Wednesday, December 19, 2018

A Current AIM Program Small Cap Equity Holding: Standex International Corp. (SXI) by: Sean Halverson. “Time to take a different ‘Stand’ with Standex”

Standex International Corp. (SXI, $73.51): “Time to take a different ‘Stand’ with Standex”
By: Sean Halverson, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Standex International Corp. (NYSE: SXI) operates as a manufacturer of a variety of products and services for diverse commercial and industrial markets. The majority (68.3%) of their revenues come from the United States.

• SXI has announced their decision to sell off their Cooking Solutions business in spite of declining sales and to reposition the company.

• At the quarter to date, the stock price for SXI has experienced a 29.49% decrease which has caused serious questioning of the company.

• The stock struggled through the end of October because of concerns surrounding a potential slowing of first quarter fiscal 2019 sales in Electronics, the company’s fastest growing segment. 

• Tariffs have beaten down the Hydraulics business which has put serious pricing pressures on certain areas of the segment.

Key points

In February of 2019, Standex International Corp. is going to be selling off their Cooking Solutions business in addition to acquiring two new companies, Agile Magnetics and Tenibac-Graphion. This is a movement by management to further develop their Engraving and Electronics segment. A driver behind the “modest” organic sales growth (2.4%) for Engraving was because of a low profitable plant in Virginia. The company has recently sold off the plant which declined sales for the segment, but was seen as a strategic choice to better the company in the long run.

As tariffs rise with imports from China, Standex International Corp. is going to see even more struggles with trying to generate positive sales growth within their Hydraulics segment. The reason being that almost half of the cylinders they are importing are from China. The segment accounts for only 5.5% of total revenues for SXI; however, the segment will continue to be a drag on the company if tariffs remain unchanged.

There are expectations that SXI is planning to repurchase $100 million of the shares outstanding. Additionally, SXI has dedicated resources to making sure their shareholders are content; for example, they have paid consecutive quarterly dividends since 1964. Management believes that holding onto their shareholders is more important than canceling the dividend to drive stronger growth.

What has the stock done lately?

Since the acquisitions of both Agile Magnetics and Tenibac-Graphion, the stock has still not experienced positive growth. At October 26, 2018 the stock price was at a healthy $96.55. After earnings were released, the stock has violently dropped to new a low for the year. It has continued to decrease with no significant positive growth.

Past Year Performance:

SXI has seen ~15% increase in sales and ~30% increase in EBIT between June of 2017 and June of 2018. However, net income has decreased ~21% and its after-tax Return on Assets has declined from 5.98% to 4.11%. 

Source: FactSet

My Takeaway:

Although Standex International Corp. has seen sales growth from the end of 2017 and two new acquisitions to the company, it has not been representative in the value of the stock. The company appears to be creating value by divesting off slower pieces of its operations but the shareholder has suffered regardless of improvements to company’s business model. Even with hopeful expectations in 2019 with their Electronics segment, the stock has been a nightmare. With regards to Relative Returns (9mos) to the Russell 2000, SXI has underperformed at a frightening -19.06%. It is time to reconsider if the company is actually creating value for its business.

Source: FactSet

A Current AIM Program Small Cap Equity Holding: Central Garden & Pet Company Class A (CENTA) by: Louisa Steinhafel. “Ruff Year in Terms of Price, but Core Business Still Going Strong”

Central Garden & Pet Company Class A (CENTA, $30.25): “Ruff Year in Terms of Price, but Core Business Still Going Strong”
By: Louisa Steinhafel, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Central Garden & Pet Company (NASDAQ: CENTA) engages in the innovation, production, and distribution of branded private label products for the pet supplies and lawn and garden markets. They operate through two main business segments: Pet (61% of FY18 Sales) and Garden (39%). The company was founded in 1980 and is headquartered in Walnut Creek, CA.

• CENTA released FY2018 earnings in November with net sales and diluted EPS increasing 7.8% and 52.6% YoY respectively.

