Monday, July 10, 2006

Calls of Note Part 1

- Piper Jaffray is raising their Q2 estimates on Google (NASDAQ:GOOG) based on the following: 1) strong search volumes in Q2; 2) belief that Google gained share in the quarter; and 3) stable search pricing trends. As such, they are increasing theirnet revenue estimate from $1,589M to $1,672M, which implies 8% q/q advertising revenue growth. Firm is also increasing PF EPS estimate from $2.16 to $2.26 or by 5% (consensus is $1,631M and GAAP/PF of $1.94/$2.20)

Firm believes some of the very high estimates on the Street may be too optimistic as the accuracy of ComScore data, on which some of these estimate increases are based, is highly suspect. In fact, they believe it is unlikely that the volume of search increased sequentially by the mid-20s level as ComScore is suggesting. However, they do believe the data is directionally correct and that Q2 was indeed stronger than expected.

Maintains Outperform and $600 tgt.

Notablecalls: Not actionable but good to know category.

- Morgan Stanley comments on Hosp. Supplies & Medical Technology space saying that based what they think is a mispricing of several stocks in firm's coverage universe, they believe management teams could contemplate taking companies private as one possibility, with the hope of bringing them public again when the equity markets are more hospitable. Although they do not know whether managements and boards will elect to pursue this possibility, the overall economics of LBOs (under our assumptions) look quite compelling for the cardiovascular and orthopaedic companies. As such, we wonder if management teams will test their own conviction on future growth prospects and consider LBOs as a viable strategic alternative.

Based on firm's analysis, stocks that look particularly attractive are Boston Scientific (NYSE:BSX) and Biomet (NYSE:BMET). As such, they maintain Overweight rating on both of these names.

Notablecalls: Not actionable but good to know category.

- Citigroup says they now believe chances favor Medicare delaying (probably until FY08) implementation of a proposed overhaul of hospital inpatient pay after a letter issued Friday by key senators. This is more in line with Street consensus.

Nonetheless, a one-year delay could be positive for defibrillator makers Medtronic (NYSE:MDT), Boston Scientific (NYSE:BSX) and St. Jude (NYSE:STJ); and drug-eluting stent makers Boston Scientific (NYSE:BSX) and Johnson & Johnson (NYSE:JNJ).

The proposal threatens to reduce pay to hospitals for drug-eluting stent procedures by up to 34% and for defibrillator implants by 22%-24% Oct. 1. Charles Grassley, Republican chair of the Senate Finance panel with oversight responsibility for Medicare, and the panel's top Democrat, Max Baucus, wrote Medicare Friday calling for a delay of the payment overhaul until '08.

Notablecalls: I suspect the news was out already on Friday.

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