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Conestoga on Agilysys $AGYS US
Thesis: Agilysys is set to accelerate growth with its robust software offerings for the hospitality industry, underpinned by a strong subscription model and key client wins.
Extract from their Q2 letter, link here
Analysis: Based in Alpharetta, GA, Agilysys is a leading provider of software to the hospitality industry. The company offers approximately 30 products, including point-of-sale, property management, and inventory management, to the hotel, casino, resort, and gaming industries. Key clients include Hilton, Marriott, and Caesars Entertainment. Its recent win with Marriott with its property management product should provide accelerated revenue growth and increased profitability starting in mid-2025. The company’s business model has solid visibility, with subscription revenues accounting for 55% of total recurring revenue. We expect the company to grow its revenues and earnings at levels consistent with our buy criteria.
Check here for the latest results, quarterly call and analysts' estimates.
Davis fund on Applied Materials $AMAT US
Thesis: Applied Materials is primed to benefit from the AI boom, leveraging its expertise in advanced semiconductor manufacturing to capture a growing market share.
Extract from their Q2 letter, link here
Analysis: Our longstanding investment in the largest semiconductor equipment vendor, Applied Materials, predates the investment mania surrounding GenAI, but its emergence has proven to be an accelerant for the company’s core technologies, especially advanced packaging for HBM and multi-chip (tile) integration. The use of new materials and the increase in processing steps required to manufacture chips at 3 nanometers and below expands Applied Materials’ addressable market and increases its market share. New transistor structures and power-distribution systems will each draw heavily on Applied Materials’ unique expertise in depositing and etching these new features. And the die size of the individual tiles that form the GPU continues to get larger, meaning that more production tools are needed just to produce the same number of GPUs one generation to the next. GPU volume for training alone probably needs to more than double next year to train the 10 trillion parameters anticipated for OpenAI’s GPT5.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Broadcom $AVGO US
Thesis: Broadcom is set to capitalize on explosive AI growth and its strategic VMWare acquisition, driving strong performance in both the short and long term.
Extract from their Q2 letter, link here
Analysis: Broadcom Inc. is a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. The company reported strong quarterly results and increased its outlook for the full year on strength from its AI-related semiconductor products for networking and Custom Compute. In networking, Broadcom remains the market leader and expects all hyperscale customers to use its Ethernet solutions in the coming years as they grow AI training clusters from 100,000 accelerators today to over 1 million in the future. In Custom Compute, Broadcom remains well positioned with three key consumer internet hyperscale customers and believes it has a more than $100 billion cumulative opportunity in the coming years compared to the $11 billion guided revenue for this fiscal year. The VMWare acquisition is performing better than expected, with rapid sequential growth expected to continue as the company simplifies the product offerings and converts customers from a perpetual license/maintenance model to a true SaaS model. We believe that the combination of Broadcom’s strong competitive positioning, AI-related growth, VMWare accretion, and reasonable valuation set up a favorable mid- and long-term outlook for the stock and have therefore increased our position during the quarter.
Check here for the latest results, quarterly call and analysts' estimates.
FPA on Carmax $KMX US
Thesis: CarMax is well-positioned to leverage its industry-leading customer experience and data-driven operations to capture greater market share in the fragmented used vehicle market.
Extract from their Q2 letter, link here
Analysis: CarMax is the largest independent used vehicle dealer in the US. With 245 locations and 30 years of operating experience, CarMax has built a strong brand focused on providing the best user experience for buying a used car. Consumers can shop online and in-store (quickly transitioning from one to the other at any point in the process) and don’t have to haggle with salespeople. Purchasers can pre-qualify for vehicle financing on its website and then shop/compare vehicles by monthly payment with complete confidence that the price displayed will ultimately be what they pay. Vehicles all meet a 125-point inspection to the CarMax Quality Certified standard, and if something goes wrong, vehicle buyers have an industry-leading 10-day money-back guarantee. CarMax uses the data from its millions of vehicles purchased and sold to understand the right price to buy, recondition, and sell used vehicles, and as a result, has consistently generated an industry-leading gross profit per unit (GPU) for decades. We believe each part of CarMax’s sales proposition would be difficult for smaller independent operators to replicate, let alone the entire customer value proposition. Even Carvana, CarMax’s best-known peer, lacks:
The option to shop in-store or test-drive the vehicle for 24 hours before purchase.
CarMax’s range of finance providers.
CarMax’s 10-day money-back guarantee (Carvana has a shorter 7-day money-back guarantee).
While a recent downturn in used vehicle sales due to the impact of higher inflation and interest rates on monthly vehicle payments has hurt CarMax’s recent volumes and market share, we believe it continues to improve the customer experience, which we think will result in increased vehicle sales volumes and market share gains within its existing store base that should drive higher profits per vehicle and improve the company’s returns on invested capital. As of year-end 2023, CarMax has ~4% of the fragmented used vehicle market, and while we don’t know exactly how big the company can ultimately grow, a good long-term yardstick is CarMax’s oldest stores, which have 10%+ market share (which is still growing).
Check here for the latest results, quarterly call and analysts' estimates.
Harris Associates on Corebridge Financial $CRBG US
Thesis: Corebridge Financial offers a strong market position in retirement solutions with a diversified earnings profile, making it an attractive investment at a discount following reduced AIG ownership.
Extract from their Q2 letter, link here
Analysis: Corebridge Financial is one of the largest providers of retirement solutions and insurance products in the United States. Corebridge’s extensive distribution network and long-standing relationships with large financial institutions have helped it maintain a high market share position for decades. In our view, the market values Corebridge as a variable annuity company despite its more diversified and less risky earnings profile relative to peers. In addition, we believe the recent reduction in AIG's significant ownership stake removes an overhang in the stock price. The combination of these factors provided the opportunity to invest in Corebridge at a discount to other non-variable annuity peers and our estimate of intrinsic value.
Check here for the latest results, quarterly call and analysts' estimates.
Harris Associates on Equifax $EFX US
Thesis: Equifax, with its strong market position and ongoing cloud transformation, is well-positioned for growth, making it an undervalued opportunity in the high-quality information services sector.
Extract from their Q2 letter, link here
Analysis: Equifax is a leading data, analytics, and technology company. The company controls proprietary data sets that are primarily monetized through income and employee verification and credit reports. Equifax’s products are deeply embedded into client workflows and benefit from network effects, whereby its value is enhanced as users increase. We believe this combination, along with the company’s leading market share position, provides a strong economic moat that should lead to attractive growth over time. Additionally, the company is nearing the completion of its cloud transformation, which we expect will lead to increased innovation, reliability, and speed to market. In our view, Equifax’s business profile and growth potential rival those of higher-quality information services companies, yet the stock trades for a material discount to this group, which provided us the opportunity to invest in the company at a discount to our estimate of intrinsic value.
