Tuesday, June 20, 2006

Calls of Note Part 1

- Goldman Sachs is defending PETsMart (NASDAQ:PETM) following recent sell-off reiterating their Outperform rating. Firm believes that concerns about pricing remain overdone, and that the shares offer growth at a truly reasonable price. As sales and margin compares ease, and firm's latest checkings have found that the pet sector is one of the retail categories that did not experience a sales slowdown in the past two months, they expect accelerating sales and earnings. Valuation is attractive, with EV/EBITDA multiples in the bottom third of the hardlines retail sector, and, as a "gut-check," even an LBO screens well at current prices. Sees $29 as one yr tgt.

Notablecalls: While I wouldn't rule out a nice bounce in PETM, I like the chart of its competitor PETC. Wouldn't hold it below $18 level, though.

- Piper Jaffray comments on Trident Micro (NASDAQ:TRID) saying that near term,
they remain comfortable with their estimates for the June quarter. While they continue to expect a 2H06 seasonal rebound in the LCD TV market, they believe a combination of more moderate unit shipment and pricing pressure may limit potential upside. In particular with LCD TV shipment lagging prior industry expectations so far, the firm believes that unit forecast for 2H may be adjusted downward based on the same run-rate. Given the competitive pressure at key accounts, they believe this could lead to softer pricing and hence steeper margin erosion than prior forecasts.

In light of these concerns, the firm is lowering their CY06 non-GAAP EPS estimate from $0.90 to $0.82 on revenue from $222.5MM to $212.3MM. CY07 EPS estimate is lowered from $1.15 to $1.00 on revenue from $300.8MM to $267.5MM. Lowering 12-month price target from $29 to $20, based on 20x CY07 EPS estimate of $1.00. Maintains Mkt Perform rating.

Notablecall: While I don't have a strong feel for the call or the stock I'll be keeping an eye on it. The target change is way too severe to be ignored.

- Piper Jaffray highlights Adobe Systems (NASDAQ:ADBE) and Apple Computer (NASDAQ:AAPL) as their top large cap picks for 2006.

For AAPL they believe there are two primary catalysts for shares in 2H06: 1) increasing Mac market share with the transition to Intel nearly complete, and 2) release of iPods with new features/higher capacity. Sentiment on AAPL shares is mixed given iPod shipments for the June quarter are likely to be lower than originally expected. Firm believes investors and analysts are generally starting to anticipate a lower iPod number and, therefore, the results should not be a surprise.

For ADBE there are two clearly identifiable catalysts coming in the next 2-3 quarters. Acrobat 8 (Intelligent Documents segment is 30% of business) is expected to ship this fall (likely September) and CS3 (the fully integrated Adobe/Macromedia suite) is expected to ship in spring-07; CS will have an impact on about 40% of the business. ADBE shares have had P/E multiples in the 35x-40x NTM EPS range in the 3-6 months prior to major product cycles over the last 7 years.

Investors generally believe the Q3-Q4 revenue ramp may still be aggressive. Firm believes downside is limited because even if Adobe guides down for Q4, it will be right in front of the Acrobat 8 shipment and they believe many investors are on the sidelines waiting for the perfect entry point.

Notablecalls: Not actionable but good to know category

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