Monday, September 11, 2006


The WSJ's "Heard on the Street" column calls Expeditors Intl. (EXPD) momentum investor's trash in the coming weeks, but the co's stock is likely a long-term investor's treasure. Expeditors primarily buys air- and ocean-freight space at wholesale prices and resells it to commercial customers who need shipping services to and from Asia, the US and Europe. The co has been a standout performer in this increasingly lucrative niche. By consolidating customers' shipments and offering customs brokerage to speed delivery, the co has built an enviable book of steady clients. But the co's stock price is off almost 30% since the end of June. The fall has happened despite 2Q net income that was up more than 50%. This recent tumble might be b/c the shares had attracted quick-trigger momentum investors who worry that a slowing economy could temporarily depress freight volumes. Stock analysts, who project 18% annual earnings growth over the next 5 years, have gotten skittish, too, as the stock's P/E ratio has risen to more costly levels. The stock is rated a Hold by 11 of the 13 analysts who cover it. Despite what might be a bit of a blue period, many investors say shareholders reading short-term economic tea leaves or worrying about today's valuation might deserve the designation of cynic as defined by Oscar Wilde, someone "who knows the price of everything and the value of nothing." "The stock has been volatile lately, and that's probably an indication of its owners and not the co's results," says Joe Fath, of T. Rowe Price. "The mkt has become very short-term focused, and it can create an opportunity here for long-term investors," says Ed Han, of Transamerica Premier Growth Opportunities Fund.

The WSJ's "Tracking the Numbers" column discusses Aether (AETH), which intends to use some of its $130m in cash to close a recently announced acquisition, but for Aether's shareholders, it's the money the co has lost that is more important. Aether has landed hard, with a total of nearly $1bn in net operating and capital losses accumulated since '01. It can use the losses from those operations to offset taxes on future profits, but to do so Aether needs a business with the potential to create large operating profits: No profits, no tax benefits. Enter brand strategist and consultant Bob D'Loren, who became president of Aether in June with the goal of turning it into a vehicle to be called NexCen Brands, to consolidate consumer apparel brands and reintroduce them through a franchise network of which footwear retailer Athlete's Foot is the start. Mr. D'Loren is using Aethers cash and tax benefits to buy Athlete's Foot. "Aether has a public currency that was desirable for our model," says Mr. D'Loren. "It had cash of $130m that was valuable. The net operating losses were a nice additional asset." So far, the chips are falling Mr. D'Loren's way, but his latest deal isn't without risks. For one, Athlete's Foot has struggled in the past. Its largest US franchisee went through bankruptcy reorganization in '04, closing most of its 125 stores. Today, the chain has 200 of its 575 franchise stores in this country but faces stiff competition from Foot Locker and others. Aether is paying $51.5m for Athlete's Foot, plus an additional payment of up to $8.5m depending on performance. Price aside, shareholders don't have a good sense how profitable Athlete's Foot is: The shoe retailer hasn't disclosed how much royalty income its franchisees paid in '05; nor has it disclosed avg sales per store or the percentage growth in sales at stores opened more than one year.

The NY Times reports that a consortium of investment firms was near a deal late last night to acquire Freescale Semiconductor (FSL) for more than $16bn. The deal, if completed, would be the largest leveraged buyout ever in the technology sector, surpassing the $11.3bn sale of SunGard last year. The consortium of investors in talks to acquire Freescale include Texas Pacific Group, Blackstone Group and Permira. It is possible that the Carlyle Group and Bain Capital could also join the group.

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