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Thesis Summary

The document provides analyses and investment recommendations for several stocks. It recommends buying Almost Family (AFAM) due to its growth potential through M&A activity and expansion into new geographic regions and product segments. It recommends selling Lululemon (LULU) due to threats from larger competitors like Nike and Under Armour and inefficient inventory management. It recommends buying LendingClub (LC) due to its large online marketplace for consumer and small business loans.

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124 views3 pages

Thesis Summary

The document provides analyses and investment recommendations for several stocks. It recommends buying Almost Family (AFAM) due to its growth potential through M&A activity and expansion into new geographic regions and product segments. It recommends selling Lululemon (LULU) due to threats from larger competitors like Nike and Under Armour and inefficient inventory management. It recommends buying LendingClub (LC) due to its large online marketplace for consumer and small business loans.

Uploaded by

api-278033882
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Stock

AFAM

Buy /
Short
BUY

Thesis

Almost Family (AFAM) is an efficient company with growth


potential in a rapidly growing field. Being a relatively small
company with a presence across the Eastern US provides AFAM
with a strong base for their business. Through aggressive M&A
activity, the firm has been able to establish business in other
states and begin the process of geographic expansion, as seen in
Ohio or New York, for example. M&A activity has also been
responsible for the growth of new product segments, such as the
firms assessment services that have been the subject of three
acquisitions. This shows competent leadership and effective
M&A activity which will increase AFAMs diversity of products.
Geographic expansion, as a result of M&As or otherwise, will
show a similar effect. Increasing their presence across the United
States will allow AFAM to improve economies of scale and
explode revenue. The improvement of margins, which is strong
at 6.82 for 2015, and expansion of customer base will be fueled
by the continued expansion of Medicare/Medicaid throughout
the United States. As the population ages and more individuals
are covered under state-run health care plans, AFAMs customer
base will continue to expand. AFAMs intrinsic value is projected
at $37.58 showing that it is undervalued. Current market price is
$36.73 with a 1-year target price of $44.91; a 22.3% upside.

Current
Target
Price
Price
$ 36.73 $ 44.91

LULU

SELL

LC

BUY

Lululemon atletica (LULU) is an up-and-coming competitor in a $


shark tank of global competitors. Nike (NKE) and Underarmour
(UA), namely, are the biggest competitors and threats to LULU.
With massive economies of scale, the greatest minds in the
business, and unmatched brand loyalty, these companies are
poised to overtake LULU in the athleisure sphere. These
companies have pronounced products that directly compete with
LULU products and with a lack of product differentiation,
LULU will be drowned out by these two goliaths and the slew of
copycat companies that pop up every year. In an attempt to keep
up with these competitors, LULU has expanded in recent years,
cutting margins by 27% since 2012. Intimidating competitors
aside, LULU has shown to be led by inefficient management,
especially when it comes to inventory. In recent years LULU has
begun to hold onto inventory longer and longer, greatly reducing
inventory and increasing finished goods to total assets. These
metrics are beginning to converge on the large competitors of
UA and NKE. As inventory on hand and turnover turn sour,
LULU will suffer even further with operating costs and holding
costs because of a lack of economies of scale compared to the
larger competitors. The industry that LULU operates in isnt
going to do it any favors, either. Fashion, as with many other
consumer discretionary products, come and go with the seasons
and can completely change in a months time. With small brand
recognition (goodwill is just 2% of total assets), LULU is more
prone to falling to larger competitors when trends shift. This is a
risk that is not easily diversified away and is reflected in the
recent volatility of LULU stock. A short is recommended on
LULU with a target of $52.59. At the current market price of
$60.52 this represents a 13.1% downside.
$
LendingClub Corporation was founded in 2006 and is
headquartered in San Francisco, California. The company went
public in December of 2014, priced around $15 per share.
LendingClub operates as an online marketplace that connects
borrowers and investors in the United States. Its marketplace
facilitates various types of loan products for consumers and
small businesses, including unsecured personal loans, super
prime consumer loans, unsecured education loans, and patient
finance loans. The company also offers investors an opportunity
to invest in a range of loans based on terms and credit
characteristics. LendingClub customers include retail investors,
high-net-worth individuals and family offices, banks and finance
companies, insurance companies, hedge funds, foundations,
pension plans, and university endowments. The companys
mission is to transform the banking system and make credit
more affordable and investing more rewarding.

60.52 $

52.59

7.67 $

11.20

ABBV

BUY

56.12 $

68.50

AbbVie is one of the leading biopharmaceutical companies, with


over 40 products on the market and an additional 50 drug
candidates being developed. The company is at the forefront of
innovation, and has entered into collaboration agreements with
companies such as Calico, Googles life-sciences branch, and
Infinity (INFI). The companys strategy involves taking on lots
of debt in order to fund R&D efforts which ultimately lead to
the commercialization of a new drug. As a result, the company is
more leveraged than its peers, but is also more profitable.
CHGG

BUY

4.45

6.95

18.85 $

28.00

Five years ago, Chegg was solely focused on textbooks and had
zero digital footprint. Through their partnership with Ingram,
Chegg has undergone a shift in long-term direction, working to
establish a 100% digital business model with a focus on Chegg
services. In five years they have been able to go from generating
0 revenues digitally to anticipated 2016 digital revenues between
$137 and $145 million. The transition has been successful so far,
with 70% of Chegg users now using Chegg Services, while the
other 30% rely on Chegg for textbook rentals. Due to this,
Chegg anticipates revenues to grow by 57% in Q2 this year. This
growth will help transition Chegg into a high margin business
with low capital expenditures. After poor forward guidance,
Cheggs stock price dropped by 35%; however, this was
unwarranted as it was largely due to a change in revenue
recognition timing from their transition. Due to Cheggs recent
price drop, its skyrocketing profit margins, and its ability to tap
into an $84 billion market, now is the perfect time to enter a longterm position on a very bullish company.
NLS

BUY

Nautilus Inc. has been rapidly growing the last few years, and is $
continuing to improve margins as well. The recent acquisition of
Octane has positioned NLS as a major influence in the fitness
equipment segment. Typically dominated by companies such as
Brunswick Corporation, ICON Health and Fitness Inc., and
Amer Sports Corporation, Nautilus is gaining considerable
market share. Moreover, NLS is outperforming these
competitors in metrics such as EBITA Margin and Cost of
Revenue. Although Nautiluss cost of capital is higher than these
competitors, its return on invested capital is yielding a
significantly higher ROIC/WACC.

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