobile, Verizon Wireless and Sprint; such agreements provide certain terms (including economic terms) that govern leases on their wireless infrastructure entered into by such carriers during the term of their master lease agreements. The company generally negotiates initial contract terms of five to 15 years, with multiple renewal periods at the option of the tenant of five to ten years each, and the leases include fixed escalations.

Tenant leases have historically had a high renewal rate and, with limited exceptions, tenant leases may not be terminated prior to the end of their current term, and non-renewals have averaged approximately 2% of site rental revenues over the last five years. In general, each tenant lease which is renewable will automatically renew at the end of its term unless the tenant provides prior notice of its intent not to renew. 

In excess of two-thirds of the company's direct site operating expenses consist of lease expenses and the remainder includes property taxes, repairs and maintenance, employee compensation or related benefit costs, or utilities. Cash operating expenses tend to escalate at approximately the rate of inflation. As a result of the relatively fixed nature of these expenditures, the addition of new tenants is achieved at a low incremental operating cost, resulting in high incremental operating cash flows. The company's wireless infrastructure portfolio requires minimal sustaining capital expenditures, including maintenance or other non-discretionary capital expenditures, and are typically approximately 2% of net revenues. 

Network Services. As part of the company's effort to provide comprehensive solutions they offer certain network services consisting of (1) site development services and (2) installation services. For 2015, 65% of network services related to site development services. The company has grown their network service revenues over the last several years as a result of increased volumes from carrier network upgrades, promoting site development services, expanding the scope of our services, and our focus on customer service and deployment speed. The company has the capability and expertise to install, with the assistance of a network of subcontractors, equipment or antenna systems for our customers. They don't always provide the installation services or site development services for their customers because third parties can also provide these services. 

Customers. Crown Castle works extensively with large national wireless carriers. The four largest customers (AT&T, T-Mobile, Verizon Wireless and Sprint) collectively accounted for 90% of the company's 2015 site rental revenues. 

Sales and Marketing. The company's sales organization markets their wireless infrastructure within the wireless industry with the objective of providing access to existing wireless infrastructure or to new wireless infrastructure prior to construction. Crown Castle seeks to become the critical partner and preferred independent wireless infrastructure provider for their customers and increase customer satisfaction relative to their peers.

Competition. Competition for site rental tenants comes from various sources, including (1) other independent wireless infrastructure owners or operators, including towers, rooftops, broadcast towers, utility poles, fiber providers, distributed antenna systems or other small cells, or (2) new alternative deployment methods in the wireless industry.

Some of the larger independent tower companies with which we compete include American Tower Corporation and SBA Communications Corporation. The company believes that tower location, deployment speed, quality of service, capacity and price have been and will continue to be the most significant competitive factors affecting the leasing of wireless infrastructure. 

Competitors in the network services offering include site acquisition consultants, zoning consultants, real estate firms, right-of-way consulting firms, construction companies, tower owners or managers, radio frequency engineering consultants, telecommunications equipment vendors who can provide turnkey site development services through multiple subcontractors, or the company's customers' internal staff. 

Sale of CCAL. On May 28, 2015, Crown Castle completed the sale of their 77.6% owned Australian subsidiary, CCAL, to a consortium of investors led by Macquarie Infrastructure and Real Assets. CCAL had historically been a separate operating segment. ​
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Wireless Industry Update.

​During 2015, consumer demand for wireless connectivity continued to grow. This growth in wireless consumption is driven by the increased usage of wireless applications, including (1) mobile entertainment (such as mobile video, mobile applications, and social networking), (2) mobile internet usage (such as email and web browsing) and (3) machine-to-machine applications (also known as "the Internet of Things"). As a result, consumer wireless devices are trending toward bandwidth-intensive devices such as smartphones, laptops, tablets and other emerging devices.
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The major wireless carriers continue to upgrade and enhance their networks, which has translated into additional demand for Crown Castle's wireless infrastructure. The company expects that consumers' growing wireless consumption will likely result in wireless carriers continuing to invest in their networks and focus on improving network quality and capacity by adding additional antennas or other equipment in an effort to improve customer retention or satisfaction. Additionally, spectrum licensed by the FCC has enabled continued wireless carrier network development.

​The company expects this development and the potential availability of additional spectrum through government auctions to enable continued future carrier network development and potential demand for their wireless infrastructure. 