• Despite these gains, CENTA faced challenges with their Garden business due to unfavorable weather and their Pet segment due to decreased fly, flea, and tick control sales.

• FY2018 was another successful year for CENTA regarding acquisitions. They acquired Bell Nursery and General Pet Supply, allowing them to expand into live plants and increase their distribution capabilities.  

• Moving forward, management has indicated they plan to have some historically large margin accretive acquisitions in FY2019. This is supported by their successful track record integrating their acquisitions and strong balance sheet.

Key points:

Central Garden and Pet Company released FY2018 Financial Results on November 27, 2018. CENTA saw net sales increase 7.8% from $2,054.5 million in FY2017 to $2,215.4 million in FY2018. Diluted EPS increased 52.6% from $1.52 in FY2017 to $2.32 in FY2018. Despite these gains, the year certainly was not without its challenges. Factors such as unfavorable weather and decreased sales for fly, flea, and tick control products effected CENTA’s Garden business and Pet segment.

With a history of acquiring over 45 companies since 1990, CENTA has not shown signs of steering away from their acquisitive nature, and it certainly was a topic of conversation in their Q4 earnings call. FY2018 was another successful year in terms of acquisitions with two new opportunities for the company: Bell Nursery and General Pet Supply. Through their acquisition of Bell Nursery, the largest commercial grower of live plants and flowers in the mid-Atlantic region, CENTA has been able to expand into the live plant area. In doing so, they are also able to cross-sell their own brands and existing garden products. Additionally, through acquiring General Pet Supply, a leading Midwest region supplier of pet supplies and food, CENTA is able to greatly increase their distribution capabilities and create a stronger presence within the Midwest. Despite the opportunities presented by their recent acquisitions, it did lead to some margin dilution over FY2018. Gross margin decreased by 31 bps while operating margin decreased by 15 bps.

CENTA’s CEO, George Roeth, indicated in November that they are looking for margin accretive acquisition candidates, with potential for transactions to be as large as $500 million. The company has had two capital raises this past year: $300 million in senior notes in December and $185 million equity offering in August of 2018. The company has a successful history integrating their acquisitions and a strong balance sheet to support their strategic initiatives moving forward.

What has the stock done lately?

Over the past 12 weeks, CENTA has seen a change of -14.4% trading at $35.34 on September 24, 2018 and $30.25 on December 7. However, the company released Q4 earnings in November and upon doing so, the stock increased 15.5% from $27.14 on November 28th to $31.34 on December 3rd.

Past Year Performance:

CENTA has a 52 Week H/L of $41.97 - $27.14. They were trading as high as $40.39 in August of 2018 and as low as $27.85 at the end of November, representing a change of -31.0%. As stated above, the company has since seen a bump in price. Overall, CENTA is down 19.7% YoY as they were trading at $37.69 on December 12, 2017 and are now currently priced at $30.25.

Source: FactSet
My Takeaway:

In terms of stock price, CENTA has had some challenges since July of 2018. However, they released positive FY2018 results and are showing signs of continued growth and improvement. The company has been working on building out their digital capabilities to address the changing retail space. CENTA has four new teams comprised of expert employees that are dedicated to driving demand in the digital space. They have also increased the size of their consumer insights team in order to better understand consumers and their changing preferences. In terms of their large acquisition outlook for FY2019, CENTA’s CFO, Nicholas Lahanas, stated in their most recent earnings call that they only look towards acquisitions when they feel they have both a strong operating rhythm and core business that is growing organically and consistently.

1 Month Stock Chart from 11/12 to 12/10

Source: FactSet

Sunday, December 16, 2018

Marquette Students Visited Duluth Trading Company in Mr. Horeb, Wisconsin - This Year's CFA Research Challenge Company

Marquette Students in the CFA Research Challenge Traveled to Mt. Horeb to Visit the CFO of This Year’s Subject Company - Duluth Holdings (ticker: DLTH) [dba: Duluth Trading Company]

On Thursday, December 13, Dr. David Krause and the ten Marquette AIM students particitpating in the CFA Investment Research Challenge traveled to Mt. Horeb to visit Duluth Trading Company (ticker: DLTH).

