J2 Global Communications: Future M&A May Drive A Substantial ...

Robust profitability, stable cash flow, healthy growth prospect, and attractive valuation are the key criteria for stock investing. J2 Global Communications (JCOM) is such a quality investment that offers all those merits. In this note, I will walk you through my investment analysis that supports my bullish view on the stock.

Business Overview

Founded in 1995, J2 is a technology company that provides cloud and digital media services to business and individual customers. The firm has two business segments - Cloud and Media (see slide below).

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The Cloud segment offers a variety of office cloud services to business clients. Under the Direct Inward Dial (DID) category, J2's products include eFax, MyFax, Fax.com, and SmartFax that enable business users to send and receive faxes through their email accounts. The firm's voice products including eVoice and OneBox help customer establish a virtual phone system with various enhancements. In the Non-DID category, J2's FuseMail and Campaigner products provide customers email, archival, perimeter protection, as well as enhanced email market solutions. The firm also offers data back-up CRM customer relationship solutions through KeepItSafe and CampaignerCRM. The Cloud segment derives its revenue mainly through subscription fee and patent licensing.

J2's Media segment operates two portfolios of web properties under Ziff Davis and IGN, respectively. Ziff Davis' web properties primarily provide trusted reviews of technology products, technology-oriented commentary, professional networking services, and online deals for business and individual customers. IGN operates IGN.com and AskMen.com, which offer leading gaming and men's lifestyle information services, respectively. The Media segment generates revenue primarily through selling display advertising, logo and copyright licensing, as well as customer and business leads.

Stock Overview

J2 has a market capitalization of $1.9B. The stock has steadily climbed by almost 66% over the past 60 months and is currently trading at its 5-year high of $42.30 with a 2.3% dividend yield (see chart below).

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Growth Strategy & Financials

As the Media business was recently acquired in November 2012, J2 generated a majority of its total revenue (97%) from the Cloud business in 2012. Despite the fact that the fax and voice cloud service market is fairly matured, J2 has managed to achieve a CAGR of 11.4% over the past 5 fiscal years through organic growth and numerous acquisitions (see chart below).

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J2's growth strategy has long been focusing on maintaining superior business margin and steady cash flow conversion. The robust cash flow then would be spent on M&A activities that help the company expand into adjacent markets where J2 can leverage its existing competencies to generate accretive return. The cash return from the acquired business and existing operation would again be invested in new acquisitions, forming a lucrative M&A cycle.

J2 has managed to sustain a very steady and robust margin trend over the past 5 years (see chart below). The company has also been able to convert at least 80% of EBITDA to operating cash flow every year (see chart below). Given the fairly matured fax and voice cloud businesses, the limited capital expenditure allows J2 to produce significant free cash flow. In the 5-year period, J2's levered free cash flow margin averaged at 40.3%, which is almost on par with its average EBIT margin of 41.9% (see chart below).

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With the efficient cash-generating cycle, J2 has completed a total of 27 tuck-in transactions over the past 5 years, and the firm was able to produce at least a 20% annual return on equity in each year (see charts below).

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Acquisition of Ziff Davis and IGN

In November 2012, J2 made a modestly transformational move by acquiring Ziff Davis, a digital media company that operates various websites providing technology-oriented review, commentary, and networking services. The company further expanded its presence in the digital media space by acquiring IGN in February 2013. The two transactions were aimed to improve J2's growth profile and ultimately strengthen the company's cash flow position to better service the M&A cycle.

By the end of 2013, J2 expects the Media segment to represent approximately 25% of the revenue mix and the company's overall margin to be slightly lower in the near term due to the higher fixed cost for the Media business. But given that the segment remains in an early growth phase and digital media is a secular growth space as opposed to the existing fax and voice cloud businesses, the margin profile is forecasted to improve over time as the Media revenue grows.