Check here for the latest results, quarterly call and analysts' estimates.
Harris Associates on Etsy $ETSY US
Thesis: Etsy presents a compelling long-term investment opportunity as it continues to expand internationally and recapture growth momentum, offering significant upside following its recent sell-off.
Extract from their Q2 letter, link here
Analysis: Etsy is a global marketplace for unique and creative goods that connects millions of buyers and sellers across the world. We first became interested in Etsy in 2017 when Josh Silverman took over as CEO and began transforming the company from a borderline nonprofit into a higher margin, faster-growing enterprise. The Covid-19 pandemic accelerated the company’s already strong fundamental results as millions of new customers flocked to the platform, but like many other Covid-19 beneficiaries, Etsy has since fallen deeply out of favor. In our view, investors today are too focused on the timing of Etsy’s return to growth and are ignoring the company’s positive long-term outlook. We believe the macro environment for Etsy’s product categories will eventually improve and Etsy is poised to benefit. At the same time, we believe Etsy’s continued push into international markets can provide a solid source of revenue growth for the long-term. After the recent sell-off, we were able to purchase shares at a discount to our estimate of intrinsic value.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Exact Sciences Corporation $EXAS US
Thesis: Exact Sciences is poised for significant growth with its market-leading Cologuard test and upcoming innovations, making it an attractive investment with the potential to double over the next five years.
Extract from their Q2 letter, link here
Analysis: Exact Sciences Corporation has the best-in-class non-invasive colorectal cancer (CRC) diagnostic test. It is a stool-based test called Cologuard which produces $2 billion in revenue (over 70% of the company’s 2024 revenue). Cologuard is second in accuracy only to having a colonoscopy, which is the gold standard in diagnostics. However, many people dislike the uncomfortable colonoscopy prep (if you have done it, you know) and the invasive nature of the procedure. Exact Sciences is also the market leader in breast cancer recurrence testing with its Oncotype DX genetic test (used by 90% of U.S. oncologists due to its robust clinical evidence). We initiated an investment in the stock in the low $40’s during the second quarter (shares peaked at $158 in 2021 and traded as high as $100 in July 2023).
Exact Sciences’ stock price has fallen for multiple reasons including:
(1) a surprise FDA advisory committee panel recommendation of approval of competitor Guardant Health’s blood-based CRC test in June 2024 (label yet to be disclosed); and
(2) the company’s increase in marketing expense beyond expected levels (which people fear will compress margins). It is not guaranteed that the Guardant test will receive FDA approval as the panel decision is a non-binding recommendation, and we do not yet know what the label for the test will be (how it will be allowed to be marketed or use for clinical diagnosis). We believe the threat of blood-based tests is overblown given they are far less accurate than stool tests (including Cologuard with about 90% for stage 1 (92% for all stages), and AA sensitivity in the low 50% versus Cologuard at 42%). Should Guardant’s test gain full FDA approval, we suspect its label will warn that it is inferior on early-stage CRC detection to stool tests and colonoscopy. Moreover, the blood-based test is expensive to run using NGS (next generation sequencers) versus Cologuard, which uses a cheaper technology called PCR. If the blood test doesn’t get reimbursement at the same level as Cologuard (for a three-year test), they might not be very profitable to run. The tests might be entirely unprofitable if they are needed every year (due to how they may need to be reimbursed at only one-third of the level of Cologuard to keep the provider costs at parity). We also believe that it is prudent for the company to increase its marketing spend to compete with blood tests while the threat remains overblown. Exact Sciences has a robust nationwide salesforce to manage the additional tests in its pipeline including Cologuard Plus, Oncotype (which is a cancer recurrence test that uses a new technology called MRD (minimal residual disease), and potentially Exact Sciences’ own blood-based CRC test (a test is to be presented this year).
The market for CRC testing is huge, with about 110 million people in the U.S. eligible for CRC screening. Approximately 35 million eligible people get no testing at all (equivalent to 12 million Cologuard tests at a three-year frequency). About 5 to 6 million people do a colonoscopy (which equates to about 50 to 60 million of the eligible individuals since colonoscopy frequency is every 10 years). The rest get stool tests (including Cologuard which is 4 million tests per year – equivalent to 12 million eligibles because the test is done on a three-year frequency) and an older technology called FIT (about 8 to 10 million tests done every year so covering 8 to 10 million eligible individuals). FIT is a similar test to Cologuard in terms of the sample collection, but it is far less accurate (74% CRC sensitivity and only 24% AA sensitivity, versus 92% and 42% for Cologuard). FIT’s only advantage is it is a cheaper test (which we believe is negated by its lower accuracy). So Cologuard’s greenfield opportunity is 15 million tests (12 million tests for people not getting any CRC screening, plus another 3 million tests that could be taken from FIT at a 3-year frequency). This opportunity is worth $7.5 billion in annualized revenues at $500 per test on top of the $2 billion Exact Sciences does now (so $9.5 billion total potential). An updated version of Exact Sciences’ test called Cologuard Plus is expected to launch in 2025 that reduces “false positives” in the test by 30%, so is much more accurate. The test will cost less to process than the original test (in other words it will be higher margin to Exact Sciences) and is likely to be reimbursed at a higher rate (some analysts believe 30% more, or about $650 per test). This would equate to $600 million in incremental high margin revenue on the existing 4 million test base at Exact Sciences and $2.25 billion more on the greenfield new tests that the company could obtain, bringing the total potential revenue on all of these tests to over $12 billion (over six times Exact Sciences’ current revenue level for CRC testing).
At our investment basis, we believe that we are buying the company at only three times its EV/Sales multiple in 2025 (very cheap historically for a diagnostic company with mid-teens top-line growth and low 30% cash flow growth). We believe we will realize at least a double on our investment over the next five years.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Glaukos Corporation $GKOS US
Thesis: Glaukos is set to revolutionize glaucoma treatment with its innovative iDose device, capturing a significant share of a large, underserved market.
Extract from their Q2 letter, link here
Analysis: Another new addition was Glaukos Corporation, which develops and sells interventional glaucoma treatments. Glaukos is launching iDose, a new minimally invasive drug-delivery device that treats glaucoma. Glaucoma is when a patient has high pressure inside the eye, which damages the optic nerve and can lead to blindness. Most patients with glaucoma are treated with daily prostaglandin eye drops, but:
patients are notoriously noncompliant leading to lower efficacy (more than 90% of patients are noncompliant and around 50% discontinue their medication within six months); and
prostaglandin eye drops cause bothersome side effects including dry eye, red eyes, and periorbital fat loss “raccoon eyes.”
