Thursday, June 22, 2006

Calls of Note Part 3

- Prudential notes they were amazed that Tenaris agreed to pay $2.7 billion for the $0.42 billion tangible book value of Maverick Tube, or 2.0 to 2.5 times estimated replacement value.

According to the firm U.S. Steel (NYSE:X)'s recent EBITDA is larger, and its processes and mix more varied. Thinks it is worth more than Maverick, or over $40 per share. However, a legitimate uncertainty exists as to the judgment of Tenaris and the reasonableness to generalize from its June 12th precedent.

They estimate Maverick's operating profit for 2006 at $448 million and $289 per ton of steel shipped. As a comparison, they estimate US Steel's tubular product segment, with similar capacity, to have an operating profit for 2006 at $938 million or $809 per ton.

Regards the Maverick Tube takeover as a cautionary flag to short-sellers. It is an insightful management that sells its company for over two times replacement value. Some investment bankers will use the Maverick precedent as a "comparable" to value future businesses for sale. Some participants might say that it sets the next value. A cynic might contend that one extraordinary buyer bought its target, and that another such buyer may not appear.

Notablecalls: Expect to see some interest in X today.

- Thomas Weisel Partners notes their recent industry checks in key Veeco Instruments (NASDAQ:VECO) segments (HDD and LED) give them increased confidence that current order trends are tracking above Street expectations for 2Q06 and 2H06. Based on end-market trends and industry checks, they believe that VECO is on track to meet or exceed firm's June quarter order estimate of $128mn (guidance is $125-130mn) and that upside exists to 2H06 order estimate of $253mn (flat H/H). Maintains Outperform.

Based on its accelerating earnings growth (112% y/y in 2006E) and generally conservative Street estimates, they believe VECO offers a compelling risk reward profile. VECO trades at a NTM P/S premium below the peer average with VECO at 1.4x versus 2.4x for the group. On a P/E basis, VECO trades at 19x, below the peer group average of 27x.

Notablecalls: Not actionable but good to know category.

- CIBC notes that effective 6/21, they upgrade Panera Bread Company (NASDAQ:PNRA) to Sector Outperformer from Sector Performer. Firm's proprietary market-by-market analysis suggests room for 3,000-3,500 Paneras, or 3X the current base and enough to sustain the current unit growth rate for 7 years. Unit growth is key to valuation in this sector.

For a chain this size, current store base is remarkably diverse, which speaks to breadth of concept's appeal. For example, 35% of units are in below- national-avg. income markets; many multi-unit markets have less than 200k pop. Mature markets still far less dense than for most other QSRs.

Still-sizable un-penetrated and under-penetrated markets, including no presence in 7 of top 50 U.S. markets, e.g., Phoenix, Portland (OR), Austin (TX). Other big markets (e.g., NY, LA, Philly, Seattle, Dallas) have less than 11 units each.

Notablecalls: Expect to see some upside in PNRA today. As I have said before I usually aviod posting upgrade/downgrades on this page but I think this one has a good point.

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