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Friday, June 30, 2006
Calls of Note Part 7
- Baird is cautious on Sandisk (NASDAQ:SNDK) saying very recent datapoints about NAND flash contract pricing suggest pricing declines below expectation. While this information is still anecdotal and is in contrast with large orders they believe Apple placed a month ago, they will follow up with more details as soon as possible. Given the mixed datapoints regarding NAND flash supply/demand outlook near-term, the firm retains Neutral rating on SNDK shares.
Notablecalls: Mixed emotions about this one. But I do think SNDK will see some downside. Maybe even today.
Notablecalls: Mixed emotions about this one. But I do think SNDK will see some downside. Maybe even today.
Calls of Note Part 6
- Piper Jaffray is cautious on Powerwave Tech (NASDAQ:PWAV) noting that based on their channel checks, they believe North American capital spending improved during the June quarter, but the rate of improvement was slower than they had anticipated.
Given Powerwave's exposure to the Americas (37% of 2005 sales), they have reduced their June quarter estimates below consensus. Firm's checks indicate steady capital spending improvement during Q2 levels from leading North American wireless carriers, but they believe the pace of improvement is slower than equipment vendors may have anticipated. Firm believes most carriers will meet capital spending goals during 2006, but they expect a more back-half-weighted year than normal seasonal trends,particularly for Cingular. Maintains Outperform but lowers tgt to $15 from $16.
Notablecalls: I don't expect PWAV to see much pressure following the call.
Given Powerwave's exposure to the Americas (37% of 2005 sales), they have reduced their June quarter estimates below consensus. Firm's checks indicate steady capital spending improvement during Q2 levels from leading North American wireless carriers, but they believe the pace of improvement is slower than equipment vendors may have anticipated. Firm believes most carriers will meet capital spending goals during 2006, but they expect a more back-half-weighted year than normal seasonal trends,particularly for Cingular. Maintains Outperform but lowers tgt to $15 from $16.
Notablecalls: I don't expect PWAV to see much pressure following the call.
Calls of Note Part 5
Several firms are cautious on Palm (NASDAQ:PALM) following in-line results and disappointing guidance issued last night:
* Piper notes they were disappointed with management's FYQ107 guidance of revenue in the range of $380M-$385M and proforma EPS between $0.18-$0.19 vs. estimates of $412M and $0.23.
The lower-than-expected August quarter guidance was driven in part by the end of Treo 650 shipments into the European market starting on June 30, 2006, due to noncompliance with a regulatory issue, and firm's belief the Treo 700 for Europe is launching later than they anticipated. Management also indicated a longer-than-expected sales cycle with enterprise customers and competitive product launches from other major OEMs also impacted near-term guidance.
While Palm guided FY07 year-over-year revenue growth of 20%-25%, they remain cautious of competition impacting ASPs and have modeled 18% revenue growth for FY2007 and 13% revenue growth for FY2008. Maintains Market Perform and $19 tgt.
* Citigroup is lowering their tgt on PALM to $17 from $21. The price target of $17 is based on a P/E multiple of 18.5x CY07 EPS estimate (including stock option expenses) of $0.90 (versus prior estimate of $1.12). Firm believes a P/E-based approach better captures investors' focus on earnings. Maintains Hold.
* Bear Stearns notes that despite PALM's optimistic FY07 outlook underpinned by significant ramp in FY2H07, they are maintaining their pre-options estimates and Underperform rating given concerns about intensifying competition and potential ASP compression.
While PALM's positive FY07 outlook implies a robust FY2H07 growth driven by new product launches and Europe expansion, they are concerned that 1) smartphone market is becoming more crowded with lower-priced smartphones and 2) PALM faces challenges in Europe including entrenched competitors (NOK E61 and Samsung i320 are already ramping) and Treo brand is less known. As for valuation, theyare maintaining 2006 year-end fair value of $14-$15, which is based on sum-of-the-parts valuation.
Notablecalls: Not actionable but good to know category.
* Piper notes they were disappointed with management's FYQ107 guidance of revenue in the range of $380M-$385M and proforma EPS between $0.18-$0.19 vs. estimates of $412M and $0.23.
The lower-than-expected August quarter guidance was driven in part by the end of Treo 650 shipments into the European market starting on June 30, 2006, due to noncompliance with a regulatory issue, and firm's belief the Treo 700 for Europe is launching later than they anticipated. Management also indicated a longer-than-expected sales cycle with enterprise customers and competitive product launches from other major OEMs also impacted near-term guidance.
While Palm guided FY07 year-over-year revenue growth of 20%-25%, they remain cautious of competition impacting ASPs and have modeled 18% revenue growth for FY2007 and 13% revenue growth for FY2008. Maintains Market Perform and $19 tgt.
* Citigroup is lowering their tgt on PALM to $17 from $21. The price target of $17 is based on a P/E multiple of 18.5x CY07 EPS estimate (including stock option expenses) of $0.90 (versus prior estimate of $1.12). Firm believes a P/E-based approach better captures investors' focus on earnings. Maintains Hold.
* Bear Stearns notes that despite PALM's optimistic FY07 outlook underpinned by significant ramp in FY2H07, they are maintaining their pre-options estimates and Underperform rating given concerns about intensifying competition and potential ASP compression.
While PALM's positive FY07 outlook implies a robust FY2H07 growth driven by new product launches and Europe expansion, they are concerned that 1) smartphone market is becoming more crowded with lower-priced smartphones and 2) PALM faces challenges in Europe including entrenched competitors (NOK E61 and Samsung i320 are already ramping) and Treo brand is less known. As for valuation, theyare maintaining 2006 year-end fair value of $14-$15, which is based on sum-of-the-parts valuation.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 4
- Merrill Lynch is somewhat cautious on Medmmune (NASDAQ:MEDI) saying that although the CDC committee's recommendation for use of Merck's cervical cancer vaccine (Gardasil), improving MEDI's royalty revenue outlook from that drug, they believe the market is underestimating the negative impact of newly issued Synagis guidelines on sales.
Newly issued Synagis guidelines were clearly designed to limit use in 32-35 week preterm infants, which represent about 50% of sales. Smoking was eliminated as a risk factor, which we estimate will reduce eligible 32-35 week infants by 50%, but actual decline in use may be less. Also, new guidelines restrict Synagis doses per season to 5, which could adversely impact sales by an additional 1%.
Lower Synagis revenues more than offset higher Gardasil royalties, so firm's '06 EPS estimate falls to $0.22 from $0.32, '07 falls to $0.75 from $0.87, and '08 falls to $0.94 from $1.20.
Maintains NEUTRAL rating due to a break-up value of $35.
Notablecalls: I would not be surprised to see some pressure in MEDI.
- Cowen & Co comments on Tessera Tech (NASDAQ:TSRA) saying we are approaching a critical court event that will give the co a huge boost if TSRA prevails. On Aug 14, TSRA begins a 10 day jury trial to determine if Micron and Infineon are in violation of 4 key TSRA patents. If TSRA wins, they will add 25%+ share to the 40% of the DRAM industry they already cover (DDRII royalties) with Samsung & Hynix.
Firm further surmises that there are high probability incremental licensees (Freescale, Phillips etc.) who will wait for the trial outcome before signing with TSRA. Additionally, a TSRA win would significantly increase the odds of a successful resolution in its Jan 2008 case vs. Spansion, ST, & various Subcons. A win wouldbe huge given this likely ripple effect. Given the strong precedent (Sharp, TI, Samsung) they think the odds of a win are high (80%+?) and believe speculative investors ought to position to take advantage.
Notablecalls: Not actionable but good to know category.
Newly issued Synagis guidelines were clearly designed to limit use in 32-35 week preterm infants, which represent about 50% of sales. Smoking was eliminated as a risk factor, which we estimate will reduce eligible 32-35 week infants by 50%, but actual decline in use may be less. Also, new guidelines restrict Synagis doses per season to 5, which could adversely impact sales by an additional 1%.
Lower Synagis revenues more than offset higher Gardasil royalties, so firm's '06 EPS estimate falls to $0.22 from $0.32, '07 falls to $0.75 from $0.87, and '08 falls to $0.94 from $1.20.
Maintains NEUTRAL rating due to a break-up value of $35.
Notablecalls: I would not be surprised to see some pressure in MEDI.
- Cowen & Co comments on Tessera Tech (NASDAQ:TSRA) saying we are approaching a critical court event that will give the co a huge boost if TSRA prevails. On Aug 14, TSRA begins a 10 day jury trial to determine if Micron and Infineon are in violation of 4 key TSRA patents. If TSRA wins, they will add 25%+ share to the 40% of the DRAM industry they already cover (DDRII royalties) with Samsung & Hynix.
Firm further surmises that there are high probability incremental licensees (Freescale, Phillips etc.) who will wait for the trial outcome before signing with TSRA. Additionally, a TSRA win would significantly increase the odds of a successful resolution in its Jan 2008 case vs. Spansion, ST, & various Subcons. A win wouldbe huge given this likely ripple effect. Given the strong precedent (Sharp, TI, Samsung) they think the odds of a win are high (80%+?) and believe speculative investors ought to position to take advantage.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 3
- Stifel Nicolaus & Co comments on EMC (NYSE:EMC) after the co announced its intent to acquire RSA in an all cash deal valued at $2.1 billion or $28 per share. Firm believes the premium paid looks very expensive and frankly excessive when looking at premium, EV-to-revenue, and EV-to-EBITDA. Based on our discounted cash flow analysis, the takeout valuation implies that RSA will have to grow operating cash flow in excess of 27% over the next few years, which seems aggressive. Clearly, this was a competitive bidding process and based on comments on the conference call they suspect Symantec and potentially HP could have also been involved.
Expects EMC shareholders to scratch their heads with respect to price paid and strategic fit. Synergies between EMC's business and RSA are not very apparent.
This may or may not spark a run on other authentication players and there is no one with the size and scale of RSA. Other key players in the sector would include Vasco Data Security (VDSI), Secure Computing (SCUR), Aladdin (ALDN) and ActivIdentity (ACTI).
Notablecalls: Not actionable but good to know category.
- RBC Capital says their channel checks on Secure Computing (NASDAQ:SCUR) thusfar have indicated that the co should come in towards the mid-point of their Q2 revenue/EPS guidance of $43-$45M/ $0.10-$0.12 vs RBC of $44M/$0.10. Strength in the quarter appears to be driven by sales of SecureWire, Webwasher, SnapGear and general strength across the core Secure businesses.
With $1.65 in cash and roughly $2.00 in allowable tax affected NOL ($3.00 in total NOL), investors are currently paying less than $4.50 for the enterprise, which is a bargain in firm's mind. Maintains Outperform rating and $14 price target.
Notablecalls: Traders should keep SCUR on their radars over the next week or so.
Expects EMC shareholders to scratch their heads with respect to price paid and strategic fit. Synergies between EMC's business and RSA are not very apparent.
This may or may not spark a run on other authentication players and there is no one with the size and scale of RSA. Other key players in the sector would include Vasco Data Security (VDSI), Secure Computing (SCUR), Aladdin (ALDN) and ActivIdentity (ACTI).
Notablecalls: Not actionable but good to know category.
- RBC Capital says their channel checks on Secure Computing (NASDAQ:SCUR) thusfar have indicated that the co should come in towards the mid-point of their Q2 revenue/EPS guidance of $43-$45M/ $0.10-$0.12 vs RBC of $44M/$0.10. Strength in the quarter appears to be driven by sales of SecureWire, Webwasher, SnapGear and general strength across the core Secure businesses.
With $1.65 in cash and roughly $2.00 in allowable tax affected NOL ($3.00 in total NOL), investors are currently paying less than $4.50 for the enterprise, which is a bargain in firm's mind. Maintains Outperform rating and $14 price target.
Notablecalls: Traders should keep SCUR on their radars over the next week or so.
Calls of Note Part 2
- Baird views Cephalon (NASDAQ:CEPH)'s announcement of an approvable letter for Fentora (FEBT) as a significant positive for two important reasons: First, it demonstrates that Fentora is approvable and has a clear path to approval, critical because CEPH must replace Actiq before it faces generic competition later in 2006. Second, because final approval is pushed back by 3+ months, it allows CEPH to maximize the harvest of Actiq revenues before triggering the start of generic competition.
Recall Fentora is the successor product to Actiq and that Barr Labs is permitted by contract to launch a generic Actiq on 12/06/06, or upon approval of Fentora (i.e., approval of Fentora automatically triggers earlier entry of Barr's generic Actiq). Maintains Outperform and $75 tgt.
Notablecalls: Not actionable but good to know category.
- Citigroup says Avon Products (NYSE:AVP) remains firm's Top Pick in the HPC space. With the stock having come under pressure over the last month (attributable they believe to not only general market malaise but also growing investor concerns that weakness in emerging markets could pressure Avon's growth in coming quarters), the firm believes the stock again represents a terrific value for investors. Indeed, with Avon trading at roughly 16x 2007 EPS estimate, which they think has considerable room for upside, Avon is now one of the cheaper names in the HPC group (with PG at 17x, CL at 19x, CLX at 18x, and EL at 17x).
Given their belief that the combination of top line growth, margin expansion, and the contribution from either a share buyback or debt repayment will drive healthy double digit earnings growth in 2007, they believe the stock is undervalued. Reiterates Buy rating and $36 price target.
Notablecalls: One to watch today. May have some upside in it.
- Stifel Nicolaus & Co expects shares of several beverage companies to trade up on earnings releases in coming weeks. Contributing factors are mostly reasonable valuations, by firm's estimates, and expected earnings upside versus Street consensus (COT, BUD, TAP). In-line to better than expected beer revenues and increasing commodity cost relief are expected to be major contributors to anticipated earnings and trading upside. U.S. beer shipments and pricing expected to produce upside for BUD.
Notablecalls: Charts of COT and BUD look OK.
Recall Fentora is the successor product to Actiq and that Barr Labs is permitted by contract to launch a generic Actiq on 12/06/06, or upon approval of Fentora (i.e., approval of Fentora automatically triggers earlier entry of Barr's generic Actiq). Maintains Outperform and $75 tgt.
Notablecalls: Not actionable but good to know category.
- Citigroup says Avon Products (NYSE:AVP) remains firm's Top Pick in the HPC space. With the stock having come under pressure over the last month (attributable they believe to not only general market malaise but also growing investor concerns that weakness in emerging markets could pressure Avon's growth in coming quarters), the firm believes the stock again represents a terrific value for investors. Indeed, with Avon trading at roughly 16x 2007 EPS estimate, which they think has considerable room for upside, Avon is now one of the cheaper names in the HPC group (with PG at 17x, CL at 19x, CLX at 18x, and EL at 17x).
Given their belief that the combination of top line growth, margin expansion, and the contribution from either a share buyback or debt repayment will drive healthy double digit earnings growth in 2007, they believe the stock is undervalued. Reiterates Buy rating and $36 price target.
Notablecalls: One to watch today. May have some upside in it.
- Stifel Nicolaus & Co expects shares of several beverage companies to trade up on earnings releases in coming weeks. Contributing factors are mostly reasonable valuations, by firm's estimates, and expected earnings upside versus Street consensus (COT, BUD, TAP). In-line to better than expected beer revenues and increasing commodity cost relief are expected to be major contributors to anticipated earnings and trading upside. U.S. beer shipments and pricing expected to produce upside for BUD.
Notablecalls: Charts of COT and BUD look OK.
Calls of Note Part 1
Several firms are commenting on Apple Computer (NASDAQ:AAPL) this morning in light of "irregularities" regarding the issuance of stock option grants between 1997-2001 and reports of weakening iPod demand.
* Merrill Lynch notes that of the total number of options granted (adjusted for splits) to named executives, they find that 5% of options were granted at a share price that was less than 5% from the fiscal year low. Firm finds that 9% of option grants were less than 10% from the fiscal year low. These appear to be a small percent of overall executive option grants.
However, excluding options granted to Steve Jobs (which were priced at levels far above the fiscal year low), 15% of options were granted at a share price that was less than 5% from the fiscal year low and 24% of options were granted at a share price less than 10% from the fiscal year low. Perhaps these are the grants that may have triggered the internal investigation. Maintains Neutral rating.
* Piper Jaffray notes that of the 13 distinct option grants to senior management that were reported from FY97-FY01, they find one grant issued to Steve Jobs to be noteworthy. The firm has seen several other companies in their coverage space that have had options grants within 5% of, or at the low price for, the 40 days surrounding the grant date. From a high level, backdating options is the topic du jour, and this somewhat tarnishes Apple's squeaky clean image. However, it does not impact Apple's underlying fundamentals. They would view a pullback in shares as a buying opportunity ahead of what they believe will be favorable back-to-school and holiday periods for Apple.
* Banc of America is lowering their target price from $77 to $68, based on a lower target multiple. Firm believe thats Apple's transition from an iPod story to more balanced CPU and iPod story presents incremental risks. Based on channel checks and proprietary work, they have lowered iPod forecast and raised CPU growth rate estimates. Net firm's estimates increase by a small amount, from $2.38 in FY07 to $2.43. Believes that Apple's valuation is reasonable, but not on sale. Further, given their belief that street estimates remain in a range of reasonable to too high, they chosse to remain Neutral.
* Thomas Weisel Partners notes they just completed a round of 20 channel checks with Apple specialist resellers and Apple retail stores across the United States, and 90% of checks suggest strong demand for Intel-based Macs. Firm's checks suggest that half of the people visiting the stores are switchers and that there is pretty strong demand for MacBook and low-end MacBook Pro. Checks also indicate that most of the stores have received the shipments of Intel-based notebooks, so from a supply point of view, Apple is in a strong position from last quarter.
According to their checks, iPod nano remains a dominant MP3 player. Video iPod demand also appears to be solid, and this is perhaps due to the fact that customers who are looking for higher capacity iPods have no choice but to buy video iPod. Seventy percent of checks also indicate that overall demand for iPod has fallen off compared to the March quarter, however.
No change to ests. Maintains Peer Perform.
Notablecalls: I don't see AAPL getting hit more than 1-2 pts on this options related issue. The weakness is iPods is alread well known.
* Merrill Lynch notes that of the total number of options granted (adjusted for splits) to named executives, they find that 5% of options were granted at a share price that was less than 5% from the fiscal year low. Firm finds that 9% of option grants were less than 10% from the fiscal year low. These appear to be a small percent of overall executive option grants.
However, excluding options granted to Steve Jobs (which were priced at levels far above the fiscal year low), 15% of options were granted at a share price that was less than 5% from the fiscal year low and 24% of options were granted at a share price less than 10% from the fiscal year low. Perhaps these are the grants that may have triggered the internal investigation. Maintains Neutral rating.
* Piper Jaffray notes that of the 13 distinct option grants to senior management that were reported from FY97-FY01, they find one grant issued to Steve Jobs to be noteworthy. The firm has seen several other companies in their coverage space that have had options grants within 5% of, or at the low price for, the 40 days surrounding the grant date. From a high level, backdating options is the topic du jour, and this somewhat tarnishes Apple's squeaky clean image. However, it does not impact Apple's underlying fundamentals. They would view a pullback in shares as a buying opportunity ahead of what they believe will be favorable back-to-school and holiday periods for Apple.
* Banc of America is lowering their target price from $77 to $68, based on a lower target multiple. Firm believe thats Apple's transition from an iPod story to more balanced CPU and iPod story presents incremental risks. Based on channel checks and proprietary work, they have lowered iPod forecast and raised CPU growth rate estimates. Net firm's estimates increase by a small amount, from $2.38 in FY07 to $2.43. Believes that Apple's valuation is reasonable, but not on sale. Further, given their belief that street estimates remain in a range of reasonable to too high, they chosse to remain Neutral.
* Thomas Weisel Partners notes they just completed a round of 20 channel checks with Apple specialist resellers and Apple retail stores across the United States, and 90% of checks suggest strong demand for Intel-based Macs. Firm's checks suggest that half of the people visiting the stores are switchers and that there is pretty strong demand for MacBook and low-end MacBook Pro. Checks also indicate that most of the stores have received the shipments of Intel-based notebooks, so from a supply point of view, Apple is in a strong position from last quarter.
According to their checks, iPod nano remains a dominant MP3 player. Video iPod demand also appears to be solid, and this is perhaps due to the fact that customers who are looking for higher capacity iPods have no choice but to buy video iPod. Seventy percent of checks also indicate that overall demand for iPod has fallen off compared to the March quarter, however.
No change to ests. Maintains Peer Perform.
Notablecalls: I don't see AAPL getting hit more than 1-2 pts on this options related issue. The weakness is iPods is alread well known.
Notablecalls - paperstand
According to The Wall Street Journals “Heard on the Street” column, NYSE (NYX), via Euronext, aims to regain its appeal for international listings. Many international co’s that have listed their shares in European and Asian markets don't want to subject themselves to tougher US regulations recently put in place, particularly Sarbanes-Oxley.
According to the Barron’s Online, Alberto-Culver (ACV) appears undervalued. Wall Street pros who crunched the numbers say the co's consumer-products division and its two retail chains are more valuable as separate entities, and should grow faster on their own. "The spinoff frees up two very different businesses," says Mariann Montagne Kotas, of Thrivent Asset Mgmt. "We were already expecting the co's earnings to grow. But the spinoff will remove challenges facing both businesses."
Notablecalls: It’s Friday, nothing actionable.
According to the Barron’s Online, Alberto-Culver (ACV) appears undervalued. Wall Street pros who crunched the numbers say the co's consumer-products division and its two retail chains are more valuable as separate entities, and should grow faster on their own. "The spinoff frees up two very different businesses," says Mariann Montagne Kotas, of Thrivent Asset Mgmt. "We were already expecting the co's earnings to grow. But the spinoff will remove challenges facing both businesses."
Notablecalls: It’s Friday, nothing actionable.
Thursday, June 29, 2006
Calls of Note Part 5
- ThinkEquity negative on WebEx Communications (NASDAQ:WEBX)saying they remain concerned about future pricing, primarily around two trends. First is the convergence of IP communications infrastructure and services, which the firm believes will commoditize stand-alone applications. Second, they have noticed a trend toward more on-premise deployments, which feature all-you-can-eat pricing. As a point of reference, they recently heard that Microsoft is pricing Live Meeting as low as $15/user/year, or roughly $1.25 per month. Firm reiterates Sell rating and $25 price target on WEBX, a multiple of 18x FY'06 EPS estimate of $1.38.
Notablecalls: I think this will prove to be an actionable call. But maybe not today. Give it a week or so.
Notablecalls: I think this will prove to be an actionable call. But maybe not today. Give it a week or so.
Calls of Note Part 4
- RBC Capital is raising their Q2 sales and EPS estimates for Gilead Sciences (NASDAQ:GILD) . Firm's new EPS is $0.59 (excludes $0.05 of option expenses) up from $0.56. They believe EPS outperformance is likely to be primarily driven by 1) strong volume growth for Truvada, 2) price increases across the HIV franchise, and 3) favorable currency. Although they believe the company is tracking ahead of FY06 guidance, they do not believe management is likely to raise HIV guidance until the launch of the triple-pill in Q3.
Firm increases Q2 forecast HIV sales to $464M from $441M. IMS data suggests an acceleration of q/q Truvada script growth to 15% and only a 1% decline for Viread, compared with 12% Truvada growth and an 8% decline in Viread last quarter. Gilead remains firm's top large-cap idea and they believe fundamentals remain strong. Reits Outperform rating and $73 tgt.
Notablecalls: I think this may be an actionable call.
Firm increases Q2 forecast HIV sales to $464M from $441M. IMS data suggests an acceleration of q/q Truvada script growth to 15% and only a 1% decline for Viread, compared with 12% Truvada growth and an 8% decline in Viread last quarter. Gilead remains firm's top large-cap idea and they believe fundamentals remain strong. Reits Outperform rating and $73 tgt.
Notablecalls: I think this may be an actionable call.
Calls of Note Part 3
- Jefferies says they view Jabil Circuit (NYSE:JBL)'s $200 million repurchase authorization as a sign that the management believes its stock is undervalued and last quarter's hiccup is not indicative of a longer-term problem at the company.
Jabil maintains a strong balance sheet and exited fiscal 3Q06 with $855 million in cash and total debt of $356 with a debt to capital ratio of 12%. Firm continues to believe investors that can see through Jabil's near-term issues and focus on the company's normalized earnings power have a rare opportunity to buy one of the fastest growing technology companies over the past decade at a discount. Reits Buy and $36 tgt.
Notablecalls: Agree with Jefferies here. Buying JBL at current levels will work.
- Banc of America has an interesting note on Maxim Integrated Products (NASDAQ:MXIM) noting that perhaps no stock within firm's semiconductor universe has witnessed a fall from grace akin to the one Maxim has. To wit, this erstwhile darling of semiconductor investors is trading near its lowest level since Mar '03, and has (in uncharacteristic fashion) underperformed the SOX by 17% since the most recent cyclical trough in 2005.
What ails the stock? Mainly the strategic change in business model to target lower margin-higher growth segments, that has in turn adversely impacted the company's GM model.
The stock is now trading at 12.5x CY07 consensus pro-forma EPS est.(cash adj) or its lowest multiple in nearly 10 years. With Maxim's long-term growth rate set to accelerate - at least modestly - following the increased focus on higher growth businesses - and operating margins set to remain flat near 44% despite the forecasted GM erosion, the firm thinks the current valuation fails to capture their belief that Maxim is set to grow sales and earnings at a 16-18% clip over the foreseeable future. Maintains Buy and $50 tgt.
Notablecalls: Excellent call by BofA. I don't think it's outright actionable but should add MXIM to investor radars.
Jabil maintains a strong balance sheet and exited fiscal 3Q06 with $855 million in cash and total debt of $356 with a debt to capital ratio of 12%. Firm continues to believe investors that can see through Jabil's near-term issues and focus on the company's normalized earnings power have a rare opportunity to buy one of the fastest growing technology companies over the past decade at a discount. Reits Buy and $36 tgt.
Notablecalls: Agree with Jefferies here. Buying JBL at current levels will work.
- Banc of America has an interesting note on Maxim Integrated Products (NASDAQ:MXIM) noting that perhaps no stock within firm's semiconductor universe has witnessed a fall from grace akin to the one Maxim has. To wit, this erstwhile darling of semiconductor investors is trading near its lowest level since Mar '03, and has (in uncharacteristic fashion) underperformed the SOX by 17% since the most recent cyclical trough in 2005.
What ails the stock? Mainly the strategic change in business model to target lower margin-higher growth segments, that has in turn adversely impacted the company's GM model.
The stock is now trading at 12.5x CY07 consensus pro-forma EPS est.(cash adj) or its lowest multiple in nearly 10 years. With Maxim's long-term growth rate set to accelerate - at least modestly - following the increased focus on higher growth businesses - and operating margins set to remain flat near 44% despite the forecasted GM erosion, the firm thinks the current valuation fails to capture their belief that Maxim is set to grow sales and earnings at a 16-18% clip over the foreseeable future. Maintains Buy and $50 tgt.
Notablecalls: Excellent call by BofA. I don't think it's outright actionable but should add MXIM to investor radars.
Calls of Note Part 2
- CIBC is defending Motorola (NYSE:MOT) saying that following several days of meetings with supply chain members in Asia, theyfeel comfortable that the conflicting and inconsistent data points that have recently surfaced do not stand in Motorola's way to deliver a positive quarter with a solid sequential increase in handset volume.
Firm believes MOT's mid and high end handset volume remains solid and unaffected. The low end has seen lower orders, but MOT's new targets still reflect a solid QoQ increase of ~15% and at least a flat to slightly up 3Q06 outlook, which is explained by a refresh cycle of new low-end handsets. Believes 3Q06 will bring more mixed data points from the supply chain and an associated headline risk to MOT. Maintains Sector Outperformer and $30 tgt.
Notablecalls: I don't think the stock has gotten hit enough for this to be an actionable call. So it goes to the not actionable but good to know category.
- JP Morgan notes video rental spending in stores and online increased 11.0% for the week ending June 25, 2006, according to Rentrak data. June is up 9.9% y/y through three of four weeks. This follows May and April rental spending, which finished with 3.4% and 3.7% growth, respectively.
July releases look weak, with corresponding box office down 43% as studios appear to be pushing product back to later in the year. Only five titles that earned more than $10m in box office are currently scheduled for release in July vs. 7 in 2005 and 15 in June 2006.
Notablecalls: Take a look at the action in Movie Gallery (NASDAQ:MOVI) over the past couple days. I don't think the momo players are ready for weak July performance.
