Sunday, September 03, 2006

Barron's Summary

Barron's discusses teen retailers, saying that American Eagle (AEOS) and Abercrombie & Fitch (ANF) are poised to rally, but Hot Topic (HOTT) and Pacific Sunwear (PSUN) face tough competition. Another cool play: Federated Department Stores (FD).

According to the Barron's, unless Pegasus Wireless (PGWC) unveils a truly groundbreaking technology, its battered shares appear to have little chance of recovering.

Barron's highlights Medifast's (MED), saying its volatile stock has taken a roller-coaster ride. Now, it looks as if it's headed for a downslope that could leave it at 9 a share or lower. According to the article, insiders have already sold heavily.

"The Trader" column discusses Danaher (DHR), whose stock trades near all time high, driven by earnings growth. Yet, according to the article, a small but growing camp of doubters is beginning to circle the stock. A combination of a stout valuation and a slowing industrial economy, the co's need for ever-bigger deals and a recent push outside its core areas to expensive medical-supply deals has prompted concern. Danaher has long been the object of mad crushes by sell-side analysts, and it remains a favorite. Fully 16 of the 20 analysts covering the co rate it a Buy, with one Sell (from the highly regarded Nicholas Heymann of Prudential). The bullishness has moderated slightly of late, with Morgan Stanley's Scott Davis initiating coverage on Aug. 8 with laudatory words about the co, tempered by concerns about paying up for it at today's valuation. He's at the equivalent of a Hold. Christopher Laudani, of the research boutique Short Ideas, last week proposed betting against Danaher outright, based on a variety of concerns, with a downside tgt in the mid-$50s.

"The Trader" column also highlights Source Interlink (SORC), which put itself on the block, a few months ago. Despite the likelihood that the co will be bought by private-equity firms for a significant premium to its current share price, the stock is well off its springtime high. Late last week, prices being paid for options on Source Interlink shares were inflated, perhaps on speculation that a deal might happen sooner than later. The good news for buyers of the stock around current levels is that it remains cheap and appears to have limited downside, even absent an acquisition. Annual sales now run around $2bn, and earnings for the fiscal year ending next Jan. 31 are expected to be $40m, or 78c a share. Free cash flow should exceed $1 per share, and F'08 earnings are pegged at close to $1 a share. In this mkt, a stock at 11x free cash flow certainly qualifies as cheap. There's a crowd of smart-money hedge funds in the stock, including SAC Capital, Elliott Mgmt, DE Shaw and others. Otherwise, the stock's largely ignored by institutions. Portfolio managers who are in the stock are pegging a possible buyout price between $13-18 a share.

"Technology Trader" section discusses PetMed (PETS), which, according to the article, has some skeletons in its closet. The co has been caught up in an ugly legal brawl between its co-founders, Yali Golan and Marc Puleo. Golan served 2.5 years in prison after a drug-conspiracy conviction in the early '90s. In a lawsuit against Puleo and PetMed, one that's been wending its way through state and federal courts in Miami, Golan says his felony record led the two founders to use a shell co to hide Golan's involvement. But Puleo agreed to secretly share half his pay, claims Golan in the lawsuit, which demands damages from Puleo and PetMed. In deposition, Golan claimed that the idea of selling pet medicines by mail order was his. In '96, he incorporated PetMed Express along with Puleo. "I put the wheel in motion," bragged Golan in the deposition. "I was actually nice enough to give him half, you know, of the business." Golan gave the court a crudely drawn document in which Puleo promised to split all compensation. While acknowledging that Golan hid behind a shell co, Puleo and PetMed call the profit-splitting document a forgery. "The claims being asserted are factually and legally without merit," PetMed CEO Menderes Akdag told. "Obviously we will vigorously defend against those claims." Akdag said that PetMed is in no way distracted by the litigation with its felonious founder Yali Golan. But article suggests that investors who get in bed with this stock may rise with fleas.

Fund manager top 10 holdings include: EXC, TXU, NRG, FPL, EIX, WMB, FE, DUK, CEG and EQT.

1 comment:

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