An iDose is implanted as a five-minute procedure and delivers a highly concentrated prostaglandin formulation inside the eye that is effective for up to three-plus years. Compared to prostaglandin eye drops, iDose ensures patient compliance and the intraocular dosing significantly reduces side effects. We think glaucoma is a large market (there are approximately 3 million patients in the U.S. with glaucoma and up to an additional 6 million patients with ocular hypertension that are eligible for iDose) and is ripe for new standalone interventions. We think the iDose can be a $1 billion product over time and are bullish on Glaukos shares.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Healthpeak Properties $PEAK US
Thesis: Healthpeak Properties is poised for solid growth driven by strong demand in lab and outpatient real estate, synergistic mergers, and strategic asset management.
Extract from their Q2 letter, link here
Analysis: In the most recent quarter, we initiated a position in Healthpeak Properties, Inc. following our meeting with CEO Scott Brinker and CFO Peter Scott. Healthpeak is one of the largest health care REITs and owns a diversified portfolio of lab, outpatient medical, and continuing care retirement community (CCRC) properties. We are excited about the long-term prospects for health care real estate, driven by an aging senior population and accelerating scientific discovery and drug approvals. We believe the multi-year growth prospects for Healthpeak are especially attractive for four reasons:
The leasing demand environment for Healthpeak’s lab portfolio (approximately 45% of the total portfolio) continues to improve. Demand improvement follows a period of softer industry fundamentals and declining rent growth. The capital markets environment for biotechnology in particular has since improved dramatically, and management is optimistic that lab market rent growth may soon reaccelerate across the portfolio.
Healthpeak’s outpatient medical and CCRC portfolios continue to perform well (approximately 44% and 10%, respectively, of the total portfolio). The outpatient medical portfolio has performed resiliently even as several competitor properties have underperformed owing to their inferior locations and tenant credit profiles. The CCRC portfolio continues to grow at a rapid clip.
Several development and redevelopment projects offer significant growth potential over the next several years. The company has several development and redevelopment projects in California that are actively leasing and are expected to drive outsized growth over the next several years. Based on our recent discussions with management, we believe tenant demand for each project remains strong.
The company’s recently completed merger with Physicians Realty Trust is highly synergistic. In March 2024, Healthpeak closed on its previously announced all-stock acquisition of Physicians Realty Trust for $4.6 billion. The combination formed a leading platform of outpatient medical real estate and is expected to realize meaningful synergies in 2024 and 2025, resulting in compelling long-term upside.
We believe the company can grow cash flow at a mid-high single-digit rate in the next few years. We view the current valuation as depressed relative to historical levels, publicly traded peers and the private market, and we expect the valuation multiple to expand in time. In the meantime, we earn a 6.2% dividend yield that is well covered, while management continues to look for opportunities to sell non-core properties at high multiples and recycle proceeds into share repurchases at low multiples.
Check here for the latest results, quarterly call and analysts' estimates.
Davis fund on Humana $HUM US
Thesis: Humana offers a compelling long-term growth opportunity in Medicare Advantage, poised to rebound strongly as industry-wide cost pressures stabilize.
Extract from their Q2 letter, link here
Analysis: Humana is a Medicare-focused U.S. health insurer with an attractive long-term growth profile. Enrollees in the private version of Medicare, called Medicare Advantage (MA), have historically grown at high rates (approximately 8% compound annual growth rate (CAGR) for the past 10 years) because of a growing population of seniors and an increasing percentage of those seniors choosing MA over traditional fee-for-service Medicare. Per-capita premium growth further bolsters revenue growth in most years. This growth has been matched with a high-teens average return on equity (ROE) over many years, and significant barriers to entry because of the highly regulated nature of the health insurance industry. Humana is the second largest insurer in MA, behind UnitedHealth. In terms of risks, Humana’s focus on MA brings program-specific political risks, but we believe the large and growing voting block of MA members (now greater than 10% of voters) offers some protection from extreme outcomes.
In addition to the MA insurance business, Humana also has a growing healthcare services segment, focused on primary care, home health, and pharmacy. This segment supplements Humana’s third-party provider relationships with in-house capabilities to improve quality and lower costs for members in select markets. Humana also has a small but growing Medicaid business.
We bought Humana shares in Davis Global Fund earlier this year, at what we believe are attractive prices (double-digit internal rates of return) after an unexpected uptick in medical costs pressured margins and forced the company to lower guidance, which sent the stock tumbling. This cost uptick is industry-wide and has come just as per-capita premium growth in MA has hit a lull. So, margins are being squeezed from both sides, and competitors have responded with commitments that they will prioritize margins over member growth in coming periods. It likely would take several years for Humana’s margins to return back to normal/ target, and member growth may temporarily stall or even decline as benefits are cut. But we believe the seeds are now in place for an attractive multiyear margin improvement cycle as competitors become more disciplined in their annual MA bids, and exit unprofitable geographies. Humana stands to benefit and should return to attractive growth once the current turmoil has passed.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Integer Holdings Corporation $ITGR US
Thesis: Integer Holdings is primed for rapid growth, leveraging its leadership in med-tech manufacturing and strategic acquisitions to outpace the market.
Extract from their Q2 letter, link here
Analysis: We initiated a position in Integer Holdings Corporation, the largest medical device outsourcer (MDO) manufacturer. Integer helps design and manufacture components, sub-assemblies, and full devices for a range of companies, including the five largest med-tech companies. We think this is an attractive business with high barriers to entry and high switching costs. It takes a lot of time and money to design, qualify, and study new med-tech devices and components, and Integer is often specced into their customers’ devices. Compared with other MDOs, Integer has a number of differentiated capabilities (particularly in battery-related technologies), the most comprehensive offering in their space, and strong relationships with its large customers. Customers prioritize speed-to-market, ability-to-scale, and reliability/quality of manufacturing. Integer performs extremely well on all these metrics. Larger customers are also trying to consolidate vendors and Integer has the most comprehensive offering available. Integer is exposed to several of the most interesting ongoing med-tech launches (including neurostimulation, pulsed field ablation, and structural heart), and we think that the company is poised to grow faster than the market given its focus on collaborating with med-tech on innovative devices. On top of its organic revenue growth, Integer continues to invest inorganically via acquisitions to augment its technological capabilities and manufacturing scale. All of this should lead to top-line growth of about 10% per year.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on KKR $KKR US
Thesis: KKR is positioned to capitalize on the expanding alternative asset management industry, with a diversified business model and strong growth prospects that offer substantial long-term upside.