- Banc of America is lowering their estimates on optionsXpress Holdings (NASDAQ:OXPS) following meeting with management. Firm also hosted a dinner with Int'l Securities Exchange (NYSE:ISE)'s management.
While higher market volatility has increased institutional options trading, increased uncertainty has led to lower retail activity. Both mgmt teams pointed out that typically retail activity is less volatile vs. institutional. Plus, as OXPS's customer base falls more in the long-term investor camp (vs. 'day-trader' camp), they expect diminished retail activity will prove temporary as market direction becomes clearer & seasonality subsides.
Firm lowers their Q2'06 est. by $0.01 to $0.30, FY'06 to $1.15 (from $1.20), FY'07 to $1.45 (from $1.50) on reduced market volumes & lower account growth. Maintains Buy but lowers tgt to $31 from $36.
Notablecalls: While I think BofA is late with their call on OXPS I'll be keeping an eye on it just in case the stock breaks down once more.
Firm believes MOT's mid and high end handset volume remains solid and unaffected. The low end has seen lower orders, but MOT's new targets still reflect a solid QoQ increase of ~15% and at least a flat to slightly up 3Q06 outlook, which is explained by a refresh cycle of new low-end handsets. Believes 3Q06 will bring more mixed data points from the supply chain and an associated headline risk to MOT. Maintains Sector Outperformer and $30 tgt.
Notablecalls: I don't think the stock has gotten hit enough for this to be an actionable call. So it goes to the not actionable but good to know category.
- JP Morgan notes video rental spending in stores and online increased 11.0% for the week ending June 25, 2006, according to Rentrak data. June is up 9.9% y/y through three of four weeks. This follows May and April rental spending, which finished with 3.4% and 3.7% growth, respectively.
July releases look weak, with corresponding box office down 43% as studios appear to be pushing product back to later in the year. Only five titles that earned more than $10m in box office are currently scheduled for release in July vs. 7 in 2005 and 15 in June 2006.
Notablecalls: Take a look at the action in Movie Gallery (NASDAQ:MOVI) over the past couple days. I don't think the momo players are ready for weak July performance.
- Banc of America is lowering their estimates on optionsXpress Holdings (NASDAQ:OXPS) following meeting with management. Firm also hosted a dinner with Int'l Securities Exchange (NYSE:ISE)'s management.
While higher market volatility has increased institutional options trading, increased uncertainty has led to lower retail activity. Both mgmt teams pointed out that typically retail activity is less volatile vs. institutional. Plus, as OXPS's customer base falls more in the long-term investor camp (vs. 'day-trader' camp), they expect diminished retail activity will prove temporary as market direction becomes clearer & seasonality subsides.
Firm lowers their Q2'06 est. by $0.01 to $0.30, FY'06 to $1.15 (from $1.20), FY'07 to $1.45 (from $1.50) on reduced market volumes & lower account growth. Maintains Buy but lowers tgt to $31 from $36.
Notablecalls: While I think BofA is late with their call on OXPS I'll be keeping an eye on it just in case the stock breaks down once more.
Calls of Note Part 1
- Piper Jaffray comments on Autodesk (NASDAQ:ADSK) saying their early round checks with 12 major Autodesk resellers (9 U.S., 3 Europe) indicate that, with 1 month left in the quarter, Q2 is tracking to be primarily in line with consensus ($0.35 on $446.9m). From a quota perspective, on average, the resellers in our sample expect to finish Q2 at 100% of quota. Based on our previous checks, see table below, 100% of quota from this sample of VARs would suggest a range of in line to 1% revenue upside for the quarter. Maintains Outperform and $47 tgt.
Notablecalls: Note that on June 21 Piper was out with a call on ADSK suggesting the co may be in trouble. The stock is down ~10% since then. I would not be surprised to see a small bounce in the coming days. I would not hold the stock below recent lows, though.
- Merrill Lynch comments on Alexion Pharma (NASDAQ:ALXN) after the co officially discontinued development of pipeline drug pexelizumab yesterday. Merrill notes the value of this drug had been removed from the stock following its most recent failure in November '05, followed by guidance from the company that it would discontinue the study and program, so this news should not impact the stock and does not change valuation.
The primary focus for Alexion remains filing its BLA for Soliris for paroxysmal nocturnal hemoglobinuria (PNH) and continuing pre-marketing educational programs for hematologists to help identify patients ahead of launch. Maintains Buy rating.
Notablecalls: Not actionable but good to know category. Note ALXN traded down as much as 5 pts in after market trading.
- Morgan Stanley reits their Overweight rating on VeriSign (NASDAQ:VRSN) as we head into the back half of 2006 - a seasonally brighter period for the company. Quite simply, in such a challenging time, the visibility and deep-seated position of VeriSign's model makes this a must own name in firm's view. With this quarter its last one facing difficult compares over the lofty Jamba! numbers of last year, VeriSign has positioned its business to take advantage of some of the better security and Internet commerce growth trends in the market.
Notablecalls: Not actionable but good to know category.
Notablecalls: Note that on June 21 Piper was out with a call on ADSK suggesting the co may be in trouble. The stock is down ~10% since then. I would not be surprised to see a small bounce in the coming days. I would not hold the stock below recent lows, though.
- Merrill Lynch comments on Alexion Pharma (NASDAQ:ALXN) after the co officially discontinued development of pipeline drug pexelizumab yesterday. Merrill notes the value of this drug had been removed from the stock following its most recent failure in November '05, followed by guidance from the company that it would discontinue the study and program, so this news should not impact the stock and does not change valuation.
The primary focus for Alexion remains filing its BLA for Soliris for paroxysmal nocturnal hemoglobinuria (PNH) and continuing pre-marketing educational programs for hematologists to help identify patients ahead of launch. Maintains Buy rating.
Notablecalls: Not actionable but good to know category. Note ALXN traded down as much as 5 pts in after market trading.
- Morgan Stanley reits their Overweight rating on VeriSign (NASDAQ:VRSN) as we head into the back half of 2006 - a seasonally brighter period for the company. Quite simply, in such a challenging time, the visibility and deep-seated position of VeriSign's model makes this a must own name in firm's view. With this quarter its last one facing difficult compares over the lofty Jamba! numbers of last year, VeriSign has positioned its business to take advantage of some of the better security and Internet commerce growth trends in the market.
Notablecalls: Not actionable but good to know category.
Wednesday, June 28, 2006
Interesting Call of The Day - NMT Medical (NASDAQ:NMTI)
Today's Call of the Day comes from SunTrust Robinson Humphrey's Amit Hazan. Mr. Hazan is positive on NMT Medical (NASDAQ:NMTI) noting the stock is down 55% since the company released MIST I data at the ACC conference in March, and many have simply given up on this story. While both the migraine and stroke opportunities do not carry great visibility today, the firm strongly believes there is enough support (both clinical and from the medical community) to warrant a much higher stock valuation.
NMT's current enterprise value is ~$72M (as NMT had $44.5M in cash as of 1Q), which is now below what St. Jude Medical paid for competitor Velocimed ($74M) in April 2005. However, the differences between NMTI and Velocimed are like night and day.
NMT is the only one to offer a bioresorbable product (approval in Europe in 3Q06). As the firm has said previously, they feel this company is a clear take-out candidate in the next 6-18 months. The average take-out multiple for high growth med-tech names in recent years has been 10-12x TTM sales, but even a conservative 8x multiple yields a potential acquisition value of ~$18 / share (or ~100% premium from current levels). Firm also sees several upcoming catalysts that should change investor sentiment. Among these: 1) NMTI's filing for its bioabsorbale BioSTAR device remains ahead of schedule2) They expect an agreement in the next few months between NMT and the FDA reflecting a change in the primary endpoint for the U.S. MIST II clinical trial from elimination to a reduction in migraine.
Reits Buy and $20 tgt.
Notablecalls: I like this call. The analyst clearly believes NMTI is a bargain at current prices and is sticking his neck out. I only wish the chart was a bit stronger.
NMT's current enterprise value is ~$72M (as NMT had $44.5M in cash as of 1Q), which is now below what St. Jude Medical paid for competitor Velocimed ($74M) in April 2005. However, the differences between NMTI and Velocimed are like night and day.
NMT is the only one to offer a bioresorbable product (approval in Europe in 3Q06). As the firm has said previously, they feel this company is a clear take-out candidate in the next 6-18 months. The average take-out multiple for high growth med-tech names in recent years has been 10-12x TTM sales, but even a conservative 8x multiple yields a potential acquisition value of ~$18 / share (or ~100% premium from current levels). Firm also sees several upcoming catalysts that should change investor sentiment. Among these: 1) NMTI's filing for its bioabsorbale BioSTAR device remains ahead of schedule2) They expect an agreement in the next few months between NMT and the FDA reflecting a change in the primary endpoint for the U.S. MIST II clinical trial from elimination to a reduction in migraine.
Reits Buy and $20 tgt.
Notablecalls: I like this call. The analyst clearly believes NMTI is a bargain at current prices and is sticking his neck out. I only wish the chart was a bit stronger.
Calls of Note Part 6
- Baird notes that Sigma Designs (NASDAQ:SIGM) has been among claimed option backdaters. They reviewed co's 14 option grants over the last 12 fiscal years and found that options were granted four times on the date of the stock price low for that corresponding fiscal year. 10 of the 14 option grants were within 25% of the stock price low for the corresponding fiscal year.
However, firm says that fundamentals remain intact, with strong momentum in IP set-top boxes and portable video players, while digital TVs and HD DVD should act as catalysts later this year. Reits Outperform and $21 price target.
Notablecalls: SIGM shares have taken a big hit in the last 2 sessions, falling over $2. It is tough to go after a falling knife, but positive chatter from Baird combined with 16% short interest could turn into short-term bounce.
However, firm says that fundamentals remain intact, with strong momentum in IP set-top boxes and portable video players, while digital TVs and HD DVD should act as catalysts later this year. Reits Outperform and $21 price target.
Notablecalls: SIGM shares have taken a big hit in the last 2 sessions, falling over $2. It is tough to go after a falling knife, but positive chatter from Baird combined with 16% short interest could turn into short-term bounce.
Calls of Note Part 5
- Banc of America notes their June survey of real estate agents indicated that housing trends worsened from already-weak levels. Firm now expects a 48% decline in earnings in '07 and a 72% decline in '08 based on the weak trends and our expectations for the future. They continue to see downside in the stocks and would not yet look for value opportunities, despite the weakness.
An even higher percentage of agents noted that the time needed to sell a home increased in June. This 'time to sell' index declined to 14.7 from 16.3 in May and is generally a good leading indicator. Firm thinks this points to further pressure on home prices.
An even higher percentage of agents noted that the time needed to sell a home increased in June. This 'time to sell' index declined to 14.7 from 16.3 in May and is generally a good leading indicator. Firm thinks this points to further pressure on home prices.
Stocks mentioned in the note include: WCI, SPF, RYL, NVR, PHM, MTH, HOV, DHI and CHCI. I highlight Pulte Homes (NYSE:PHM) that had its target cut to $26 from $32, impying 8.2% downside to target. Maintains Neutral. Firm notes Pulte is unique from its significant penetration in the active adult segment through its 2001 acquisition of Del Webb. However, they expect Pulte's earnings to decline slightly more than its peers due to its large exposure to markets where affordability is stretched.
Notablecalls: It looks like the builders have some more downside in them. I'd keep an eye on PHM today.
Calls of Note Part 4
- Merrill Lynch thinks Microsoft (NASDAQ:MSFT) stock is likely to remain range-bound over next few months. According to the firm investors could still make profits by using a short strangle (sell call options, and sell put options). Annualized returns on the combined premiums are 16.5%. Investors who already own Microsoft stock can use the same short strangle for added income. While options may not be suitable for all investors, other investors may find this strategy profitable over the near-term.
Investors would sell $25.00 call options, and sell $22.50 put options. The combined $1.20 premium provides a 5.2% return (16.5% annualized). This strategy is profitable in the $21.30 to $26.20 range, though the firm would caution that investors are exposed to losses outside this range.
Notablecalls: I must say I have never seen an options strategy highlighted by a broker actually work. Will see how ML fares.
- ThinkEquity says they are hearing that RF Micro Devices (NASDAQ:RFMD) has received sizeable order cancellations in the last month from both Nokia and Motorola. Firm believes that these order cancellations represent approximately 6-7 million units and will primarily impact RFMD's 2H results.
While the firm has previously been and continues to be concerned primarily by a low-end handset inventory glut, they are now hearing that a component build is occurring in the channel that will largely impact CYQ4 results. Firm expects the channel to react by lowering its forecasts to RFICs for late CYQ3 and CYQ4. Target goes to $5 from $7. Maintains SourceofFunds rating.
Notablecalls: I think we will see weakness in RFMD today. Also scroll down and read the JP Morgan note.
Investors would sell $25.00 call options, and sell $22.50 put options. The combined $1.20 premium provides a 5.2% return (16.5% annualized). This strategy is profitable in the $21.30 to $26.20 range, though the firm would caution that investors are exposed to losses outside this range.
Notablecalls: I must say I have never seen an options strategy highlighted by a broker actually work. Will see how ML fares.
- ThinkEquity says they are hearing that RF Micro Devices (NASDAQ:RFMD) has received sizeable order cancellations in the last month from both Nokia and Motorola. Firm believes that these order cancellations represent approximately 6-7 million units and will primarily impact RFMD's 2H results.
While the firm has previously been and continues to be concerned primarily by a low-end handset inventory glut, they are now hearing that a component build is occurring in the channel that will largely impact CYQ4 results. Firm expects the channel to react by lowering its forecasts to RFICs for late CYQ3 and CYQ4. Target goes to $5 from $7. Maintains SourceofFunds rating.
Notablecalls: I think we will see weakness in RFMD today. Also scroll down and read the JP Morgan note.
Calls of Note Part 3
- JP Morgan notes their checks in the channel indicate Nokia (NYSE:NOK) is pushing out orders for handset components across the Asian handset supply chain. They believe the push outs have been to suppliers of passive components and printed circuit boards (PCBs) by up to 10% of total 2Q06 units.
Following the Nokia push outs, firm's checks now indicate the top four global handset OEMs - Nokia, Motorola, Samsung and LG - (roughly 75% of 1Q06 global handset sales) are either pushing out component orders (MOT and NOK) or missing 2Q06 sales estimates (Samsung and LG). Firm believes the recent rash of negative wireless data points is indicative of either an inventory over-build or weaker than expected demand.
As a result of the Nokia push outs combined with other weakness from Motorola, LG and Samsung, they are concerned on downside risk to estimates for Nokia suppliers such as Texas Instruments (NYSE:TXN) (~10% of C05 sales) and RF Micro Devices (NASDAQ:RFMD) (38% of F06 sales).
Notablecalls: The slowdown in PC segment usually preludes a slowdown in handsets. RFMD and other players with large handset leverage have already gotten hit which suggests that while there may be some additional downside in store, it's likely muted. I wouldn't be surprised to see some weakness in RFMD today, though.
- UBS comments on XM Satellite (NASDAQ:XMSR) noting Toyota and Hyundai to offer XM factory installed in 2007 model year vehicles. Discussions with new-car purchasers indicate "ah-ha" moments (being stuck in traffic, travel to remote area) when consumer realizes value of XM service, which leads to subscription. XM converts roughly 54% of trials to subscription.
XM announces 2Q subscriber numbers before the open on July 6, 2006. UBSe 403k net adds -29% q-q and -38% y-y. Firm believes they are toward the low end of consensus and we could see a relief rally over 400k. However, they remain cautious heading into the 2Q06 sub figure. Maintains Buy and $25 tgt.
Notablecalls: Not actionable but good to know category.
Following the Nokia push outs, firm's checks now indicate the top four global handset OEMs - Nokia, Motorola, Samsung and LG - (roughly 75% of 1Q06 global handset sales) are either pushing out component orders (MOT and NOK) or missing 2Q06 sales estimates (Samsung and LG). Firm believes the recent rash of negative wireless data points is indicative of either an inventory over-build or weaker than expected demand.
As a result of the Nokia push outs combined with other weakness from Motorola, LG and Samsung, they are concerned on downside risk to estimates for Nokia suppliers such as Texas Instruments (NYSE:TXN) (~10% of C05 sales) and RF Micro Devices (NASDAQ:RFMD) (38% of F06 sales).
Notablecalls: The slowdown in PC segment usually preludes a slowdown in handsets. RFMD and other players with large handset leverage have already gotten hit which suggests that while there may be some additional downside in store, it's likely muted. I wouldn't be surprised to see some weakness in RFMD today, though.
- UBS comments on XM Satellite (NASDAQ:XMSR) noting Toyota and Hyundai to offer XM factory installed in 2007 model year vehicles. Discussions with new-car purchasers indicate "ah-ha" moments (being stuck in traffic, travel to remote area) when consumer realizes value of XM service, which leads to subscription. XM converts roughly 54% of trials to subscription.
XM announces 2Q subscriber numbers before the open on July 6, 2006. UBSe 403k net adds -29% q-q and -38% y-y. Firm believes they are toward the low end of consensus and we could see a relief rally over 400k. However, they remain cautious heading into the 2Q06 sub figure. Maintains Buy and $25 tgt.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 2
- Banc of America is positive on Flextronics International (NASDAQ:FLEX) noting that while there has been some speculation around a new win with MOT, they believe the win is bigger than expected and incremental to FLEX's original target of ~$1+ billion of handheld revenue growth in F2007 - FLEX realized $4.1 billion of handheld revenue in F2006. The new handset program should contribute $500m in F2007 sales and could be $1+ billion, over time. Firm's channel checks indicate that FLEX continues to win new business across multiple end markets.
Firm's new revenue estimates for F07 and F08 are $17.0 billion and $19.3 billion, respectively, up from $16.6 billion and $18.8 billion. They now forecast 10% organic revenue growth for F07 versus prior estimate of 5%. Maintains estimates due to expected margin pressure.
FLEX's stock trades at 11x C07 EPS estimate, versus EMS sector average of 12x and 14x for S&P 500. Firm views current valuation as very attractive. Reiterates Buy rating.
Notablecalls: Not actionable but good to know category.
- Citigroup comments on Telecommunications Equipment space 2Q order conditions were inline through May, but slowed in the first half of June. While orders in the second half of June sharply accelerated, it looks like 2Q sequential order growth was only about 10% compared to seasonally typical 15+%. Firm's contacts report strong activity levels and pipelines with larger, more strategic enterprise projects, and they are upbeat on 2H prospects. However, they are more concerned about the uncertain interest rate and energy price environment and the potential for sustained enterprise order push-outs.
Because of the concerns about CY 2Q conditions and the potential for sustained weakness, they are cutting estimates on four companies -- Avaya (NYSE:AV), Extreme (NASDAQ:EXTR), Foundry (NASDAQ:FDRY), and Juniper (NASDAQJNPR). The firm is also cutting their target price on Foundry and Juniper.
Notablecalls: Not actionable but good to know category. It's hardly a surprise there is a slowdown in telco eq. spending. The only player standing strong remains to be CSCO. Citi notes they believe co's orders are running at 100%-105% of plan.
- Morgan Stanley is defending Wyeth (NYSE:WYE) noting that although the co has not been providing investors with much to get excited about over the last 2 months, they believe the recent pullback in the stock has gotten excessive.
With the stock trading at 12.8x firm's 2007 EPS estimate, an 11% discount to its peers (ex-SGP), they believe this may be an attractive entry point for investors interested in holding a large-cap pharma stock with good near-term earnings visibility.
Notablecalls: Not actionable but good to know category.
Firm's new revenue estimates for F07 and F08 are $17.0 billion and $19.3 billion, respectively, up from $16.6 billion and $18.8 billion. They now forecast 10% organic revenue growth for F07 versus prior estimate of 5%. Maintains estimates due to expected margin pressure.
FLEX's stock trades at 11x C07 EPS estimate, versus EMS sector average of 12x and 14x for S&P 500. Firm views current valuation as very attractive. Reiterates Buy rating.
Notablecalls: Not actionable but good to know category.
- Citigroup comments on Telecommunications Equipment space 2Q order conditions were inline through May, but slowed in the first half of June. While orders in the second half of June sharply accelerated, it looks like 2Q sequential order growth was only about 10% compared to seasonally typical 15+%. Firm's contacts report strong activity levels and pipelines with larger, more strategic enterprise projects, and they are upbeat on 2H prospects. However, they are more concerned about the uncertain interest rate and energy price environment and the potential for sustained enterprise order push-outs.
Because of the concerns about CY 2Q conditions and the potential for sustained weakness, they are cutting estimates on four companies -- Avaya (NYSE:AV), Extreme (NASDAQ:EXTR), Foundry (NASDAQ:FDRY), and Juniper (NASDAQJNPR). The firm is also cutting their target price on Foundry and Juniper.
Notablecalls: Not actionable but good to know category. It's hardly a surprise there is a slowdown in telco eq. spending. The only player standing strong remains to be CSCO. Citi notes they believe co's orders are running at 100%-105% of plan.
- Morgan Stanley is defending Wyeth (NYSE:WYE) noting that although the co has not been providing investors with much to get excited about over the last 2 months, they believe the recent pullback in the stock has gotten excessive.
With the stock trading at 12.8x firm's 2007 EPS estimate, an 11% discount to its peers (ex-SGP), they believe this may be an attractive entry point for investors interested in holding a large-cap pharma stock with good near-term earnings visibility.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 1
- UBS is modestly trimming their intermediate growth assumptions for Broadcom (NASDAQ:BRCM) owing to concerns surrounding our belief that MRVL will be able to increase the competitive profile of INTC's mobile XScale business. Firm's more conservative growth assumptions takes BRCM Price Target to $55 from $60.
Firm believes the acquisition gives MRVL greater wireless sales leverage for its increasingly sophisticated offerings in the CE, Wi-Fi, handset, and ARM core product spaces. XScale is used in the MOT Q, PALM Treo, and RIMM BB8700 among other platforms, and offers a natural bridge for incorporating MRVL WiFi solutions in converged 3G and eventual 4G platforms.
Notablecalls: Not actionable but good to know category. UBS should have issued the note yesterday morning!
- Wachovia's Peter J. Bye notes Alcon (NYSE:ACL) stock has been repeatedly battered over the past several months on growing concern that management may have to lower 2006 revenue guidance for ReSTOR. While the firm acquiesced on this point when they resumed coverage with below guidance estimates for this product and expect management will (should) lower 2006 guidance for this product on the Q2 conference call, they still believe that there lies an upward bias to current 2006 company-wide revenue and EPS projections.
They believe the market is being a bit myopic with the singular focus on ReSTOR (a product that in the best case scenario would represent ~5% of revenue in 2010). Alcon has multiple drivers for revenue growth in its IOL franchise including continued conversion to blu blocker, Toric and IQ and long-term drivers in pharma (Japan, Patanase). Thinks current Street estimates for ACL's lens care franchise underestimate the upside from the recall of competitor's MoistureLoc brand as feedback on ACL's OptiFREE Replinish is strong and we believe share gains are sticky. Maintains Outperform and $125-$130 valuation range.
Notablecalls: Peter, I like your call! But I feel you should have waited a bit longer before issuing it. ACL may still warn.
- JP Morgan comments on Satellite Radio noting that in order to gain an anecdotal view of retail sales trends for the crucial June Father's day period (with June driving 40% to 50% of Q2 gross retail unit sales), they called 40+ retailers the week of June 19 in the Circuit City, Best Buy, RadioShack, Wal-Mart, and Target chains. The calls suggest: 1) June sales were slightly disappointing, but in-line with their downwardly revised XM and Sirius estimates and 2) Sirius' retail edge continues to ease. Retains Neutral ratings on both.
Most stores said that XM and Sirius were selling near parity, with Sirius' Howard Stern-driven retail share edge fading, and XM's Major League Baseball content exclusive providing a seasonal lift, along with its new combo satrad/MP3 devices.
Notablecalls: Not actionable but good to know category.
Firm believes the acquisition gives MRVL greater wireless sales leverage for its increasingly sophisticated offerings in the CE, Wi-Fi, handset, and ARM core product spaces. XScale is used in the MOT Q, PALM Treo, and RIMM BB8700 among other platforms, and offers a natural bridge for incorporating MRVL WiFi solutions in converged 3G and eventual 4G platforms.
Notablecalls: Not actionable but good to know category. UBS should have issued the note yesterday morning!
- Wachovia's Peter J. Bye notes Alcon (NYSE:ACL) stock has been repeatedly battered over the past several months on growing concern that management may have to lower 2006 revenue guidance for ReSTOR. While the firm acquiesced on this point when they resumed coverage with below guidance estimates for this product and expect management will (should) lower 2006 guidance for this product on the Q2 conference call, they still believe that there lies an upward bias to current 2006 company-wide revenue and EPS projections.
They believe the market is being a bit myopic with the singular focus on ReSTOR (a product that in the best case scenario would represent ~5% of revenue in 2010). Alcon has multiple drivers for revenue growth in its IOL franchise including continued conversion to blu blocker, Toric and IQ and long-term drivers in pharma (Japan, Patanase). Thinks current Street estimates for ACL's lens care franchise underestimate the upside from the recall of competitor's MoistureLoc brand as feedback on ACL's OptiFREE Replinish is strong and we believe share gains are sticky. Maintains Outperform and $125-$130 valuation range.
Notablecalls: Peter, I like your call! But I feel you should have waited a bit longer before issuing it. ACL may still warn.
- JP Morgan comments on Satellite Radio noting that in order to gain an anecdotal view of retail sales trends for the crucial June Father's day period (with June driving 40% to 50% of Q2 gross retail unit sales), they called 40+ retailers the week of June 19 in the Circuit City, Best Buy, RadioShack, Wal-Mart, and Target chains. The calls suggest: 1) June sales were slightly disappointing, but in-line with their downwardly revised XM and Sirius estimates and 2) Sirius' retail edge continues to ease. Retains Neutral ratings on both.
Most stores said that XM and Sirius were selling near parity, with Sirius' Howard Stern-driven retail share edge fading, and XM's Major League Baseball content exclusive providing a seasonal lift, along with its new combo satrad/MP3 devices.
Notablecalls: Not actionable but good to know category.
Notablecalls - paperstand
Barron’s Online discusses ACE Ltd. (ACE), which stock is down 14% since late March. Article suggests that the co’s valuation may present a buying opportunity. "The mkt is pricing in a lot more liability than what the co has had to pay out," says Kevin McCloskey, of Federated Stock Trust. "I think it is a good buy here."
Notalecalls: Not actionable.
Dear readers, today I would like to highlight an article from The Wall Street Journal, discussing a real tough hedge-fund guy. Enjoy with Your morning coffee. Click here.
Notalecalls: Not actionable.
Dear readers, today I would like to highlight an article from The Wall Street Journal, discussing a real tough hedge-fund guy. Enjoy with Your morning coffee. Click here.
Tuesday, June 27, 2006
Calls of Note Part 6
Baird notes their outlook on the industrial cycle is fundamentally unchanged as they continue to believe a mid-cycle slowdown is increasingly likely as we move later in the cycle. Firm is lowering their tgts on Watsco, Inc. (NYSE:WSO) and WESCO International (NYSE:WCC) saying they are increasingly concerned with the potential for disappointing guidance in the face of a slowing economy. While 2Q06 performance should generally be in line to better than expected, they feel the likelihood of positive estimate revisions for 2H06 is equally balanced with the likelihood of negative estimate revisions. The price target for WCC goes to $69 from $80. The price target for WSO goes from $69 to $65. Maintains Neutral for both.
Notablecalls: I would watch both WCC and WSO for weakness over the next few weeks.
Notablecalls: I would watch both WCC and WSO for weakness over the next few weeks.
Calls of Note Part 5
- New York Global Securities notes they have had discussions with four of Baidu's (NASDAQ:BIDU) largest distributors. The news for the company thus far is positive in their opinion, and they reiterate Buy rating. The distributors told the firm they are enjoying healthy q/q revenue growth due to the continued success of Baidu's search engine. As a result, the firm is raising both revenue and EPS estimates to reflect the numbers they are hearing from the field. The bad news is that there continues to be significant conflict between the distributor base and Baidu's own direct salespeople. There also is growing-albeit still relatively small-competition from Yahoo and Google. Believes these two forces are causing an increase in price discounting that will, in time, result in lower revenue growth for Baidu.
Notablecalls: Looks like an actionable call!