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​My Perspective

This is a very interesting company in a somewhat unique business. There's also very limited competition and a high entry for anyone else wanting to enter this business. I will be looking at American Tower Corporation and SBA Communications in the near future and at that point I'll be able to compare their fundamentals and technicals.

At that point I'll be able to determine which company is the best to invest in but already I'm sure that this business is one I believe I'd like to be part of. I love companies the are absolutely necessary for modern life, produce products that are in high demand, and whose products are around us and yet we never notice them. They're the things that we all demand yet never really think about. And as a result produce continuous and reliable revenues, earnings and dividends. 

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0 Comments

Silver Springs Network

8/17/2016

0 Comments

 
If you have ever thought the internet was about connecting people with other people, you're only partially correct. The bigger plan has always been to connect everything and everyone to all things. And that's usually referred to as the internet of things (IoT). Silver Spring Networks is a provider of networking platform and solutions that enable utilities to transform the power grid infrastructure into the smart grid. The smart grid connects devices that generate, control, monitor and consume power, providing timely information and control to both utilities and consumers.
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​Silver Spring Networks, Inc. operates as a networking platform and solutions provider for smart energy networks. Its networking platform provides customers to communicate with devices connected to the power grid. The company’s SilverLink Data platform enables its customers to use the data generated by devices on the network to provide insights for decision making. It offers various solutions include advanced metering solution, which provides utilities with two-way communication, enabling utilities to remotely perform functions, such as reading meter usage, capturing time-of-use consumption data, connecting and disconnecting service, and detecting power outages; distribution automation solution that provides two-way communication from distribution devices along the power grid to the back office or substations, providing utilities with real-time information for grid monitoring and control; demand-side management solutions that consist of energy efficiency, demand response, and electric vehicle charging management; street light solutions; and Starfish, a wireless IPv6 network service for the IoT. In addition, the company provides professional services that include network design and optimization, deployment support, software and systems integration, program management, consulting, and training; managed services and SaaS, such as disaster recovery services; and technical, network, and product support at various service levels. It operates in the United States, Canada, Australia, New Zealand, South America, Asia, and Europe. The company was formerly known as Real Time Techcomm, Inc. and changed its name to Silver Spring Networks, Inc. in August 2002. Silver Spring Networks, Inc. was founded in 2002 and is headquartered in Redwood City, California.
​(Summary) (Company) (Chart)
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14 August 2016
Price $13.40
1yr Target $15.39
Analysts 9
Dividend $0.00
Payout Ratio 0.00%

1yr Cap Gain 14.85%
Yield 0.00%
1yr Tot Return 14.85%

P/E 10.27
PEG 0.38
Beta ​1.78
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EPS (ttm) $1.31
EPS next yr $0.29
Forward P/E 46.05
EPS next 5yr 26.91%
1yr Price Support $7.80

Market Cap $687.15 Mil
Revenues $439.30 Mil
Earnings $68.90 Mil
Profit Margin 15.68%

Quick Ratio 1.00
Current Ratio 1.00
Debt/Equity ---
1yr RevGR 155.94%
3yr RevGR 35.10%
5yr RevGR ---

1yr EarnGR ---
3yr EarnGR ---
5yr EarnGR ---

1yr DivGR N/A
3yr DivGR N/A
5yr DivGR N/A

ROA 14.50%
ROE -144.00%
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​Background

Silver Spring Networks was founded by Eric Dresselhuys and Keith Berge in July 2002 as Real Time Techomm in Butler, Wisconsin. In 2003 the company relocated to Redwood City, California when an $8 million investment was provided by Foundation Capital. With the move, Ray Bell became interim CEO and chief technology officer but left the company in 2005 to found Grid Net. Other investors soon included Northgate Capital, Kleiner Perkins Caufield & Byers and Google and in 2016 the company moved its headquarters to San Jose, California.