Extract from their Q2 letter, link here
Analysis: We initiated a position in KKR & Co. Inc., one of the largest alternative asset managers in the world with $578 billion of assets under management (AUM). We believe alternative asset management is one of the best secular growth areas of financial services, and KKR should be a prime beneficiary. Global alternatives AUM totaled $16.3 trillion at the end of 2023 and grew at an 11% CAGR since 2010, according to Preqin. Annual industry growth is expected to exceed 8% over the next five years, with private equity (PE), venture capital, and private credit expected to grow at double-digit annual rates.
Founded in 1976 as one of the earliest leveraged buyout firms, KKR was led for decades by co-founders Henry Kravis and George Roberts. Since going public in 2010 as a pure-play PE firm, KKR has successfully diversified into other private asset classes, including private credit, real estate, and infrastructure investing. AUM has risen nearly 10-fold since 2010 (an 18% CAGR), and PE’s share of firm AUM has shrunk to less than one-third. These non-PE asset classes are less penetrated than PE and provide a substantial runway for KKR to continue growing its funds, fees, and earnings. KKR also has significant growth opportunities in Asia. The firm entered the Asian market in 2005 and has a scaled presence with 570 employees in a region where alternative asset management is far less penetrated compared to Western countries. In 2021, KKR successfully transitioned leadership from Kravis and Roberts to co-CEOs Scott Nuttall and Joe Bae, longtime KKR employees responsible for many of the growth initiatives that are driving KKR’s success today.
In addition to its globally diversified asset management business, KKR has significant exposure to the growth of private credit through its ownership of Global Atlantic, an insurance company with $177 billion of AUM. Like Athene (an insurer owned by Apollo Global Management, Inc., another holding of the Fund), Global Atlantic is a beneficiary of the shift of illiquid credit assets into the private markets where they are better matched from a funding duration perspective and can deliver higher yields than publicly traded fixed income securities with the same credit ratings. KKR also has a strategic holdings segment that includes co-investments in a portfolio of high-quality businesses managed by KKR’s PE funds. These balance sheet investments should generate a durable stream of earnings and dividends for KKR that will be reinvested back into the business or returned to shareholders.
As KKR enters a new fundraising cycle, management expects to raise over $300 billion of capital over the next three years. When we attended the company’s investor day in April, management guided to 20% annualized growth in fee-related earnings and 30% annualized growth in earnings per share, reaching $7 to $8 by 2026. We believe our initial purchase of the stock around $100 per share represents an attractive valuation of 12.5 times earnings (using the top end of the 2026 guidance range) for a durable growth business. Furthermore, KKR management expects earnings to more than quadruple to over $15 per share within ten years, representing a 16% CAGR. We think KKR’s diversified platform of leading businesses gives the company multiple ways to grow earnings as they execute into the expanding market for alternative assets, which should bode well for the stock over the long run.
Check here for the latest results, quarterly call and analysts' estimates.
Equam on KLX $KLXI US
Thesis: KLX offers a strong recovery play in the oil and gas sector, with recent business improvements and reduced leverage positioning it well for future growth despite current market challenges.
Extract from their Q2 letter, link here
Analysis: KLX is a service company for the oil and gas sector in the United States. The company suffered greatly during the pandemic years due to the sharp drop in investment during those years. However, in recent years it has seen a very substantial improvement in its business, has consolidated several companies by strengthening its service offering and has managed to significantly reduce its leverage to very reasonable levels. Despite this, the share price has experienced a very substantial drop in recent months to almost historic lows due to a certain slowdown in production activity in the United States in recent months. However, our medium-term outlook remains positive, and we have again strengthened our position in this company.
Check here for the latest results, quarterly call and analysts' estimates.
Davis fund on Meta $META US
Thesis: Meta is poised for long-term growth by leveraging its AI advancements, especially in generative AI, to enhance user engagement and drive significant revenue gains.
Extract from their Q2 letter, link here
Analysis: We seek out attractive businesses that are both proven and profitable but which also stand to benefit from the growth in AI. Meta, for instance, has a highly profitable growing business as the global leader in social media and messaging with its Facebook, Instagram and WhatsApp platforms. AI-recommended content now accounts for 30% of posts read on Facebook and 50% of posts on Instagram.
In addition, Meta’s Llama 3 is widely considered the most advanced open-source large language model family released to date. The company also has detailed a number of compelling AI product initiatives that we believe have the potential to generate significant incremental revenue and earnings for Meta over time. Some of these have already gone live, including ad creative automation with generative AI and the Meta AI assistant, which was broadly rolled out across the company’s apps in April. We expect that these products will improve significantly over time as the company iterates and expands its features and as the underlying foundational models continue to advance.
While the market appears to have some concerns about the investment levels required for Meta’s generative AI initiatives, we believe these investments are worthwhile given the potential for GenAI to redefine user experience and catalyze platform shifts. We are also comforted by management’s commitment to financial and cost discipline as well as its strong track record of product execution, which we think raises the odds that Meta’s efforts will benefit shareholders in the long-term.
Check here for the latest results, quarterly call and analysts' estimates.
Harris Associates on Nasdaq $NDAQ US
Thesis: Nasdaq's successful transformation into a tech-driven platform with strong recurring revenue and growth potential presents a compelling value, especially after a market overreaction to recent acquisitions.
Extract from their Q2 letter, link here
Analysis: Nasdaq is a global technology company that provides platforms and services for capital markets and other industries. Over the past decade, under the leadership of CEO Adena Friedman, Nasdaq has transformed from a traditional equity exchange into a collection of fast-growing, high-quality software and data businesses with the majority of revenue coming from non-exchange segments. Although Nasdaq’s transformation has been a success for shareholders, its recent acquisition of Adenza led some investors to question management’s capital allocation discipline. We believe the share price reaction more than compensates for the risk that Nasdaq overpaid for Adenza. More importantly, the experience seems to have catalyzed a renewed focus on organic growth, debt paydown, and capital return. Despite Nasdaq’s potential for faster-than-average growth, high mix of recurring revenue, and impressive operating margins, the stock trades at a P/E multiple in line with the broader market. We were pleased to purchase shares in this excellent business for an average price.
Check here for the latest results, quarterly call and analysts' estimates.
Munro on SharkNinja $SN US
Thesis: SharkNinja is poised for significant growth in the global appliance market, driven by relentless innovation and strategic branding initiatives.