Notablecalls: Looks like an actionable call!
Notablecalls - Immtech Pharma (IMM)
Yesterday, Warren Buffett announced that he will donate most of his personal fortune to the Bill and Melinda Gates Foundation, doubling its size and amount of money spent every year. Makes us wonder, is there any listed companies that may benefit from increasing spending?
We have found company named Immtech Pharmaceuticals (IMM), which has mkt cap of $96m (note: short interest stands at 9.5%). Co's first and main drug candidate is pafuramidine maleate, also known as DB289, which is currently in two Ph III clinical trials, one for the treatment of Pneumocystis pneumonia ("PCP") in patients with HIV/AIDS and the other for the treatment of African sleeping sickness (human African trypanosomiasis). The co's treatment of African trypanosomiasis has designated "fast-track" by the FDA. Pafuramidine were discovered and initially evaluated by The University of North Carolina at Chapel Hill (UNC-CH). The co has exclusive worldwide licenses to develop and commercialize compounds discovered and patented by scientists at UNC-CH.
The co's development of pafuramidine for treating African sleeping sickness has been supported financially by a grant to UNC-CH from the Bill and Melinda Gates Foundation. To date, the Foundation has granted to UNC-CH approximately $40m for the development of pafuramidine; pursuant to the Clinical Research Subcontract, Immtech has received approximately $17.3m of such funds. The co plans to submit a NDA to the FDA for accelerated approval of pafuramidine to treat African sleeping sickness, if they meet the designated end points in Ph III pivotal trial.
We believe that the company may benefit from increased spending by the Fundation.
We have found company named Immtech Pharmaceuticals (IMM), which has mkt cap of $96m (note: short interest stands at 9.5%). Co's first and main drug candidate is pafuramidine maleate, also known as DB289, which is currently in two Ph III clinical trials, one for the treatment of Pneumocystis pneumonia ("PCP") in patients with HIV/AIDS and the other for the treatment of African sleeping sickness (human African trypanosomiasis). The co's treatment of African trypanosomiasis has designated "fast-track" by the FDA. Pafuramidine were discovered and initially evaluated by The University of North Carolina at Chapel Hill (UNC-CH). The co has exclusive worldwide licenses to develop and commercialize compounds discovered and patented by scientists at UNC-CH.
The co's development of pafuramidine for treating African sleeping sickness has been supported financially by a grant to UNC-CH from the Bill and Melinda Gates Foundation. To date, the Foundation has granted to UNC-CH approximately $40m for the development of pafuramidine; pursuant to the Clinical Research Subcontract, Immtech has received approximately $17.3m of such funds. The co plans to submit a NDA to the FDA for accelerated approval of pafuramidine to treat African sleeping sickness, if they meet the designated end points in Ph III pivotal trial.
We believe that the company may benefit from increased spending by the Fundation.
Calls of Note Part 4
- JP Morgan is updating their Yahoo! (NASDAQ:YHOO) estimates for 2Q'06 and F'06 due to: 1) strength in the broader search market, 2) stabilized US market share, and 3) improved monetization. Firm's revised 2Q estimates of $1.140B and $0.12 (up from $1.117B and $0.11) are now slightly ahead of the consensus estimates of $1.138B and $0.11.
Recent conversations with search media buyers, including SEM executives at firm's June 16th conference call, coupled with 3rd party data suggests that Yahoo! may have grown its queries more rapidly than had originally anticipated. Additionally, it appears Yahoo! grew its US queries in-line with the market in 2Q.
Checks also suggest that Yahoo!'s monetization is up 1% to 2% compared to the first quarter. Finally, we believe Yahoo! continues to see strong momentum in graphical advertising.
Notablecalls: Expect to see some interest in YHOO following the call.
- Thomas Weisel Partners comments on NutriSystem (NASDAQ:NTRI) noting the co is expected to report 2Q06 results the week of July 24, 2006. Firm remains comfortable with their above consensus 2Q06 estimates for revenue of $121.8mn and EPS of $0.48 (consensus of $123.5mn and $0.46, guidance of $118-122mn and $0.44-0.46). These estimates assume 156K new customers, a conservative 1.3% decline in CAC (versus an 8.3% decline in 1Q06), and an approximate 160bp y/y decline in G&A expense as a percent of revenue. They believe new customer assumptions may prove conservative and see gross margin as a potential source of incremental leverage.
Firm's five-year DCF analysis supports the current valuation, yielding a current fair value of $75.04, while comparable multiples relative to peers suggest a current fair value of $98.81. Taking the straight average of the two valuation methodologies, they arrive at a current fair value of $86.93.
Notablecalls: Looks like an actionable call!
Recent conversations with search media buyers, including SEM executives at firm's June 16th conference call, coupled with 3rd party data suggests that Yahoo! may have grown its queries more rapidly than had originally anticipated. Additionally, it appears Yahoo! grew its US queries in-line with the market in 2Q.
Checks also suggest that Yahoo!'s monetization is up 1% to 2% compared to the first quarter. Finally, we believe Yahoo! continues to see strong momentum in graphical advertising.
Notablecalls: Expect to see some interest in YHOO following the call.
- Thomas Weisel Partners comments on NutriSystem (NASDAQ:NTRI) noting the co is expected to report 2Q06 results the week of July 24, 2006. Firm remains comfortable with their above consensus 2Q06 estimates for revenue of $121.8mn and EPS of $0.48 (consensus of $123.5mn and $0.46, guidance of $118-122mn and $0.44-0.46). These estimates assume 156K new customers, a conservative 1.3% decline in CAC (versus an 8.3% decline in 1Q06), and an approximate 160bp y/y decline in G&A expense as a percent of revenue. They believe new customer assumptions may prove conservative and see gross margin as a potential source of incremental leverage.
Firm's five-year DCF analysis supports the current valuation, yielding a current fair value of $75.04, while comparable multiples relative to peers suggest a current fair value of $98.81. Taking the straight average of the two valuation methodologies, they arrive at a current fair value of $86.93.
Notablecalls: Looks like an actionable call!
Calls of Note Part 3
- JP Morgan notes they had hoped that the Dads and Grads season would provide a significant boost to Apple (NASDAQ:AAPL)'s iPod shipments for the June quarter, firm's checks indicate that this was not the case. As a result, they are reducing expectations for the June quarter to 8.01 million units from 8.73 million.
In addition, the company may have to reduce channel sell-in during the September quarter ahead of its expected product refreshes in the fall, and as a result, the firm is reducing September quarter iPod estimates as well. For the September quarter, they are forecasting 8.54 million units, versus 10.7 million previously.
The news on the Mac side of the equation appears far rosier. Firm is raising their overall Mac shipment forecast for the quarter to 1.27 million from 1.24 million. Early indications suggest that the MacBook consumer laptop is a hit, and this could provide some upside to Mac forecasts for the quarter. With the Intel transition nearing completion, they believe Mac share gains will begin to accelerate in the latter part of the calendar year.
For the June quarter, the firm now expects revenues of $4.39 billion down from $4.45 billion. EPS estimate including options remains unchanged at $0.44. Reits Overweight.
Notablecalls: So, iPod revs are declining and Mac sales are not enough to cover the difference? Makes you say hmmm...
- Banc of America is reducing their June Q (and CY06) revenue and EPS estimates on Western Digital (NYSE:WDC) to reflect PC market weakness. June Q rev and EPS are now $1.07B and $0.33 from $1.9B and $0.34. They are also establishing initial CY07 revenue and EPS estimates of ~$5.0B and $1.95 (incl. options).
Firm believes Samsung and Hitachi gained share this quarter, unlike past quarters, limiting WDC's share gains. WDC will end the quarter with 6 weeks of inventory, which is reasonable for this time of year. Believes that higher than 6 weeks would be a problem, for any hard drive player.
Maintains Neutral rating and lowers tgt to $20 from $22.50, or 10x - 11x CY07 EPS of $1.95. Thinks that near-term WDC will be range bound, given the backdrop of the PC market.
Notablecalls: Not actionable but good to know category.
- JP Morgan has an interesting report on Microsoft (NASDAQ:MSFT) where the firm highlights some of the key things that will have to happen for MSFT to drive a recovery in the stock over the next 6-9 months. They think one of the near term catalysts will be the announcement of another cash distribution plan that will likely be accretive to CY07.
In addition to the $50B in cash, cash equivalents and investments on its balance sheet, they estimate MSFT will generate nearly $12B in free cash flow (after dividend payout) in FY07. Firm expects MSFT to announce another repurchase plan near term and believes that the new plan could be in the $20-30B range leaving ample capital for the company's acquisition strategy.
Notablecalls: Not actionable but good to know category. The stock has done nada for 8 yrs. Firing Ballmer would be the 1st real step to recovery.
In addition, the company may have to reduce channel sell-in during the September quarter ahead of its expected product refreshes in the fall, and as a result, the firm is reducing September quarter iPod estimates as well. For the September quarter, they are forecasting 8.54 million units, versus 10.7 million previously.
The news on the Mac side of the equation appears far rosier. Firm is raising their overall Mac shipment forecast for the quarter to 1.27 million from 1.24 million. Early indications suggest that the MacBook consumer laptop is a hit, and this could provide some upside to Mac forecasts for the quarter. With the Intel transition nearing completion, they believe Mac share gains will begin to accelerate in the latter part of the calendar year.
For the June quarter, the firm now expects revenues of $4.39 billion down from $4.45 billion. EPS estimate including options remains unchanged at $0.44. Reits Overweight.
Notablecalls: So, iPod revs are declining and Mac sales are not enough to cover the difference? Makes you say hmmm...
- Banc of America is reducing their June Q (and CY06) revenue and EPS estimates on Western Digital (NYSE:WDC) to reflect PC market weakness. June Q rev and EPS are now $1.07B and $0.33 from $1.9B and $0.34. They are also establishing initial CY07 revenue and EPS estimates of ~$5.0B and $1.95 (incl. options).
Firm believes Samsung and Hitachi gained share this quarter, unlike past quarters, limiting WDC's share gains. WDC will end the quarter with 6 weeks of inventory, which is reasonable for this time of year. Believes that higher than 6 weeks would be a problem, for any hard drive player.
Maintains Neutral rating and lowers tgt to $20 from $22.50, or 10x - 11x CY07 EPS of $1.95. Thinks that near-term WDC will be range bound, given the backdrop of the PC market.
Notablecalls: Not actionable but good to know category.
- JP Morgan has an interesting report on Microsoft (NASDAQ:MSFT) where the firm highlights some of the key things that will have to happen for MSFT to drive a recovery in the stock over the next 6-9 months. They think one of the near term catalysts will be the announcement of another cash distribution plan that will likely be accretive to CY07.
In addition to the $50B in cash, cash equivalents and investments on its balance sheet, they estimate MSFT will generate nearly $12B in free cash flow (after dividend payout) in FY07. Firm expects MSFT to announce another repurchase plan near term and believes that the new plan could be in the $20-30B range leaving ample capital for the company's acquisition strategy.
Notablecalls: Not actionable but good to know category. The stock has done nada for 8 yrs. Firing Ballmer would be the 1st real step to recovery.
Calls of Note Part 2
- Merrill Lynch notes that with several flat panel display (FPD) manufacturers slowing production rates and pushing out some capacity spending, they expect a drop in FPD equipment sales in the next several quarters. Firm attempts to quantify the risk to Photon Dynamics (NASDAQ:PHTN) with estimate reductions. With the stock near historical trough valuations, they maintain Neutral rating, recognizing that much of this news is already in the stock. GAAP FY06E (Sept) EPS goes to $0.60 from $0.80 and FY07E to $0.62 from $0.92.
PHTN is trading at 1.6x tangible book value and 0.8x Enterprise Value/ trailing Sales. The average historical trough has been 1.7x tangible book with the lowest point about 1.0x. The EV/Sales trough has been around 1.6x on average and about 1.0x at the lowest point. The low points typically occurred when PHTN was losing money significantly in downturns. Thus, Merrill believes the current valuation already factors in the slowdown.
Notablecalls: Not actionable but good to know category.
- JP Morgan comments on Corel (NASDAQ:CREL) saying concerns over weakness at its largest distribution partner, Dell, and sluggishness by competitor Adobe have weighed on the stock. Firm likes the long-term strategy and waits to see results to determine if macro issues are impacting Corel.
Some comments the firm has gotten back from the channel indicate that Corel has continued to hold its market share this past quarter. Believes this indicates that results should ebb or flow with the overall macro results are for the quarter. The stock is trading at 8.1x FY2006E earnings which is 58% below its peers. The NOL's for Corel are worth roughly $109M. Maintains Neutral.
Notablecalls: Not actionable but good to know category.
- Piper Jaffray continues to be positive on F5 Networks (NASDAQ:FFIV) following recent round of channel checks and conversations with industry contacts. Firm believes the momentum in the application traffic management space remains strong and they are incrementally more comfortable with their June quarter revenue and EPS estimates. Believes a moderate recovery in the government business, a strong ramp from WANJet (Swan Labs acquisition), and relatively solid demand in North America and Europe will benefit F5 in the current quarter. Reiterates Outperform rating and $66 price target on FFIV shares.
Notablecalls: Not actionable but good to know category.
PHTN is trading at 1.6x tangible book value and 0.8x Enterprise Value/ trailing Sales. The average historical trough has been 1.7x tangible book with the lowest point about 1.0x. The EV/Sales trough has been around 1.6x on average and about 1.0x at the lowest point. The low points typically occurred when PHTN was losing money significantly in downturns. Thus, Merrill believes the current valuation already factors in the slowdown.
Notablecalls: Not actionable but good to know category.
- JP Morgan comments on Corel (NASDAQ:CREL) saying concerns over weakness at its largest distribution partner, Dell, and sluggishness by competitor Adobe have weighed on the stock. Firm likes the long-term strategy and waits to see results to determine if macro issues are impacting Corel.
Some comments the firm has gotten back from the channel indicate that Corel has continued to hold its market share this past quarter. Believes this indicates that results should ebb or flow with the overall macro results are for the quarter. The stock is trading at 8.1x FY2006E earnings which is 58% below its peers. The NOL's for Corel are worth roughly $109M. Maintains Neutral.
Notablecalls: Not actionable but good to know category.
- Piper Jaffray continues to be positive on F5 Networks (NASDAQ:FFIV) following recent round of channel checks and conversations with industry contacts. Firm believes the momentum in the application traffic management space remains strong and they are incrementally more comfortable with their June quarter revenue and EPS estimates. Believes a moderate recovery in the government business, a strong ramp from WANJet (Swan Labs acquisition), and relatively solid demand in North America and Europe will benefit F5 in the current quarter. Reiterates Outperform rating and $66 price target on FFIV shares.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 1
- JP Morgan comments on Hewitt Associates (NYSE:HEW) saying they think it is too early to buy the stock despite the recent sell-off (down 24% YTD vs. SandP500 flat). The overhang from the BPO portfolio problems and recent mgmt change announcements outweigh a seemingly attractive FCF profile. Firm is lowering estimates to be well below consensus.
While tempting to look at HEW in three parts (consulting, benefits, BPO), they think it's more appropriate in two (consulting, outsourcing). In firm's view, the implied outsourcing P/E multiple of about 23-25x at the current price, is not cheap.
Maintains Neutral rating as the intrinsic value is probably higher than the current stock price; however, with sentiment low and limited positive catalysts near term, they think out-performance remains in the future.
Notablecalls: Not actionable but good to know category.
- Merrill Lynch notes Sepracor (NASDAQ:SEPR) has traded up recently based in part on increased speculation that the company could be acquired. In firm's view, the recent FDA rejection of NBIX's indiplon tablets (a potential competitor to Lunesta) and PFE's decision to return indiplon rights to NBIX makes a takeout more possible. That said, they believe the stock could pull back if a deal is not announced in the near term. Has Buy rating and $62 target on SEPR as standalone.
Notablecalls: Not actionable but good to know category.
- Bear Stearns comments on Phelps Dodge (NYSE:PD) after the co announced itsintention to buy Inco and Falconbridge in a deal that would create a $56 billion global mining giant. The combined entity would be the #1 producer of nickel, the #2 producer of copper, the #2 producer of molybdenum, the #3 producer of cobalt and a significant producer of zinc. Believes the $900 million in identified synergies should be achievable, and may prove to be conservative.
According to the firm it appears that PD is using its undervalued equity to purchase two companies that are fully valued. While they believe that this deal may prove to be a positive over the long term, PD shares may come under some selling pressure until this deal is resolved. Maintains Outperform on PD.
Notablecalls: Not actionable but good to know category.
While tempting to look at HEW in three parts (consulting, benefits, BPO), they think it's more appropriate in two (consulting, outsourcing). In firm's view, the implied outsourcing P/E multiple of about 23-25x at the current price, is not cheap.
Maintains Neutral rating as the intrinsic value is probably higher than the current stock price; however, with sentiment low and limited positive catalysts near term, they think out-performance remains in the future.
Notablecalls: Not actionable but good to know category.
- Merrill Lynch notes Sepracor (NASDAQ:SEPR) has traded up recently based in part on increased speculation that the company could be acquired. In firm's view, the recent FDA rejection of NBIX's indiplon tablets (a potential competitor to Lunesta) and PFE's decision to return indiplon rights to NBIX makes a takeout more possible. That said, they believe the stock could pull back if a deal is not announced in the near term. Has Buy rating and $62 target on SEPR as standalone.
Notablecalls: Not actionable but good to know category.
- Bear Stearns comments on Phelps Dodge (NYSE:PD) after the co announced itsintention to buy Inco and Falconbridge in a deal that would create a $56 billion global mining giant. The combined entity would be the #1 producer of nickel, the #2 producer of copper, the #2 producer of molybdenum, the #3 producer of cobalt and a significant producer of zinc. Believes the $900 million in identified synergies should be achievable, and may prove to be conservative.
According to the firm it appears that PD is using its undervalued equity to purchase two companies that are fully valued. While they believe that this deal may prove to be a positive over the long term, PD shares may come under some selling pressure until this deal is resolved. Maintains Outperform on PD.
Notablecalls: Not actionable but good to know category.
Notablecalls - paperstand
According to The Wall Street Journals "Heard on the Street" column, investors that dumping Berkshire Hathaway (BRKA, BRKB) shares may regret the move. For one thing, the prospective selling by the foundations is unlikely to seriously hurt the stock. Just as important, anticipation that Mr. Buffett will at some point no longer be involved in the co has been an increasing concern in recent years and seems fully baked into the stock's price, which is relatively attractive. That gives Berkshire investors a margin of safety to deal with any weakness the selling from charities could create. "In the long term I don't think it would do anything to the stock price," says shareholder Haruki Toyama, of Toyama Capital Mgmt. "It doesn't inherently change the value in the co."
According to the Barron's Online, Six Flag (SIX) nonexecutive Chmn shelled out $3m to boost his holdings in the co's stock. Daniel Snyder purchased 500K shares for about $5.92 per share after the stock plunged more than 26% last Fri following the co's announcement that an EBITDA shortfall may put the amusement-park operator in default of its bank credit agreement. Snyder's purchase last week boosted his holdings to 11.4m shares, or 12.1% of Six Flags' outstanding shares.
According to the Barron's Online, Six Flag (SIX) nonexecutive Chmn shelled out $3m to boost his holdings in the co's stock. Daniel Snyder purchased 500K shares for about $5.92 per share after the stock plunged more than 26% last Fri following the co's announcement that an EBITDA shortfall may put the amusement-park operator in default of its bank credit agreement. Snyder's purchase last week boosted his holdings to 11.4m shares, or 12.1% of Six Flags' outstanding shares.
Monday, June 26, 2006
Calls of Note Part 7
- Piper Jaffray notes that following recent round of channel checks and conversations with industry contacts, they believe 3D Systems (NASDAQ:TDSC) maybe experiencing softness this quarter (specifically in Europe) and this could result in lower-than-expected revenues and EPS this quarter. Firm is maintaining their Market Perform rating, but have lowered price target from $23 to $19 on TDSC shares.
Notablecalls: Expect to see some pressure. Maybe as much as 1-2 pts.
Notablecalls: Expect to see some pressure. Maybe as much as 1-2 pts.
Calls of Note Part 6
- Piper Jaffray saying that as a result of the momentum in Focus Media (NASDAQ:FMCN)'s business, especially the positive ASP trends and expected ramp-up of the In-Store Network, they are increasing their 2006 and 2007 estimates. 2006 PF EPS estimate go from $1.25 to $1.49, and 2007 PF EPS estimate from $1.78 to $2.28. Firm is increasing their price target from $71 to $80 based on 35x 2007 PF EPS.
Notablecall: Expect to see some interest in FMCN.
Notablecall: Expect to see some interest in FMCN.
Calls of Note Part 5
- Bear Stearns positive on Burlington Northern Santa Fe (NYSE:BNI) following meeting with management saying management was extremely upbeat about the economy, freight demand, pricing, and its ability to continue to meet high single digit demand growth without a major congestion issue.
BNI continues to see strength from its customers across virtually all segments other than lumber where they are seeing a slowdown in the housing market (only about 9% of its rev.) and some excess centerbeam car capacity. Yields remain firm and we believe continue to modestly accelerate. BNI still has roughly 25-30% of its contracts to re-price including about 70% of its coal business.
In the near term they see strong upside. Longer term the firm continues to see strong potential productivity enhancements in each business line, particularly in BNI's core coal and intermodal franchises. Over the next five years about 60% of its yet to be re-priced coal contracts will see a material price increase and begin to pay a fuel surcharge. Maintains Outperform.
Notablecalls: BNI's chart looks good.
- JMP Securities is maintaining their Market Perform rating on Portalplayer (NASDAQ:PLAY) and lowering FY06, FY07 revenue and EPS estimates to account for the continuing lack of visibility in future business with Apple (largest customer accounting for over 90% of revenues in 2005) and a somewhat slower ramp for the Widows Vista notebook secondary display processor market.
For small-cap value investors, the firm notes that PLAY has almost $8.00 per share in cash and has lowered its operating expenses to minimize its cash burn rate. They believe that PLAY may either consolidate with Sigmatel (SGTL) in order to better compete with China-based Actions Semiconductor (ACTS) or it may be a strategic M&A acquisition candidate for players such as Broadcom, NVIDIA, Intel, TXN, etc., seeking an innovative design company with a healthy balance sheet.
Notablecalls: Not actionable but good to know. On the other side - If I were short, I'd want to get out now.
BNI continues to see strength from its customers across virtually all segments other than lumber where they are seeing a slowdown in the housing market (only about 9% of its rev.) and some excess centerbeam car capacity. Yields remain firm and we believe continue to modestly accelerate. BNI still has roughly 25-30% of its contracts to re-price including about 70% of its coal business.
In the near term they see strong upside. Longer term the firm continues to see strong potential productivity enhancements in each business line, particularly in BNI's core coal and intermodal franchises. Over the next five years about 60% of its yet to be re-priced coal contracts will see a material price increase and begin to pay a fuel surcharge. Maintains Outperform.
Notablecalls: BNI's chart looks good.
- JMP Securities is maintaining their Market Perform rating on Portalplayer (NASDAQ:PLAY) and lowering FY06, FY07 revenue and EPS estimates to account for the continuing lack of visibility in future business with Apple (largest customer accounting for over 90% of revenues in 2005) and a somewhat slower ramp for the Widows Vista notebook secondary display processor market.
For small-cap value investors, the firm notes that PLAY has almost $8.00 per share in cash and has lowered its operating expenses to minimize its cash burn rate. They believe that PLAY may either consolidate with Sigmatel (SGTL) in order to better compete with China-based Actions Semiconductor (ACTS) or it may be a strategic M&A acquisition candidate for players such as Broadcom, NVIDIA, Intel, TXN, etc., seeking an innovative design company with a healthy balance sheet.
Notablecalls: Not actionable but good to know. On the other side - If I were short, I'd want to get out now.
Calls of Note Part 4
- Jefferies says their checks with ODMs and contract manufactures in Asia indicate that Dell may begin shipping desktops based on AMD (NYSE:AMD)'s Athlon processor in the Sept 2006 quarter. These low- end PC desktops will probably be launched in Asia to test the market for these products.
Though this potential desktop at Dell provides a very important psychological win for AMD, the firm believes that the gain should be limited because ultimate success of AMD's products will be decided in the marketplace. The launch of Intels new Conroe CPU in July 2006 closes the performance gap and hence AMD will not have as much of an edge going forward, focus now shifts toward pricing.
Maintains Hold rating and $26 tgt on AMD as they remain cautious on the co in the near-term.
Notablecalls: Not actionable but good to know category.
- FBR says that based on their checks/reported monthly sales/expecting June revenues up 1-3% MOM, they believe Chipmos Tech (NASDAQ:IMOS) is on track to exceed firms' revenue/EPS estimate of $140M/$0.24. Believes the transition to DDR2 remains strong, comprising 35-40% of 2Q DRAM mix, and on track to be >50% by YE. Ratio of IMOS' DDR2/DDRI output is going up quickly, as two primary customers, Promos/Powerchip, have switched over manuf. lines to DDR2 (believes DDR2 now comprises 70% of output at both). Maintains Outperform rating.
Notablecalls: One to watch. While I expect to see some weakness in the Semi space I would not be surprised to see IMOS trading up on the call.
Though this potential desktop at Dell provides a very important psychological win for AMD, the firm believes that the gain should be limited because ultimate success of AMD's products will be decided in the marketplace. The launch of Intels new Conroe CPU in July 2006 closes the performance gap and hence AMD will not have as much of an edge going forward, focus now shifts toward pricing.
Maintains Hold rating and $26 tgt on AMD as they remain cautious on the co in the near-term.
Notablecalls: Not actionable but good to know category.
- FBR says that based on their checks/reported monthly sales/expecting June revenues up 1-3% MOM, they believe Chipmos Tech (NASDAQ:IMOS) is on track to exceed firms' revenue/EPS estimate of $140M/$0.24. Believes the transition to DDR2 remains strong, comprising 35-40% of 2Q DRAM mix, and on track to be >50% by YE. Ratio of IMOS' DDR2/DDRI output is going up quickly, as two primary customers, Promos/Powerchip, have switched over manuf. lines to DDR2 (believes DDR2 now comprises 70% of output at both). Maintains Outperform rating.
Notablecalls: One to watch. While I expect to see some weakness in the Semi space I would not be surprised to see IMOS trading up on the call.
Calls of Note Part 3
- Jefferies continues to be positive on POZEN (NASDAQ:POZN) saying their discussions with investigators at the American Headache Society meeting (June 22-25) confirm their thesis that the FDA's requesting of more safety information could be relatively quickly addressed (e.g., subgroup analyses). Investigators reiterate sound and robust safety data for Trexima (362 patients exposed to Trexima for 12 months vs. the FDA's requirement of 100 patients). In addition, they point out Imitrex and naproxen have been used together safely over the last 10 years and feel that the FDA's decision could have stemmed from its increasingly risk-averse stance as a result of the debacle over withdrawn Vioxx.
Reits Buy rating and $15 tgt.
Notablecalls: I highlighted RBC Capital's positive call on POZN on June 12 and the shares are up about 10% since then. I think Jefferies has a very good point and I expect the shares to keep moving up. It's definitely not a 1-2 day call, though.
- RBC Capital notes an expanding product line and improving execution are taking hold at Radware (NASDAQ:RDWR) but near term metrics remain mixed and they are reducing their estimates. Specifically, North America trends remain below plan and the firm estimate overall revenues are now tracking flat sequentially vs. most expectations of 5% sequential growth. And while they remain encouraged by new products such as the Application Switch V and improving sales initiatives in the U.S., they are lowering growth trajectory for the balance of the year.
Radware recently upgraded its management team in North America and thus far the company is making steady improvements. However, the ramp in sales is occurring at a slower than expected pace. Eexpect no change in gross margins near term at approximately 81%. Operating loss near term is expected at 1%. Balance sheet metrics remain strong and the company has over $8.50 in cash and continues to generate cash.
Tgt goes to $17 from $19. Maintains Outperform as the shares are trading at just 8x CY07 earnings estimate if one excludes the cash.
Notablecalls: Not actionable but good to know category.
- Raymond James is raising their 2Q ($2.91 to $3.01) and FY06 EPS estimates for the Chicago Mercantile Exchange (NYSE:CME) due to strong average daily contract volume thus far in June. Additionally, a stronger mix of both equity trading and electronic vs. open outcry trading should result in a higher rate per contract (RPC) than we were forecasting. The Merc is also generating nice momentum already in its NYMEX volumes, which will add slightly to 2Q, but have a noticeable impact on revenues during the remainder of the year.