In a company presentation in May 2013, J2 provided a few updates on Ziff Davis' recent performance (see slide below) and IGN's integration status. Both Ziff Davis' web visits and page views have increased markedly by 19% and 30%, respectively, in Q1 2013 on a year-over-year basis. Its revenue has ramped up by 22% in the quarter and EBITDA has risen substantially by 152% year-over-year. On the IGN side, all of the originally planned IGN integration has been executed successfully, which includes divesting some non-core assets as well as reducing headcounts and other non-staff costs.

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Upside Driver 1 - Ample Liquidity for Continued Acquisitions

The stellar stock performance over the past 5 years is believed to be largely driven by a series of J2's M&A activities as J2's management has demonstrated its ability to pursue accretive transactions and implement business integration as planned. Going forward, I expect J2 to continue having ample liquidity to sustain the current acquisition pace, which allows the company to gradually shift away from the matured fax and voice businesses.

I have performed the following quantitative analysis with some conservative assumptions to demonstrate J2's acquisition firepower:

1) Currently, the consensus estimates predict J2 to generate EBITDA of $230.3M and $245.3M in 2013 and 2014, respectively. To establish my own EBITDA assumptions, I discounted the consensus estimates by 3% and only considered $223.4M and $237.9M as my estimated EBITDA for 2013 and 2014.

2) Given the fact that J2 has managed to improve its EBITDA to levered free cash flow conversion rate somewhat steadily from 79% in 2008 to 89% in 2012 (see chart below), it would be reasonable and conservative to assume an 82% conversion rate for 2013 and 2014, which is near the low end of the 5-year historical range.

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3) Under those assumptions, J2 would generate $183.2M and $195.1M in levered free cash flow in 2013 and 2014, respectively, which would be available for acquisition, dividend payout, and share repurchase.

4) J2 paid out a total dividend of $40.3M and bought back approximately $60.3M value of shares in 2012. The dividend per share has been growing at an annualized rate of 12% since 2011. By fixing the dividend growth rate and assuming a 3% growth in share repurchase, the total capital return would consume about $108.5M and $117.0M of the total free cash flow in 2013 and 2014, leaving $74.7M and $78.0M cash available for M&A activities in the two years.

Essentially, the above analysis suggests that J2's existing operations would be able to generate sufficient funding to support medium-size tuck-in acquisitions without impacting the capital return plan. In addition, J2's other funding sources include an ample cash pile of $294M as of March 31, 2013 and a $40M revolving facility which has not been drawn. Moreover, the company currently has a net cash position of $49.2M. Given J2's robust cash generating capability, the company would be able to assume additional debt at a reasonable cost, giving J2 a strong financial capacity to go after some larger transformational deals.

Upside Driver 2 - Significant Valuation Upside Potential

Despite the strong price run-up in the past 5 years, I believe the stock remains cheap as the company's future growth potential has not been fully priced in. Even with a 5-year price appreciation of 55%, J2's trailing P/E multiple is now just slightly above the 5-year historical average (see chart below).

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The stock's forward P/E multiple has expanded by 20% over the past 6 months from 11.9x to 14.3x, which may seem to be significant. However, considering the facts that the company's consensus revenue, EBITDA, and EPS estimates for the current and next fiscal years have all experienced very substantial upward revisions over the period and that the firm's consensus 5-year earnings growth estimate has also been raised from 7.6% to 10.8%, the 20% multiple expansion is completely warranted (see charts below, sourced from S&P Capital IQ).

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Further, although the forward multiple gap between J2 and S&P 500 Index has narrowed from 12% to 6% over the 6-month period (see chart below), the below-market valuation still looks very compelling as I believe J2's current fundamentals and growth potential should reasonably command an above-market valuation provided that 1) J2's 5-year consensus earnings growth estimate at 10.8% is notably above the average estimate of 8.2% for the S&P 500 Index; 2) J2's various operating metrics including profitability margins, ROE, ROIC, and free cash flow margin are markedly above the market averages; and 3) J2's current dividend yield is in line with the S&P 500's average and the stock price is also supported by the buyback program.