Extract from their Q2 letter, link here
Analysis: SharkNinja operates under two key brands: Shark and Ninja. Shark focuses on home cleaning and beauty appliances, while Ninja specializes in food preparation, cooking, and beverage appliances. Spun off from JS Global Lifestyle in 2023, SharkNinja’s product range spans across 33 subcategories, from vacuums to grills.
SharkNinja’s innovation engine consistently produces cutting-edge products that meet market demands. They launch approximately 25 new products annually, with a focus on both iteration and invention. This translates to roughly 20 new versions of existing items and 5 entirely new products each year. Their focus on understanding and meeting customer needs has significantly contributed to their performance. SharkNinja analyses feedback to develop products, creating a strong feedback loop ensuring that its offerings are constantly evolving to meet consumer needs.
SharkNinja’s commitment to innovation has contributed to positive financial results. In Q1 2024, they delivered net sales growth of 28% and a 5ppt increase in FY24 sales guidance (revised from 8% to 13%). Currently holding ~4% of the $120 billion household appliance market, SharkNinja has significant room for further growth. Their strategic partnership with David Beckham is expected to further boost global brand awareness.
SharkNinja is an example of a consumer company who has delivered strong results through its emphasis on product innovation and effective social media marketing strategies.
Check here for the latest results, quarterly call and analysts' estimates.
Conestoga on SPX Technologies $SPXC US
Thesis: SPX Technologies is strategically positioned for sustained growth, driven by its focus on high-margin, innovative niche solutions in HVAC and D&M sectors.
Extract from their Q2 letter, link here
Analysis: Based in Charlotte, NC, SPXC is a supplier of infrastructure equipment spanning two segments – heating ventilation and air conditioning (HVAC) and detection and measurement (D&M). Through acquisitions and divestitures, SPXC has transformed itself into a business focused on high margin, attractive growth niche solutions that are highly engineered, carry premium prices and command leading market positions through innovation and a large installed base. We view this as a durable business that can compound its growth through organic revenue, complementary acquisitions and consistent margin gains while maintaining a healthy balance sheet.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Tenet Healthcare $THC US
Thesis: Tenet Healthcare is strategically shifting to outpatient services, unlocking value through growth in its high-margin ASC business while streamlining operations.
Extract from their Q2 letter, link here
Analysis: We established a small position in Tenet Healthcare Corporation, a leading provider of health care services. Tenet’s care delivery network includes United Surgical Partners International (USPI), which operates over 600 ambulatory surgical centers (ASCs), surgical hospitals, and other outpatient facilities. Tenet also operates over 50 acute care and specialty hospitals, as well as Conifer, a leading provider of revenue cycle management services. The combination of ASCs and hospital assets in local markets gives USPI a negotiating advantage with payors and vendors, supporting industry leading ASC operating margins. Tenet management has been divesting its less competitively positioned acute care hospitals and other non-core assets to focus on its ASC business. The $90 billion outpatient surgical market is enjoying strong secular tailwinds driven by aging U.S. demographics and the shift of procedures to lower cost outpatient settings. Outpatient procedures cost roughly 50% less than those done in hospitals and are preferred by both patients and physicians. Estimates are that an incremental $60 billion worth of cases are appropriate to be done outpatient, which should drive multi-year mid-single-digit same store growth for USPI – a combination of both higher acuity and volumes – enhanced by new projects and M&A in a highly fragmented space. Tenet’s hospital sales have been executed at attractive multiples with the proceeds used to pay down debt. As Tenet’s faster growing ASC business increases as a percentage of the company’s overall cash flows, we believe the company’s valuation multiple has room to expand.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Texas Instruments Incorporated $TXN US
Thesis: Texas Instruments is strategically positioned to emerge stronger from the cyclical downturn, leveraging its expanded U.S. manufacturing capacity and leadership in key markets.
Extract from their Q2 letter, link here
Analysis: Lastly, we increased our position in the leading analog and embedded semiconductor company, Texas Instruments Incorporated (TI). While TI continues to operate in a cyclical downturn, with revenues down 16% and adjusted EPS down 36% year-on-year, the company is seeing early signs of improvement especially in end markets where inventory corrections started earlier, such as personal electronics and some pockets of industrial. Near-term cash flow is also negatively impacted by TI’s heavy investments through 2026 in domestic, 300 million production fab. While the range of outcomes over the business’ near-term dynamics remains wide, we believe the company is making the right decisions for long-term owners of the business – the added fabrication capacity would prove valuable when the industry recovers from its cyclical downturn, enabling TI to gain market share at high incremental margins, with high ROI on the invested capex thanks to TI’s participation in the CHIPS act and its diverse and long-lived products, which would enable it to generate a return from the incremental capacity for decades into the future. Longer term, TI also remains well positioned to benefit from increasing semiconductor content in key industrial and automotive end markets and its U.S.-based capacity has increasing strategic importance given global geopolitical tensions.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on TSMC $TSM US
Thesis: TSMC is set to lead the next wave of AI-driven chip demand, capitalizing on its dominant position and unmatched technology to deliver sustained growth.
Extract from their Q2 letter, link here
Analysis: Taiwan Semiconductor Manufacturing Company Limited (TSMC) is the world’s leading semiconductor foundry. The company reported solid quarterly results, driven by continued strong data center AI accelerator demand, optimism on a potential edge AI replacement cycle for smartphones and PCs, and expectations for price hikes next year (“selling our value”, in the words of C.C. Wei, TSMC’s CEO). In contrast with the sluggish broader semiconductor foundry market, TSMC is enjoying a record-breaking year, with management guiding for revenue to grow in the low to mid-20% range year-over-year in 2024, thanks to the company’s near-monopoly in manufacturing the world’s most advanced chips. According to C.C. Wei, “almost all the AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing.” This strong AI demand, coupled with TSMC’s unrivaled competitive position, is driving a “high level of customer interest and engagement at N2” (TSMC new process node which will start production in 2H 2025), with N2 revenue expected to “certainly be larger” and with a “better margin profile” than N3 (TSMC’s most advanced node today). We believe TSMC will sustain strong double-digit earnings growth for years to come, driven by rapidly growing demand for advanced chips and continued market share gains enabled by its superior technology, reliability, and customer service.
Check here for the latest results, quarterly call and analysts' estimates.
Davis fund on Tyson Foods $TSN US
Thesis: Tyson Foods offers a compelling value opportunity with its strong market position and cost advantages, poised to rebound as meat industry margins normalize.
