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Lemley Yarling Management Co
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Soldiers Grove, Wi 54655
Bud: 608-624-5777       Kathy: 630-323-8422

Comments on activity in client accounts

26 August 2016

Markets spent the week meandering in the summer doldrums making and then retreating from all time highs. We are watching for part of the day then riding and walking the rest. Labor Day approaches and markets may see a bit more action as the election season winds down and the vacation season ends.

During the week we sold the XOP for a small gain with the hope that we can buy our oil anchovies back at lower prices next month.

Enjoy.

*****

17 August 2016

We will be on a business trip Thursday and Friday and so are posting today. During the week we added HAIN which dropped 30% when it delayed its annual report due to accounting irregularities. The problem seems to be when revenue was recognized. We owned HAIN earlier in the year and realized a profit on the trade. The shares proceeded to move up to $50 on takeover rumors. (http://www.schaeffersresearch.com/content/options/2016/06/21/buyout-buzz-sparks-rush-on-hain-celestial-group-inc-hain-call-options).

The lower price will again raise takeover talk and we view the revenue recognition issue as a long term nonevent. Here is a summary of the problem: http://www.cnbc.com/2016/08/16/hains-plunge-puts-revenue-recognition-in-spotlight-again.html?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=103872788&yptr=yahoo .

To maintain our cash position traded out of Ford for a plus scratch and we sold BP for a scratch loss if the 60 cent dividend we earned is factored and Marathon Oil for a plus scratch. We still have our XOP position in the oil area.

Below is a fun article with a ghoulish twist. Only in America.

Hedge Fund Manager Profited From Death Arbitrage

https://www.bloomberg.com/view/articles/2016-08-16/hedge-fund-manager-profited-from-death-arbitrage

12 August 2016

We currently own: Marathon Oil, British Petroleum and XOP (which we repurchased this week). We own Sprouts Farmers Markets, First Solar (added to when it dropped), Skechers and Crocs (added this week) in footwear, Ford, and Viacom B.

Smaller accounts are 50% invested while larger are 30% to 40 % invested. we are a bit more invested than we thought we would be with the markets at all time highs but most of these issues are being borrowed as anchovies (trade not eat) and are on their yearly lows down 40% to 60%.

Enjoy.

*****

5 August 2016

We sold SFM for a plus scratch after 'so so' earnings. We may revisit at lower levels.

We added to Brutish Petroleum and purchased Ford when both dropped on Tuesday and took trading profits in Devon and Marathon Petroleum on Thursday after a nice pops on Wednesday and.

We bought First Solar when it dropped 10% on a 'less than' forward forecast but better than earnings and also added Viacom when the company announced ‘better than'. We left room to add to both.

First Solar Inc. (NASDAQ: FSLR) is generally considered the leader of the U.S. solar power sector. That being said, its lead may come into question after a large drop in its shares after earnings took the market capitalization down to $4.76 billion. What is so interesting here is that First Solar's report was not all bad. We have seen several analysts chime in on the matter on Thursday.

The first consideration here is that First Solar's shares were down $4.20, or 8.6%, at $45.04. That is against a 52-week range of $40.25 to $74.29 and a consensus analyst price target of $66.89.

Operating earnings came in at $0.87 per share, much higher than the Thomson Reuters estimate of $0.54. Second-quarter sales were up 4% to $934 million.

The large shock in the report was that net earnings fell a whopping 86% due to restructuring charges. First Solar's GAAP earnings tanked to $0.13 per share from $0.92 due to an $86 million charge. That restructuring charge was due to its decision to stop making solar panels using TetraSun's experimental technology.

First Solar's 2016 earnings guidance was lowered to $3.65 to $3.90 per share from the prior $4.10 to $4.50 range.

24/7 Wall St. has tracked several analyst price target adjustments in First Solar shares. Not all the ratings are negative here, but these were generally followed by lower price targets.

Janney maintained its Buy rating but lowered its fair value estimate to $68 from $89. Its report said:

The company announced strategic changes to its business model on a go forward basis, which will result in significant cost savings, and offered what we consider to be a fairly static guidance for 2016. Looking forward, it continues to make progress in building its backlog of systems projects for 2017, and its move to Series 5 production should further pressure its rivals and improve its competitive position. That said, the restructuring activities appear to be preparation for lower system project volumes in 2017, and we've reduced our forecasts to align with a more conservative posture.

Oppenheimer has an Outperform rating and a $56 price target. The firm's view is that First Solar is executing in a tough operating arena but questions still linger about 2017. Its synopsis said:

First Solar posted results largely in line with expectations as the company announced restructuring charges primarily related to TetraSun and tracker efforts. While First Solar appears to be managing well through a challenging environment, we believe investors will focus on 2017 dynamics with concerns around module profitability and timing for project monetization.