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I also performed a 10-year DCF valuation to gauge the various assumptions that are implied by the current share price (see DCF template below).

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To yield a share value close to the current price of $42.30, the following key assumptions were incorporated in my model:

1) Revenue growth rate was assumed to decline from 4.6% in 2014 to 1.5% in the terminal year, representing a 10-year CAGR of just 3.0%. It is noted that J2's management has indicated the company's organic growth would likely to be around 8% year-over-year over the medium term, while the current model assumption is substantially below that expectation.

2) EBITDA margin was assumed to be constant at 43% from 2015 to the terminal year. This margin assumption was also much more conservative than management's expectation that the margin will potentially expand over time (currently at 46.5% as of March 31, 2013 on a trailing 12-month basis) as a large portion of the Media segment's cost is fixed while the segment revenue would continue to grow.

3) Depreciation and tax rates were forecasted based on their historical percentage to the total revenue.

4) Capital expenditure as percentage of the revenue was assumed to rise from 2.5% in 2013 to 7.0% in 2019 to account for the case that J2 may increase spending to boost the Media segment performance. The ratio was then modeled to decline to 4.0% in the terminal year. It is noted that the ratio estimates are considerably above the historical range.

5) Net working capital investment was projected based on its historical relationship with the total revenue.

6) A WACC of 10.7% was used. The assumptions used in the calculation were conservative. For example, a 3.5% company specific risk premium was added to account for the financial projection risk (though a number of them were already very conservative).

Apparently, the current share price has not priced in any upside resulted from future acquisitions. Even for the organic growth case, the current share price has only baked in a very conservative scenario.

Upside Driver 3 - Dividend Hike and Increased Share Repurchase

Due to the strong cash flow generation, J2 initiated its first dividend of $0.20 per share in August 2011. Since then, the dividend payment has been raised 7 times and by 20% to the current $0.24 level. As the Cloud business continues to generate steady cash flow with additional contribution from the high-growth Media segment, it is expected that management would continue raising the dividend and size of share buyback. Based on my liquidity analysis discussed previously, the probability that J2 would sacrifice the dividend growth for continued M&A expansion is likely to be low as the firm is currently sitting on a large cash balance and also has an ample borrowing capacity.

Conclusion

J2's strong profitability and cash flow generation allow management to continue executing the organic and M&A expansion strategy. As the current share valuation has not yet matched the company's fundamentals and growth prospects, I would strongly recommend buying the shares at the current level. My target share price of $52 is 23% above the current price and is derived from a revised DCF model with more reasonable revenue, EBITDA, and capital expenditure assumptions (see DCF model below). Based on the consensus next 12 months EPS estimate of $2.99, my $52 price target implies a forward P/E multiple of 17.4x. Factoring in J2's consensus 5-year earnings growth estimate of 10.8%, the stock's 5-year PEG ratio of 1.7x remains below the S&P 500's average of 1.8x (calculated with 15.1x forward P/E and 8.2% long-term earnings growth estimate). It should be noted that my $52 target is still not reflective of any future M&A upside, and as such, potential return could be even higher.

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All facts and data used in the article are sourced from S&P Capital IQ, company financial filings, and company presentation unless otherwise specified.

Disclosure: I am long JCOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Source: http://seekingalpha.com/article/1504852-j2-global-communications-future-m-a-may-drive-a-substantial-upside

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Astronaut 'I Scream': New NASA Astronaut Candidates Excited to Be Chosen

Ann McClain's mother was in her front yard rose garden when her daughter called with the news.

"You'll never forget this moment," McClain, a 34-year-old major in the U.S. Army told her mom. "I've been selected as an astronaut candidate."

Her mother's response, to scream so loud that McClain's stepfather ran out of the house thinking his wife had just injured herself, was rivaled only by McClain's. [Photos: Meet NASA's 2013 Astronaut Class]

"She sounded like she had the same reaction as I did," McClain recalled in a video interview released by NASA.

