Tuesday, June 20, 2006

Calls of Note Part 2

- JP Morgan reits their Underweight rating on Ultratech (NASDAQ:UTEK) noting multiple LCD flat panel manufacturers have recently announced that they will reduce output levels in order to address what appears to be a near term FPD inventory build-up. They believe this inventory build adds significant risk to firm's 30% YoY growth rate estimate for Ultratech's advanced packaging lithography (APL) business, as LCD packaging houses have begun to reduce the amount of new capacity they plan to bring on-line in C06.

Believes there is little risk of near-term earnings upside due to an incrementally weaker APL business outlook. UTEK is currently trading at 24.5x firm's C07 estimate of $0.65 vs. group average of 12.9x. Believes the stock is currently overvalued relative to its peers based on street expectations of the adoption of Ultratech's laser anneal product at the 65nm tech node. Expects the UTEK multiple premium to contract to a level more in line with group average.

Notablecalls: While I don't see anything new in JP Morgan's call, UTEK's chart sure looks murky. Expect to see additional downside in coming days/weeks.

- Deutsche Bank is slightly lowering their July qtr ests on NVIDIA (NASDAQ:NVDA) as checks during their recent trip to Asia suggest that subsequent to Intel's price cut announcement in May, the PC build & component order rates have slowed materially (for both INTC & AMD platforms, with OEMs less impacted than the channel, but not immune). It is hard to believe that graphics & chipset vendors will not be impacted. Given the relatively rich valuations (vs. ATYT) with similar long-term prospects, they retain Sell & lower tgt to $18.50.

Notablecalls: Not actionable but good to know category.

- Daniel Ernst from Soleil-Hudson Square Research downgrades his rating on Netflix (NASDAQ:NFLX) to Hold from Buy as last week, at the Independent Film & Television Alliance conference in Los Angeles, an executive revealed details of a plan to introduce a proprietary set-top box for the delivery of movies. The company has also posted several job openings for engineers with consumer electronics and set-top software experience. Firm believes the likely subsidization of a stand-alone box would significantly erode the economics of the Netflix model.

Assuming ARPU remains ~$17 but SAC goes up by $200 -- as they believe Netflix will have to give the box away " therefore the payback period is extended to 14 months and lifetime value is reduced to $138. Looked at another way, the cost of outfitting each of the 1.86M net subs they forecast Netflix will add this year with a box would be $372M vs. the $190M they forecast the company will spend on DVDs. Firm's 2006 pf-EPS estimate from $1.14 to $0.90 (assuming 50K Netflix Boxes are deployed).

Notablecalls: Very nice piece of research from a small boutique firm! I think most larger firms have missed the news. I'm not sure the call is outright actionable but bears watching.

- Baird is somewhat more positive on SFBC International (NASDAQ:SFCC) following resignation of Dr. Gregory B. Holmes, PharmD, President of Corporate Development.Given less-than-positive past experiences with this executive, and his role in building legacy operations, they view the departure as positive to SFCC's remediation efforts and the company's attempt to rebuild credibility; though they remain on the sidelines with a Neutral rating.

Notablecalls: With short interest standing above 60%, one needs to keep an eye on it. Not making a call here, though.

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