The first large pilot deployment was started in 2007 with Florida Power & Light (FPL) in southern Florida. In 2008, Pacific Gas and Electric Company (PG&E) signed an agreement to provide the company's smart meters, and remained the largest customer for at least several years. On July 7, 2011, Silver Spring Networks filed with the SEC to raise up to $150 million in their IPO but did not go public until March 13, 2013, raising just $81 million.
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​Products and Services

Silver Spring Networks develops equipment that creates wireless mesh networks and transmits energy consumption data between meters, consumers and utilities in real time. The software indicates how much money is spent on electricity and indicates how much can be saved if one switches to energy-efficient models. The meters in the PG&E deployment include two radios: one in the unlicensed ISM Band for communication back to the utility provider, and another intended for future communication to a home network. The technology has low bit rate requirements, but also needs to be very low cost.

Silver Spring is a partner with more than 40 companies and provides additional applications to utilities and customers on the Smart Energy Platform like smart thermostats, in-home displays, and electric vehicle (EV) charging technology.

Silver Spring began its technology offering with a smart grid network based on Internet Protocol (IP) technology, which was advocated for the smart grid by the U.S. Federal Communications Commission (FCC) and other smart grid experts. Silver Spring expanded on the network to smart grid application software that includes demand response (DR), demand management and other services for utilities and their customers.
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In October 2009 Silver Spring acquired Greenbox Technology, and developed its web-based software into a product called CustomerIQ. In an Oklahoma Gas & Electric pilot program involving 2,500 homes in the summer of 2010 on Silver Spring’s Smart Energy Platform, participants saw an average energy use drop of up to 33 percent during the highest price periods. The pilot consisted of several groups using Silver Spring’s web-based energy management solution as well as smart thermostats and in-home energy displays on various dynamic pricing schemes.
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​My Perspective

This is obviously not an investment for dividend growth investors because there are no dividends being distributed. Nor are there any expected to be distributed any time soon. So if you're a strict dividend investor, you might just want to skip this company altogether.

However, if you've ever been curious about where the internet is going, this company is probably on the cutting edge of the future. That's because the electric grid of the future is going to be IP based. And Silver Springs Network is at the heart of this movement. But they're not alone. They compete with Plexus Corp. (PLXS), OGE Energy Corp. (OGE), General Electric Company (GE) and CalAmp Corp. (CAMP) in this space so competition can often be fierce. And these companies are larger and better funded. 

But sometimes I feel a little constrained by my investing rules and I just want to take a chance on a very long term idea. Silver Springs Network may just be one of those ideas that the technological future will demand. And I think a very small investment today could end up being a very large investment one day. At lease it's worth a few dollars to find out. 
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0 Comments

Nordson

8/15/2016

0 Comments

 
Nordson Corporation just raised its dividend by 12.5%. It's not the first time it's raised its dividend and it's the kind of increase that gets my attention. So when I see these kinds of dividend increases, it's time to look at the fundamentals and technicals to see what they produce and try to determine if it's the kind of stock I'd like to own. 
Nordson Corporation (NDSN) declares a $0.27/share quarterly dividend. This represents a 12.5% increase from their prior dividend of $0.24. The forward yield is 1.18% and is payable on Sept. 6, for shareholders of record Aug. 23. Ex-div is Aug. 19.
​Nordson Corporation engineers, manufactures, and markets products and systems to dispense, apply, and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids. Its Adhesive Dispensing Systems segment provides dispensing, coating, and laminating systems for applying adhesives, lotions, liquids, and fibers to disposable products and continuous roll goods; and assembling plastic, metal, and wood products in paper and paperboard converting applications, as well as manufacturing continuous roll goods. This segment also offers automated adhesive dispensing systems for packaged goods industries; and components and systems used in the thermoplastic melt stream. The company’s Advanced Technology Systems segment offers automated dispensing systems for attachment, protection, and coating of fluids, as well as related gas plasma treatment systems for cleaning and conditioning surfaces prior to dispense; precision manual and semi-automated dispensers, plastic molded syringes, cartridges, tips, fluid connection components, tubing, and catheters to apply and control the flow of adhesives, sealants, lubricants, and biomaterials; and bond testing, and automated optical and X-ray inspection systems for use in the electronics, medical, and related industries. Its Industrial Coating Systems segment provides automated and manual dispensing products and systems to apply multiple component adhesive and sealant materials; dispensing and curing systems to coat and cure containers; systems to apply liquid paints and coatings to consumer and industrial products; and systems to apply powder paints and coatings to metal, plastic, and wood products, as well as ultraviolet equipment for use in curing and drying operations for specialty coatings, semiconductor materials, and paints. The company markets its products through its direct sales force, distributors, and sales representatives worldwide. Nordson Corporation was founded in 1935 and is headquartered in Westlake, Ohio.
(Summary) (Company) (Chart)
14 Sugust 2016
Price $90.59
1yr Target $93.78
Analysts 9
Dividend $0.96
Payout Ratio 24.42%