McClain and seven others were announced Monday (June 17) as the United States' 21st class of NASA astronaut candidates ("ascans"). The four men and four women will report to the agency's Johnson Space Center in Houston in August to begin two years of basic training.

Victor Glover, a 37-year-old lieutenant commander in the U.S. Navy pinched himself after getting the call to report for NASA astronaut training. Currently assigned as a Navy Legislative Fellow in the U.S. Congress, he and his wife, Janet, had been waiting for word as to where he would be going next.

"I called her and I was able to tell her that now we know where we are going, it will be to Houston," he said. "And she was ecstatic."

Tyler "Nick" Hague hadn't yet told his parents, but knew they would be excited. His brothers' reaction? Well, that was bound to be different.

"My brothers, as they always do, will give me a hard time and tell me the challenges ahead in the training program," said Hague, a 37-year-old lieutenant colonel in the U.S. Air Force and the current deputy chief of the Joint Improvised Explosive Device Defeat Organization. "But everybody is going to be excited."

Exciting exploration

Other than being thrilled for their selection ? the ascans were chosen from among more than 6,000 applicants, the second largest turn out in NASA's history ? the eight new candidates said they were really excited at the prospect of contributing to humanity's exploration efforts.

"I'm really excited about being a part of something much bigger than me and working alongside some of the world's best minds, who, thankfully for us, feel the same about being a part of something much bigger than them," said Josh Casada, 39, a high-energy particle physicist and a former naval aviator.

"From my perspective, exploration is the foundation of the human spirit, whether that exploration is at the subatomic level or on the nano scale or even the cosmic scale," Casada added. "I think if society is not exploring, we are really just kind of sustaining, and to be able to contribute to that exploration in any small way is really exciting."

Glover expressed similar sentiments, stating he is excited to be a "part of kindling America's passion for aerospace and space."

"There is something special about flying, and especially flying in space, that it just draws people's fascinations and passions," he said. "Being a part of that is the thing that I think excites me the most."

NASA recruited this class, its first trainees in four years, to prepare for flights to the International Space Station, as well as future missions to an asteroidand Mars. [7 Notable Space Shuttle Astronauts]

"I really look forward to being able to directly contribute to the human spaceflight program," said Christina Hammock, 34, who serves as a National Oceanic and Atmospheric Administration (NOAA) station chief in American Samoa. "I really strongly believe in both the practical aspects of the research being conducted, as well as the larger picture of the human spaceflight program bringing us forward as a human race and uniting us in exploring the universe."

Looking forward

Before they can hope to launch into space though, the candidates will need to first pass basic training. Over the next two months, the eight ascans will need to relocate to Houston, where they will soon join the NASA community at Johnson Space Center.

"I am really looking forward to the people down at NASA and working for that really great organization," 35-year-old Nicole Mann, a major in the Marine Corps, said. "I've had the opportunity to go down [to Johnson Space Center] a couple of times for a visit and really it is just the energy and the excitement."

"The professionals there and our international partners ? everybody working towards a common mission, towards science, exploration and that goal of all of humankind ? I'm looking forward to being a part of that very important team," she said.

Andrew Morgan, a 37-year-old emergency physician and flight surgeon, shares Mann's admiration for the people at NASA.

"I definitely felt drawn to being surrounded by the people I have encountered at NASA and being part of the astronaut office and being part of the astronaut corps," Morgan said. "It was just a tremendously talented group of people ? and to be a part of that, I knew that would be something special."

Jessica Meir said she too, was excited to be part of the NASA team, but was also looking forward to the training she and her seven ascans will soon begin.

"I have my private pilot's license but I am really excited about going to Pensacola [Fla.] for real flight training in jets. That is something that will be really, really incredible for me," the 35-year-old assistant professor of anesthesia at Harvard Medical School in Boston said.

