Friday, August 04, 2006

Calls of Note Part 1

- Citigroup notes that over the past two years when BEA Systems (NASDAQ:BEAS) has pre-announced quarterly results (either above or below guidance) they have done so after the market close on the second business day following the quarter close (which would have been Wednesday, August 2nd). Firm notes they saw a similar set-up with BEAS' shares heading into F1Q as we are seeing heading into its 2Q report. Namely BEAS' shares have declined to roughly the same mid-$11 price level as they did heading into F1Q results. Following solid 1Q results, BEAS shares rallied 13% the following day (vs. NASDAQ down 1%); Citi thinks inline 2Q results may result in a similar but more sustainable move given it's heading into the seasonally stronger 2H and a period when the market has historically been friendlier.

Firm notes that over the past year BEA has added its AquaLogic product suite and its Communications platform product to its product portfolio. They think this is a stronger product set than they have had in the last several years based on both internal development and the acquisitions of Plumtree and Fuego.

Average 12% share appreciation in C2H over the past four years; in each of the last four calendar years BEA shares have appreciated (21% in 2002, 13% in 2003, 8% in 2004 and 7% in 2005). With BEA shares down 13% since the end of June, the firm thinks the stage is set for a strong rally the remainder of 2006.

Forward P/E valuation of 21x at the lower-end of historical trading range of 16x-29x.
Maintains Buy and $15 tgt.

Notablecalls: Not actionable but good to know category. Some may disagree.

- CIBC notes that while Abraxis BioSciense (NASDAQ:ABBI) shares may be washed out but is the story really scrubbed clean? Perhaps, but is ABRAXANE, for which management again lowered sales guidance, worth $1.6B? Not in firm's book or at least not yet given solid but not stellar sales to date and a multitude of uncertainties on timing of additional indications, European partnering strategy, etc.

Firm values APPX's generic business at $2.1B or 17.5X '07E EPS (3.0X sales), both group multiples. This implies valuation of ABRAXANE and ABBI's pre- clinical pipeline of $1.6B. Those dineros buy a lot these days in BioPharma, whole companies ALKS, CBST, MYOG, HGSI, ZGEN, MDCO, MOGN.

Note the co. seems to have corrected the excess inventory that led to subpar ABRAXANE numbers YTD. Revised guidance of $170.0MM-$190.0MM implies 50% sequential jump from true run rate unlikely even with AZN's muscle behind the drug, which isn't coming cheap, 22% straight off the top.

For now they generously maintain their peak WW ABRAXANE sales estimate of $1.0B, though now assume peak is hit in 2012 vs. 2010. Generic business remains solid but incapable of moving financials meaningfully. Lowering 12-18 month price target to $26 from $31 to reflect lower ABRAXANE value.

Maintains Sector Performer.

Notablecalls: Not actionable but good to know category. ABBI has been a controversial name and I'd stay away from it.

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