Maintains Outperform and $520 tgt.
Notablecalls: Note that Sandler O'Neill upped their ests on CME already on June 19. But the chart does look great.
Reits Buy rating and $15 tgt.
Notablecalls: I highlighted RBC Capital's positive call on POZN on June 12 and the shares are up about 10% since then. I think Jefferies has a very good point and I expect the shares to keep moving up. It's definitely not a 1-2 day call, though.
- RBC Capital notes an expanding product line and improving execution are taking hold at Radware (NASDAQ:RDWR) but near term metrics remain mixed and they are reducing their estimates. Specifically, North America trends remain below plan and the firm estimate overall revenues are now tracking flat sequentially vs. most expectations of 5% sequential growth. And while they remain encouraged by new products such as the Application Switch V and improving sales initiatives in the U.S., they are lowering growth trajectory for the balance of the year.
Radware recently upgraded its management team in North America and thus far the company is making steady improvements. However, the ramp in sales is occurring at a slower than expected pace. Eexpect no change in gross margins near term at approximately 81%. Operating loss near term is expected at 1%. Balance sheet metrics remain strong and the company has over $8.50 in cash and continues to generate cash.
Tgt goes to $17 from $19. Maintains Outperform as the shares are trading at just 8x CY07 earnings estimate if one excludes the cash.
Notablecalls: Not actionable but good to know category.
- Raymond James is raising their 2Q ($2.91 to $3.01) and FY06 EPS estimates for the Chicago Mercantile Exchange (NYSE:CME) due to strong average daily contract volume thus far in June. Additionally, a stronger mix of both equity trading and electronic vs. open outcry trading should result in a higher rate per contract (RPC) than we were forecasting. The Merc is also generating nice momentum already in its NYMEX volumes, which will add slightly to 2Q, but have a noticeable impact on revenues during the remainder of the year.
Maintains Outperform and $520 tgt.
Notablecalls: Note that Sandler O'Neill upped their ests on CME already on June 19. But the chart does look great.
Calls of Note Part 2
- Citigroup's Semiconductor Equipment team follows up their TSMC pushouts note saying it appears these pushouts represent ~10% of Applied Material (NASDAQ:AMAT)'s FQ3:06 shipments. This suggests FQ4:06 (Oct) revs will be hit ~6-7% (adjusting for svc and FPD (which, they note, is also weaker)).
Checks also confirm LRCX's ~100% IBM etch share at 90nm now 75% (at best) at 65nm due to TEL, consistent with firm's view of intensifying competition for LRCX with potential implications at partners (CHRT, AMD, Samsung, Toshiba).
TSMC pushouts an impt first step to curb overcapacity, but they feel it's still too early to take a more broadly + view pending more broad pushouts/capitulation.
Notablecalls: 6-7% hit to revs sounds pretty serious. Expect some more weakness in the Semi/Semi Equipment space.
- Citigroup says they have analyzed the recent IMS Health weekly total prescription trends and conclude that CV Therapeutics (NASDAQ:CVTX)' Ranexa is off to a slower-than-anticipated launch. Based on discussions with physicians, they believe that this is due to the drug's high price, modest benefit, and low awareness.
Reduces FY2007 Ranexa sales estimates from $169 million to $74 million to account for this trend. Since they do not see any meaningful catalysts to drive appreciation in the stock until release of data from the MERLIN study in early 2007, the firm expects that the stock will remain weak over the near-term and will be volatile in $10-$16 range. Reduces target price from $27 to $16. Maintains Hold.
Notablecalls: Looking at the chart I must say I think Citi is terribly late with their call. Piper Jaffray downgraded the shares and lowered their tgt to $13 already on June 15.
- Bear Stearns notes that following a 10%-25% selloff in the peer group since May 1, Powerwave's acquisition of Filtronic's filter and power amplifier divisions, and ADC Telecom's pending acquisition of Andrew, GrenTech (NASDAQ:GRRF) is still trading at a significant (20%-50%) discount to local and global industry peers on a 2006E P/E basis.
GrenTech is exposed to China 3G licensing in both of its markets (wireless coverage and RF modules), both of which will expand dramatically when licenses are issued. Firm maintains their view that China's 3G licenses will be issued in 1H07, after the completion of China's TD-SCDMA commercial network trials. Adjusts 06/07 EPS estimates to reflect the view.
Firm's YE2006 tgt of $19.80 implies a 2007E P/E of 13.3x. Estimates GrenTech's current net cash per share at $2.25. Maintains Outperform.
Notablecalls: I think this one could prove to be a runner if it can break the $12-$12.5 level.
Checks also confirm LRCX's ~100% IBM etch share at 90nm now 75% (at best) at 65nm due to TEL, consistent with firm's view of intensifying competition for LRCX with potential implications at partners (CHRT, AMD, Samsung, Toshiba).
TSMC pushouts an impt first step to curb overcapacity, but they feel it's still too early to take a more broadly + view pending more broad pushouts/capitulation.
Notablecalls: 6-7% hit to revs sounds pretty serious. Expect some more weakness in the Semi/Semi Equipment space.
- Citigroup says they have analyzed the recent IMS Health weekly total prescription trends and conclude that CV Therapeutics (NASDAQ:CVTX)' Ranexa is off to a slower-than-anticipated launch. Based on discussions with physicians, they believe that this is due to the drug's high price, modest benefit, and low awareness.
Reduces FY2007 Ranexa sales estimates from $169 million to $74 million to account for this trend. Since they do not see any meaningful catalysts to drive appreciation in the stock until release of data from the MERLIN study in early 2007, the firm expects that the stock will remain weak over the near-term and will be volatile in $10-$16 range. Reduces target price from $27 to $16. Maintains Hold.
Notablecalls: Looking at the chart I must say I think Citi is terribly late with their call. Piper Jaffray downgraded the shares and lowered their tgt to $13 already on June 15.
- Bear Stearns notes that following a 10%-25% selloff in the peer group since May 1, Powerwave's acquisition of Filtronic's filter and power amplifier divisions, and ADC Telecom's pending acquisition of Andrew, GrenTech (NASDAQ:GRRF) is still trading at a significant (20%-50%) discount to local and global industry peers on a 2006E P/E basis.
GrenTech is exposed to China 3G licensing in both of its markets (wireless coverage and RF modules), both of which will expand dramatically when licenses are issued. Firm maintains their view that China's 3G licenses will be issued in 1H07, after the completion of China's TD-SCDMA commercial network trials. Adjusts 06/07 EPS estimates to reflect the view.
Firm's YE2006 tgt of $19.80 implies a 2007E P/E of 13.3x. Estimates GrenTech's current net cash per share at $2.25. Maintains Outperform.
Notablecalls: I think this one could prove to be a runner if it can break the $12-$12.5 level.
Calls of Note Part 1
- Jefferies is calling DUSA Pharm (NASDAQ:DUSA) extremely undervalued saying they would be buyers of the stock at current levels. Firm expects DUSA to report solid 2Q results (to be released on August 8th). They believe there is solid upside to their revenue and EPS estimates of $6.4 million and ($0.10) respectively. Notes Stiefel and DUSA are in discussions to extend their current Brazilian distribution agreement into one for all of Europe. Believes the expanded distribution deal should provide upside to current estimates, as it will likely be announced in 2H06.
Thinks the current stock price has fallen well below the company's core value, and expects the stock to recover on improving adoption trends. Reits Buy and $13 tgt.
Notablecalls: Huge target for a $4 stock. Would not be surprised to see some interest in shares.
- FBR positive on ASML Holding (NASDAQ:ASML) noting that following the co's May-23 announcement that 2Q system bookings will be at least 40% higher QOQ, or at least 87 units, they were expecting 3Q bookings to decline to 55- 62 units, or in line with 4Q05/1Q06 levels. However, recent checks in U.S./Japan suggests that 3Q bookings could actually exceed expectations, driven by increasing lead times/continued share gain.
Firm reminds investors that ASML's 1-2-3 punch, capacity buy/technology upgrade/share gain, has enabled it to report better than expected system bookings. To that end, ASML, like no other capital equipment company, is expected to ride out any "lull" in system bookings in 3Q/4Q time frame. Reiterates Outperform rating going into SemiconWest (July 11-14)/2Q report (with estimates expected to be revised up).
Notablecalls: Not actionable but good to know category.
- Banc of America comments on General Motors (NYSE:GM) saying they can't help but read what is going on in GM's business as a liquidity tactic. Firm estimates GM is raising price at least 1% in 2006 to capitalize on market inelasticity (1% price equates to 2% volume) and shore up margins. However, they believe GM management is glossing over the current and future cost of rightsizing the business for the lower share.
Sees GM burning its final precious dollars and raising prices just to try to stop the burn. The math may work in the short term and especially in 2Q06 where inventory was built, but after 2Q06 production begins to fall. Then, they think the stock market will have a hard time seeing how else GM can stop the cash burn. Maintains Sell and $10 tgt.
Notablecalls: Not actionable but good to know category.
- Citigroup is adding Apple Computer (NASDAQ:AAPL), McDonald's (NYSE:MCD), and Alltel (NYSE:AT) to firm's Recommended List:
Thinks the current stock price has fallen well below the company's core value, and expects the stock to recover on improving adoption trends. Reits Buy and $13 tgt.
Notablecalls: Huge target for a $4 stock. Would not be surprised to see some interest in shares.
- FBR positive on ASML Holding (NASDAQ:ASML) noting that following the co's May-23 announcement that 2Q system bookings will be at least 40% higher QOQ, or at least 87 units, they were expecting 3Q bookings to decline to 55- 62 units, or in line with 4Q05/1Q06 levels. However, recent checks in U.S./Japan suggests that 3Q bookings could actually exceed expectations, driven by increasing lead times/continued share gain.
Firm reminds investors that ASML's 1-2-3 punch, capacity buy/technology upgrade/share gain, has enabled it to report better than expected system bookings. To that end, ASML, like no other capital equipment company, is expected to ride out any "lull" in system bookings in 3Q/4Q time frame. Reiterates Outperform rating going into SemiconWest (July 11-14)/2Q report (with estimates expected to be revised up).
Notablecalls: Not actionable but good to know category.
- Banc of America comments on General Motors (NYSE:GM) saying they can't help but read what is going on in GM's business as a liquidity tactic. Firm estimates GM is raising price at least 1% in 2006 to capitalize on market inelasticity (1% price equates to 2% volume) and shore up margins. However, they believe GM management is glossing over the current and future cost of rightsizing the business for the lower share.
Sees GM burning its final precious dollars and raising prices just to try to stop the burn. The math may work in the short term and especially in 2Q06 where inventory was built, but after 2Q06 production begins to fall. Then, they think the stock market will have a hard time seeing how else GM can stop the cash burn. Maintains Sell and $10 tgt.
Notablecalls: Not actionable but good to know category.
- Citigroup is adding Apple Computer (NASDAQ:AAPL), McDonald's (NYSE:MCD), and Alltel (NYSE:AT) to firm's Recommended List:
* The addition of Apple derives from firm's view that recent share price weakness has presented an attractive entry point into a high quality technology/consumer products company that we believe has a strong fundamental context (given its exposure to the continued digitization of entertainment) and is likely to continue taking market share in the PC business. Wile number of product transitions will likely limit Apple's ability to deliver upside to June quarter EPS estimates, the firm believes that this has been priced into the stock and that the potential for upside surprises to consensus numbers will return in the calendar third quarter.
* The decision to add McDonald's is driven by a different rationale. In firm's commentary on the state of the broader market, they have noted that they think that a shift in leadership away from small caps, emerging markets, and natural resource driven names is underway. Firm has suggested that new leadership might be found in "large cap and large cash" rather than any one particular sector or industry group. McDonald's, which is among the top 20% of S&P 500 names by market cap and has strong free cash flow, fits this theme very well.
* Notes the addition of Alltel is more of a housekeeping matter as the firm upgraded Telecom Services sector on April 13, 2006 and needs to keep their Recommended List as a rough reflection of their recommended sector weights.
Notablecalls: Not actionable but good to know category.
Notablecalls - paperstand
According to The Wall Street Journals "Heard on the Street" column, pet stocks, like VCA Antech (WOOF) and Idexx (IDXX), can endure tough mkts. This year, veterinary spending is expected to grow 7.9%, making up about 1/4 of the projected $38.4bn in total pet-industry spending. Over the past 30y, vet spending has been rising at about 6.6% a year, more than double the growth rates of GDP and general consumer expenditures, according to research by Ryan Daniels, of William Blair. Spending on pet medical care "is less discretionary than general consumer spending," says Mr. Daniels, who covers specialty health-care co's and cites the animal health-care sector as among his favorites.
The WSJ reports, citing ppl familiar with the matter, that Johnson & Johnson (JNJ) last night appeared close to purchasing a stable of household consumer brands from Pfizer (PFE) for about $16bn. Other suitors include Reckitt Benckiser and GlaxoSmithKline (GSK).
According to the NY Times, Phelps Dodge (PD) agreed to acquire two of the biggest nickel miners last night in a huge deal worth $40bn. The deal, for Inco (N) and Falconbridge (FAL), would create a mining behemoth that will reshape the industry as commodity prices continue to soar.
The WSJ reports, citing ppl familiar with the matter, that Johnson & Johnson (JNJ) last night appeared close to purchasing a stable of household consumer brands from Pfizer (PFE) for about $16bn. Other suitors include Reckitt Benckiser and GlaxoSmithKline (GSK).
According to the NY Times, Phelps Dodge (PD) agreed to acquire two of the biggest nickel miners last night in a huge deal worth $40bn. The deal, for Inco (N) and Falconbridge (FAL), would create a mining behemoth that will reshape the industry as commodity prices continue to soar.
Saturday, June 24, 2006
Notablecalls - paperstand - Barron's
According to the Barron’s, at 9 and change, Playboy (PLA) trades near its 1971 offering price. Some fans think it could be worth more than $20 a share.
After years of stellar returns, Fidelity National (FNF) stumbled. But one analyst sees the potential for 20%-plus gains for both its new insurance and new tech shares (Fidelity National Information Services (FIS)) in the next 12 months.
According to the Barron’s, supply and demand conditions in the market have deteriorated sharply, especially in the past month. The Dow Jones Industrials may fall another 15% before it's time to buy.
Sara Lee’s (SLE) stock has fallen more than 10% this year, while rivals have posted modest gains. And, says Barron’s, with a possible dividend cut ahead, the shares could well drop another 15%-20%.
According to the Barrons’ “Technology Trader” column Bernstein analyst Richard Evans thinks Pfizer (PFE) stock could instantly attract value investors once its managers stop spending so much in search of growth. Pfizer shares have been so beaten down, that 4 they trade at barely 11x this year's earnings. Yet the drug giant has more than $15bn in cash. If Pfizer greatly increased its share buybacks, or boosted its already plush dividend, the stock could rise to the high twenties.
Notablecalls: As PLA is only playable call from this week's magazine, it's poised for a nice gain.
Dear Notablecalls reader, if You have a minute, I would recommend reading Barrons’ cover story along with morning coffee. Click here.
After years of stellar returns, Fidelity National (FNF) stumbled. But one analyst sees the potential for 20%-plus gains for both its new insurance and new tech shares (Fidelity National Information Services (FIS)) in the next 12 months.
According to the Barron’s, supply and demand conditions in the market have deteriorated sharply, especially in the past month. The Dow Jones Industrials may fall another 15% before it's time to buy.
Sara Lee’s (SLE) stock has fallen more than 10% this year, while rivals have posted modest gains. And, says Barron’s, with a possible dividend cut ahead, the shares could well drop another 15%-20%.
According to the Barrons’ “Technology Trader” column Bernstein analyst Richard Evans thinks Pfizer (PFE) stock could instantly attract value investors once its managers stop spending so much in search of growth. Pfizer shares have been so beaten down, that 4 they trade at barely 11x this year's earnings. Yet the drug giant has more than $15bn in cash. If Pfizer greatly increased its share buybacks, or boosted its already plush dividend, the stock could rise to the high twenties.
Notablecalls: As PLA is only playable call from this week's magazine, it's poised for a nice gain.
Dear Notablecalls reader, if You have a minute, I would recommend reading Barrons’ cover story along with morning coffee. Click here.
Friday, June 23, 2006
Calls of Note Part 2
- Banc of America notes their channel checks indicate that several of Taiwan Semiconductor Manufacturing Company Ltd (NYSE:TSM) top customers are pulling down second half 2006 wafer start forecasts and/or pushing out starts. Firm is cutting our estimates to reflect a more modest seasonal build in the second half of 2006.
The big question is whether these modest cuts morph into a more serious problem. Inventory trends and second half demand will be the key data points to monitor. The breadth of the adjustments across the customer base does suggest a trend. Firm's FY06 revenue estimate is cut from $10.1 to $9.8 billion.
Checks suggest that TSM has pushed out AMAT's CMP tools for Fab 14 (300mm) from 4QFY06 to 1QFY07. Firm expects the rest of the process tool push-outs (PVD, CVD, etc) to follow suit
Notablecalls: This should not come as a surprise to Semi bears. However it is likely a surprise for the bulls...
- Citigroup says their checks suggest Taiwan Semiconductor Manufacturing Company Ltd (NYSE:TSM) has begun to push out tool deliveries with a large portion of 300mm tool shipments in backlog scheduled for July-Oct now pushed out by ~1Q. At this point, pushouts appear limited to 300mm w/200mm on-track. This is a change from checks conducted late last week indicating no industry pushouts had occurred. At this point, Taiwan pushouts appear limited to TSMC as UMC + 2nd tier Taiwan DRAM customers remain on-track. TSMC exposure greatest at AMAT, AEIS (derivative), LRCX, MTSN, NVLS.
According to the firm, while memory spending remains strong, pushouts from TSMC weakens the argument for a tool order re-acceleration in 2H:06.
Notablecalls: This should not come as a surprise to Semi bears. However it is likely a surprise for the bulls. I think the Semi bounce stops here.
The big question is whether these modest cuts morph into a more serious problem. Inventory trends and second half demand will be the key data points to monitor. The breadth of the adjustments across the customer base does suggest a trend. Firm's FY06 revenue estimate is cut from $10.1 to $9.8 billion.
Checks suggest that TSM has pushed out AMAT's CMP tools for Fab 14 (300mm) from 4QFY06 to 1QFY07. Firm expects the rest of the process tool push-outs (PVD, CVD, etc) to follow suit
Notablecalls: This should not come as a surprise to Semi bears. However it is likely a surprise for the bulls...
- Citigroup says their checks suggest Taiwan Semiconductor Manufacturing Company Ltd (NYSE:TSM) has begun to push out tool deliveries with a large portion of 300mm tool shipments in backlog scheduled for July-Oct now pushed out by ~1Q. At this point, pushouts appear limited to 300mm w/200mm on-track. This is a change from checks conducted late last week indicating no industry pushouts had occurred. At this point, Taiwan pushouts appear limited to TSMC as UMC + 2nd tier Taiwan DRAM customers remain on-track. TSMC exposure greatest at AMAT, AEIS (derivative), LRCX, MTSN, NVLS.
According to the firm, while memory spending remains strong, pushouts from TSMC weakens the argument for a tool order re-acceleration in 2H:06.
Notablecalls: This should not come as a surprise to Semi bears. However it is likely a surprise for the bulls. I think the Semi bounce stops here.
Calls of Note Part 1
- Jefferies & Co notes that based upon their checks, they believe that Sigmatel (NASDAQ:SGTL) is on track to meet its rev guidance for Q2. Although Q1 was significantly impacted by a likely overshipment in Q4:05, they believe that the low level of customer orders in Q1 allowed SGTL's customers to reduce inventory to more normalized levels and return to ordering in Q2. Firm believes only modest Q/Q increases from its largest MP3 customers will likely allow SigmaTel to achieve the low end of its guidance.
Although they are encouraged about the likely improvement in Q2 fundamentals, the firm remains neutral as they believe risks remain regarding: 1) cash burn and liquidity issues, 2) the signifcant business ramp in 2H:06, and 3) the lack of material traction for its Oasis and Protocom. Maintains Hold and $4.
Notablecalls: Expect the note to create some interest in SGTL. It's been a while since the co has met their guidance or analyst ets.
- Goldman notes that based on the results of our 22nd qtrly study across all key metrics (listings, conversion, ASP, etc), they estimate eBay (NASDAQ:EBAY) will grow rev at least 30% y/y, inline with firm's above-consensus 2Q06 rev/EPS est's of $1,415m/$0.24.
Firm believes eBay's current 2007E P/E multiple implies that eBay's EPS growth rate from 2007-2010 will be 12%-15% (dividing the 2007 P/E by the PEG range of 1.5x-2.0x, the range that growth companies still trade at, in addition to its 14x 2007E EV/EBITDA multiple), well below their estimated 20%-25%.
What will get the stock to work? eBay's multiple contraction despite unchanged estimates, which occurred last spring/summer as well, is a result of several factors including the increased complexity in analyzing the business given the changing seller behavior and mix that leaves investors unsure of its growth rate. In order for the shares to appreciate significantly, investor perception of eBay's long-term growth must improve. We believe that eBay's ability to continue to beat its outlook and meet or beat Street estimates as it has for the last several quarters is the best way to eliminate the uncertainty in its perceived growth rate. Reits Outperform.
Notablecalls: Not actionable but good to know category.
- Goldman is adding Focus Media (NASDAQ:FMCN) to their CIL* as they believe it: 1) is less exposed to negative economic factors; 2) has a demonstrated ability to exceed earnings expectations by growing organically and through M&A; 3) reduction in the previous share offering overhang. Expects Focus to deliver 2Q2006 results at the high end of its guidance range. Tgt is raised to $78 from $76 per ADR.
* Goldman Sachs' Current Investment List (CIL) represents firm's most timely stock recommendations for total return over the next 12 months.
Notablecalls: I would not be surprised to see some interest in FMCN today.
Although they are encouraged about the likely improvement in Q2 fundamentals, the firm remains neutral as they believe risks remain regarding: 1) cash burn and liquidity issues, 2) the signifcant business ramp in 2H:06, and 3) the lack of material traction for its Oasis and Protocom. Maintains Hold and $4.
Notablecalls: Expect the note to create some interest in SGTL. It's been a while since the co has met their guidance or analyst ets.
- Goldman notes that based on the results of our 22nd qtrly study across all key metrics (listings, conversion, ASP, etc), they estimate eBay (NASDAQ:EBAY) will grow rev at least 30% y/y, inline with firm's above-consensus 2Q06 rev/EPS est's of $1,415m/$0.24.
Firm believes eBay's current 2007E P/E multiple implies that eBay's EPS growth rate from 2007-2010 will be 12%-15% (dividing the 2007 P/E by the PEG range of 1.5x-2.0x, the range that growth companies still trade at, in addition to its 14x 2007E EV/EBITDA multiple), well below their estimated 20%-25%.
What will get the stock to work? eBay's multiple contraction despite unchanged estimates, which occurred last spring/summer as well, is a result of several factors including the increased complexity in analyzing the business given the changing seller behavior and mix that leaves investors unsure of its growth rate. In order for the shares to appreciate significantly, investor perception of eBay's long-term growth must improve. We believe that eBay's ability to continue to beat its outlook and meet or beat Street estimates as it has for the last several quarters is the best way to eliminate the uncertainty in its perceived growth rate. Reits Outperform.
Notablecalls: Not actionable but good to know category.
- Goldman is adding Focus Media (NASDAQ:FMCN) to their CIL* as they believe it: 1) is less exposed to negative economic factors; 2) has a demonstrated ability to exceed earnings expectations by growing organically and through M&A; 3) reduction in the previous share offering overhang. Expects Focus to deliver 2Q2006 results at the high end of its guidance range. Tgt is raised to $78 from $76 per ADR.
* Goldman Sachs' Current Investment List (CIL) represents firm's most timely stock recommendations for total return over the next 12 months.
Notablecalls: I would not be surprised to see some interest in FMCN today.
Thursday, June 22, 2006
Interesting Call of The Day - Kintera (NASDAQ:KNTA)
Roth Capital's Nathan Schneiderman notes that over the past month, Kintera (NASDAQ:KNTA) insiders have been loading up on company stock; of note, Director Alfred Berkeley purchased 100k shares in late May at an average price of $1.40. While some of the other insider buying may have been symbolic, he thinks that Mr. Berkeley is buying for one reason and one reason only-to make $$$.
Firm is optimistic about Kintera's prospects for revenue growth and much sharper cost controls. They expect that new COO Rich LaBarbera will work closely with CFO Dick Davidson to hack away at the company's bloated cost structure. If need be, they think that Kintera could cut headcount in half. Furthermore, there is ample room for non-resource expense savings.
While it's certainly tempting to conclude that a stock in freefall is going to zero, the beauty of enterprise software companies with healthy recurring revenue is that it's damn near impossible to kill them off. They estimate that Kintera's 2006 recurring revenue will be $30 million, up nearly 20% y/ y. In firm's view, the current valuation of 1x recurring revenue (not total rev) will not last for long. Notes there have been takeouts of struggling vendors in the space at multiples of recurring revenue; for example, the current offer price on Onyx Software is more than 3x recurring revenue. In firm's experience, it is nearly impossible to kill an enterprise software company that has healthy recurring revenue and that should give Kintera investors considerable downside protection.
As Kintera executes, tey envision the stock rebounding nicely and thus maintain BUY rating and price target of $2.25, reflecting a multiple of 1x 2007E sales.
Notablecalls: KNTA looks like to be a deep-value idea. Some risk but lots of upside. One to watch.
Firm is optimistic about Kintera's prospects for revenue growth and much sharper cost controls. They expect that new COO Rich LaBarbera will work closely with CFO Dick Davidson to hack away at the company's bloated cost structure. If need be, they think that Kintera could cut headcount in half. Furthermore, there is ample room for non-resource expense savings.
While it's certainly tempting to conclude that a stock in freefall is going to zero, the beauty of enterprise software companies with healthy recurring revenue is that it's damn near impossible to kill them off. They estimate that Kintera's 2006 recurring revenue will be $30 million, up nearly 20% y/ y. In firm's view, the current valuation of 1x recurring revenue (not total rev) will not last for long. Notes there have been takeouts of struggling vendors in the space at multiples of recurring revenue; for example, the current offer price on Onyx Software is more than 3x recurring revenue. In firm's experience, it is nearly impossible to kill an enterprise software company that has healthy recurring revenue and that should give Kintera investors considerable downside protection.
As Kintera executes, tey envision the stock rebounding nicely and thus maintain BUY rating and price target of $2.25, reflecting a multiple of 1x 2007E sales.
Notablecalls: KNTA looks like to be a deep-value idea. Some risk but lots of upside. One to watch.
Calls of Note Part 4
- Baird reduces their price tgt on Hutchinson Technology (NASDAQ:HTCH) to $24 from $29 based on 13x C07E EPS and 4x EV/C07E EBITDA, a more reasonable valuation they feel in light of current industry weakness, increasing inventories, and the possibility of a challenging quarter (per industry contacts).
Maintains Neutral rating as the firm believes HTCH enjoys a solid industry leadership position, and has significantly higher earnings power in the model if the company can ramp gross margins to historic levels of 28% or more (current GM guidance is for 19-21%).
Notablecalls: Would not be surprised to see some weakness following Baird's call and weakness in XRTX.
- First Albany reits their Strong Buy rating on PainCare Holdings (AMEX:PRZ) following results. According to the firm the co reported strong 1Q:06 results, suggesting that business trends continue to be robust, notwithstanding recent non-cash accounting restatements.
Given current market conditions, they are making no change to their $3.00 price target at this time, as it implies 75% upside potential from current trading levels. However, the target represents what they view as a reasonable 14x current- year EPS estimate of $0.21, suggesting that the shares are undervalued relative to PRZ's underlying fundamentals and near-term growth prospects.
Notablecalls: Not actionable but good to know category.
- Piper Jaffray positive on Deckers Outdoor (NASDAQ:DECK) after meeting with Angel Martinez (CEO) and Zohar Ziv (CFO) who detailed growth strategies and financial objectives for the company's three brands. Management reaffirmed its commitment to 42%-44% gross margin and stabilization of expenses in the low-20% of sales. Firm believes product innovation and marketing initiatives are taking hold, leading to increased confidence in growth and view that estimates (and guidance) are appropriately conservative.