We would not be surprised to see First Solar achieve high-end of 2016 guidance due to strong monetization of its projects in part driven by lower tax equity prices and additional back leverage. We believe bookings suggest almost all of its new sales are module sales but note that all of that backlog has fixed prices and should see improving margin with cost reduction. We remain constructive on what we believe are baseline estimates and valuation.

Credit Suisse has a Neutral rating, which originally looked like it was still calling for big upside. The Credit Suisse target was slashed to $50 from $65. The firm's report remains cautious:

As we have been highlighting for over a year, we believe earnings will decline significantly in 2017 as high-margin vintage projects are completed and the company transitions more volumes to module sales (instead of system development), which carry less system content. First Solar reported they have 400 MWs of system business booked for 2017, another 300 MWs where they are comfortable, and 300 MWs of opportunities with a lower probability of materializing.

Read more at: http://247wallst.com/energy-business/2016/08/04/how-analysts-are-changing-their-views-on-first-solar-after-earnings/?yptr=yahoo

Viacom's Dauman says legal wins will help Paramount sale process

Viacom Inc (VIAB.O) Chief Executive Philippe Dauman said on Thursday his recent victories in a legal battle with Sumner Redstone for control of the media company would help him push through a plan to sell a minority stake in Paramount Pictures.

Ninety-three-year-old Redstone, supported by daughter Shari, opposes Dauman's plan to sell a 49 percent stake in Paramount, while Dauman sees it as a way to unlock value for shareholders, who have seen their shares plummet in value in recent years.

Analysts have valued the stake at about $4 billion.

Sumner Redstone is Viacom's biggest shareholder. However, his decision to oust Dauman from both Viacom's board and a trust that will control Redstone's shareholding after he dies or becomes incapacitated is being challenged in the courts on the grounds that he is not of sound mind to make such decisions.

Redstone controls 80 percent of the voting shares in Viacom.

"The (Paramount stake sale) process has slowed down in recent weeks but we have reason to believe the favorable court developments last week will create a better environment that will allow us to progress with several parties toward a highly beneficial transaction," Dauman said on a call with analysts to discuss Viacom's quarterly earnings.

Dauman has scored two key legal wins in the past week.

A Delaware judge ruled that Redstone's lawyers must defend in a trial his move to oust five Viacom directors including Dauman, and a Massachusetts judge rejected Redstone's bid to dismiss a lawsuit filed by the Viacom CEO.

The lawsuit in Massachusetts, filed by Dauman and Viacom board member George Abrams, contested their removal in May from the seven-person trust that will control Redstone's majority ownership of Viacom and CBS Corp (CBS.N).

National Amusements Inc, through which Redstone controls Viacom and CBS Corp (CBS.N), said Viacom's third-quarter results highlighted the need for a leadership change.

Read more at: http://finance.yahoo.com/news/viacom-revenue-rises-movie-business-110809250.html

For a discussion of Viacom's business go to: http://finance.yahoo.com/quote/VIAB/profile?p=VIAB

Marathon Oil Corporation released its Q2 results after market close on Wednesday. Earnings per share came in slightly above Wall Street consensus expectations.

Marathon reported EPS of $(0.23) and revenues of $1.302 billion. Analyst consensus had an EPS estimate of $(0.25) and revenues of $1.12 billion.

Marathon saw FY16 American production costs at $6-$7/barrel vs. prior of $7-$8/barrel and FY16 initial production costs $4.50-$5.50 vs. prior of $6.00-$5.00.

"Within six weeks of announcing our acquisition of high-quality assets in the STACK oil window, we've already closed the transaction and will accelerate an additional rig on this acreage in the third quarter while still decreasing our 2016 capital budget," said Marathon Oil President and CEO Lee Tillman.

"This deal expands our inventory and further positions Marathon Oil for growth in Oklahoma at a competitive valuation. Coupled with recent non-core divestitures, we're delivering on our objective to further concentrate our capital allocation to the lower cost, higher margin U.S. resource plays," stated Tillman.

http://finance.yahoo.com/news/marathon-oil-beats-estimates-talks-204303850.html

Sprouts Farmers Market Inc 2Q results came in "better than feared."

Goldman Sachs' Stephen Tanal maintains a Buy rating on the company, with a price target of $29.

The company reported 4.1 percent growth in same-store sales, driven by a 3.5 percent increase in traffic, "as deflation took the edge off ticket but drove a pop in gross margin," Tanal mentioned. PS was up 10 percent year-on-year to $0.25, beating the estimate and the consensus.

The analyst believes the guidance revision suggests a step change in gross margin, which is likely to give Sprouts Farmers Market leeway to protect tonnage.

Tanal expects the company to outperform peers in 2H.

Read more at:

http://www.benzinga.com/analyst-ratings/analyst-color/16/08/8311900/goldman-sachs-still-buying-sprout-farmers-market-ready-f

*****

 



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