Besides the members of Marquette University’s Gold and Blue teams, students from Carthage College, UW-Eau Claire and UW-Milwaukee were in attendance. 

After a tour of one of the company’s retail stores located on Main Street in Mt. Horeb, Xica Bashi of Duluth Trading greeted the students at the firm’s new headquarters – located a few blocks away from the retail store. 

Ms. Bashi provided a tour of the impressive building and answered general administrative questions about the company.

The students then were introduced to Dave Loretta, Duluth’s Senior Vice President and CFO, who provided a financial overview of the company. His investor presentations was followed by a question and answer period during which time students posed various questions.  

Marquette students in the 2018-2019 CFA Research Challenge include:

Blue Team: Glaab, Borin, Blomquist, Healy, Lane

Blue Team
Andrea Blomquist
Tommy Borin
Gregory Glaab
Michael Healy
Stephen Lane

Gold Team: Tully, Wolfe, McMahon, Steinhafel, Senft
Gold Team
Will McMahon
Jack Senft
Louisa Steinhafel
Matt Tully
Elizabeth Wolfe

Some of the upcoming key dates include:

Final report submission: February 7, 2019

Presentation: February 21, Best Western Park Hotel, Madison

Americas Research Challenge: April 23-24, New York Marriott Marquis, New York

Global Research Challenge: April 25, New York 

A Current AIM Program Small Cap Equity Holding: Eagle Pharmaceuticals (EGRX) by: Erik Olson. "Still Learning to Fly"

Eagle Pharmaceuticals (EGRX, $49.85): “Still Learning to Fly”
By: Erik Olson, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Eagle Pharmaceuticals (NASDAQ: EGRX) specializes in the development and of injectable treatments concentrating on products related to critical care, oncology, and orphan diseases.

• Eagle Pharmaceuticals ceased the development of their fulvestrant formulation and will focus on other pipeline drugs.

• The outlook for their exertional heat stroke drug RYANODEX® looks promising although there have been some speed bumps related to testing. A new government partnership should help the drug stay on track and remain relevant.

• A new patent in the BENDEKA® family of drugs brings the total patent count for BENDEKA® up to 16.

• Stock buybacks prove managements optimism about the future.

Key points:

Eagle Pharmaceuticals recently announced that their fulvestrant formulation did not meet the bioequivalence endpoints necessary when compared to FASLODEX® in a study conducted. The original goal was to have one injection as compared to two injections with FASLODEX® and in much less time. The new injection also contained no castor oil and was administered through a needle that was 25% thinner than the needle required to administer FASLODEX®. It was at this time that the company announced that they planned to no longer proceed with testing and that they are going to focus on other drugs in their pipeline.

The company has been making advancements with its drug RYANODEX® which recently completed it second clinical study. This study was to evaluate the safety and efficiency of RYANODEX® when treating exertional heat strokes. Eagle Pharmaceuticals also entered into an agreement with the United States Army Medical Research Institute of Chemical Defense. The goal is to evaluate the neuroprotective effects of the drug. It is believed that the official launch will be in 2020 and not 2019 as previously assumed.

Progress has been made on the drug BENDEKA® which is for treating chronic lymphocytic leukemia (CLL) and non-Hodgkin's lymphoma (NHL). The USPTO issued a new patent for BENDEKA® which brings the count up to 16 patents that have been issued or allowed in the BENDEKA® family expiring between 2026 and 2033. Additionally, third quarter revenue included a $12.5 million milestone payment for BENDEKA®.