Extract from their Q2 letter, link here
Analysis: Tyson Foods is a major U.S. meat processor, ranking number one in domestic chicken production, number two in beef, and number three in pork. Roughly one out of every five pounds of these three foods produced in the United States comes from a Tyson facility. The company also has a prepared-foods business with several industry-leading brands, including Hillshire Farm and Jimmy Dean as well as a small international business concentrated in Asia.
During the past 30 years, the total volume of poultry and red meat consumed in the U.S. has grown by roughly 1% per annum. Coupling this with increasing U.S. exports, Tyson has historically grown volumes at a 1.0-1.5% CAGR. Additionally, while commodity meat products are a significant portion of Tyson’s sales, scale provides a meaningful cost advantage in the meat-processing industry and the company has delivered an average return on tangible invested capital of nearly 30% for the past decade. Looking forward, in addition to expecting modest volume growth domestically, we think that relatively low per-capita meat consumption in its key foreign markets—50% lower in China than in the U.S., for example—offers plenty of runway for Tyson to continue to grow its export volumes and international capacity.
In fiscal year 2023, Tyson’s earnings hit a more than ten-year low based on cyclically weak margins across its chicken, beef, and pork businesses.
In fiscal 2024 so far, earnings remain depressed as further deterioration in beef margins given low domestic cattle inventories has offset improvement in chicken and pork performance. We believe this downturn has created an attractive opportunity to initiate a position in Tyson as the company is trading at less than 18x depressed fiscal 2024 owner earnings and well below 10x our longer-term estimates of more normalized owner earnings. Key risks include animal disease, feed costs, higher-priced merger and acquisition activity, and longer-term beef demand trends.
Check here for the latest results, quarterly call and analysts' estimates.
Conestoga on Universal Technical Institute $UTI US
Thesis: Universal Technical Institute is well-positioned to address critical skill gaps in the economy, supported by strong industry partnerships and a broad network of specialized training programs.
Extract from their Q2 letter, link here
Analysis: UTI was founded in 1965 and is a leading workforce solutions provider with two divisions: UTI and Concorde Career Colleges. UTI operates 16 campuses in 9 states and offers a wide range of transportation and skilled trades technical training programs. Concorde operates across 17 campuses in 8 states, offering programs in the allied health, dental, nursing, patient care, and diagnostic fields. UTI’s offerings address areas of the economy with some of the largest skill gaps. In addition, strong partnerships with Ford, BMW, Cummins, Kaiser Permanente, Scripps, and Baptist Health are differentiators when compared to other local, skill trade training programs.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on ASPEED Technology $3225 TT
Thesis: ASPEED Technology is poised to thrive as a key player in AI-driven server growth, leveraging its market dominance and innovative BMC technology to sustain exceptional growth and profitability.
Extract from their Q2 letter, link here
Analysis: During the quarter, we also increased exposure to our digitization theme by initiating a position in ASPEED Technology Inc., a Taiwanese semiconductor design company and the dominant global supplier of Baseboard Management Controllers (BMC), a mission-critical chip used to remotely monitor and manage the key components in a server, such as the processor, memory, and power supply. We expect the company to maintain a 70%-plus market share in BMCs, given its superior technology, scale advantage, and strong relationships with key Taiwanese server manufacturers and U.S. hyperscale customers. AI servers have significantly higher BMC content than traditional servers, and we expect surging demand for AI servers to drive a dramatic acceleration in demand for BMCs. ASPEED’s growth will be further boosted by the transition to its new-generation BMC, which is priced at a significant premium, reflecting major advancements in performance and functionality. We are also optimistic that the company will leverage its customer relationships and strong design capabilities to successfully expand into new products, including a Platform Firmware Resilience chip which prevents malware attacks. In our view, ASPEED is uniquely positioned as a long-term AI beneficiary, and we expect the company to maintain industry-leading top-line growth and profit margins over the next five years.
Check here for the latest results, quarterly call and analysts' estimates.
Munro on ASMI $ASMI NA
Thesis: ASM International is a key enabler in the semiconductor industry's transition to advanced logic chips, poised for strong growth driven by its leadership in Atomic Layer Deposition technology.
Extract from their Q2 letter, link here
Analysis: The intricate process of crafting semiconductors can be broken down into three key steps. First, lithography meticulously lays the groundwork, acting as the detailed blueprint for the chip's structure. Then, etching carves out the defined patterns on the chip, similar to digging a solid foundation. Finally, deposition builds the skyscraper’s precise layers, akin to meticulously placing materials onto the foundation.
Within deposition, ASM International, based in Netherlands, is recognized for its expertise in Atomic Layer Deposition (ALD) technology. ALD offers high precision, depositing material layers just one or a few atoms thick. This precise control translates to uniformity and performance in the final product.
The importance of ALD technology grows as chip structures become increasingly intricate. Imagine a simple townhouse design transforming into a luxurious high-rise with advanced features. Similarly, logic chips are shifting from a traditional FinFET (single gated) to a “gate-all-around” design to address leakage issues as components shrink. By expanding the gate's surface area, ALD facilitates better performance and lower power consumption. This necessitates the precise deposition of new, tiny layers—a task perfectly suited for ASM’s advanced tools. The logic industry is poised for this transition in 2025, with the DRAM memory industry following suit in 2027, highlighting the growing relevance of ASM International's technology.
We believe ASMI could achieve compound revenue growth of 18% and profit growth of 25% over the next 4-5 years.
Check here for the latest results, quarterly call and analysts' estimates.
Davis fund on Samsung $005930 KS
Thesis: Samsung is primed to capitalize on the AI revolution, leveraging its leadership in semiconductor memory and mobile technology to strengthen its market dominance.
Extract from their Q2 letter, link here
Analysis: Samsung is another example of a global highly profitable technology leader that is positioned to reap major rewards from the AI opportunity while still trading at a very attractive valuation. As the largest semiconductor memory manufacturer, the largest mobile handset manufacturer, and the number-two foundry business, Samsung has built a number of durable competitive advantages. Moreover, high-bandwidth memory (HBM) is proving to be a big opportunity given the memory-intensive demands of AI computing. Although SK Hynix—the world’s second-largest memory chipmaker and Samsung’s resurgent rival—has an early lead in HBM, we expect Samsung’s capacity and engineering scale eventually would help the company reassert its dominance in this fast-growing market.
Check here for the latest results, quarterly call and analysts' estimates.
Harris Associates on Misumi Group $9962 JP
Thesis: Misumi Group's unmatched one-stop shop for factory automation and die set components positions it for long-term growth, especially as it capitalizes on its scale and unique offerings in a competitive market.