Firm estimates core underlying EPS growth in the mid- to upper-teens and views their 2H FY06 estimates as conservative given product development initiatives. At 13.7x FY07E EPS, DECK share are trading at a 20% discount to estimated FY07 EPS growth, in line with the footwear peer group mean, despite significantly higher operating margins (near 20% vs. group avg near 12%).
Notablecalls: Not actionable but good to know category.
Maintains Neutral rating as the firm believes HTCH enjoys a solid industry leadership position, and has significantly higher earnings power in the model if the company can ramp gross margins to historic levels of 28% or more (current GM guidance is for 19-21%).
Notablecalls: Would not be surprised to see some weakness following Baird's call and weakness in XRTX.
- First Albany reits their Strong Buy rating on PainCare Holdings (AMEX:PRZ) following results. According to the firm the co reported strong 1Q:06 results, suggesting that business trends continue to be robust, notwithstanding recent non-cash accounting restatements.
Given current market conditions, they are making no change to their $3.00 price target at this time, as it implies 75% upside potential from current trading levels. However, the target represents what they view as a reasonable 14x current- year EPS estimate of $0.21, suggesting that the shares are undervalued relative to PRZ's underlying fundamentals and near-term growth prospects.
Notablecalls: Not actionable but good to know category.
- Piper Jaffray positive on Deckers Outdoor (NASDAQ:DECK) after meeting with Angel Martinez (CEO) and Zohar Ziv (CFO) who detailed growth strategies and financial objectives for the company's three brands. Management reaffirmed its commitment to 42%-44% gross margin and stabilization of expenses in the low-20% of sales. Firm believes product innovation and marketing initiatives are taking hold, leading to increased confidence in growth and view that estimates (and guidance) are appropriately conservative.
Firm estimates core underlying EPS growth in the mid- to upper-teens and views their 2H FY06 estimates as conservative given product development initiatives. At 13.7x FY07E EPS, DECK share are trading at a 20% discount to estimated FY07 EPS growth, in line with the footwear peer group mean, despite significantly higher operating margins (near 20% vs. group avg near 12%).
Notablecalls: Not actionable but good to know category.
Xyratex (NASDAQ:XRTX) - Color on quarter
Couple of firms commenting on Xyratex (NASDAQ:XRTX) today following results:
*Banc of America notes XRTX reported stronger than expected revs with EPS below their estimates. However, the stock was up 8%+ heading into the call, and they believe investors were looking for EPS upside in addition to revenue, so despite solid Aug Q guidance they think the stock likely trades off near-term. Firm's new Aug rev and EPS estimates are $240M and $0.48, vs. $211M and $0.41. Reiterates Buy due to attractive valuation (~11x CY07E EPS of $2.37) and belief that XRTX can benefit from several upcoming positive catalysts.
*Baird maintains Outperform rating on shares of XRTX following a mixed quarter and strong guidance. Forward estimates increasing, with continued room for EPS upside on improving GM and continued growth of higher-margin HDD Frank Timons Infrastructure business. Firm views shares as attractive at roughly 11-12x forward EPS estimates and prospects for 10-20%+ revenue/EPS growth for the next few years, particularly with incremental gains from STX/MXO.
*FBR notes XRTX reported a very strong, but noisy, quarter that needed several adjustments to get to comparable EPS. More importantly, guidance for the coming quarter was $241M and $0.49 at the midpoint--representing midpoint EPS fully 40% higher than the existing Street estimate. Based on several indicators in the mix and balance sheet, they believe that Street estimates for at least the next four quarters need to rise meaningfully. Firm is raising their estimates for 3Q06, FY06, and FY07 and increasing price target from $37 to $39, representing a 15.5x multiple of FY07 EPS.
Notablecalls: I think XRTX can and will move up once yesterday's buyers have exited most of their positions. That may not happen today.
*Banc of America notes XRTX reported stronger than expected revs with EPS below their estimates. However, the stock was up 8%+ heading into the call, and they believe investors were looking for EPS upside in addition to revenue, so despite solid Aug Q guidance they think the stock likely trades off near-term. Firm's new Aug rev and EPS estimates are $240M and $0.48, vs. $211M and $0.41. Reiterates Buy due to attractive valuation (~11x CY07E EPS of $2.37) and belief that XRTX can benefit from several upcoming positive catalysts.
*Baird maintains Outperform rating on shares of XRTX following a mixed quarter and strong guidance. Forward estimates increasing, with continued room for EPS upside on improving GM and continued growth of higher-margin HDD Frank Timons Infrastructure business. Firm views shares as attractive at roughly 11-12x forward EPS estimates and prospects for 10-20%+ revenue/EPS growth for the next few years, particularly with incremental gains from STX/MXO.
*FBR notes XRTX reported a very strong, but noisy, quarter that needed several adjustments to get to comparable EPS. More importantly, guidance for the coming quarter was $241M and $0.49 at the midpoint--representing midpoint EPS fully 40% higher than the existing Street estimate. Based on several indicators in the mix and balance sheet, they believe that Street estimates for at least the next four quarters need to rise meaningfully. Firm is raising their estimates for 3Q06, FY06, and FY07 and increasing price target from $37 to $39, representing a 15.5x multiple of FY07 EPS.
Notablecalls: I think XRTX can and will move up once yesterday's buyers have exited most of their positions. That may not happen today.
Calls of Note Part 3
- Prudential notes they were amazed that Tenaris agreed to pay $2.7 billion for the $0.42 billion tangible book value of Maverick Tube, or 2.0 to 2.5 times estimated replacement value.
According to the firm U.S. Steel (NYSE:X)'s recent EBITDA is larger, and its processes and mix more varied. Thinks it is worth more than Maverick, or over $40 per share. However, a legitimate uncertainty exists as to the judgment of Tenaris and the reasonableness to generalize from its June 12th precedent.
They estimate Maverick's operating profit for 2006 at $448 million and $289 per ton of steel shipped. As a comparison, they estimate US Steel's tubular product segment, with similar capacity, to have an operating profit for 2006 at $938 million or $809 per ton.
Regards the Maverick Tube takeover as a cautionary flag to short-sellers. It is an insightful management that sells its company for over two times replacement value. Some investment bankers will use the Maverick precedent as a "comparable" to value future businesses for sale. Some participants might say that it sets the next value. A cynic might contend that one extraordinary buyer bought its target, and that another such buyer may not appear.
Notablecalls: Expect to see some interest in X today.
- Thomas Weisel Partners notes their recent industry checks in key Veeco Instruments (NASDAQ:VECO) segments (HDD and LED) give them increased confidence that current order trends are tracking above Street expectations for 2Q06 and 2H06. Based on end-market trends and industry checks, they believe that VECO is on track to meet or exceed firm's June quarter order estimate of $128mn (guidance is $125-130mn) and that upside exists to 2H06 order estimate of $253mn (flat H/H). Maintains Outperform.
Based on its accelerating earnings growth (112% y/y in 2006E) and generally conservative Street estimates, they believe VECO offers a compelling risk reward profile. VECO trades at a NTM P/S premium below the peer average with VECO at 1.4x versus 2.4x for the group. On a P/E basis, VECO trades at 19x, below the peer group average of 27x.
Notablecalls: Not actionable but good to know category.
- CIBC notes that effective 6/21, they upgrade Panera Bread Company (NASDAQ:PNRA) to Sector Outperformer from Sector Performer. Firm's proprietary market-by-market analysis suggests room for 3,000-3,500 Paneras, or 3X the current base and enough to sustain the current unit growth rate for 7 years. Unit growth is key to valuation in this sector.
For a chain this size, current store base is remarkably diverse, which speaks to breadth of concept's appeal. For example, 35% of units are in below- national-avg. income markets; many multi-unit markets have less than 200k pop. Mature markets still far less dense than for most other QSRs.
Still-sizable un-penetrated and under-penetrated markets, including no presence in 7 of top 50 U.S. markets, e.g., Phoenix, Portland (OR), Austin (TX). Other big markets (e.g., NY, LA, Philly, Seattle, Dallas) have less than 11 units each.
Notablecalls: Expect to see some upside in PNRA today. As I have said before I usually aviod posting upgrade/downgrades on this page but I think this one has a good point.
According to the firm U.S. Steel (NYSE:X)'s recent EBITDA is larger, and its processes and mix more varied. Thinks it is worth more than Maverick, or over $40 per share. However, a legitimate uncertainty exists as to the judgment of Tenaris and the reasonableness to generalize from its June 12th precedent.
They estimate Maverick's operating profit for 2006 at $448 million and $289 per ton of steel shipped. As a comparison, they estimate US Steel's tubular product segment, with similar capacity, to have an operating profit for 2006 at $938 million or $809 per ton.
Regards the Maverick Tube takeover as a cautionary flag to short-sellers. It is an insightful management that sells its company for over two times replacement value. Some investment bankers will use the Maverick precedent as a "comparable" to value future businesses for sale. Some participants might say that it sets the next value. A cynic might contend that one extraordinary buyer bought its target, and that another such buyer may not appear.
Notablecalls: Expect to see some interest in X today.
- Thomas Weisel Partners notes their recent industry checks in key Veeco Instruments (NASDAQ:VECO) segments (HDD and LED) give them increased confidence that current order trends are tracking above Street expectations for 2Q06 and 2H06. Based on end-market trends and industry checks, they believe that VECO is on track to meet or exceed firm's June quarter order estimate of $128mn (guidance is $125-130mn) and that upside exists to 2H06 order estimate of $253mn (flat H/H). Maintains Outperform.
Based on its accelerating earnings growth (112% y/y in 2006E) and generally conservative Street estimates, they believe VECO offers a compelling risk reward profile. VECO trades at a NTM P/S premium below the peer average with VECO at 1.4x versus 2.4x for the group. On a P/E basis, VECO trades at 19x, below the peer group average of 27x.
Notablecalls: Not actionable but good to know category.
- CIBC notes that effective 6/21, they upgrade Panera Bread Company (NASDAQ:PNRA) to Sector Outperformer from Sector Performer. Firm's proprietary market-by-market analysis suggests room for 3,000-3,500 Paneras, or 3X the current base and enough to sustain the current unit growth rate for 7 years. Unit growth is key to valuation in this sector.
For a chain this size, current store base is remarkably diverse, which speaks to breadth of concept's appeal. For example, 35% of units are in below- national-avg. income markets; many multi-unit markets have less than 200k pop. Mature markets still far less dense than for most other QSRs.
Still-sizable un-penetrated and under-penetrated markets, including no presence in 7 of top 50 U.S. markets, e.g., Phoenix, Portland (OR), Austin (TX). Other big markets (e.g., NY, LA, Philly, Seattle, Dallas) have less than 11 units each.
Notablecalls: Expect to see some upside in PNRA today. As I have said before I usually aviod posting upgrade/downgrades on this page but I think this one has a good point.
Calls of Note Part 2
- JP Morgan comments on Adobe Systems (NASDAQ:ADBE) after the co announced a multi year agreement with Google to offer Google Toolbar with Macromedia Shockwave replacing the current Yahoo! Toolbar offer. Acrobat Reader and Flash will still have the Yahoo! Toolbar but the firm thinks a transition to Google is possible. Estimates $16-48M of annual contribution possible but 2006 guidance included impact.
According to the firm most likely scenario is just over $30M to 2007. The 2006 impact was factored into management guidance, but they are increasing firm's 2007 revenue by $32M and pro-forma EPS by a penny.
Notablecalls: ADBE was up almost 1pt in after hours trading. I don't see it moving up any further on this deal.
- Bear Stearns notes that based on the combination of recently released industry data from comScore and their own proprietary statistical analysis, they believe Google (NASDAQ:GOOG) is experiencing a strong 2Q and could be on pace to grow sequential net revenues north of 11%, to $1.7B. Hence the firm ise raising their net revenue estimate to $1.7B from $1.63B and PF EPS to $2.31 from $2.23, which would exceed industry consensus of $1.62B and $2.18 respectively.
Firm points out that their analysis would only imply an outperformance of consensus estimates by 8% and other data release by comScore already implies a QTD sequential queries growth of 30%. They also note that consensus estimates have historically varied widely from actuals reported. Hence, recommends buying Google prior to the 2Q quarterly report. Maintains Outperform.
Notablecalls: Not actionable but good to know category.
- CIBC notes that despite the near-term setback Finisar (NASDAQ:FNSR) shares have taken since the company lowered its fiscal 2007 gross margin outlook largely due to product mix, they remain optimistic that new products in metro/telecom, 10 Gigabit Ethernet and network testing will boost the company average in 2HFY07.
Finisar has posted over 10 quarters of sql. revenue growth, with many of those quarters coming in above management's guidance. CIBC believes the fiscal 2007 guidance is conservative and does not factor in upside success from new products, thus are estimates are at the high end of the range.
Firm's positive outlook for FNSR has not changed following our meetings. They continue to believe that the datacom market offers the best visibility for optical component vendors and see Finisar's 55%-60% market share as a clear way to play SAN/LAN growth with upside coming from telecom. Maintains Sector Outperformer and $6 tgt.
Notablecalls: Not actionable but good to know category. My gut is telling me FNSR needs to see some more selling before one can safely buy.
According to the firm most likely scenario is just over $30M to 2007. The 2006 impact was factored into management guidance, but they are increasing firm's 2007 revenue by $32M and pro-forma EPS by a penny.
Notablecalls: ADBE was up almost 1pt in after hours trading. I don't see it moving up any further on this deal.
- Bear Stearns notes that based on the combination of recently released industry data from comScore and their own proprietary statistical analysis, they believe Google (NASDAQ:GOOG) is experiencing a strong 2Q and could be on pace to grow sequential net revenues north of 11%, to $1.7B. Hence the firm ise raising their net revenue estimate to $1.7B from $1.63B and PF EPS to $2.31 from $2.23, which would exceed industry consensus of $1.62B and $2.18 respectively.
Firm points out that their analysis would only imply an outperformance of consensus estimates by 8% and other data release by comScore already implies a QTD sequential queries growth of 30%. They also note that consensus estimates have historically varied widely from actuals reported. Hence, recommends buying Google prior to the 2Q quarterly report. Maintains Outperform.
Notablecalls: Not actionable but good to know category.
- CIBC notes that despite the near-term setback Finisar (NASDAQ:FNSR) shares have taken since the company lowered its fiscal 2007 gross margin outlook largely due to product mix, they remain optimistic that new products in metro/telecom, 10 Gigabit Ethernet and network testing will boost the company average in 2HFY07.
Finisar has posted over 10 quarters of sql. revenue growth, with many of those quarters coming in above management's guidance. CIBC believes the fiscal 2007 guidance is conservative and does not factor in upside success from new products, thus are estimates are at the high end of the range.
Firm's positive outlook for FNSR has not changed following our meetings. They continue to believe that the datacom market offers the best visibility for optical component vendors and see Finisar's 55%-60% market share as a clear way to play SAN/LAN growth with upside coming from telecom. Maintains Sector Outperformer and $6 tgt.
Notablecalls: Not actionable but good to know category. My gut is telling me FNSR needs to see some more selling before one can safely buy.
Calls of Note Part 1
- Merrill Lynch is upping their estimates on Garmin (NASDAQ:GRMN) as the firm estimates that the market for personal navigation devices (PND) could grow over 40% (5 year CAGR) in the next five years. They continue to believe that PND growth will outpace growth in the OEM in-dash navigation systems. Firm currently estimates sthat PND growth in Europe will outpace the U.S. Forecasts 10.8 million units (U.S. and Europe) for 2006 growing to 17.7 million in 2007.
Raising 2006 EPS (before impact of FX) to $3.75 from $3.25. First Call mean is currently $3.57. They are also raising 2007E EPS to $4.50 from $4.15, which is above First Call mean of $4.09. Firm notes they are comfortable being above consensus as they do not think market is giving Garmin credit for greater potential upside in PNDs. Maintains Neutral due to valuation.
Notablecalls: 1) GRMN is a momentum stock 2) Merrill has one of the largest client bases on the Street 3) Their 2007 EPS est is now the highest on the Street. Actionable call.
- Stifel Nicolaus notes RealNetworks (NASDAQ:RNWK) hit a new multi-year high yesterday on no news. The shares have increased about $1.50 over the past week on no news other than an analyst upgrade, and about $3 over the past 2-3 months on little news and no change in guidance. The $1.50-$3.00 move doesn't sound that unusual for a technology stock, but because RNWK has $4.11 per share of net cash, the change has resulted in significant multiple expansion on measures of cash flow. For instance, on EBITDA, RNWK has gone from 15x at $8, to 24x at $9.20, to 36x at $10.83. 36x EBITDA is on the very high end of Internet Media peers and compares to an estimated 25% EBITDA growth rate in 2006 and 49% in 2007.
The analyst Kit Spring notes they can't recall such a large change in a stock's multiple in such a short time frame since the go-go days of the '90s. Firm's discipline of considering strong technical indicators and the potential for an earnings surprise keeps us from moving to a Sell rating, though from a short-term trading perspective they would be inclined to take profits at current levels, all else being equal. Maintains Hold.
Notablecalls: Note that Goldman Sachs is taking their rating down on RNWk to Underperform from In-line on valuation. Don't expect to see much of a bounce today.
- Two firms positive on Apple Computer (NASDAQ:AAPL) this morning:
*Piper Jaffray believes Mac market share is poised for growth for the following reasons: 1) Intel transition nearly complete, 2) improved availability of Macs, 3) expanding footprint of users of Apple products -- expect 85m iPods shipped by end of CY06, and 4) ability to run Windows on Mac.
Mac market share has been between 2.1%-2.5% over the last year. Firm is modeling for Mac market share to be 2.3% in CY06 and 2.4% in CY07. If Apple is able to grow market share to 3.0% in CY06 and 3.5% in CY07, it would add 10% and 17% to their EPS, respectively. Reits Outperform and $99 tgt.
*Morgan Stanley notes the Mac pilot at select Best Buy stores presents a meaningful growth opportunity in C2H06/2007. According to the firm, if one combines this with plans for International expansion, new product pipeline and an improving competitive position (full hardware + operating system updates by year-end), AAPL is well positioned to outperform the group over the next several quarters. Roughly 6 Best Buy stores initiated a pilot of Mac computers this Q. They continue to expect new Nano and Mac Pro (replaces PowerMac) product this Summer; video iPod and potentially an operating system upgrade cycle this Fall - all of which should help accelerate revenue momentum in C2H06. Maintains Overweight.
Notablecalls: Not exactly actionable but good to know.
Raising 2006 EPS (before impact of FX) to $3.75 from $3.25. First Call mean is currently $3.57. They are also raising 2007E EPS to $4.50 from $4.15, which is above First Call mean of $4.09. Firm notes they are comfortable being above consensus as they do not think market is giving Garmin credit for greater potential upside in PNDs. Maintains Neutral due to valuation.
Notablecalls: 1) GRMN is a momentum stock 2) Merrill has one of the largest client bases on the Street 3) Their 2007 EPS est is now the highest on the Street. Actionable call.
- Stifel Nicolaus notes RealNetworks (NASDAQ:RNWK) hit a new multi-year high yesterday on no news. The shares have increased about $1.50 over the past week on no news other than an analyst upgrade, and about $3 over the past 2-3 months on little news and no change in guidance. The $1.50-$3.00 move doesn't sound that unusual for a technology stock, but because RNWK has $4.11 per share of net cash, the change has resulted in significant multiple expansion on measures of cash flow. For instance, on EBITDA, RNWK has gone from 15x at $8, to 24x at $9.20, to 36x at $10.83. 36x EBITDA is on the very high end of Internet Media peers and compares to an estimated 25% EBITDA growth rate in 2006 and 49% in 2007.
The analyst Kit Spring notes they can't recall such a large change in a stock's multiple in such a short time frame since the go-go days of the '90s. Firm's discipline of considering strong technical indicators and the potential for an earnings surprise keeps us from moving to a Sell rating, though from a short-term trading perspective they would be inclined to take profits at current levels, all else being equal. Maintains Hold.
Notablecalls: Note that Goldman Sachs is taking their rating down on RNWk to Underperform from In-line on valuation. Don't expect to see much of a bounce today.
- Two firms positive on Apple Computer (NASDAQ:AAPL) this morning:
*Piper Jaffray believes Mac market share is poised for growth for the following reasons: 1) Intel transition nearly complete, 2) improved availability of Macs, 3) expanding footprint of users of Apple products -- expect 85m iPods shipped by end of CY06, and 4) ability to run Windows on Mac.
Mac market share has been between 2.1%-2.5% over the last year. Firm is modeling for Mac market share to be 2.3% in CY06 and 2.4% in CY07. If Apple is able to grow market share to 3.0% in CY06 and 3.5% in CY07, it would add 10% and 17% to their EPS, respectively. Reits Outperform and $99 tgt.
*Morgan Stanley notes the Mac pilot at select Best Buy stores presents a meaningful growth opportunity in C2H06/2007. According to the firm, if one combines this with plans for International expansion, new product pipeline and an improving competitive position (full hardware + operating system updates by year-end), AAPL is well positioned to outperform the group over the next several quarters. Roughly 6 Best Buy stores initiated a pilot of Mac computers this Q. They continue to expect new Nano and Mac Pro (replaces PowerMac) product this Summer; video iPod and potentially an operating system upgrade cycle this Fall - all of which should help accelerate revenue momentum in C2H06. Maintains Overweight.
Notablecalls: Not exactly actionable but good to know.
According to the Wall Street Journals "Heard on the Street" column, Pier 1 (PIR), is revamping its furniture and home-decor offerings in an attempt to appeal to more upscale shoppers. Some investors argue that the overhaul ought to include the CEO's job, too. The future of Marvin Girouard as Chmn and CEO likely will be discussed today, when the co hosts its AGM and its board convenes afterward. "If the latest strategy doesn't work by the end of the year, that might be when the board starts looking at other alternatives and bigger changes," BB&T analyst Laura Richardson said. Ms. Richardson rates Pier 1's stock a Hold.
The WSJ reprots that Rising concern over potentially deadly blood clots has led some cardiac centers to cut back on use of drug-coated stents. The moves come as a growing number of studies question the effectiveness and safety of the stents. Stents generated $5.3bn in sales last year in a field dominated by Boston Scientific (BSX) and Johnson & Johnson (JNJ). Hospitals aren't drastically curbing use of coated stents, and there's no indication yet of an overall decline in sales of them. But some leading hospitals have started substituting uncoated, bare-metal stents in some patients. Moreover, the debate over the safety of drug-coated stents could signal turmoil in the booming industry.
Barron's Online discusses sowftware vendors that rent software, saying that those firms have the edge. Red Hat (RHAT) and Akamai (AKAM) are two such rent-a-software co's that can outperform the industry over the next 12 months. It's a good bet that signs of health in software will ultimately redound to the benefit of these younger firms. "I don't think Oracle could have posted that kind of quarter if the [information technology] spending environment weren't generally healthy," says Tony Ursillo, who helps manage $81bn for Loomis Sayles. "But I think the best opportunity is to target co's offering software as a service."
Notablecalls: Not actionable news today, but all good to know.
The WSJ reprots that Rising concern over potentially deadly blood clots has led some cardiac centers to cut back on use of drug-coated stents. The moves come as a growing number of studies question the effectiveness and safety of the stents. Stents generated $5.3bn in sales last year in a field dominated by Boston Scientific (BSX) and Johnson & Johnson (JNJ). Hospitals aren't drastically curbing use of coated stents, and there's no indication yet of an overall decline in sales of them. But some leading hospitals have started substituting uncoated, bare-metal stents in some patients. Moreover, the debate over the safety of drug-coated stents could signal turmoil in the booming industry.
Barron's Online discusses sowftware vendors that rent software, saying that those firms have the edge. Red Hat (RHAT) and Akamai (AKAM) are two such rent-a-software co's that can outperform the industry over the next 12 months. It's a good bet that signs of health in software will ultimately redound to the benefit of these younger firms. "I don't think Oracle could have posted that kind of quarter if the [information technology] spending environment weren't generally healthy," says Tony Ursillo, who helps manage $81bn for Loomis Sayles. "But I think the best opportunity is to target co's offering software as a service."
Notablecalls: Not actionable news today, but all good to know.
Wednesday, June 21, 2006
Interesting Call of The Day - Xyratex (NASDAQ:XRTX)
- Friedman Billings thinks that Xyratex (NASDAQ:XRTX) that is scheduled to report after the close tonight will produce very nice results and guidance. Following STX's capex spending plan update at its analyst day earlier this month, firm considers it likely that XRTX will provide Aug qtr guidance well above current Street estimates when it reports today. Beyond the Aug qtr, firm believes the outlook for Seagate Tech (NYSE:STX) investment in XRTX gear may be meaningfully better than what is currently reflected in Street ests well into 2007 and, by that time, firm also expects Hitachi's disk drive test business with XRTX to begin ramping significantly. Reits Outperform.
Notablecalls: Looks like a legit call. FBR has been dead right on XRTX lately. Would be long into earnings tonight.
Notablecalls: Looks like a legit call. FBR has been dead right on XRTX lately. Would be long into earnings tonight.
Calls of Note Part 4
- Stifel Nicolaus & Company is positive on Jupitermedia Corp (NASDAQ:JUPM) following meeting with management. Management is confident they can take market share from GYI & Corbis, which seems reasonable: CEO Alan Meckler noted that JUPM has already been gaining share in the lower-end but faster growing royalty-free market. Next, Meckler has his sights set on the higher-end rights managed business and believes JUPM can take 5-10% market share from GYI & privately-held Corbis.
Firm believes JUPM's strategy of aggregating content makes sense. They believe that JUPM is building an asset that will be quite valuable to larger media and Internet companies, and that JUPM's CEO Alan Meckler will be a willing seller at the right time. At $13.33, JUPM is valued at only 10.6x 2006E EBITDA and 8.6x 2007E EBITDA - essentially valued like a slow growth old media company. Thinks the biggest long-term risk is that a price war emerges between GYI, JUPM, Corbis (private) in which all parties lose.
Believes the biggest short-term risk is that JUPM could see another quarter of higher than expected expense growth as it integrates new salespeople and IT systems across the multitude of recently acquired properties. Reits Buy and $21 tgt.
Notablecalls: Not actionable but good to know category
Calls of Note Part 3
- Raymond James notes they recently spoke with the head of the contender in the speech recognition market, Microsoft, and the definitive leader, Nuance (NASDAQ:NUAN). Based on these discussions, they believe Nuance continues to be very well positioned in a high growth market. Sequential growth in network speech, a little potential upside in the Dictaphone acquisition, and the PaperPort product launch during the June quarter should help Nuance produce an in-line June quarter.
Firm reiterates Strong Buy rating and $15 target on NUAN based on a 31x P/E applied to 2H07 EPS estimate annualized; 31x represents a PEG of about 1x. NUAN is trading at only 18x firm's F2007 EPS estimate. A slight revenue miss in F2Q06 and a bad tech tape are providing investors with a great opportunity to buy the leading vendor of speech recognition solutions ahead of the seasonally strong portion of the year, ahead of the launch of a new dictation product, ahead of the integration of a highly profitable acquisition, and ahead of what they believe will be strong margin expansion.
Notablecalls: No actionable but good to know category. Raymond James has one of the best research teams on the Street and with close to 100% price target NUAN bears watching.
- Banc of America notes that despite the recent sell off in the stock, they remain Neutral on Foundry Networs (NASDAQ:FDRY). They believe 2007 sales estimates are aggressive, particularly since they are cautious on the company's ability to penetrate the carrier markets. Lowers their price target from $15.00 to $11.50.
Following a slow start to the quarter, firm's contacts indicate that order growth at Foundry has been strong over the past six weeks. Deal activity and size seems to have steadily grown throughout the quarter. Despite some signs of pricing pressure they believe the outlook remains healthy for the June and September periods.
Firm sees risk to cons '07 sales estimates, which they believe bake in a large contribution from the XMR and MLX carrier routing platforms. While these products are functionally strong, Foundry has had little success penetrating this market and lacks the relationships to succeed in this vertical.
Notablecalls: Looking at FDRY's chart I'd say BofA is somewhat late with their call
Firm reiterates Strong Buy rating and $15 target on NUAN based on a 31x P/E applied to 2H07 EPS estimate annualized; 31x represents a PEG of about 1x. NUAN is trading at only 18x firm's F2007 EPS estimate. A slight revenue miss in F2Q06 and a bad tech tape are providing investors with a great opportunity to buy the leading vendor of speech recognition solutions ahead of the seasonally strong portion of the year, ahead of the launch of a new dictation product, ahead of the integration of a highly profitable acquisition, and ahead of what they believe will be strong margin expansion.