"I am also looking forward to the international component. I really enjoy studying foreign languages and cultures, and so the emergence in the Russian culture and society that we will have as part of the International Space Station and the other international partners as well, I am really looking forward to that."

Follow collectSPACE.com on Facebook and on Twitter at @collectSPACE. Copyright 2013 collectSPACE.com. All rights reserved.

Copyright 2013 SPACE.com, a TechMediaNetwork company. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Source: http://news.yahoo.com/astronaut-scream-nasa-astronaut-candidates-excited-chosen-182803934.html

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On the run up to Father's Day, you can snag a Nook HD for $130 or a Nook HD+ for $150.

On the run up to Father's Day, you can snag a Nook HD for $130 or a Nook HD+ for $150. Not too shabby, especially now they place nice with Google.

Read more...

Source: http://feeds.gawker.com/~r/gizmodo/full/~3/icv48_Faptw/on-the-run-up-to-fathers-day-you-can-snag-a-nook-hd-fo-512264112

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Tony Awards 2013: List of Winners!

Source: http://www.thehollywoodgossip.com/2013/06/tony-awards-2013-list-of-winners/

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iOS 7 Fights Mobile Spam With Option To Block Calls And Texts From Specific Numbers

Telemarketing spammers bothering you? Clingy exes calling in the middle of the night? iOS 7 will let you block calls from specific numbers to save your sanity. Rather than allow third-party developers to modify the native Phone app like on Android, Apple has chosen to offer this feature itself.

Source: http://feedproxy.google.com/~r/Techcrunch/~3/iXHpfahZwCY/

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How does inbreeding avoidance evolve in plants?

June 10, 2013 ? Inbreeding is generally deleterious, even in flowering plants. Since inbreeding raises the risk that bad copies of a gene will be expressed, inbred progeny suffer from reduced viability.

Many flowering plants are able to recognize and reject their own pollen, thereby preventing inbreeding despite the plants' hermaphroditic nature. This mechanism is a complex trait that involves the interaction of a gene that tags the pollen with an identifier molecule, and a gene that produces a molecule capable of detecting pollen produced by the same plant.

Evolutionary biologists have often argued that once complex traits are lost, they are seldom regained. But a new study, led by biologists at McGill University and published in the journal PLOS Biology, suggests that this may not be the case for self-pollen recognition.

In the evolutionary lineage leading to the genus Leavenworthia (a plant group related to canola and cole crops such as broccoli and cabbage), the ancestral genes that code for self-pollen recognition were lost. But the self-pollen recognition function in Leavenworthia appears to have been taken up by two other genes that originally may have had a different role -- for example, in pathogen recognition.

"Self-incompatibility," the pollen-recognition system that enables plants to avoid the inbreeding caused by self-pollination, involves a pair of tightly linked genes known as the S locus. In this study, the researchers analyzed the gene sequence, genome organization, and gene evolutionary history of S loci in members of the Brassicaceae family, which includes plants of the genus Leavenworthia.

"We conclude that both genes that comprise the ancestral S locus in the Brassicaceae were lost in Leavenworthia," says McGill researcher Sier-Ching Chantha, lead author of the study. Our analyses show, however, that plants of this genus have two other linked genes that exhibit patterns characteristic of an S locus. These genes occupy the same genomic position in Leavenworthia as do two non-S-locus genes in a related species. We suggest that these genes have evolved to assume the function of the pollen recognition system of self-incompatibility in Leavenworthia."

How plants avoid inbreeding, and the related topic of S locus evolution have been important research subjects for plant biologists. There can be hundreds of variants of a single S-locus in individual plant populations -- a very unusual situation. In the animal world, a similar pheomenon is the many variations in immune-system genes. Immune system genes in animals, like the S locus in plants, are also involved in recognition, though in the case of immune genes it is foreign antigens rather than pollen types that are recognized. It seems that the recognition function can act in both systems to allow the evolution of large amounts of genetic diversity.