Extract from their Q2 letter, link here
Analysis: Misumi Group produces factory automation (FA) and die set components through a combination of fabless and internal manufacturing, while also distributing branded third-party FA components and industrial supplies. By standardizing customer procurement and leveraging its extensive supply chain, Misumi Group created the broadest offering in the marketplace, expedited delivery times, and increased quality reliability. Supplementing manufactured offerings with third-party FA components and industrial supplies over a decade ago created a one-stop shop for FA and die set customers that we believe is unmatched today. Although increased competition and decreased demand in China have weighed on Misumi Group’s share price, we believe long-term prospects remain attractive as the company’s scale and unique offering positions it to gain share from a long tail of small competitors. We were able to purchase Misumi Group shares at a discount to our estimate of intrinsic value and are excited about the company’s improving fundamental outlook.
Check here for the latest results, quarterly call and analysts' estimates.
Davis fund on Tokyo Electron $8035 JP
Thesis: Tokyo Electron is well-positioned to capture the growth in semiconductor demand, driven by AI advancements and its dominance in critical chip-making tools.
Extract from their Q2 letter, link here
Analysis: Our investment in Tokyo Electron, the third-largest semiconductor equipment vendor, predates the investment mania surrounding GenAI, but AI’s emergence has proven to be an accelerant for the company’s leading-edge logic and memory tools. Expanding demand for advanced lithography has driven accelerating growth in the company’s coater/developer tools, a market that Tokyo Electron dominates, with 90% overall share. In the most advanced applications that require ASML’s leading-edge extreme ultraviolet lithography (EUV) the company has 100% share. New transistor structures and power-distribution systems will each draw heavily on Tokyo Electron’s batch processing and patterning tools to form these new complex features. And the die size of the individual tiles that form a GPU, for instance, continues to get larger, meaning that more production tools are necessary just to produce the same number of GPUs one generation to the next. GPU volume for training alone probably needs to more than double next year to train the 10 trillion parameters anticipated for OpenAI’s GPT5.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Cummins India $KKC IN
Thesis: Cummins India is set to capitalize on India's growing power demands, leveraging its market dominance and technological edge to fuel strong earnings growth.
Extract from their Q2 letter, link here
Analysis: Cummins India, a subsidiary of U.S. based Cummins Inc., is a leading power generation engine manufacturer in India. The company is a dominant player in power generators, with over 50% market share in the highly profitable medium and high horsepower ranges. The company also has a distribution and aftermarket vertical along with an export division that caters to regions including North America, Europe, Middle East, and Africa. In our view, the company’s key competitive advantages include best-in-class technology and product quality, wide product range across categories, high penetration with channel partners, and leading aftermarket services. We believe Cummins India is well positioned to benefit from the rising demand for backup power supply in India, driven by higher capital expenditure by the government and private sector companies in segments such as infrastructure and manufacturing. In addition, Cummins India’s dominance in the high horsepower range positions the company in new growth verticals such as data centers. We expect the company to generate mid-teens EBITDA growth over the next three to five years.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Power Grid Corporation of India $PGCIL IN
Thesis: Power Grid is at the heart of India’s energy transition, offering stable returns as it powers the nation’s growing demand and shift to renewables.
Extract from their Q2 letter, link here
Analysis: Power Grid is a leading power utilities company in India, controlling approximately 85% of the country’s inter-state power transmission capacity. Being majority owned by the Government of India, the company is deemed a sovereign entity, which serves as a competitive moat from a cost and access to capital perspective. In our view, given India’s robust economic growth and accelerating industrial capacity expansion, significant investment in power generation and transmission infrastructure will be required, creating a multi-year growth opportunity for Power Grid. Additionally, as India targets to achieve 50% of electricity generation capacity through non-fossil fuel sources by 2030, Power Grid will be a key enabler of the country’s power transition toward renewable energy. We expect the company to deliver low-teens total shareholder returns over the next three to five years alongside an attractive dividend yield.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Precision Wires India $PRWIRE IN
Thesis: Precision Wires is set to drive growth by capitalizing on the electrification trend in India, leveraging its dominant market position and key relationships with OEMs.
Extract from their Q2 letter, link here
Analysis: Precision Wires is the largest manufacturer of enameled copper winding wire in India with over 50% market share. Winding wire is a key component in power transformers, generators, automotive motors, and industrial motors. The company sells its products to OEMs across various industries, including automotive, aerospace and defense, power, electronics, home appliances, and infrastructure. Its competitive advantages include long-term relationships with OEM customers, scale of operations, and R&D capabilities. We believe Precision Wires is well positioned to benefit from structural growth opportunities in the power sector as well as the rising penetration of EVs and hybrid vehicles in India. As per company management, winding wire content in EVs/hybrids is 7x/2.5x, respectively, as compared to a traditional ICE vehicle. This creates significant opportunities for Precision Wires over the next 5 to 10 years as EV penetration in India is currently under 2%. We expect the company to generate mid-teens earnings growth over the next 3 to 5 years, with further long-term revenue upside from new business wins in EVs/hybrids.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on SRF Limited $SRF IN
Thesis: SRF is poised for strong growth as it leverages its R&D leadership and dominance in eco-friendly refrigerants to capitalize on global sustainability trends.
Extract from their Q2 letter, link here
Analysis: SRF is an Indian multi-national that manufactures specialty chemicals, refrigerant gases, packaging film, and technical textiles. The company serves various end markets, including automotive, agrochemicals, pharmaceuticals, air conditioning (AC) & refrigeration, and fast-moving consumer goods. In our view, SRF's key competitive advantage is its R&D/innovation capabilities. The company invests about 3% of its specialty chemical revenue in R&D, the highest among peers. SRF is also the leader in R-32 manufacturing in India. R-32 is currently the most efficient refrigerant for ACs and has low global warming potential (GWP). We view SRF as a key beneficiary of global customers phasing out of high GWP refrigerants to lower their carbon footprint and greenhouse gas emissions. With planned capex investment over the medium term, we believe SRF is well positioned to scale up its specialty chemicals business and deliver mid-teens earnings growth over the next three to five years.
Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on Tips Industries $TIPSINDLTD IN
Thesis: Tips Industries is poised for strong growth, riding the wave of India's digital transformation with a monetization strategy that promises substantial returns.