Notablecalls: No actionable but good to know category. Raymond James has one of the best research teams on the Street and with close to 100% price target NUAN bears watching.
- Banc of America notes that despite the recent sell off in the stock, they remain Neutral on Foundry Networs (NASDAQ:FDRY). They believe 2007 sales estimates are aggressive, particularly since they are cautious on the company's ability to penetrate the carrier markets. Lowers their price target from $15.00 to $11.50.
Following a slow start to the quarter, firm's contacts indicate that order growth at Foundry has been strong over the past six weeks. Deal activity and size seems to have steadily grown throughout the quarter. Despite some signs of pricing pressure they believe the outlook remains healthy for the June and September periods.
Firm sees risk to cons '07 sales estimates, which they believe bake in a large contribution from the XMR and MLX carrier routing platforms. While these products are functionally strong, Foundry has had little success penetrating this market and lacks the relationships to succeed in this vertical.
Notablecalls: Looking at FDRY's chart I'd say BofA is somewhat late with their call
Calls of Note Part 2
- Soleil-Hudson Square Research's Daniel Ernst is back commenting on Netflix (NASDAQ:NFLX) after the co issued an SEC form 8K acknowledging one of their executives had stated that the company was at work on a proprietary set-top box to deliver movies over the Internet. However, Netflix indicated that management was considering a broad range of options and no final decisions had yet been made.
Ernst says they stand by their analysis that shows a) a material erosion of Netflix's economic model with the inclusion of set-top boxes and b) the company faces increased risks as Internet delivery of movies becomes increasingly viable. He notes that if they could be certain that proprietary boxes represented 0.0% of the company's plans, they might be more positive. However, if not a box, they wonder how Netflix might get content to the TV from the PC to address mainstream movie-viewing. Further, we believe Netflix will lose a key competitive advantage in the electronic delivery domain; e.g. their expertise and efficiency of physical delivery. Maintains Hold.
Notablecalls: Ernst has a point. Netflix will eventually need to get their DVD content to the TV in order to compete with Comcast and other players entering the field. That will prove to be a drag on profitability. Analysts will eventually need to update their models.
- CIBC comments on Focus Media (NASDAQ:FMCN) after Clear Channel Outdoor announced that its 51%-owned Chinese subsidiary, Clear Media, acquired 634 bus shelter advertising display panels in Beijing for $10M. This move follows the 2004 acquisition of 3,000 ad panels in Beijing.
As such, this investment aims to strengthen Clear Media's traditional street furniture business, rather than expand into new advertising formats, supporting firm's thesis that FMCN will see limited competition for their digital indoor business.
FMCN also represents firm's best defensive name if US economy were to see slower economic
growth. Trading at 26x '07 EPS estimate, with 90% EPS growth forecast this year, they believe investors are not fully "sold" on the Focus story and currently doubt existing Street estimates. Firm reits their Sector Outperformer and $74 tgt.
Notablecalls: It's essentially a nice call but won't bring any real buyers. But I do like the chart.
- Soleil Securities Group's Marla S. Backer is commenting on DreamWorks Animation (NYSE:DWA) after attending the International Licensing Show yesterday. Firm's impressions of the response the Company received from attendees " including potential licensing partners, media buyers and investors " are positive.
As evidenced by the marketing material at the booth, properties that DWA is promoting most aggressively are: Shrek3, Bee Movie and Kung Fu Panda. These films are slated for release on May 18, 2007, November 2, 2007 and in August, 2008, respectively. The DWA booth " one of the larger on the exhibition floor " was continuously crowded. They believe that Shrek3 is the primary attraction for potential licensing partners.
The buzz on Shrek3, Shrek the Third, is building. Firm spoke to several people as they emerged from the DWA booth, many of whom had seen the Company's screening. They were enthusiastic about Shrek3 and expect it to be highly successful. Shrek2 grossed $436.7m domestically, up from $267.7m for the original Shrek. Maintains Buy.
Notablecalls: Not actionable but good to know category.
Ernst says they stand by their analysis that shows a) a material erosion of Netflix's economic model with the inclusion of set-top boxes and b) the company faces increased risks as Internet delivery of movies becomes increasingly viable. He notes that if they could be certain that proprietary boxes represented 0.0% of the company's plans, they might be more positive. However, if not a box, they wonder how Netflix might get content to the TV from the PC to address mainstream movie-viewing. Further, we believe Netflix will lose a key competitive advantage in the electronic delivery domain; e.g. their expertise and efficiency of physical delivery. Maintains Hold.
Notablecalls: Ernst has a point. Netflix will eventually need to get their DVD content to the TV in order to compete with Comcast and other players entering the field. That will prove to be a drag on profitability. Analysts will eventually need to update their models.
- CIBC comments on Focus Media (NASDAQ:FMCN) after Clear Channel Outdoor announced that its 51%-owned Chinese subsidiary, Clear Media, acquired 634 bus shelter advertising display panels in Beijing for $10M. This move follows the 2004 acquisition of 3,000 ad panels in Beijing.
As such, this investment aims to strengthen Clear Media's traditional street furniture business, rather than expand into new advertising formats, supporting firm's thesis that FMCN will see limited competition for their digital indoor business.
FMCN also represents firm's best defensive name if US economy were to see slower economic
growth. Trading at 26x '07 EPS estimate, with 90% EPS growth forecast this year, they believe investors are not fully "sold" on the Focus story and currently doubt existing Street estimates. Firm reits their Sector Outperformer and $74 tgt.
Notablecalls: It's essentially a nice call but won't bring any real buyers. But I do like the chart.
- Soleil Securities Group's Marla S. Backer is commenting on DreamWorks Animation (NYSE:DWA) after attending the International Licensing Show yesterday. Firm's impressions of the response the Company received from attendees " including potential licensing partners, media buyers and investors " are positive.
As evidenced by the marketing material at the booth, properties that DWA is promoting most aggressively are: Shrek3, Bee Movie and Kung Fu Panda. These films are slated for release on May 18, 2007, November 2, 2007 and in August, 2008, respectively. The DWA booth " one of the larger on the exhibition floor " was continuously crowded. They believe that Shrek3 is the primary attraction for potential licensing partners.
The buzz on Shrek3, Shrek the Third, is building. Firm spoke to several people as they emerged from the DWA booth, many of whom had seen the Company's screening. They were enthusiastic about Shrek3 and expect it to be highly successful. Shrek2 grossed $436.7m domestically, up from $267.7m for the original Shrek. Maintains Buy.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 1
- UBS is positive on Apple Computer (NASDAQ:AAPL) saying that line with their views outlined over the last 2 months, the firm believes iPod sales should be lower sequentially in 3Q06 but checks also show demand for the new MacBook is solid. Firm continues to expect new iPods next quarter to improve unit sales into year-end. Believe Mac revenues will accelerate into 2007.
To reflect checks that indicate more interest for new MacBooks & solid education buying, they are raising 3Q06 estimate for Mac units to 1.32mm units (was 1.24mm) & FY06 unit estimate to 5.1 mm (was 5.0 mm). Firm now estimates iPod unit sales of 7.8 mm for 3Q06 (was 8.4 mm) reflecting y/y growth of 27% (-8% q/q) & FY06 unit sales of 39.8 mm (was 40.9 mm).
Maintains ests and Buy rating. Target remains at $90.
Notablecalls: Not actionable but good to know category.
- Piper Jaffray comments on Autodesk (NASDAQ:ADSK) noting the monthly Architectural Billings Index (ABI) was down in the month of May, showing the first negative score in 20 months in the pipeline of non- residential architects.
ABI is an indicator that provides a look into the six-month pipeline of ~300 architectural firms and their expectations for non-residential construction activity in the U.S. Over the last 12 quarters the average quarterly ABI has had a correlation of 0.86 with Autodesk's design solutions revenue.
Firm notes that while the ABI dipped to a negative score in the month of May, they will wait for multiple datapoints to make any determination about this becoming a visible trend. Currently the firm believes Autodesk will achieve Street estimates for Q2 and CY06 and maintains Outperform rating with $47 tgt.
Notablecalls: I would not be surprised to see some weakness on ADSK following Piper's call. Nice piece of research guys!
- Baird has reduced their fiscal fourth-quarter EPS estimate for Briggs & Stratton Corp (NYSE:BGG) to reflect what their contacts indicate is a weak lawn and garden season. Furthermore, they have lowered outlook for fiscal 2007 to account for lower production due to the expected resultant inventory overhang, rising commodities costs, slower housing starts, and adverse mix. Price target is reduced to $31 from $36 and cautious view is maintained pending 4Q06 results and F2007 guidance.
Firm's contacts in the lawn and garden channel from component suppliers to engine competitors to mower manufacturers to parts distributors to retailers indicate the weak start to the lawn season has continued into June. Supplier contacts confirm Briggs has trimmed component orders as it reduces production schedules.
Separately, they believe that Chinese-made engines are being specified by Toro/Home Depot for F2007/ 8, raising added concerns about competitive pressures and industry pricing.
Notablecalls: Actionable call! No question about it. Expect to see at least 1 pt (and possibly more) downside today.
To reflect checks that indicate more interest for new MacBooks & solid education buying, they are raising 3Q06 estimate for Mac units to 1.32mm units (was 1.24mm) & FY06 unit estimate to 5.1 mm (was 5.0 mm). Firm now estimates iPod unit sales of 7.8 mm for 3Q06 (was 8.4 mm) reflecting y/y growth of 27% (-8% q/q) & FY06 unit sales of 39.8 mm (was 40.9 mm).
Maintains ests and Buy rating. Target remains at $90.
Notablecalls: Not actionable but good to know category.
- Piper Jaffray comments on Autodesk (NASDAQ:ADSK) noting the monthly Architectural Billings Index (ABI) was down in the month of May, showing the first negative score in 20 months in the pipeline of non- residential architects.
ABI is an indicator that provides a look into the six-month pipeline of ~300 architectural firms and their expectations for non-residential construction activity in the U.S. Over the last 12 quarters the average quarterly ABI has had a correlation of 0.86 with Autodesk's design solutions revenue.
Firm notes that while the ABI dipped to a negative score in the month of May, they will wait for multiple datapoints to make any determination about this becoming a visible trend. Currently the firm believes Autodesk will achieve Street estimates for Q2 and CY06 and maintains Outperform rating with $47 tgt.
Notablecalls: I would not be surprised to see some weakness on ADSK following Piper's call. Nice piece of research guys!
- Baird has reduced their fiscal fourth-quarter EPS estimate for Briggs & Stratton Corp (NYSE:BGG) to reflect what their contacts indicate is a weak lawn and garden season. Furthermore, they have lowered outlook for fiscal 2007 to account for lower production due to the expected resultant inventory overhang, rising commodities costs, slower housing starts, and adverse mix. Price target is reduced to $31 from $36 and cautious view is maintained pending 4Q06 results and F2007 guidance.
Firm's contacts in the lawn and garden channel from component suppliers to engine competitors to mower manufacturers to parts distributors to retailers indicate the weak start to the lawn season has continued into June. Supplier contacts confirm Briggs has trimmed component orders as it reduces production schedules.
Separately, they believe that Chinese-made engines are being specified by Toro/Home Depot for F2007/ 8, raising added concerns about competitive pressures and industry pricing.
Notablecalls: Actionable call! No question about it. Expect to see at least 1 pt (and possibly more) downside today.
Notablecalls - paperstand
According to The Wall Street Journals “Tracking the Numbers” column, Microsoft (MSFT) told investors in SEC filings in the late ‘90s that it was complying with a specific accounting rule regarding stock-options grants. But for much of that decade the co retroactively set the grant date for its options at the lowest point for the stock over the previous month, a variation on the "backdating" practice now under investigation by federal authorities. In doing so, Microsoft likely wasn't following the accounting rule in question. As a result, Microsoft potentially misled investors and regulators when it described its option program in its securities filings.
Notablecalls: Not actinable, but good to know category.
According to the WSJ, E*Trade (ET) CEO Mitchell H. Caplan spent almost $1.5m to scoop up his co's stock after shares of the firm reached a 6-mo low. In addition, President and COO R. Jarrett Lilien reported buying 10K shares.
Barron’s Online reports that a director has snapped up a large dose of American Medical Systems (AMMD) shares on behalf of Vertical Group, a VC firm that specializes in medical technology and biotechnology. In 3 separate transactions, Vertical Group purchased a total of 650K shares for $10.6m, through general partner Richard B. Emmitt, a director at American Medical. Vertical Group now owns a total of 1.3m shares.
Notablecalls: Insider action belongs to good-to-know category for investors.
Dear Notablecalls readers. The WSJ has real entertaining piece this morning. Spend a minute reading it along with Your morning coffee. Lean back and enjoy it. Click Here.
Tuesday, June 20, 2006
Interesting Call of The Day: Wet Seal (NASDAQ:WTSLA)
Brean Murray's Eric M. Beder reiterates his Accumulate rating and $7 target price on Wet Seal (NASDAQ:WTSLA) after sponsoring a series of institutional meetings with co's management.
According to the firm, management remains confident Wet Seal turnaround is on track. Although they believe the potential for material upside, especially on the top line, is limited for 2Q06, the firm is even more enthusiastic that there are multiple upside drivers for 2H06 that should refocus investors on the Wet Seal turnaround story and the underlying bottom-line growth potential for the chain.
Company just catching up in key categories this week; management highly focused on creative solutions to eliminate future bottlenecks. Wet Seal believes this week will be the first time it has caught up with the overwhelming demand for dresses, a trend management believes will carry though the rest of the year.
August will be the month for Arden B. to shine. The division is currently clearing out weak spring fashion looks (at 65% discounts) and introducing some tertiary items for fall. Management is highly enthusiastic that the fall 2006 looks. Also, store openings remain on track. Wet Seal will open 25 stores in 2006, 10 of which will be former locations. Operational improvements continue to drive higher productivity. With a materially deeper bench (fully 21 of the company's top 25 managers have been hired in the past year), management has been able to implement a number of key process upgrades to streamline store operations.
Firm's $7 price target translates to 20x fully taxed 2007 EPS estimate.
Notablecalls: Looks like a legitimate call. The stock already reached $7 level (almost!) in April and with things getting better there is no reason it can't reach or even exceed it again.
According to the firm, management remains confident Wet Seal turnaround is on track. Although they believe the potential for material upside, especially on the top line, is limited for 2Q06, the firm is even more enthusiastic that there are multiple upside drivers for 2H06 that should refocus investors on the Wet Seal turnaround story and the underlying bottom-line growth potential for the chain.
Company just catching up in key categories this week; management highly focused on creative solutions to eliminate future bottlenecks. Wet Seal believes this week will be the first time it has caught up with the overwhelming demand for dresses, a trend management believes will carry though the rest of the year.
August will be the month for Arden B. to shine. The division is currently clearing out weak spring fashion looks (at 65% discounts) and introducing some tertiary items for fall. Management is highly enthusiastic that the fall 2006 looks. Also, store openings remain on track. Wet Seal will open 25 stores in 2006, 10 of which will be former locations. Operational improvements continue to drive higher productivity. With a materially deeper bench (fully 21 of the company's top 25 managers have been hired in the past year), management has been able to implement a number of key process upgrades to streamline store operations.
Firm's $7 price target translates to 20x fully taxed 2007 EPS estimate.
Notablecalls: Looks like a legitimate call. The stock already reached $7 level (almost!) in April and with things getting better there is no reason it can't reach or even exceed it again.
Calls of Note Part 7
- WR Hambrecht notes they recently completed a round of channel checks that yielded strong indications that F5 Networks (NASDAQ:FFIV)' June quarter remains on track. Firm spoke with numerous F5 Networks' resellers in North America and Europe, many of whom cited a strong demand environment and a resurgence in sales following what they believe was a slow start to the quarter.
Specifically, checks confirmed that the Company has a couple of multi-million dollar WAN optimization deals in the works. Further, concerns in early May around the potential for Cisco Systems' (CSCO) competitive tactics to temporarily stall the market following its ACE module announcement have not materialized as they thought they might.
With FFIV shares off over 35% from their high set in late March and trading at 16x 2007 EPS estimate ex-cash, they believe current levels represent a compelling entry point and encourage investors to create or add to current positions. $68 price target reflects a 25x multiple applied to fully taxed 2007 operating EPS estimate plus $10/share in cash.
Notablecalls: Not actionable but good to know category
Specifically, checks confirmed that the Company has a couple of multi-million dollar WAN optimization deals in the works. Further, concerns in early May around the potential for Cisco Systems' (CSCO) competitive tactics to temporarily stall the market following its ACE module announcement have not materialized as they thought they might.
With FFIV shares off over 35% from their high set in late March and trading at 16x 2007 EPS estimate ex-cash, they believe current levels represent a compelling entry point and encourage investors to create or add to current positions. $68 price target reflects a 25x multiple applied to fully taxed 2007 operating EPS estimate plus $10/share in cash.
Notablecalls: Not actionable but good to know category
Calls of Note Part 6
- Susquehanna is positive on Infosys Tech (NASDAQ:INFY) saying that based on their analysis, they believe there is a nice trade to be had. Reasons include: 1) It's a strong seasonal period for Indian tech stocks, heading into early fall. 2) The soft rupee vs. the dollar and euro helps INFY margins. 3) The historic premium on Indian A.D.R.s vs. local shares has reaccelerated recently, yet the premium for INFY A.D.R.s has lagged those of peers. Also, INFY options traders have recently been sellers of July puts in multiple strikes.
Notablecalls: Looks like an actionable call.
- Hearing Deutsche Bank saying SGP and PFE have means to acquire Sepracor (NASDAQ:SEPR) in the speculated range of $65-$70. However, the deal would be only modestly accretive for both.
- Baird is defending DiamondCluster (NASDAQ:DTPI) after Barron's profiled it as the priciest stock in the Russell 2000 and criticized for an incoherent global strategy. The bloated valuation at 909x TTM earnings, however, includes non-operating expenses like restructuring charges. Valuing the stock on operating earnings and accounting for cash, DTPI shares are trading at a more attractive 17x-and the recent divestiture of its international operation greatly clarifies Diamond's growth strategy. Firm notes momentum in the quarter and a more diversified client portfolio give them increased confidence that results could exceed the high end of Q107 guidance. Maintains Outperform and $13 tgt.
Notablecall: Not actionable but good to know category.
Notablecalls: Looks like an actionable call.
- Hearing Deutsche Bank saying SGP and PFE have means to acquire Sepracor (NASDAQ:SEPR) in the speculated range of $65-$70. However, the deal would be only modestly accretive for both.
- Baird is defending DiamondCluster (NASDAQ:DTPI) after Barron's profiled it as the priciest stock in the Russell 2000 and criticized for an incoherent global strategy. The bloated valuation at 909x TTM earnings, however, includes non-operating expenses like restructuring charges. Valuing the stock on operating earnings and accounting for cash, DTPI shares are trading at a more attractive 17x-and the recent divestiture of its international operation greatly clarifies Diamond's growth strategy. Firm notes momentum in the quarter and a more diversified client portfolio give them increased confidence that results could exceed the high end of Q107 guidance. Maintains Outperform and $13 tgt.
Notablecall: Not actionable but good to know category.
Calls of Note Part 5
- SunTrust Robinson Humphrey is defending Commerce Bancorp (NYSE:CBH) noting that as they have mentioned before with CBH, they have expected a bumpy ride for the stock through the end of the current rate hike/flat yield curve cycle, and we have definitely seen it over the past few weeks. The stock is down from nearly $41 on June 1 (the day S&P announced CBH would be added to the S&P 500 index) to a price of $34.52 as of June 19.
Firm viewx current price levels as a fresh opportunity to get into the stock for the following reasons: 1) The stock is currently trading very near eight year Price/Book Value lows; 2) The company continues to grow the balance sheet over 25% per year organically; 3) Outside of an abnormally long period of a flat or inverted yield curve (more than twelve months), investors can reasonably expect the current cycle to be somewhere just after the mid-point of what they believe the duration will be. Reiterates Buy rating and $41 price target.
Notablecalls: Note that FBR is downgrading the shares today. Would not be surprised to see a bounce after the initial sellers are done.
Firm viewx current price levels as a fresh opportunity to get into the stock for the following reasons: 1) The stock is currently trading very near eight year Price/Book Value lows; 2) The company continues to grow the balance sheet over 25% per year organically; 3) Outside of an abnormally long period of a flat or inverted yield curve (more than twelve months), investors can reasonably expect the current cycle to be somewhere just after the mid-point of what they believe the duration will be. Reiterates Buy rating and $41 price target.
Notablecalls: Note that FBR is downgrading the shares today. Would not be surprised to see a bounce after the initial sellers are done.
Calls of Note Part 4
- Morgan Stanley defending Bowater (NYSE:BOW) saying the recent decline in Bshares has made the stock increasingly attractive. According to their risk/reward analysis, BOW shareholders appear to be discounting continued declines in its major businesses, despite evidence that a more benign outlook is more likely. Moreover, they see signs that the recent run in bad news may be improving.
Now, they believe there is room for cautious optimism that some of pressures may be abating. Firm sees four key areas where the news flow may be improving or at least becoming less bad. See signs of a potential change on several fronts: newspaper ad trends, Bowater's management, the weakening Canadian dollar, and last but no least, pulp profitability. The stock is getting cheap both relative to its peers and according to analysis of its risk/return profile. Target goes to $27 from $30.
Notablecalls: Mother Morgan sure does have the following needed to bounce this one. Wouldn't hold it below say $21.
Now, they believe there is room for cautious optimism that some of pressures may be abating. Firm sees four key areas where the news flow may be improving or at least becoming less bad. See signs of a potential change on several fronts: newspaper ad trends, Bowater's management, the weakening Canadian dollar, and last but no least, pulp profitability. The stock is getting cheap both relative to its peers and according to analysis of its risk/return profile. Target goes to $27 from $30.
Notablecalls: Mother Morgan sure does have the following needed to bounce this one. Wouldn't hold it below say $21.
Calls of Note Part 3
- Wachovia notes that at their 16th Annual Nantucket Equity Conference, Crown Holdings (NYSE:CCK) management seemed a bit more bullish on the near-to-medium term outlook, especially in terms of pricing.
Net:net then, with management reiterating on $300+ mil of free cash flow for '06, volumes relatively robust across their major businesses, and increased visibility into their ongoing pricing initiatives, they reiterate Outperform rating on the stock-noting that the shares should see a relief rally on the 2Q report.
While the market seems to be preoccupied with the health of the economy and inflationary pressures, the firm notes that Crown has a defensive end-market profile (beverage & food are key markets), along with effective pricing power, in firm's opinion--underlying Outperform rating. Valuation Range: $21 to $22.
Notablecalls: Not actionable but good to know category.
- FBR is positive on Secure Computing (NASDAQ:SCUR) saying recent onversations with resellers indicate that SCUR is seeing "very good" demand for its solution set on the heels of heightened security concerns, a broader product roadmap, and its differentiated unified threat management (UTM) vision. Firm believes the integration of CyberGuard is also proceeding at or "ahead of schedule," which should bode well for the remainder of FY06.
In sum, they believe so far (roughly two weeks left until finishing a traditional back-end-loaded quarter), SCUR is seeing normal 2Q spending patterns that are proceeding "according to plan." Believes shares at current levels (11x FY07 EPS) present a compelling risk/reward ratio that is hard to ignore, as they encourage investors to revisit this name heading into 2H06. Maintains Outperform rating and $15 price target, which represents 21x CY07 EPS estimate of $0.70.
Notablecalls: Nice piece of research from FBR's Daniel Ives. I don't think it's actionable yet but I'd be buyer at lower levels. Probably the best way to play this one would be to buy after earnings.
- Stanford notes Insituform (NASDAQ:INSU)'s stock price is down more than 20% in the past month, even after rebounding somewhat last week, on no news other than the broader small cap market correction. Firm thinks it's time for another look at this stock now, as in fact they see several positive developments ongoing at the company.
The company said when it reported earnings in late April that bidding activity had picked up sharply after a winter lull. From firm's recent conversation with management, it appears that new wins are now coming in. Also, last week, at the largest annual drinking water trade show in the U.S., the company quietly launched Insituform Blue , its new product for the rehabilitation of drinking water pipes.
Firm's estimates remain unchanged, at $1.01 for 2006 and $1.52 for 2007 (or $0.95 and $1.47, including stock option expense), and price target remains $30. Maintains Buy.
Notablecalls: Not actionable but good to know category
- Deutsche Bank notes their discussions with solar cell and module manufacturers in Taiwan and China last week reinforce their view of a continued, intensified silicon shortage until at least 2008. The first priority of solar cell and module manufacturers is, and will continue to be silicon feedstock supply. Firm believes that companies such as MEMC Electronics (NYSE:WFR), a primary producer of silicon feedstock should continue to benefit from the solar silicon demand secular trend. Reiterates Buy rating. Firm's price tgt stands at $45.
Notablecalls: I'm not entirely sure DB has the following to move WFR.
Net:net then, with management reiterating on $300+ mil of free cash flow for '06, volumes relatively robust across their major businesses, and increased visibility into their ongoing pricing initiatives, they reiterate Outperform rating on the stock-noting that the shares should see a relief rally on the 2Q report.
While the market seems to be preoccupied with the health of the economy and inflationary pressures, the firm notes that Crown has a defensive end-market profile (beverage & food are key markets), along with effective pricing power, in firm's opinion--underlying Outperform rating. Valuation Range: $21 to $22.
Notablecalls: Not actionable but good to know category.
- FBR is positive on Secure Computing (NASDAQ:SCUR) saying recent onversations with resellers indicate that SCUR is seeing "very good" demand for its solution set on the heels of heightened security concerns, a broader product roadmap, and its differentiated unified threat management (UTM) vision. Firm believes the integration of CyberGuard is also proceeding at or "ahead of schedule," which should bode well for the remainder of FY06.
In sum, they believe so far (roughly two weeks left until finishing a traditional back-end-loaded quarter), SCUR is seeing normal 2Q spending patterns that are proceeding "according to plan." Believes shares at current levels (11x FY07 EPS) present a compelling risk/reward ratio that is hard to ignore, as they encourage investors to revisit this name heading into 2H06. Maintains Outperform rating and $15 price target, which represents 21x CY07 EPS estimate of $0.70.
Notablecalls: Nice piece of research from FBR's Daniel Ives. I don't think it's actionable yet but I'd be buyer at lower levels. Probably the best way to play this one would be to buy after earnings.
- Stanford notes Insituform (NASDAQ:INSU)'s stock price is down more than 20% in the past month, even after rebounding somewhat last week, on no news other than the broader small cap market correction. Firm thinks it's time for another look at this stock now, as in fact they see several positive developments ongoing at the company.
The company said when it reported earnings in late April that bidding activity had picked up sharply after a winter lull. From firm's recent conversation with management, it appears that new wins are now coming in. Also, last week, at the largest annual drinking water trade show in the U.S., the company quietly launched Insituform Blue , its new product for the rehabilitation of drinking water pipes.
Firm's estimates remain unchanged, at $1.01 for 2006 and $1.52 for 2007 (or $0.95 and $1.47, including stock option expense), and price target remains $30. Maintains Buy.
Notablecalls: Not actionable but good to know category
- Deutsche Bank notes their discussions with solar cell and module manufacturers in Taiwan and China last week reinforce their view of a continued, intensified silicon shortage until at least 2008. The first priority of solar cell and module manufacturers is, and will continue to be silicon feedstock supply. Firm believes that companies such as MEMC Electronics (NYSE:WFR), a primary producer of silicon feedstock should continue to benefit from the solar silicon demand secular trend. Reiterates Buy rating. Firm's price tgt stands at $45.
Notablecalls: I'm not entirely sure DB has the following to move WFR.
Calls of Note Part 2
- JP Morgan reits their Underweight rating on Ultratech (NASDAQ:UTEK) noting multiple LCD flat panel manufacturers have recently announced that they will reduce output levels in order to address what appears to be a near term FPD inventory build-up. They believe this inventory build adds significant risk to firm's 30% YoY growth rate estimate for Ultratech's advanced packaging lithography (APL) business, as LCD packaging houses have begun to reduce the amount of new capacity they plan to bring on-line in C06.