"Fran?ois Jacob, the famous French biologist, once compared the action of natural selection to that of a tinkerer who uses the materials around him to produce a working object," notes McGill biology professor Daniel Schoen, the corresponding author of the study. "The evolution of the genes involved in self-pollen recognition in Leavenworthia provides a compelling example of this idea, and lends credence to the notion that the loss of complex traits may not always be irreversible."

The study's other co-authors are Adam C. Herman and Adrian E. Platts of McGill's Department of Biology and Xavier Vekemans of Universit? Lille 1 in France.

The research was supported by the Natural Sciences and Engineering Research Council, Genome Canada, Genome Quebec, and France's Agence Nationale de la Recherche.

Source: http://feeds.sciencedaily.com/~r/sciencedaily/~3/Shmyx6XfV18/130610152010.htm

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Manning trial resumes as new leak scandal unfolds

FORT MEADE, Md. (AP) ? Army Pfc. Bradley Manning's court-martial for giving hundreds of thousands of sensitive documents to WikiLeaks entered its second week Monday in a fresh spotlight cast by a brand-new leak by another low-level intelligence employee who claimed to be exposing wrongdoing.

Like Manning, Edward Snowden could find himself hauled into court by the U.S. government after he unmasked himself Sunday as the leaker who exposed the nation's secret phone and Internet surveillance programs to reporters.

Legal experts closely following both cases said they were shocked to find out young, low-ranking people had such access to powerful government secrets. Manning was 22 when he turned over the military and diplomatic cables about three years ago; Snowden is 29.

"In that respect, these cases suggest we should be much more careful about who is given security clearances," said David J.R. Frakt, a former military prosecutor and defense lawyer who has taught at several law schools.

At the same time, legal experts saw differences between the two cases, namely that Manning's secret-spilling was more scattershot, while Snowden appeared more selective.

"I'm not awarding him the Presidential Medal of Freedom here," Eugene R. Fidell, who teaches military law at Yale Law School, said of Snowden. "I'm just saying you could say it is something more akin to educating the American public about sensitive surveillance issues that have some level of First Amendment concern attached to them."

As for how Snowden's revelation will affect the Manning case, Fidell said it probably won't influence the military judge, who is hearing the case without a jury, but "it ratchets up the entire subject in the public eye." Fidell said it could spur outrage about government secrecy in general, but could also underscore the dangers of leaks ? and that, he said, won't help Manning.

"It's a reminder that if what Manning did and what Snowden did is OK, then it's basically every man for himself," Fidell said, adding that national security would end up with "with more holes than cheese."

Manning is charged under federal espionage and computer fraud laws. The most serious charge against him is aiding the enemy, which carries a potential life sentence.

As the trial opened last week, prosecutors said they would show that some of the secrets fell into the hands of Osama bin Laden himself. Manning's attorney said he was young and naive, but a good-intentioned soldier who wanted to make the world a better place by exposing the way the U.S. military was conducting itself.

Snowden said his motives were similar but told The Guardian newspaper of London: "I carefully evaluated every single document I disclosed to ensure that each was legitimately in the public interest."

Manning never publicly acknowledged his actions until more than two years after his arrest. He was seized only after an informant turned him in. Snowden is hiding out in Hong Kong, perhaps eventually hoping for asylum somewhere.

Testimony in the Manning case on Monday focused on when the soldier first started searching for the secret-spilling website WikiLeaks on his work computer in Iraq and when he downloaded some of the classified information he leaked, including more than 700 Guantanamo Bay detainee assessment reports.

Inside the court-martial, Manning's supporters mostly cheered the Snowden leak.

"We're all complicit in the crimes that these wonderful, brave young people told us about," said Kathy Boylan, a charity worker in Washington.

___

Gresko reported from Washington.

Source: http://news.yahoo.com/manning-trial-resumes-leak-scandal-unfolds-202643686.html

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