Eagle has $45 million in debt, $91.2 million in cash and cash equivalents, and accounts receivable of $78.5 million. They have also expanded their share repurchase program to $150 million. Recently, Eagle repurchased $50 million of common stock which goes to show management’s confidence in future prosperous performance. As of November 1, 2018, Eagle has repurchased $154 million of common stock without taking on debt to do so.

What has the stock done lately?

On August 30, 2018, Eagle reported on a study conducted in Saudi Arabia for the exertional heat stroke drug. The goal was to enroll 70 severely ill EHS patients but only had 7 enrolled for the study. The stock tumbled over 15% on August 30th and has since continued to slide as much as 41% since the high of $80 on that date. Good news is surely needed to help recover some of the losses Eagle has accumulated since late August.

Past Year Performance:

Eagle has decreased 14.35% in value over the past year. This leaves more room for improvement as they continue to develop new drugs and cease efforts on inefficient projects. While efforts may not have panned out as expected this year, management’s confidence in future performance is seen as they continue to buyback shares. Additionally, with low debt and a lot of cash, they are positioned well to invest in projects they believe will be profitable without having to worry about financing them with debt.

Source: FactSet

My Takeaway:

While Eagle Pharmaceuticals’ 1-year performance may not be that stellar, the company does have room to grow in the future. Removing their fulvestrant formulation from the pipeline certainly will hurt their valuation. However, Eagle has numerous other drugs in their pipeline that appear quite promising. The stock is currently trading about $2.50 away from the 52-week low and outlook for the next three months is certainly greater than the previous three months performance. With proper direction from management, this stock should be flying high in no time.

Source: FactSet

A Current AIM Program Small Cap Equity Holding: Ollie’s Bargain Outlet (OLLI) by: Nathan Zirpolo. “Good Stuff Cheap”

Ollie’s Bargain Outlet (OLLI, $69.08): “Good Stuff Cheap”
By: Nathan Zirpolo, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Ollie’s Bargain Outlet Holdings, Inc. (NYSE:OLLI) provides retail of salvage merchandise, excess inventory and closeouts products. Products include housewares, electronics, toys, and food offered to customers in 297 store locations across the Eastern half of the United States.

• Ollie’s experienced a 17.6% drop after the release of Q3 earnings, a very steep sell-off for a company that reported better-than-anticipated revenue and earnings.

• Management has indicated that it has plans to one day operate 950 stores nationwide.

• Ollie’s has fallen close to 30% under the firm’s 52 week high of $97.61 due to the recent sell-off of 17.6%.

• Due to third quarter results, Ollie’s is using continued momentum to raise sales and earnings guidance for the full year of 2018.

Key points:

Despite a recent sell-off, Ollie’s Bargain Outlet Holdings, Inc. remains a buy. With a chance at a possible recession in the near future, Ollie’s has made a strong effort to decrease debt and plans to be debt free by the end of fiscal 2018.

With the goal of one day operating 950 stores nationwide, Ollie’s has opened 37 new store in the current year, using old Toys”R”Us locations. The company has acquired a total of 18 former Toys"R"Us sites, including 12 purchased properties and 6 leased. With a plan to open new stores at a 12.1% year-over-year rate, the company just purchased land in Texas to build a new distribution center. The 615,000 square-foot center has the ability to service 150-200 stores, presenting the large opportunity to increase market share in locations surrounding the distribution center.

Higher supply chain margins has served as a possible risk for the company, due to the company’s gross margins being directly affected. In Q3, gross margin decreased 50 basis points, but was partially offset by increased merchandise margin. A constant increase in SG&A expenses also serve as a risk to the company. Increasing 11% in Q2 and 15.1% in Q3, the rise in SG&A expenses can be attributed to increasing sales volume in existing stores and selling expenses from new stores.

What has the stock done lately?

Since reporting earnings on December 4th, the company has decreased 17%. Given the fact the guidance issued in the third quarter was an increase from the guidance issued in the second quarter, the company sell off seems a little overdone. Furthermore, the company has seen sales jump 19.1% YoY and EPS increase 45.5% YoY.