Believes there is little risk of near-term earnings upside due to an incrementally weaker APL business outlook. UTEK is currently trading at 24.5x firm's C07 estimate of $0.65 vs. group average of 12.9x. Believes the stock is currently overvalued relative to its peers based on street expectations of the adoption of Ultratech's laser anneal product at the 65nm tech node. Expects the UTEK multiple premium to contract to a level more in line with group average.
Notablecalls: While I don't see anything new in JP Morgan's call, UTEK's chart sure looks murky. Expect to see additional downside in coming days/weeks.
- Deutsche Bank is slightly lowering their July qtr ests on NVIDIA (NASDAQ:NVDA) as checks during their recent trip to Asia suggest that subsequent to Intel's price cut announcement in May, the PC build & component order rates have slowed materially (for both INTC & AMD platforms, with OEMs less impacted than the channel, but not immune). It is hard to believe that graphics & chipset vendors will not be impacted. Given the relatively rich valuations (vs. ATYT) with similar long-term prospects, they retain Sell & lower tgt to $18.50.
Notablecalls: Not actionable but good to know category.
- Daniel Ernst from Soleil-Hudson Square Research downgrades his rating on Netflix (NASDAQ:NFLX) to Hold from Buy as last week, at the Independent Film & Television Alliance conference in Los Angeles, an executive revealed details of a plan to introduce a proprietary set-top box for the delivery of movies. The company has also posted several job openings for engineers with consumer electronics and set-top software experience. Firm believes the likely subsidization of a stand-alone box would significantly erode the economics of the Netflix model.
Assuming ARPU remains ~$17 but SAC goes up by $200 -- as they believe Netflix will have to give the box away " therefore the payback period is extended to 14 months and lifetime value is reduced to $138. Looked at another way, the cost of outfitting each of the 1.86M net subs they forecast Netflix will add this year with a box would be $372M vs. the $190M they forecast the company will spend on DVDs. Firm's 2006 pf-EPS estimate from $1.14 to $0.90 (assuming 50K Netflix Boxes are deployed).
Notablecalls: Very nice piece of research from a small boutique firm! I think most larger firms have missed the news. I'm not sure the call is outright actionable but bears watching.
- Baird is somewhat more positive on SFBC International (NASDAQ:SFCC) following resignation of Dr. Gregory B. Holmes, PharmD, President of Corporate Development.Given less-than-positive past experiences with this executive, and his role in building legacy operations, they view the departure as positive to SFCC's remediation efforts and the company's attempt to rebuild credibility; though they remain on the sidelines with a Neutral rating.
Notablecalls: With short interest standing above 60%, one needs to keep an eye on it. Not making a call here, though.
Believes there is little risk of near-term earnings upside due to an incrementally weaker APL business outlook. UTEK is currently trading at 24.5x firm's C07 estimate of $0.65 vs. group average of 12.9x. Believes the stock is currently overvalued relative to its peers based on street expectations of the adoption of Ultratech's laser anneal product at the 65nm tech node. Expects the UTEK multiple premium to contract to a level more in line with group average.
Notablecalls: While I don't see anything new in JP Morgan's call, UTEK's chart sure looks murky. Expect to see additional downside in coming days/weeks.
- Deutsche Bank is slightly lowering their July qtr ests on NVIDIA (NASDAQ:NVDA) as checks during their recent trip to Asia suggest that subsequent to Intel's price cut announcement in May, the PC build & component order rates have slowed materially (for both INTC & AMD platforms, with OEMs less impacted than the channel, but not immune). It is hard to believe that graphics & chipset vendors will not be impacted. Given the relatively rich valuations (vs. ATYT) with similar long-term prospects, they retain Sell & lower tgt to $18.50.
Notablecalls: Not actionable but good to know category.
- Daniel Ernst from Soleil-Hudson Square Research downgrades his rating on Netflix (NASDAQ:NFLX) to Hold from Buy as last week, at the Independent Film & Television Alliance conference in Los Angeles, an executive revealed details of a plan to introduce a proprietary set-top box for the delivery of movies. The company has also posted several job openings for engineers with consumer electronics and set-top software experience. Firm believes the likely subsidization of a stand-alone box would significantly erode the economics of the Netflix model.
Assuming ARPU remains ~$17 but SAC goes up by $200 -- as they believe Netflix will have to give the box away " therefore the payback period is extended to 14 months and lifetime value is reduced to $138. Looked at another way, the cost of outfitting each of the 1.86M net subs they forecast Netflix will add this year with a box would be $372M vs. the $190M they forecast the company will spend on DVDs. Firm's 2006 pf-EPS estimate from $1.14 to $0.90 (assuming 50K Netflix Boxes are deployed).
Notablecalls: Very nice piece of research from a small boutique firm! I think most larger firms have missed the news. I'm not sure the call is outright actionable but bears watching.
- Baird is somewhat more positive on SFBC International (NASDAQ:SFCC) following resignation of Dr. Gregory B. Holmes, PharmD, President of Corporate Development.Given less-than-positive past experiences with this executive, and his role in building legacy operations, they view the departure as positive to SFCC's remediation efforts and the company's attempt to rebuild credibility; though they remain on the sidelines with a Neutral rating.
Notablecalls: With short interest standing above 60%, one needs to keep an eye on it. Not making a call here, though.
Calls of Note Part 1
- Goldman Sachs is defending PETsMart (NASDAQ:PETM) following recent sell-off reiterating their Outperform rating. Firm believes that concerns about pricing remain overdone, and that the shares offer growth at a truly reasonable price. As sales and margin compares ease, and firm's latest checkings have found that the pet sector is one of the retail categories that did not experience a sales slowdown in the past two months, they expect accelerating sales and earnings. Valuation is attractive, with EV/EBITDA multiples in the bottom third of the hardlines retail sector, and, as a "gut-check," even an LBO screens well at current prices. Sees $29 as one yr tgt.
Notablecalls: While I wouldn't rule out a nice bounce in PETM, I like the chart of its competitor PETC. Wouldn't hold it below $18 level, though.
- Piper Jaffray comments on Trident Micro (NASDAQ:TRID) saying that near term,
they remain comfortable with their estimates for the June quarter. While they continue to expect a 2H06 seasonal rebound in the LCD TV market, they believe a combination of more moderate unit shipment and pricing pressure may limit potential upside. In particular with LCD TV shipment lagging prior industry expectations so far, the firm believes that unit forecast for 2H may be adjusted downward based on the same run-rate. Given the competitive pressure at key accounts, they believe this could lead to softer pricing and hence steeper margin erosion than prior forecasts.
In light of these concerns, the firm is lowering their CY06 non-GAAP EPS estimate from $0.90 to $0.82 on revenue from $222.5MM to $212.3MM. CY07 EPS estimate is lowered from $1.15 to $1.00 on revenue from $300.8MM to $267.5MM. Lowering 12-month price target from $29 to $20, based on 20x CY07 EPS estimate of $1.00. Maintains Mkt Perform rating.
Notablecall: While I don't have a strong feel for the call or the stock I'll be keeping an eye on it. The target change is way too severe to be ignored.
- Piper Jaffray highlights Adobe Systems (NASDAQ:ADBE) and Apple Computer (NASDAQ:AAPL) as their top large cap picks for 2006.
For AAPL they believe there are two primary catalysts for shares in 2H06: 1) increasing Mac market share with the transition to Intel nearly complete, and 2) release of iPods with new features/higher capacity. Sentiment on AAPL shares is mixed given iPod shipments for the June quarter are likely to be lower than originally expected. Firm believes investors and analysts are generally starting to anticipate a lower iPod number and, therefore, the results should not be a surprise.
For ADBE there are two clearly identifiable catalysts coming in the next 2-3 quarters. Acrobat 8 (Intelligent Documents segment is 30% of business) is expected to ship this fall (likely September) and CS3 (the fully integrated Adobe/Macromedia suite) is expected to ship in spring-07; CS will have an impact on about 40% of the business. ADBE shares have had P/E multiples in the 35x-40x NTM EPS range in the 3-6 months prior to major product cycles over the last 7 years.
Investors generally believe the Q3-Q4 revenue ramp may still be aggressive. Firm believes downside is limited because even if Adobe guides down for Q4, it will be right in front of the Acrobat 8 shipment and they believe many investors are on the sidelines waiting for the perfect entry point.
Notablecalls: Not actionable but good to know category
Notablecalls: While I wouldn't rule out a nice bounce in PETM, I like the chart of its competitor PETC. Wouldn't hold it below $18 level, though.
- Piper Jaffray comments on Trident Micro (NASDAQ:TRID) saying that near term,
they remain comfortable with their estimates for the June quarter. While they continue to expect a 2H06 seasonal rebound in the LCD TV market, they believe a combination of more moderate unit shipment and pricing pressure may limit potential upside. In particular with LCD TV shipment lagging prior industry expectations so far, the firm believes that unit forecast for 2H may be adjusted downward based on the same run-rate. Given the competitive pressure at key accounts, they believe this could lead to softer pricing and hence steeper margin erosion than prior forecasts.
In light of these concerns, the firm is lowering their CY06 non-GAAP EPS estimate from $0.90 to $0.82 on revenue from $222.5MM to $212.3MM. CY07 EPS estimate is lowered from $1.15 to $1.00 on revenue from $300.8MM to $267.5MM. Lowering 12-month price target from $29 to $20, based on 20x CY07 EPS estimate of $1.00. Maintains Mkt Perform rating.
Notablecall: While I don't have a strong feel for the call or the stock I'll be keeping an eye on it. The target change is way too severe to be ignored.
- Piper Jaffray highlights Adobe Systems (NASDAQ:ADBE) and Apple Computer (NASDAQ:AAPL) as their top large cap picks for 2006.
For AAPL they believe there are two primary catalysts for shares in 2H06: 1) increasing Mac market share with the transition to Intel nearly complete, and 2) release of iPods with new features/higher capacity. Sentiment on AAPL shares is mixed given iPod shipments for the June quarter are likely to be lower than originally expected. Firm believes investors and analysts are generally starting to anticipate a lower iPod number and, therefore, the results should not be a surprise.
For ADBE there are two clearly identifiable catalysts coming in the next 2-3 quarters. Acrobat 8 (Intelligent Documents segment is 30% of business) is expected to ship this fall (likely September) and CS3 (the fully integrated Adobe/Macromedia suite) is expected to ship in spring-07; CS will have an impact on about 40% of the business. ADBE shares have had P/E multiples in the 35x-40x NTM EPS range in the 3-6 months prior to major product cycles over the last 7 years.
Investors generally believe the Q3-Q4 revenue ramp may still be aggressive. Firm believes downside is limited because even if Adobe guides down for Q4, it will be right in front of the Acrobat 8 shipment and they believe many investors are on the sidelines waiting for the perfect entry point.
Notablecalls: Not actionable but good to know category
Notablecalls - paperstand
According to the Wall Street Journals “Heard on the Street” column some investors think it is a good time to scoop up shares of midsize telecom co’s that took a pounding in recent weeks. Those include Global Crossing (GLBC), Level 3 (LVLT) and Broadwing (BWNG). "It's mass hysteria; they're all saying: 'I don't want to be the last one out.' " said Andrew Hamerling, of XI Asset Mgmt. Mr. Hamerling said many of his hedge-fund peers are fleeing, but he is buying. "It's an incredible buying opportunity, even though I'm getting killed right now," he said.
Notablecalls: Not actionable for traders, but good to know for investors.
According to the WSJ, 4Kids (KDE) is trying to create another trading-card sensation for the 7- to 12-yo crowd. 4Kids, along with partners Apex Marketing and Draco, are expected to announce the launch of Chaotic, a game in which players use trading cards to battle each other. But in this case, the physical cards can also be transformed into online digital versions that create more variations on the game.
Notablecalls: May sound like BS, but at a time so did Pokemon and Yu-Gi-Oh.
Barron’s Online reports that several insiders are buying up shares of Restoration Hardware (RSTO). Altogether, Glenhill Capital, Restoration CEO Gary Friedman and director Damon Ball recently plunked down $7.4m to buy 1.1m shares in the open mkt.
Notablecalls: Not actionable for traders, but good to know for investors.
According to the WSJ, 4Kids (KDE) is trying to create another trading-card sensation for the 7- to 12-yo crowd. 4Kids, along with partners Apex Marketing and Draco, are expected to announce the launch of Chaotic, a game in which players use trading cards to battle each other. But in this case, the physical cards can also be transformed into online digital versions that create more variations on the game.
Notablecalls: May sound like BS, but at a time so did Pokemon and Yu-Gi-Oh.
Barron’s Online reports that several insiders are buying up shares of Restoration Hardware (RSTO). Altogether, Glenhill Capital, Restoration CEO Gary Friedman and director Damon Ball recently plunked down $7.4m to buy 1.1m shares in the open mkt.
Monday, June 19, 2006
Calls of Note Part 6
- Sandler O'Neill & Partners is upping their ests on Chicago Mercantile Exchange(NYSE:CME) above consensus based on the high level of volume experienced in June month-to-date. Raising 2006 and 2007 EPS estimates by $0.34 to $11.53 and $14.48. 2Q06 estimate, in particular, has been raised to $3.00 from $2.89. The current consensus is $2.94. Growth in equity products shows diversity of the CME model. Equity e-mini and equity standard contracts are growing more rapidly than overall volumes, up 56.9% and 120.7%, respectively, they believe due to the record volatility in the equity markets.
Notablecalls: This sure looks like an actionable call!
Notablecalls: This sure looks like an actionable call!
Calls of Note Part 5
- Banc of America believes that connector demand remains solid in most end markets and are at least within expectations. While raw material costs continue to provide a headwind in C2Q06, they believe the cost environment is more or less in line with Amphenol (NYSE:APH) and Molex (NYSE:MOLX)'s expectations, while price increases and the recent reversal of commodity price trends may also help. In their opinion, the recent sell-off provides an attractive buying opportunity for both APH and MOLX.
PH and MOLX trade at 18x and 20x 12-month forward P/E (pre-options), compared to post-bubble average of 19x and 22x. Historically, APH trades at 15-25x 12-month forward P/E, with an upward bias recently, and MOLX at 20-25x. We believe recent share sell-off makes valuation more attractive for both stocks.
Notablecalls: Not actionable but good to know category
PH and MOLX trade at 18x and 20x 12-month forward P/E (pre-options), compared to post-bubble average of 19x and 22x. Historically, APH trades at 15-25x 12-month forward P/E, with an upward bias recently, and MOLX at 20-25x. We believe recent share sell-off makes valuation more attractive for both stocks.
Notablecalls: Not actionable but good to know category
- Banc of America notes that over the last several weeks, they surveyed 130 Red Hat (NASDAQ:RHAT) partners across all geographies. Firm's goal with this survey is not to try to 'call' the quarter, but rather to help investors get a better sense of the trends around Red Hat's business. While some of RHAT's larger OEM's, a driver of substantial rev, did not participate, they believe this survey still provides a solid snapshot of some of the trends impacting RHAT's business.
Overall, partners remain upbeat and expect their Red Hat biz to grow by +31%, on average in CY06, compared to firm's current CY06 revenue growth estimate of 35%. Pricing pressure from customers was cited as the greatest risk to Red Hat's revenue stream by 35% of the partners, and more than 50% of the partners felt that pricing for RHEL either had to come down or that it would face some pressure from customers down the line.
While Red Hat's partners seem to confirm the company's noteworthy growth opportunity in the core biz in '06, the firm would have liked to see an indication that the biz is accelerating above their forecasts, which is what they believe may be necessary to break the stock out of its current trading range ($25-30). Maintains Neutral.
Notablecalls: RHAT may see some pressure following the call as most investors expect the biz the be accelerating above analyst forecasts. With the shares trading 68x FY06 and 48x FY07 EPS estimate, expect to see some sellers.
Overall, partners remain upbeat and expect their Red Hat biz to grow by +31%, on average in CY06, compared to firm's current CY06 revenue growth estimate of 35%. Pricing pressure from customers was cited as the greatest risk to Red Hat's revenue stream by 35% of the partners, and more than 50% of the partners felt that pricing for RHEL either had to come down or that it would face some pressure from customers down the line.
While Red Hat's partners seem to confirm the company's noteworthy growth opportunity in the core biz in '06, the firm would have liked to see an indication that the biz is accelerating above their forecasts, which is what they believe may be necessary to break the stock out of its current trading range ($25-30). Maintains Neutral.
Notablecalls: RHAT may see some pressure following the call as most investors expect the biz the be accelerating above analyst forecasts. With the shares trading 68x FY06 and 48x FY07 EPS estimate, expect to see some sellers.
Calls of Note Part 4
- JP Morgan comments on Motorola (NYSE:MOT) saying that heading into the end of Q2, they believe MOT's handset volume remains strong in spite of the recent concern from Asian component suppliers, while the Networks business appears poised to bounce back in Q2,
RAZR demand looks strong. LG attributed a Q2 shortfall to competition in the US from the CDMA RAZR while we have learned that Samsung should also finish below plan this qtr also due to MOT's CDMA RAZR.
MOT has already sold out of its '06 CDMA RAZR run and component vendors with heavy RAZR exposure such as Foxconn, Knowles, and Silitech, appear very positive heading into 2H'06. We expect robust RAZR demand to be fueled by compelling prices as they est. GSM RAZR ASP is currently at $150/phone falling below $100 by Yearend.
Margin appears on track for a YE turnaround. MOT's impressive 21% share in China in May, up 830 bps over the last 6 months and Q1 India shipments which exceeded total FY'05 shipments show that emerging market investment is starting to pay off. At $20.08, ex. $4.75/share in net cash and investments, MOT trades at 10.4x firm's $1.48 FY'07E EPS est. (ex. options expense).
Notablecalls: Not actionable but good to know category.
- CIBC comments on Potash Corp (NYSE:POT) noting that with only two weeks remaining in 2Q06 and still no settlement to the Chinese and Indian potash contract, they believe there is little chance that potash sales to either destination will be counted for this quarter. As such, they have lowered their 2Q06 potash sales estimates from 2.36 million tonnes to 1.86 million tonnes and increased operating cost per tonne to ($70/t). Firm is still assuming a realized potash price of $152/t. 2Q06 EPS estimate is now at $1.03, below company guidance of $1.25 to $1.50 per share (which was based on $C/$US exchange rate of $0.87).
Notablecalls: I expect POT shares to trade down today.
RAZR demand looks strong. LG attributed a Q2 shortfall to competition in the US from the CDMA RAZR while we have learned that Samsung should also finish below plan this qtr also due to MOT's CDMA RAZR.
MOT has already sold out of its '06 CDMA RAZR run and component vendors with heavy RAZR exposure such as Foxconn, Knowles, and Silitech, appear very positive heading into 2H'06. We expect robust RAZR demand to be fueled by compelling prices as they est. GSM RAZR ASP is currently at $150/phone falling below $100 by Yearend.
Margin appears on track for a YE turnaround. MOT's impressive 21% share in China in May, up 830 bps over the last 6 months and Q1 India shipments which exceeded total FY'05 shipments show that emerging market investment is starting to pay off. At $20.08, ex. $4.75/share in net cash and investments, MOT trades at 10.4x firm's $1.48 FY'07E EPS est. (ex. options expense).
Notablecalls: Not actionable but good to know category.
- CIBC comments on Potash Corp (NYSE:POT) noting that with only two weeks remaining in 2Q06 and still no settlement to the Chinese and Indian potash contract, they believe there is little chance that potash sales to either destination will be counted for this quarter. As such, they have lowered their 2Q06 potash sales estimates from 2.36 million tonnes to 1.86 million tonnes and increased operating cost per tonne to ($70/t). Firm is still assuming a realized potash price of $152/t. 2Q06 EPS estimate is now at $1.03, below company guidance of $1.25 to $1.50 per share (which was based on $C/$US exchange rate of $0.87).
Notablecalls: I expect POT shares to trade down today.
Calls of Note Part 3
- Bear Stearns notes the Internet visitor traffic to the xmradio.com website peaked about a week ago at significantly higher than average levels, likely suggesting a spurt in interest in XM prior to Father's Day. Sirius' traffic was within the usual range, as expected, as the Dads-'n-Grads demand is generally skewed towards XM.
The firm recently completed a second round of channel checks at various Best Buy and Circuit City stores. Despite the stoppage in receiver shipments, they did not find any radio in short supply likely due to significantly muted demand. They recently reduced net adds estimate to 395k from 450k (and from 650k originally) based on channel checks.
Given the increase in traffic (which they had anticipated) and the fact that XM Satellite Radio (NASDAQ:XMSR) has restarted radio shipments, the firm thinks the company likely should be able to meet the expectations. Maintains Underperform.
Notablecalls: I highlighted Bear's net adds cut couple of weeks ago. The shares haven't done much since then and with the firm now sounding a bit positive, plus competitor Sirius (SIRI) getting a positive mention from NY Post this morning I'd not be surprised to see some upside.
- Bear Stearns is reducing their FY06 ReSTOR sales projection to $112M from $128M; they are also increasing 06 Lens Care sales expectations by $43M to $386M to reflect the potential benefit from the BOL ReNu related issues. The impact of the ReSTOR adjustment on 06 EPS projection is -$0.03 but this is offset by the roughly +$0.03 to +$0.04 benefit from the increase in Lens Care sales.
Firm received 17 responses from the 130 surveys they sent out to Alcon surgeons. The feedback suggests that over the next 12 months, surgeons will increase utilization of AMO's ReZoom and decrease use of ACL's ReSTOR - this is consistent with the feedback from the last 20 surgeons they spoke to.
They continue to believe ACL shares will remain range bound until there is positive news on Vigamox and Travatan Japan approvals. Maintains Peer Perform.
Notablecalls: ReSTOR is ACL's most critical growth driver but the performance of the IOL has been lagging expectations for a while. At present, the call belongs to the Not Actionable but good know category. But that may change soon.
- First Albany reiterate Strong Buy rating on Hythiam (NASDAQ:HYTM) shares ahead of two important industry conferences scheduled this week. Together, these conferences, they believe, represent an attractive platform for Hythiam to continue to advance awareness of its unique Prometa addiction treatment protocols to both commercial and government payers.
Valuation: Firm forecasts that the company will generate diluted, fully taxed earnings of $1.00
per share in 2010. Applying a 30x multiple to this yields a share price of $30 at that time. Discounting back four years using a 25% risk factor yields a price objective of approximately $12.50 in 2006. $12.50 price objective represents significant share price appreciation from current levels near $7, resulting in Strong Buy rating. However, HYTM shares should be considered speculative, and the firm therefore recommends the shares only for longer-term investors with above-average risk tolerance.
Notablecalls: Not actionable but good to know category.
The firm recently completed a second round of channel checks at various Best Buy and Circuit City stores. Despite the stoppage in receiver shipments, they did not find any radio in short supply likely due to significantly muted demand. They recently reduced net adds estimate to 395k from 450k (and from 650k originally) based on channel checks.
Given the increase in traffic (which they had anticipated) and the fact that XM Satellite Radio (NASDAQ:XMSR) has restarted radio shipments, the firm thinks the company likely should be able to meet the expectations. Maintains Underperform.
Notablecalls: I highlighted Bear's net adds cut couple of weeks ago. The shares haven't done much since then and with the firm now sounding a bit positive, plus competitor Sirius (SIRI) getting a positive mention from NY Post this morning I'd not be surprised to see some upside.
- Bear Stearns is reducing their FY06 ReSTOR sales projection to $112M from $128M; they are also increasing 06 Lens Care sales expectations by $43M to $386M to reflect the potential benefit from the BOL ReNu related issues. The impact of the ReSTOR adjustment on 06 EPS projection is -$0.03 but this is offset by the roughly +$0.03 to +$0.04 benefit from the increase in Lens Care sales.
Firm received 17 responses from the 130 surveys they sent out to Alcon surgeons. The feedback suggests that over the next 12 months, surgeons will increase utilization of AMO's ReZoom and decrease use of ACL's ReSTOR - this is consistent with the feedback from the last 20 surgeons they spoke to.
They continue to believe ACL shares will remain range bound until there is positive news on Vigamox and Travatan Japan approvals. Maintains Peer Perform.
Notablecalls: ReSTOR is ACL's most critical growth driver but the performance of the IOL has been lagging expectations for a while. At present, the call belongs to the Not Actionable but good know category. But that may change soon.
- First Albany reiterate Strong Buy rating on Hythiam (NASDAQ:HYTM) shares ahead of two important industry conferences scheduled this week. Together, these conferences, they believe, represent an attractive platform for Hythiam to continue to advance awareness of its unique Prometa addiction treatment protocols to both commercial and government payers.
Valuation: Firm forecasts that the company will generate diluted, fully taxed earnings of $1.00
per share in 2010. Applying a 30x multiple to this yields a share price of $30 at that time. Discounting back four years using a 25% risk factor yields a price objective of approximately $12.50 in 2006. $12.50 price objective represents significant share price appreciation from current levels near $7, resulting in Strong Buy rating. However, HYTM shares should be considered speculative, and the firm therefore recommends the shares only for longer-term investors with above-average risk tolerance.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 2
- Thomas Weisel Partners is defending NII Holdings (NASDAQ:NIHD) saying they believe that the recent sell-off has made the co even more attractive, as the shares are trading at historically low levels. Most important, they believe that operational trends at the company are strong and that upcoming events could be positive catalysts for the shares. NIHD trades at 12.8x and 8.4x our 2006 and 2007 EBITDA estimates. The shares currently trade at a relative free cash flow multiple of 17.1x 2007E and 10.5x 2008E with an estimated growth rate of 63% in 2008.
Network expansion, compelling new products and differentiated customer service continue to drive subscriber and margin growth for NII Holdings as the company increases penetration of its markets and share of wallet among current customers. Firm remain confident that management is focused on regional expansion with disciplined, profitable growth in each of the regions. They believe that management, at the company's next earnings results conference call in late July, may raise 2006 net additions guidance to be in line with or slightly ahead of TWP's 875K estimate. Sees fair value around $80 and reits Outperform.
Notablecalls: The shares are already up 10%+ from the recent bottom but I would not be surprised to see another strong day.
- Goldman expect Bed Bath & Beyond (NASDAQ:BBBY) to set itself apart from the pack with at least 3%-5% comps driving potential EPS upside to current consensus. Firm's proprietary Retail Forward data shows no change in trends from last qtr when BBBY reported +6% comp, this coupled with an easier two-year comparison makes them comfortable with their penny high consensus of $0.36 vs. $0.31 ly (stock option adj) based on a +4% comp. Firm believes a solid EPS release should reverse recent overly negative sentiment surrounding the stock and drive a relief rally in the shares.
Selling at a modest 16.5x and an even cheaper 15.5x on a cash adjusted basis (ex $3.72 per share in cash on the balance sheet) despite its healthy 16% stock option adjusted EPS growth rate, they believe BBBY's stock has been hit too hard.
Notablecalls: Sure looks like the guys at Goldman are couple of days late with their call.
- Bear Stearns comments on Disney (NYSE:DIS) noting that in its second weekend, Disney/Pixar's film "Cars " generated U.S. box office receipts of about $31.2 million. Although this was good for the No. 1 spot, this represented a 47% decline from the first weekend. According to the firm, this represents a greater than usualdrop off for a Pixar film. In the past, Pixar films have show on average a 37% drop in box office in its second weekend vs. the first weekend.
"Cars " has now cumed $114.5 million domestically, pacing below Pixar's last few films including "The Incredibles, " "Finding Nemo, " "Monsters, Inc. " and "Toy Story 2, " even before factoring in ticket price inflation.
Views the slow start for "Cars " as a reason for concern, particularly so soon on the heels of Disney's $7.4 billion acquisition of Pixar. They also see this as another confirmation of our thesis that demand for CG animation is now well past its peak. As a result, they maintain Peer Perform rating on Disney.
Notablecalls: I'm surely going to watch DIS today for topping signs after a nice bounce that closed the June 12 gap.
Network expansion, compelling new products and differentiated customer service continue to drive subscriber and margin growth for NII Holdings as the company increases penetration of its markets and share of wallet among current customers. Firm remain confident that management is focused on regional expansion with disciplined, profitable growth in each of the regions. They believe that management, at the company's next earnings results conference call in late July, may raise 2006 net additions guidance to be in line with or slightly ahead of TWP's 875K estimate. Sees fair value around $80 and reits Outperform.
Notablecalls: The shares are already up 10%+ from the recent bottom but I would not be surprised to see another strong day.
