- UBS notes Sun's (NASDAQ:SUNW) potential reminds them of Xerox 4-5 years ago when the market was skeptical of new CEO Anne Mulcahy who cut costs while benefiting from new products & monetizing assets. Many aspects of the potential turnaround seem familiar such as both have large, sticky customer bases, high market share, hidden assets, bloated cost structure & solid cash flow potential.
Unlike Xerox, Sun's turnaround may be quicker since it doesn't have to worry about high debt levels. Xerox also had to deal with earnings restatements. With Sun's net cash position and current revenue growth, it seems much stronger than Xerox was a few years ago & solid new products could help drive quicker improvement.
Firm also notes they just met with CEO Jonathan Schwartz who seems serious about cost cutting & believe he (& CFO Mike Lehman) have a better handle on Sun's cost structure than many believe. Firm believes shares can gain momentum as investors become more comfortable with management's plan & see sustainable improvements with new products.
Unlike Xerox, Sun's turnaround may be quicker since it doesn't have to worry about high debt levels. Xerox also had to deal with earnings restatements. With Sun's net cash position and current revenue growth, it seems much stronger than Xerox was a few years ago & solid new products could help drive quicker improvement.
Firm also notes they just met with CEO Jonathan Schwartz who seems serious about cost cutting & believe he (& CFO Mike Lehman) have a better handle on Sun's cost structure than many believe. Firm believes shares can gain momentum as investors become more comfortable with management's plan & see sustainable improvements with new products.
Firm's $6.25 target is based on about 1.3x FY07 EV/sales, slightly below Sun's pre-bubble range when margins were in the 10% range. Believes shares represent a compelling value. Reiterates Buy-2 rating.
Notablecalls: Not actionable but good to know category.
- Merrill Lynch notes that according to their industry sources, the tentative agreement between UPS (NYSE:UPS) and its pilots includes an immediate pay increase of nearly 18% for Captains, and 18%-25% for First Officers, effectively moving their pay in line with FedEx. Firm estimates the contract, which would be effective until December 2011, includes annual pay increases of 3%, and a 4% increase in 2012 (the year after the contract becomes amendable), above the 1.5% increase every 18 months under the prior contract. They estimate the immediate pay boost at approximately $88 million (or 6 cents per share).
ML believes the tentative union contract modifies UPS's defined benefit plan, whereas pilots retiring after the age of 60 will receive an annual payment of $3,000 per each year of service. Firm thinks this could result in a $7.2 million (less than one cent per share) cost in the first year, assuming that half of the 212 15-year Second Officers, and a nominal 5% of the 912 15-year Captains retire.
Maintains Sell rating.
Notablecalls: Additional costs? Can't be good news.
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