Past Year Performance:

OLLI is currently trading at $69.08, an increase in value of 29.73% over the past year. During 2018, the company’s sales increased at a faster rate than their main competitors, a main reason for the company’s success over the last year.

Source: FactSet

My Takeaway:

While there has been some recent volatility, Ollie’s Bargain Outlet Holdings, Inc. has strong financials due to strong cash generation and strong performance. Furthermore, management has plans to continue to grow and expand to new markets, giving the company long-term goals. Overall, the company is relatively safe and the recent sell-off should not be a reason to trade the stock. By having long term goals and a focus on increasing both retail stores and distribution centers, there is a high chance that Ollie’s stable, long-term returns.

Source: FactSet

Saturday, December 15, 2018

Marquette's AIM Program Hosted Numerous Speakers the Last Two Weeks of the Semester

AIM Students Heard From a Variety of Equity and Hedge Fund Experts

The Fall 2018 semester in Marquette’s AIM program ended with a flurry of activity. Over the last two weeks of the semester there were 14 AIM equity pitches and three sets of outside speakers.
Tom Digenan, UBS Head of US Intrinsic Value Equities 

The guests included Thomas Digenan, Marquette alumnus and long-time AIM supporter. Tom is the Head of US Intrinsic Value Equities, UBS Asset Management. Operating out of the UBS Chicago office, Tom is active with the Chicago CFA Society and he has been an investments instructor in Marquette’s MBA program. He visits the AIM program each year and is effective in linking investment theory and practice.
Jason Rector after his presentation in AIM

Jason Rector and Ryan Johnston, Marquette AIM alumnus, again spoke to Dr. Krause’s students in Alternative Investments and the two AIM classes. Jason is a Senior Analyst at the State of Wisconsin Investment Board (SWIB) in Madison and Ryan Johnston is a Junior Analyst in SWIB’s Funds Alpha group.
Bill Walker and Ryan Johnston
discuss portable alpha strategies

They are focusing on the management of an absolute return portfolio focused in hedge funds as well as a traditional beta one portfolios with equity and credit mandates. There areas of coverage and expertise include equities, credit, event, relative value, systematic / quantitative strategies, and niche areas such as reinsurance and litigation arbitrage. During class they emphasized SWIB’s investment process and focused on portfolio construction and risk management – as well as their due diligence process.

Ryan Hamilton in Marquette's AIM Room

Another guest to the AIM program was Ryan Hamilton, who is a Research Analyst at Morgan Dempsey Capital Management in Milwaukee. Ryan talked about the CFA program, as well the investment process he follows at Morgan Dempsey. Ryan’s primary role at Morgan Dempsey is as an Analyst on the Small/Micro Cap Value team. Ryan is a Portfolio Manager on the Small/Mid Cap and All Cap teams.
Ryan Hamilton represented the Milwaukee CFA Society
when he visited Marquette's campus recently

Prior to joining Morgan Dempsey, Ryan was a Portfolio Manager, Research Analyst and trader with Voit & Hamilton, LLC. He joined Morgan Dempsey with over 7 years of experience in securities analysis, portfolio management and trading. Ryan is a former United States Marine, a combat veteran, and an Eagle Scout. He also has taught and tutored advanced financial topics at the University of Wisconsin – Milwaukee. Ryan’s primary role at Morgan Dempsey is as an Analyst on the Small/Micro Cap Value team. Ryan is a Portfolio Manager on the Small/Mid Cap and All Cap teams.

Thursday, December 13, 2018

A Current AIM Program International Equity Holding: Accenture Plc (ACN) by: Edward Eisenhauer. "All Firms Need This Sidekick"

Accenture Plc (ACN, $161.07): “All Firms Need This Sidekick”
By: Edward Eisenhauer AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


        Accenture Plc (NYSE: ACN) is an investment holding company that engages in management and technology consulting and outsourcing services. ACN is made up of four segments: Communication and Media, Financial Services, Health and Public Service, Products, and Resources. They serve a variety of businesses across all sectors and government entities. Their services aim to streamline businesses processes, such a customer management systems, supply chain management systems, and other business processes by improving communication and data efficiencies. There services are focused on technology and cloud integration among all segments of the client firm.

