Wednesday, July 05, 2006

Calls of Note Part 1

- Piper is commenting on Chico's FAS (CHS) saying that desipite the recent weakness in stock they are reluctant to upgrade their rating on CHS shares given concerns that the core Chico's business is showing signs of maturation and therefore placing a greater weight on the company's White HouseBlack Market (just about 20% of sales) and Soma by Chico's divisions to be the growth drivers of the business--the former being quite capable and the latter still very much in a "show me" mode.

Signs that the core Chico's concept is maturing include: 1) moderating same-store sales gains; 2) a dramatic deceleration in store growth; 3) a deceleration in the rate of growth in loyalty program customer sign-ups; and 4) 23% of households with income of $75,000 and higher have a loyal Chico's shopper, up from about one in ten three years ago. Clearly this speaks to Chico's past success, but we believe that the concept may be hitting a saturation point.

Firm is trimming estimates given their view that the core Chico's concept is maturing. Also lowers price target from $33 to $29 but keeping rating at Mkt Perform.

Notablecalls: Given the almost 50% decline from its February high I'm reluctant to call this one an actionable call.

- Stifel Nicolaus is positive on Black Box Corp (NASDAQ:BBOX) saying that at urrent price levels, they believe the co is the most attractive equity in firm's infrastructure universe, offering 58% upside to $61.00 target price. The target price reflects a 14x-15x forward P/E and 9x- 10x EV/EBITDA. BBOX is currently trading at 6.3x F2007E EBITDA.

Firm believes that the long-term outlook for BBOX remains promising. The North American market is strengthening with 5% organic growth in F2006. In 4Q06, voice services grew 17% and data services 8% in North America. Nearly all revenue weakness has been in Europe, which is expected to improve in F2007. Meanwhile, the international operating profit margin is much higher than in North America and improving (14.4% in F2006 vs. 12.7% in F2005 ex one-time items). They have increased their F2007 free cash flow estimate to $3.98 p/s from $3.45 p/s due to lower working capital needs.

They believe that BBOX will explore and consider a stock buyback if the current depressed stock price persists over the intermediate term. Firm calculates that a 2 million share buyback, using about one year's FCF, would increase annual EPS by 8.8%. This is about 50%-70% of their estimate of the EPS contribution from future voice acquisitions. Reits Buy.

Notablecalls: Not actionable but good to know category.

- UBS is lowering 2Q estimates on Intel (NASDAQ:INTC) by 1.6M desktop units and 3Q estimates by 0.4Mu as well as lowered ASP estimates, based on industry checks and analysis of x86 processor growth rates vs end-market growth rates. Firm's longer-term thesis for INTC remains intact, as they continue to expect the opportunity for operating leverage through restructuring and gross margin expansion beyond '07.

Rather than a reflection of poor PC demand, the firm believes the confluence of prior overly optimistic PC food chain expectations, upcoming July price cuts and INTC's new pricing policy to reduce the gray market arbitrage are causing the food chain to focus on entering 2H06 with minimum inventory. This should have positive implications for accelerating INTC MPU shipments from 2H06 into '07.

Maintains Buy and $23 tgt.

Firm also lowers their tgt on AMD (NYSE:AMD) to $29 from $33. Maintains Neutral.

Notablecalls: Nothing new here.

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