Extract from their Q2 letter, link here
Analysis: Tips is a leading music production company in India with approximately 10% market share. The company owns a repertoire of over 32,000 songs across various genres and languages. Tips monetizes its content library by collecting a share of advertising and subscription fees from digital streaming platforms, including YouTube, Spotify, and JioSaavn. The company is a key beneficiary of India’s fast-growing digital ecosystem, with over 700 million Indians now having access to a smartphone, consuming various digital services online. Tips has maintained an EBITDA margin above 60% and is committed to returning excess capital to shareholders via dividends and share repurchases. In our view, Tips will generate about 25% to 30% compounded revenue and earnings growth over the next three to five years. Over the longer term, we expect further earnings upside as digital platforms begin to more effectively monetize their subscriber base through monthly streaming plans, which should significantly improve the payout potential for Tips.
Check here for the latest results, quarterly call and analysts' estimates.
Donville Kent on VitalHub $VHI CN
Thesis: VitalHub is set for continued growth through strategic acquisitions and expanding profit margins, making it a compelling investment in the health technology sector.
Extract from their Q2 letter, link here
Analysis: VitalHub is one of our largest investments and we have covered it in detail over the years. VHI has been consistently growing both organically and through acquisition. The most impressive aspect has been the growth in profit margins, which we think still has a lot of room to run. For a relatively small company, they have over $70m of cash and no debt on the balance sheet. On July 30th, they announced the acquisition of Medcurrent, which sells OrderWise, a clinical decision support software. OrderWise analyzes medical imaging tests using criteria inputs and AI to determine whether certain tests are appropriate for treatment, saving hospitals money. This will provide VitalHub’s sales team with another opportunity to cross-sell plus expand OrderWise to other fields. This software is highly complementary to VitalHub’s current decision support platform for admitting/discharging patients.
The deal looks to be structured well with $12m cash up front and $22m in earnouts based on aggressive growth targets over the next 36 months. This management team and board are very disciplined and have shown to acquire extremely well and increase margins significantly after integration.
Investors, like ourselves were/are expecting a big deal and based on this deal we still expect a large deal and further tuck-ins this year. VitalHub’s margins continue to expand as they scale and organic growth has been impressive. We expect them to continue to execute well on their current business plus deploy a decent amount of capital by year-end, which would position the stock price much higher than it is today.
Check here for the latest results, quarterly call and analysts' estimates.
Donville Kent on Zedcor $ZDC CN
Thesis: Zedcor is an emerging leader in security technology, with significant growth potential driven by its innovative solutions and expanding market share, making it a compelling long-term investment.
Extract from their Q2 letter, link here
Analysis: We have addressed Zedcor as one of our largest investments a few times now. Based on the stock doing well recently, we have received questions about it. Is it expensive, is there a competitive advantage, and what is our long-term outlook?
When it comes to competitive advantage, most want to hear about proprietary technology or exclusive licenses. In order to generate the type of margins that Zedcor does and maintain them, this is an important question to answer. We are going to refer to the greatest expert on the manner, Charlie Munger.
We are all influenced either subconsciously or consciously on what others do. We don’t like to be the one that is out of step. This psychological effect is called social proof. Social proof leads to more sales, which leads to more distribution, which spins the flywheel.
Zedcor, even though they are new to the market, are now doing business with Amazon, BestBuy, Home Depot, D.R Horton etc. They are also winning business from competitors who don’t supply in-house monitoring or who outsource their monitoring overseas. As the company gets more successful and has more resources they can increase their specialization. An example would be Zedcor is currently working on specialized security poles specifically for home builders like D.R Horton. If you see their product in person versus many of the competitors, it's easy to see why they are winning market share.
Another tailwind is this type of technology becoming the industry standard for security in order to satisfy Builders Risk Insurance. The industry term of Course of Construction Insurance (COC) covers building materials, physical property, and partially constructed buildings.
Some of the types of projects requiring COC insurance include:
Residential New Builds
Residential Renovations
Custom Homes
Commercial New Builds
Commercial Renovations
Tenants Improvement Projects
Civil & Municipal Contracts
Road Building
Bridge Building
Pipelines & Utilities
Businesses looking to save costs can add reducing insurance expenses to the list. For their targeted use cases, the towers are cheaper and more effective than in-person security guards, plus have shown to reduce theft.
We believe the stock is still very misunderstood and cheap based on future cash earnings. Next quarter you should start to see the growth on paper, but tracking their fleet in the field is more useful. Demand is outpacing supply which is increasing their utilization rates and margins. To find long-term compounders, you want a company that can re-invest cash flows back into the business at high rates of return for a long time. Each deployed tower is highly profitable. We estimate +25% ROIC per tower. We expect over 80% revenue growth in 2025 with even higher earnings growth.
We believe they are just scratching the surface of the addressable market. They currently have over 1,000 towers. Many of their current customers who recently started using them have 1,000-2,000 locations just themselves. You can see a path where they get to 10x the size they are now and they’re already very profitable with increasing margins.
A final question to answer is why now? We covered the new industrial revolution in detail HERE. Zedcor’s technology solution wasn’t possible until very recently. With multiple technological advancements, they are now able to combine high-resolution video & radar with the ability to monitor thousands of incidents with AI and then store this information in the cloud while being able to access enough bandwidth either through cellular or satellite to reliably send all this data in real-time. It hasn’t been until recently where one of these links in the chain wasn’t either advanced enough or cost prohibitive. At first glance, it may not seem like it, but Zedcor is much more advanced and at the leading edge of the industry.Check here for the latest results, quarterly call and analysts' estimates.
Baron Capital on WEG $WEGE3 BZ
Thesis: With its vertically integrated model and strategic presence in energy solutions, WEG is well-positioned to drive growth in the global shift towards energy efficiency and renewable energy.
Extract from their Q2 letter, link here
Analysis: WEG, a leading Brazilian industrial conglomerate, is one of the world’s largest manufacturers of industrial electric motors and related equipment. Compared to most global peers, WEG has a vertically integrated business model with large-scale manufacturing facilities. This, in our view, is a key competitive advantage, creating cost efficiency, product customization, and on-time customer deliveries. WEG has a strong track record in generating high teens compounded revenue growth over past decades, while maintaining high double-digit return on invested capital and EBITDA margins. Sales should continue to benefit from significant market share gains globally in electric motors, drives, and gear boxes, in addition to the megatrend of greater energy efficiency. WEG also has a strong presence in the energy generation, transmission, and distribution segment, where it offers solutions from wind turbines, solar, energy storage, to EV charging stations and benefits from rising penetration of renewable energy and e-mobility. Finally, we see an emerging opportunity in the power transformer and substation markets, particularly in North America, where WEG should capitalize on recent investments in production capacity in the U.S. and Mexico.
Check here for the latest results, quarterly call and analysts' estimates.
Here are some additional Q2 letters :
Everything you read here is for information purposes only and is not an investment recommendation.