        ACN is the global leader among its competitors in the technology and business process consulting space.

        ACN is on pace to continue its leadership with above average net sales growth of 5-8% estimated for 2019 based off 20 % global growth of emerging technologies.

        Accenture’s dominate business model and future growth projections rely heavily upon the ability to retain and attract talent, given emerging technologies are 60% of revenues.

        Analysts are optimistic for the future of Accenture and its competitors. A Capgemini survey reported that 77% of firms struggle with in-house tech talent and are relying on outsourcing  for service.

Key Points:

            Since Accenture has been added to the AIM portfolio, it has outperformed its analysts’ predictions for 3 quarters, beating both top line and bottom line estimates. ACN’s Q3 reported double digit revenue growth in all geographic segments except Europe, which still recorded growth of 9%, and in the Communication and Media, Product, and Resources business segments. Accenture is still in a powerful position for future growth as it continues to lead its space while also having growing global demand for its business. 77% of firms globally are relying on technology and management consulting services and their dependence on these services will continue to grow. Increasing speeds of technology evolution and increasing complexity gives Accenture’s service a sweet spot for all sectors.

            Since February 2018, Accenture has acquired more than 10 firms scattered across the world and within different business segments. To start, Accenture has acquired HO Communication in greater China to expand its digital design and commerce services to their clients in China. They have also acquired Mindtribe, Pillar Technology, and Designaffairs in Europe as bolt-on acquisitions to help design smart products (Designaffairs), and to help build and implement smart products into the business structure of their customers (Mindtribe and Pillar Technology). Most recently, on November 12, ACN acquired the swedish firm Kaplan. Kaplan will improve Accenture’s data-driven customer relationship management services and will allow Accenture to strengthen its end-to-end experience service for Northern European nations.

What has the stock done lately?

            Accenture is staying focused on generating and maintaining a substantial cash balance to continue their high rate of acquisitions. The recent 10k was released last month on October 24th and details much of what was discussed above. Its last 3 quarters sales growth was 14.9%, 15.8%, and 10.4% respectively and is expected to continue around 7-9% for 2019, keeping margins consistent at 14%. With the brexit deadline on the horizon, Accenture could be hurt by some legislation but also could see a boost in sales as companies look to restructure. According to a study conducted by Accenture, 90% of banks plan on implementing an Open Banking service for their commercial clients, which should boost sales growth into the double digits. Accenture is expected to profit from this industry move to Open Banking.

Past year Performance:

            Accenture YTD return is 5.21% and its 52 week change is 9.61%. Accenture has an average beta of 1.05 and its last 3 month return is -5.12%, which reflects the beta and recent market performance. Despite the recent dip in price, ACN has outperformed its benchmark and is still leading its competitors.

Source: FactSet
My Takeaway:

            As of late, Accenture’s stock price seems to be following the markets and is a relatively cheap buy right now, as markets are slumped. Based off the factors discussed above, Accenture is growing rapidly with 10 plus acquisitions made within the last year and double digit top line growth, paired with double digit industry growth. Accenture has an incredible bright future as technology continues to evolve and make its way into every sector across the globe. With increasing competition in all sectors globally, evolving industry 4.0, and the need for integration and efficiency to stay profitable, the demand for Accenture’s services is expected to explode. The brexit shakeup should give Accenture an opportunity for additional clients. Lastly, cloud services account for 60% of ACN revenues and global cloud growth is expected to grow by a CAGR of 21.1% for the next 5 years. To conclude, Accenture has immense long term growth potential as the global economy continues to digitalize.

Source: FactSet