1yr Cap Gain 3.52%
Yield 1.05%
1yr Tot Return 4.57%

P/E 23.97
PEG 1.49
Beta 1.35
EPS (ttm) $3.93
EPS next yr $4.65
Forward P/E 19.48
EPS next 5yr 15.53%
1yr Price Support $72.21

Market Cap $5.12 Bil
Revenues $1.72 Bil
Earnings $230.80 Mil
Profit Margin 13.37%

Quick Ratio 1.80
Current Ratio 2.70
Debt/Equity 1.46
1yr RevGR -0.94%
3yr RevGR 6.14%
5yr RevGR 10.14%

1yr EarnGR -10.16%
3yr EarnGR 0.00%
5yr EarnGR 6.99%

1yr DivGR 15.00%
3yr DivGR 18.50%
5yr DivGR 18.12%

ROA ---
ROE ---
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Nordson Corporation delivers precision technology solutions to help customers succeed worldwide. They engineer, manufacture and market differentiated products used for dispensing adhesives, coatings, sealants, biomaterials and other materials; for fluid management; for test and inspection; and for UV curing and plasma surface treatment. They support their products with application expertise and direct global sales and service. The Nordson company serves numerous consumer non-durable, durable and technology end markets including packaging, nonwovens, electronics, medical, appliances, energy, transportation, construction, and general product assembly and finishing.
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Product Lines
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1. Adhesive Dispensing Systems Division

Nonwoven Systems - Equipment for applying adhesives, lotions and liquids to disposable products. 
   
Packaging Systems - Automated adhesive dispensing equipment used in the food and beverage and packaged goods industries. 
Product Assembly Systems - Dispensing, coating and laminating systems for the assembly of plastic, metal and food products, for paper and paperboard converting applications, and for the manufacturing of continuous roll goods. 

Polymer Processing - Precision components for plastic extrusion, injection molding, recycling, compounding, pelletizing and polymerization processes in a wide range of applications. 

2. Advanced Technology Systems

Nordson ASYMTEK - Automated dispensing systems for high-speed, accurate application of a broad range of attachment, protection and coating fluids. 
   
Nordson DAGE - High resolution x-ray inspection and bond testing equipment for analyzing the integrity of electronic connections in semiconductor packages and printed circuit board assemblies. 
   
Nordson EFD - Precision manual and automated dispensers for applying controlled amounts of adhesives, sealants, lubricants and other assembly fluids. 
   
Nordson MARCH - Automated gas plasma treatment systems used to clean and condition surfaces for the semiconductor, medical and printed circuit board industries. 
   
Nordson YESTECH - Automated optical inspection and x-ray inspection systems for yield enhancement in electronic assembly industries. 
   
Nordson MEDICAL - Single-use, engineered, plastic molded fittings, connectors, luers, valves, syringes, tips, tubing and catheters for dispensing and controlling fluids in medical equipment and procedures.
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3. Industrial Coating Systems

Container Coating & Curing Systems - Automated and manual dispensing and curing systems used to treat and cure food and beverage containers. ​

Liquid Finishing Systems - Automated and manual dispensing systems used to apply liquid paints and coatings to consumer and industrial products. 
​​Cold Material Systems - Products for dispensing ambient temperature, single and multiple component adhesives and sealants in general industrial and automotive applications. 
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Powder Coating Systems - Automated and manual dispensing systems used to apply powder paints and coatings to a variety of metal, plastic and wood products.  
   
UV (Ultraviolet) Curing Systems - Products and systems for curing liquids, powders, adhesives, sealers and coatings.

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​My Perspective

Products engineered and manufactured by Nordson can be found in a number of industries - Aerospace, Agriculture, Appliances, Automotive, Chemical, Construction, Defense, Electrical, Electronics, Energy, Food, Furniture, Lighting, Marine, Medical, Packaging, Graphics Arts and Textile. And that's why I'm most interested in the company. Their products are everywhere in the manufacturing process so their future should be secure. 

But when you look at the fundamentals above, it's obvious that revenues are sinking as well as earnings. Both are very bad signs. Add in the fact that it's priced at 23 times earnings and investors have to wonder why it's as high as it is. The only answer I can come up with is the dividend. It's been growing at a nice, but slowing rate, and the payout ratio is low enough that dividend increases can continue for awhile. But that can't go on forever unless there's a turnaround in revenues and earnings. 

I believe this company will be placed low on my watch list. It's P/E would have to sink into the low teens before I'd be interested and revenue and earnings would have to reverse their fall. Therefore I'd only buy this company if the price of the shares fell to an area somewhere between $60 and $70 per share. 

That would be a significant fall from it's current price near $90 per share. 

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0 Comments

Coca-Cola Relook

8/11/2016

0 Comments

 
Coca-Cola has one of the most impressive Dividend History Charts of any company on the list of Dividend Aristocrats. Normally a chart like leads me to believe it's the kind of company that should be in my portfolio. But charts like this always look backward. So before I put down a bunch of money on this stock, I thought I'd look at the fundamentals and see if I can figure out what's going on today to determine if it's still a good buy. 
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​The Coca-Cola Company, a beverage company, manufactures and distributes various nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Its sparkling beverages include nonalcoholic ready-to-drink beverages with carbonation, such as carbonated energy drinks, and carbonated waters and flavored waters. The company's still beverages comprise nonalcoholic beverages without carbonation, including noncarbonated waters, flavored and enhanced waters, noncarbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks. It also provides flavoring ingredients, sweeteners, beverage ingredients, and fountain syrups, as well as powders for purified water products. The Coca-Cola Company sells its products primarily under the Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero, Fanta, Sprite, Minute Maid, Georgia, Powerade, Del Valle, Schweppes, Aquarius, Minute Maid Pulpy, Dasani, Simply, Glaceau Vitaminwater, Bonaqua/Bonaqa, Gold Peak, FUZE TEA, Glaceau Smartwater, and Ice Dew brand names. The company offers its beverage products through a network of company-owned or controlled bottling and distribution operators, as well as through independent bottling partners, distributors, wholesalers, and retailers. The Coca-Cola Company was founded in 1886 and is headquartered in Atlanta, Georgia.
(Summary) (Company) (Chart)
10 August 2016
Price $43.61
1yr Target $47.76
Analysts 17
Dividend $1.40
Payout Ratio 80.45%

1yr Cap Gain 9.51%
Yield 3.21%
1yr Tot Return 12.72%

P/E 25.11
PEG 8.37
Beta 0.58
EPS (ttm) $1.74
EPS next yr $2.02
Forward P/E 21.63
EPS next 5yr 3.00%
1yr Price Support $6.06

Market Cap $188.31 Bil
Revenues $43.25 Bil
Earnings $7.62 Mil
Profit Margin 17.61%

Quick Ratio 1.10
Current Ratio 1.20
Debt/Equity 1.80
1yr RevGR -3.71%
3yr RevGR -2.63%
5yr RevGR 4.75%

1yr EarnGR 4.37%
3yr EarnGR -5.31%
5yr EarnGR -7.98%

1yr DivGR 8.19%
3yr DivGR 8.88%
5yr DivGR 8.44%

ROA 8.30%
ROE 29.50%
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​My Perspective

As a dividend growth stock this company has been on auto pilot for years. They've consistently raised their dividend by 8% every year for as long as I can remember. Anyone who has owned shares of Coca-Cola has been rewarded very nicely. But lately the fundamentals have started going in the wrong direction and this gives me pause. Revenues and earnings have been sporadic despite the company continuing to raise the dividend, and this is starting to show up in the payout ratio. At 80% the company is going to start having trouble increasing their dividend. 

A slowing of revenues and earnings is usually the first sign that the company is starting to get into trouble. When this happens management often continues to grow the dividend hoping that many of their shareholders won't notice the deteriorating fundamentals. The percentage payout ratio begins to rise abnormally high and ultimately the dividend is frozen or cut. When that happens investors will sell and the stock will get hammered. By the time management's bonuses are cut (those are usually preserved until the absolute end) it's too late for shareholders.

The fundamentals above indicate to me that Coca-Cola is already started down that path. And as a shareholder I'm monitoring the situation closely to see if there's a remote possibility of a turnaround but if things continue down this path I could very quickly be an ex-shareholder of Coca-Cola. Let's hope for the best because I've really enjoyed that increasing dividend all these years. 

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0 Comments

Service Corporation International

8/8/2016

0 Comments

 
It's inevitable that we're all going to die one day. And like what occurs at every other important event in our lives, money changes hands. Death is no exception. Funeral costs are high and getting higher each year as companies that provide death care products and services continue to make a lot of money. Service Corp is a leader in this industry with more than 1500 funeral homes and 400 cemeteries in 43 states, eight Canadian provinces, and Puerto Rico. 
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Dignity Memorial Legacy Funeral Service

​Service Corporation International provides deathcare products and services in the United States and Canada. The company operates through Funeral and Cemetery segments. Its funeral service and cemetery operations comprise funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and related businesses. The company also provides professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles; arranging and directing services; and removal, preparation, embalming, and cremation services, as well as catering services. In addition, it offers funeral merchandise, including burial caskets and related accessories, urns and other cremation receptacles, outer burial containers, flowers, on-line and video tributes, stationery products, casket and cremation memorialization products, and other merchandise. Further, the company's cemeteries provide cemetery property interment rights, including developed lots, lawn crypts, mausoleum spaces, niches, and other cremation memorialization and interment options; and sells cemetery merchandise and services, including memorial markers and bases, floral placements, graveside services, merchandise installation, and burial openings and closings, as well as offers preneed cemetery merchandise and services. Service Corporation International offers its products and services under the Dignity Memorial, Dignity Planning, National Cremation Society, Advantage, Funeraria del Angel, Making Everlasting Memories, Neptune Society, and Trident Society brands. As of December 31, 2015, it operated 1,535 funeral service locations; and 469 cemeteries, including 262 funeral service/cemetery combination locations covering 45 states, 8 Canadian provinces, the District of Columbia, and Puerto Rico. The company was founded in 1962 and is headquartered in Houston, Texas.
(Summary) (Company) (Chart)
26 June 2016
Price $26.96
1yr Target $32.25
Analysts 4
Dividend $0.52
Payout Ratio 57.14%

1yr Cap Gain 19.62%
Yield 1.92%
1yr Tot Return 21.54%

P/E 29.50
PEG 2.45
Beta 0.86
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EPS (ttm) $0.91
EPS next yr $1.37
Forward P/E 19.66
EPS next 5yr 12.04%
1yr Price Support $16.49

Market Cap $5.27 Bil
Revenues $2.98 Bil
Earnings $182.90 Mil
Profit Margin 6.10%

Quick Ratio 0.60
Current Ratio 0.70
Debt/Equity 2.75
1yr RevGR -0.27%
3yr RevGR 7.41%
5yr RevGR 6.39%

1yr EarnGR 40.74%
3yr EarnGR 17.46%
5yr EarnGR 17.91%

1yr DivGR 29.41%
3yr DivGR 23.87%
5yr DivGR 11.09%

ROA 1.60%
ROE 15.50%
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My Perspective

As the population continues to increase the number of deaths will also increase. And that means a continually growing business for Service Corp. Add in the fact that funeral costs will continue to rise and revenues should continue to rise almost indefinitely. But the one year revenue growth has recently been negative and that throws up a red flag for me. Earnings and dividends, however, are increasing. That difference needs to be monitored before funds are spent on shares of this company. 

​It's also a bit pricey for my investing strategy. While a P/E of almost 30 makes me notice, it's the PEG of 2.45 that gives me pause. Even with an estimated 50% increase in earnings next year the P/E ratio only falls to just below 20, and that compares to an expected 5 year earnings growth rate of 12%. 

I think this company has a great future but I really want to monitor revenue to ensure that growth continues. Without top line growth the company will have trouble increasing the bottom line. 

​As a result, this company will go high on my watch list with the potential of starting a position in the near future as revenues increase or the price of the stock pulls back. I think there's a lot of things to like about this company!
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    I am an Individual Investor with specific interest in long term growth and then enhancing my returns with income from dividends and derivatives. I don't recommend stocks to anyone (it's a good way to lose friends) and no one reading this should misinterpret my blog as a recommendation for any type of investment. I am writing this solely for myself and my kids.

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