- Goldman expect Bed Bath & Beyond (NASDAQ:BBBY) to set itself apart from the pack with at least 3%-5% comps driving potential EPS upside to current consensus. Firm's proprietary Retail Forward data shows no change in trends from last qtr when BBBY reported +6% comp, this coupled with an easier two-year comparison makes them comfortable with their penny high consensus of $0.36 vs. $0.31 ly (stock option adj) based on a +4% comp. Firm believes a solid EPS release should reverse recent overly negative sentiment surrounding the stock and drive a relief rally in the shares.
Selling at a modest 16.5x and an even cheaper 15.5x on a cash adjusted basis (ex $3.72 per share in cash on the balance sheet) despite its healthy 16% stock option adjusted EPS growth rate, they believe BBBY's stock has been hit too hard.
Notablecalls: Sure looks like the guys at Goldman are couple of days late with their call.
- Bear Stearns comments on Disney (NYSE:DIS) noting that in its second weekend, Disney/Pixar's film "Cars " generated U.S. box office receipts of about $31.2 million. Although this was good for the No. 1 spot, this represented a 47% decline from the first weekend. According to the firm, this represents a greater than usualdrop off for a Pixar film. In the past, Pixar films have show on average a 37% drop in box office in its second weekend vs. the first weekend.
"Cars " has now cumed $114.5 million domestically, pacing below Pixar's last few films including "The Incredibles, " "Finding Nemo, " "Monsters, Inc. " and "Toy Story 2, " even before factoring in ticket price inflation.
Views the slow start for "Cars " as a reason for concern, particularly so soon on the heels of Disney's $7.4 billion acquisition of Pixar. They also see this as another confirmation of our thesis that demand for CG animation is now well past its peak. As a result, they maintain Peer Perform rating on Disney.
Notablecalls: I'm surely going to watch DIS today for topping signs after a nice bounce that closed the June 12 gap.
Calls of Note Part 1
- Merrill Lynch comments on Martek Biosci (NASDAQ:MATK) following Friday's long-term supply contract with General Mills (GIS), which sent the stock up more than 10%. According to the firm, this type of deal was widely expected, so they would SELL into the strength because 1) there are no minimum purchase requirements so the value is still uncertain & likely less than the Street estimates, 2) scope of product launches will likely be limited at first, and 3) firm maintains their thesis that as a % of total volume sales, DHA fortified foods are unlikely to exceed 5-10% of product volumes, limiting Martek's revenue opportunity.
They believe that yogurt is the likely target product for GIS' use of DHA. GIS is the 2nd leading brand for yogurt, which includes the Yoplait and Columbo brands, with retail sales of about $1 BB, based on IRI data. Based on an analysis of GIS yogurt volume sales, and an estimated bulk price for Martek's DHA, they estimate that the realistic max revenue opportunity from this contract is about $25-30 MM. But, assuming an '07 product launch, they estimate that GIS could contribute $5-10 MM in revenue by '10.
Notablecalls: Gotta respect the Merrill call. These guys switched to Sell in September 05 when the stock was considerably higher. On the other hand, short interest stands at 25% of float. Never short these stocks or you'll have the tire marks on your back to show for it. It's only good for a quick short scalp if we get a tier-2 or lower firm upgrade the shares this morning.
- Jefferies & Co is positive on SiRF Tech. Hldngs (NASDAQ:SIRF) recommending investors take advantage of the recent sell-off in the tech market to build positions in SiRF as they expect continued design win momentum, as well as increasing GPS adoption rates across a broad range of consumer devices, to drive significant revenue growth and profitability through 2006 and 2007.
Firm thinks that talk of competition will likely continue, yet they believe SiRF has some answers - 1) Bluetooth and 2) integration. They believe SiRF will sample its integrated Bluetooth/GPS solution in Q3 with shipments starting in Q4. Believes this provides a significant advantage over its competitors as pricing continues to be a driving factor. SiRF's solution will provide it with a $2 ASP boost (roughly $10 for GPS discrete + $5 for standalone BT = $12 for integrated solution), and more importantly, continue to further its technology leadership. Reits Buy and $42 tgt.
Notablecalls: Jeffco doesn't have the following to move SIRF but the overall price action points towards additional gains.
- JP Morgan comments on Intel (NASDAQ:INTC) and AMD (NYSE:AMD) after spending the last week in Asia with their Asia Technology Research Team visiting several companies to assess PC and overall semiconductor supply chain health. Every PC food chain company the firm met with is experiencing lower than expected demand, with hopes for stronger demand in the back half of the year.
Firm's checks indicate Intel recently cut price on most of its microprocessors by up to 50-60%, and generated no elasticity in demand. In fact, several companies reported additional downside after the Intel price cuts. AMD also appears to be cutting price to keep up with Intel. The push-outs and cancellations were across the board for notebooks and desktops, with every major PC OEM cutting orders - Dell, HP, Acer and others.
Intel appears to be poised to re-gain market share versus AMD on the desktop front, as every PC food chain company they met with agreed Intel's upcoming Conroe desktop processor is ahead of AMD's desktop processor in both performance and power consumption. It appears AMD might still have an advantage in servers, especially in four-way servers.
Due to the poor demand and price cuts, they are lowering estimates on Intel and AMD. Firm remains cautious on semiconductor stocks due to the demand problem, especially since the push-outs and cancellations haven't been felt by the US semiconductor companies yet.
Notablecalls: Not actionable but good to know category. So why am I highlighting the call? It's because UBS upgraded INTC to Buy from Neutral this morning.
They believe that yogurt is the likely target product for GIS' use of DHA. GIS is the 2nd leading brand for yogurt, which includes the Yoplait and Columbo brands, with retail sales of about $1 BB, based on IRI data. Based on an analysis of GIS yogurt volume sales, and an estimated bulk price for Martek's DHA, they estimate that the realistic max revenue opportunity from this contract is about $25-30 MM. But, assuming an '07 product launch, they estimate that GIS could contribute $5-10 MM in revenue by '10.
Notablecalls: Gotta respect the Merrill call. These guys switched to Sell in September 05 when the stock was considerably higher. On the other hand, short interest stands at 25% of float. Never short these stocks or you'll have the tire marks on your back to show for it. It's only good for a quick short scalp if we get a tier-2 or lower firm upgrade the shares this morning.
- Jefferies & Co is positive on SiRF Tech. Hldngs (NASDAQ:SIRF) recommending investors take advantage of the recent sell-off in the tech market to build positions in SiRF as they expect continued design win momentum, as well as increasing GPS adoption rates across a broad range of consumer devices, to drive significant revenue growth and profitability through 2006 and 2007.
Firm thinks that talk of competition will likely continue, yet they believe SiRF has some answers - 1) Bluetooth and 2) integration. They believe SiRF will sample its integrated Bluetooth/GPS solution in Q3 with shipments starting in Q4. Believes this provides a significant advantage over its competitors as pricing continues to be a driving factor. SiRF's solution will provide it with a $2 ASP boost (roughly $10 for GPS discrete + $5 for standalone BT = $12 for integrated solution), and more importantly, continue to further its technology leadership. Reits Buy and $42 tgt.
Notablecalls: Jeffco doesn't have the following to move SIRF but the overall price action points towards additional gains.
- JP Morgan comments on Intel (NASDAQ:INTC) and AMD (NYSE:AMD) after spending the last week in Asia with their Asia Technology Research Team visiting several companies to assess PC and overall semiconductor supply chain health. Every PC food chain company the firm met with is experiencing lower than expected demand, with hopes for stronger demand in the back half of the year.
Firm's checks indicate Intel recently cut price on most of its microprocessors by up to 50-60%, and generated no elasticity in demand. In fact, several companies reported additional downside after the Intel price cuts. AMD also appears to be cutting price to keep up with Intel. The push-outs and cancellations were across the board for notebooks and desktops, with every major PC OEM cutting orders - Dell, HP, Acer and others.
Intel appears to be poised to re-gain market share versus AMD on the desktop front, as every PC food chain company they met with agreed Intel's upcoming Conroe desktop processor is ahead of AMD's desktop processor in both performance and power consumption. It appears AMD might still have an advantage in servers, especially in four-way servers.
Due to the poor demand and price cuts, they are lowering estimates on Intel and AMD. Firm remains cautious on semiconductor stocks due to the demand problem, especially since the push-outs and cancellations haven't been felt by the US semiconductor companies yet.
Notablecalls: Not actionable but good to know category. So why am I highlighting the call? It's because UBS upgraded INTC to Buy from Neutral this morning.
Notablecalls - paperstand
According to The Wall Street Journal, Nokia (NOK) and Siemens (SI) agreed to combine their phone-equipment units into a joint venture with assets valued at about $30bn. Both co’s would contribute their network-equipment operations to the new venture, in which each would get a 50% stake.
Notablecalls: The deal comes just days after Nokia's new CEO, Olli-Pekka Kallasvuo,
took the co's helm. So, if you are an Nokia investor, it pays to keep eyes open for new CEO actions. Sometimes big M&A deals do not pay off. One long-term Nokia follower thinks that if joint venture succeeds, Nokia and Siemens will bring it public.
According to The WSJs “Heard on the Street” column Pearson’s (PSO) shares haven't kept pace with its recent improvements. Some big shareholders are pushing the co's mgmt to be more aggressive, which could give additional sizzle to the stock. Patrick Wellington, of Morgan Stanley, has proposed a "radical scenario" of share buybacks, increased debt and asset sales, which he calculates could increase earnings 51% in ’08.
The NY Times discusses video game industry, highlighting all recent concerns. "There are more industry concerns than ever, and that's what you're seeing in the stock prices," said Justin Post, of Merrill Lynch. And yet, underscoring the complexities of assessing the industry, Mr. Post has a Buy rating on shares of Electronic Arts (ERTS) and Activision (ATVI). Like many stock analysts, he argues that given long-term trends, the game business is destined to boom, and that the only question is when.
The NY Post discusses Napster (NAPS) positively. The piece highlights insider buying (and no selling), Google (GOOG) acquisition rumor and large cash position (and no debt). Anthony Marchese, of Monarch Capital Group, expects the stock to more than double in case of an acquisition. Barbara Coffey, of Kaufman, is also very bullish, she has a $5 tgt. She points to Napster's brand recognition and its new ad-supported site and expects revs to rise sharply over the coming years.
Notablecalls: Expect to see a minor pop in NAPS in pre market trading.
Notablecalls: The deal comes just days after Nokia's new CEO, Olli-Pekka Kallasvuo,
took the co's helm. So, if you are an Nokia investor, it pays to keep eyes open for new CEO actions. Sometimes big M&A deals do not pay off. One long-term Nokia follower thinks that if joint venture succeeds, Nokia and Siemens will bring it public.
According to The WSJs “Heard on the Street” column Pearson’s (PSO) shares haven't kept pace with its recent improvements. Some big shareholders are pushing the co's mgmt to be more aggressive, which could give additional sizzle to the stock. Patrick Wellington, of Morgan Stanley, has proposed a "radical scenario" of share buybacks, increased debt and asset sales, which he calculates could increase earnings 51% in ’08.
The NY Times discusses video game industry, highlighting all recent concerns. "There are more industry concerns than ever, and that's what you're seeing in the stock prices," said Justin Post, of Merrill Lynch. And yet, underscoring the complexities of assessing the industry, Mr. Post has a Buy rating on shares of Electronic Arts (ERTS) and Activision (ATVI). Like many stock analysts, he argues that given long-term trends, the game business is destined to boom, and that the only question is when.
The NY Post discusses Napster (NAPS) positively. The piece highlights insider buying (and no selling), Google (GOOG) acquisition rumor and large cash position (and no debt). Anthony Marchese, of Monarch Capital Group, expects the stock to more than double in case of an acquisition. Barbara Coffey, of Kaufman, is also very bullish, she has a $5 tgt. She points to Napster's brand recognition and its new ad-supported site and expects revs to rise sharply over the coming years.
Notablecalls: Expect to see a minor pop in NAPS in pre market trading.
Sunday, June 18, 2006
Notablecalls – Paperstand – Barron’s
Capital One (COF) highlighted, with Barron’s saying that based on its track record and 1Q results, the co could well succeed as a bank. If so, the shares could rise more than 50% over 5 years.
Notablecalls: COF chart looks good. In case the stock will not gap up more than 20c I see some additional gains over the day.
According to the Barron’s CVRD (RIO) and Rio Tinto (RTP), both of which are nicely diversified, look like good bets. Bulls think the ADRs of each co could rise by about 40% over the next 12 months.
Barron’s highlights small cap stocks that are trading at ridiculous P/E multiples. At the top of the list is DiamondCluster (DTPI) with P/E of 909. Others on that list include ALKS, LFB, AAI, SPRT, TASR, FALC, POZN, BYI, LTRE, TRC, AMKR, PMACA, WPP, CNXT, TUNE, CYCL, UTEK, IFOX and NP. According to the article, all the academic work shows that high P/E valuations, over time, do poorly.
Notablecalls: Barron’s moves small cal stocks. DTPI likely to get hit.
Barron’ “The Trader” column suggests that NetRatings (NTRT) majority owner may buy rest of the co. NetRatings is 62%-owned by VNU of The Netherlands, which itself was recently acquired by private-equity firms. According to the article, NetRatings' shareholder list is heavy with smart-money hedge funds with concentrated positions. They aren't likely to allow the co to be taken out on the cheap.
Notablecalls: NTRT will likely gap up on the news but one must remember the takeover chatter surrounding the name has been there for several years already. See it as a shorting oppy if the gap is closer to 10%.
Barron’s suggests that some China stocks may bounce back in the near term. Those include Ctrip.com (CTRP) and TOM Online (TOMO).
Notablecalls: COF chart looks good. In case the stock will not gap up more than 20c I see some additional gains over the day.
According to the Barron’s CVRD (RIO) and Rio Tinto (RTP), both of which are nicely diversified, look like good bets. Bulls think the ADRs of each co could rise by about 40% over the next 12 months.
Barron’s highlights small cap stocks that are trading at ridiculous P/E multiples. At the top of the list is DiamondCluster (DTPI) with P/E of 909. Others on that list include ALKS, LFB, AAI, SPRT, TASR, FALC, POZN, BYI, LTRE, TRC, AMKR, PMACA, WPP, CNXT, TUNE, CYCL, UTEK, IFOX and NP. According to the article, all the academic work shows that high P/E valuations, over time, do poorly.
Notablecalls: Barron’s moves small cal stocks. DTPI likely to get hit.
Barron’ “The Trader” column suggests that NetRatings (NTRT) majority owner may buy rest of the co. NetRatings is 62%-owned by VNU of The Netherlands, which itself was recently acquired by private-equity firms. According to the article, NetRatings' shareholder list is heavy with smart-money hedge funds with concentrated positions. They aren't likely to allow the co to be taken out on the cheap.
Notablecalls: NTRT will likely gap up on the news but one must remember the takeover chatter surrounding the name has been there for several years already. See it as a shorting oppy if the gap is closer to 10%.
Barron’s suggests that some China stocks may bounce back in the near term. Those include Ctrip.com (CTRP) and TOM Online (TOMO).
Thursday, June 15, 2006
Notablecalls - paperstand
The Wall Street Journals “Heard on the Street” column discusses NutriSystems (NTRI), whose stock is up 60% this year (over 1100% in ‘05). The co’s mkt cap is more than $2bn, trading 10x rev. According to the article, that makes for a pricey stock. NutriSystem is trading at more than 31x this year's estd earnings. That is well above the P/E ratio of 19 for slower-growing Weight Watchers Intl (WTW) and almost double the valuation of the avg stock in the S&P's 500. Even a modest disappointment could hammer the stock. At the same time, a corps of short-sellers is betting on a fall for the co's shares, and insiders have lightened their stakes over the past year. The upshot for investors is that the co's impressive growth could continue for some time, but it is all likely reflected in today's stock price. "It's a tough stock for some ppl because they feel like they've missed it and will look bad if they buy at the top," says Jason Schrotberger of Turner Investment Partners.
Notablecalls: Radioactive stocks, like NutriSystems, may react well on such articles.
Notablecalls: Radioactive stocks, like NutriSystems, may react well on such articles.
Wednesday, June 14, 2006
Notablecalls - analyst action
Thomas Weisel initates coverage of Allscripts (MDRX) with Outperform. The firm expects utilization of outpatient electronic medical record systems to grow as new technology replaces inefficient paper-based records.
SunTrust initiates Amedisys (AMED) with a Buy, target $46. The firm cites strong organic growth, meaningful acquisition opportunities, attractive geographic profile and solid near-term reimbursement outlook.
Unterberg Upgrades Diodes (DIOD) to Buy from Mkt Perform, target 45. The firm says that before year-end Diodes should benefit from integrated devices that incorporate analog ICs and discretes on the same package that will enable the co to pursue more proprietary sockets that are inherently more profitable.
SunTrust initiates Amedisys (AMED) with a Buy, target $46. The firm cites strong organic growth, meaningful acquisition opportunities, attractive geographic profile and solid near-term reimbursement outlook.
Unterberg Upgrades Diodes (DIOD) to Buy from Mkt Perform, target 45. The firm says that before year-end Diodes should benefit from integrated devices that incorporate analog ICs and discretes on the same package that will enable the co to pursue more proprietary sockets that are inherently more profitable.
Notablecalls paperstand
According to The Wall Street Journal “Heard on the Street” column Kroger (KR) isn't getting enough credit in its battle with Wal-Mart (WMT). While many mainstream supermkt chains struggle, Kroger has made strong gains. "If you're going to invest for growth in the supermkt sector, look to Kroger," says Burt Flickinger, managing director of Strategic Resource Group. "Nationally, Kroger is the one co investors can count on to deliver the volume," he says. "At the others, there's too much uncertainty." 10 of 18 industry analysts polled by Thomson Financial rate the stock a Buy or Strong Buy.
Notablecalls: While it sounds interesting, article hardly moves stock much. Mkt cap stands at 14.2bn.
The WSJ reports that The Bush administration, seeking to ratchet up pressure on Fannie Mae (FNM) and Freddie Mac (FRE) and propel legislation stalled on Capitol Hill, threatened to tighten control over the mortgage giants on its own and to ponder using its authority to limit their growth. In a move seen as a warning that the administration may act on its own if Congress doesn't, the Treasury said it will review the process it uses to approve requests by the mortgage co’s to issue debt. The administration is pressing Congress to alter the law to limit the size of the portfolios of mortgages and mortgage-backed securities that the two co’s hold.
Barron’s Online discusses Diageo (DEO), saying that despite runup the stock has more room to run. Even if the US economy declines in the coming year, Diageo's big brands should garner price increases, given the value of those names and the popularity of high-priced mixed drinks. Diageo also has international expansion potential, especially in China. Plus, the stock still looks cheap and it offers a decent dividend.
Notablecalls: No comments.
According to the Barron’s Online, top exec and directors (including CFO), have been pouring money into Mueller Water Products (MWA), even as shares of the co sink below the IPO price. On June 1, 17 insiders collectively purchased 114K class A shares for $1.8m at the IPO price.
Notablecalls: Sounds like mgmt believes in bright future.
The NY Post reports that Mark Cuban is getting into the investigative news business. The outspoken Internet entrepreneur is the sole backer of a new blog-style Web site dedicated to digging up financial fraud and corporate skullduggery. The new venture, founded by Christopher Carey, a gumshoe business reporter at the St. Louis Post-Dispatch, is set to debut next month. Carey, who is leaving the Post-Dispatch at the end of this week, will do most of the reporting for the site, sharesleuth.com.
Notablecalls: Good to know category.
Notablecalls: While it sounds interesting, article hardly moves stock much. Mkt cap stands at 14.2bn.
The WSJ reports that The Bush administration, seeking to ratchet up pressure on Fannie Mae (FNM) and Freddie Mac (FRE) and propel legislation stalled on Capitol Hill, threatened to tighten control over the mortgage giants on its own and to ponder using its authority to limit their growth. In a move seen as a warning that the administration may act on its own if Congress doesn't, the Treasury said it will review the process it uses to approve requests by the mortgage co’s to issue debt. The administration is pressing Congress to alter the law to limit the size of the portfolios of mortgages and mortgage-backed securities that the two co’s hold.
Barron’s Online discusses Diageo (DEO), saying that despite runup the stock has more room to run. Even if the US economy declines in the coming year, Diageo's big brands should garner price increases, given the value of those names and the popularity of high-priced mixed drinks. Diageo also has international expansion potential, especially in China. Plus, the stock still looks cheap and it offers a decent dividend.
Notablecalls: No comments.
According to the Barron’s Online, top exec and directors (including CFO), have been pouring money into Mueller Water Products (MWA), even as shares of the co sink below the IPO price. On June 1, 17 insiders collectively purchased 114K class A shares for $1.8m at the IPO price.
Notablecalls: Sounds like mgmt believes in bright future.
The NY Post reports that Mark Cuban is getting into the investigative news business. The outspoken Internet entrepreneur is the sole backer of a new blog-style Web site dedicated to digging up financial fraud and corporate skullduggery. The new venture, founded by Christopher Carey, a gumshoe business reporter at the St. Louis Post-Dispatch, is set to debut next month. Carey, who is leaving the Post-Dispatch at the end of this week, will do most of the reporting for the site, sharesleuth.com.
Notablecalls: Good to know category.
Tuesday, June 13, 2006
Interesting Call of The Day - Hartmarx (AMEX:HMX)
Brean Murray's Gary M. Giblen is defending Hartmarx (AMEX:HMX) saying the shares appear to be pricing in a large 2Q06 miss and 2006 guide-down, which they conclude is not going to happen. In this vein, the analogy to the shares of Jos. A. Bank (JOSB), which have plummeted 35% since the company's poor results on June 8, is erroneous, in their analysis. Firm believes investors should buy now given 1) their distinct sense of pent-up institutional demand for HMX shares once 2Q06 is out of the way, 2) 2Q06 reporting date is only about two weeks away, and 3) six months of proactive cautionary management outlook given for 1H06/3Q06, which clearly has already caused short-term investors to exit.
HMX is now a "single-digit midget," trading at 9.5x P/E on already recently trimmed 2Q06 and 2006 estimates, which still reflect 16% YoY earnings growth. HMX is at a 30-35% discount to book value adjusted for the approximate value of the Hickey Freeman and Hart Schaffner Marx brands, which are not on the balance sheet because they were the basis of the 1879 founding of the company rather than acquired.
Menswear, particularly tailored and upper end as is Hartmarx's predominant focus, has been generally reported as strong; e.g., Phillips-Van Heusen recently beat 1Q06 expectations and upped its annual outlook. Hartmarx's No. 1 and 2 customers, Dillard's (20% of sales) and Nordstrom (11%), have reported strong recent quarterly and monthly results, and in fact have cited menswear as a top-performing category.
If HMX traded at the median comparable forward PEG of 0.95x rather than the bottom of the group 0.60x, it would translate to a P/E 16x and be in line with firm's $12 target price.
Notablecalls: Looks like a valid call.
HMX is now a "single-digit midget," trading at 9.5x P/E on already recently trimmed 2Q06 and 2006 estimates, which still reflect 16% YoY earnings growth. HMX is at a 30-35% discount to book value adjusted for the approximate value of the Hickey Freeman and Hart Schaffner Marx brands, which are not on the balance sheet because they were the basis of the 1879 founding of the company rather than acquired.
Menswear, particularly tailored and upper end as is Hartmarx's predominant focus, has been generally reported as strong; e.g., Phillips-Van Heusen recently beat 1Q06 expectations and upped its annual outlook. Hartmarx's No. 1 and 2 customers, Dillard's (20% of sales) and Nordstrom (11%), have reported strong recent quarterly and monthly results, and in fact have cited menswear as a top-performing category.
If HMX traded at the median comparable forward PEG of 0.95x rather than the bottom of the group 0.60x, it would translate to a P/E 16x and be in line with firm's $12 target price.
Notablecalls: Looks like a valid call.
Bear Stearns comments on Jabil (NYSE:JBL)
Jabil Circuit (NYSE:JBL) warned late last night. So far, Bear Stearns has the best comments:
Firm calls the news a big surprise but thinks it's important to note that JBL's miss did not impact the top-line. In dollars this miss equates to ~$17M on the bottom line which is material, but certainly not enough to throw in the towel.
In firm's group, JBL stands out for its flawless execution and tight operational controls, so they were both shocked and chagrined to see its qtr impacted by "operational issues". Firm finds is concerning that while JBL's release states that it's optimistic about the future and that revs continue to show strong growth, why did it choose not to quantify this more given the qtr ended 2 weeks ago? They believe giving Aug qtr guidance would have gone a long way towards quantifying the future impact and that its omission implies that the "operational issues" could impact the Aug qtr. They are not changing ests yet, nor are they throwing in the towel. JBL looks off $1+ today making its valuation even more compelling. Maintains Outperform and $50 tgt.
Notablecalls: Buying JBL below $30 level will most likely work.
Firm calls the news a big surprise but thinks it's important to note that JBL's miss did not impact the top-line. In dollars this miss equates to ~$17M on the bottom line which is material, but certainly not enough to throw in the towel.
In firm's group, JBL stands out for its flawless execution and tight operational controls, so they were both shocked and chagrined to see its qtr impacted by "operational issues". Firm finds is concerning that while JBL's release states that it's optimistic about the future and that revs continue to show strong growth, why did it choose not to quantify this more given the qtr ended 2 weeks ago? They believe giving Aug qtr guidance would have gone a long way towards quantifying the future impact and that its omission implies that the "operational issues" could impact the Aug qtr. They are not changing ests yet, nor are they throwing in the towel. JBL looks off $1+ today making its valuation even more compelling. Maintains Outperform and $50 tgt.
Notablecalls: Buying JBL below $30 level will most likely work.
Calls of Note Part 3
- JP Morgan comments on KLA-Tencor (NASDAQ:KLAC) after the co yesterday morning raised its F3Q06 (June) bookings guidance to the upper end of its guidance range of up 10%, plus or minus 10% ($615-$740mn). The company said order trends in the quarter have been very strong, driven by DRAM and NAND capex. Foundry bookings have continued strong, but the company sees logic bookings being lighter in the June quarter. The comments were made at a competitor investment conference.
Firm is leaving their F3Q06 bookings forecast unchanged at $720mn (up 17%). Their above-consensus revenue and pro forma EPS estimates are unchanged as well. However, they believe this upward order guidance revision will cause consensus estimates to rise.
Believes KLAC shares are very cheap and recommends buying here. The company's price-to-tangible-book multiple is the lowest in 6 years at 2.4x, and the shares are trading at just 12.5x our C2006 pro forma EPS estimate of $3.15, below group average of 14.0x.
Notablecalls: Raising booking guidance is hardly a surprise considering what AMAT and NVLS have said. I think KLAC is worth a shot around May lows. Repeating the Semi bounce theme.
- Bear Stearns is reducing their Q2 subscriber ests for XM Satellite (NASDAQ:XMSR). Firm is projecting 280k gross adds in the retail channel, down ~30% YoY from an estimated 384k in 2Q06, primarily due to the anemic demand in April and May, and product delays and shortage thereafter. Estimates 395k net adds in the quarter, down from 450k previously. Thinks advertising spending during the quarter will be significantly lower also. For the full year, the firm islowering their ending sub base estimate to 8.3 mn, from 8.5 mn previously, as they think the shortage likely will continue into 3Q06.
Believes that the negative sentiment around the stock likely will continue in the near-to-mid term as the company resolves several issues, including FCC and FTC inquiries, product shortage, stakeholder lawsuits, and most importantly, lack of demand. Sees floor value of shares around $4-$5. Maintains Underperform.
Notablecalls: Bear has been dead right on XMSR and I believe the shares have more downside.
Firm is leaving their F3Q06 bookings forecast unchanged at $720mn (up 17%). Their above-consensus revenue and pro forma EPS estimates are unchanged as well. However, they believe this upward order guidance revision will cause consensus estimates to rise.
Believes KLAC shares are very cheap and recommends buying here. The company's price-to-tangible-book multiple is the lowest in 6 years at 2.4x, and the shares are trading at just 12.5x our C2006 pro forma EPS estimate of $3.15, below group average of 14.0x.
Notablecalls: Raising booking guidance is hardly a surprise considering what AMAT and NVLS have said. I think KLAC is worth a shot around May lows. Repeating the Semi bounce theme.
- Bear Stearns is reducing their Q2 subscriber ests for XM Satellite (NASDAQ:XMSR). Firm is projecting 280k gross adds in the retail channel, down ~30% YoY from an estimated 384k in 2Q06, primarily due to the anemic demand in April and May, and product delays and shortage thereafter. Estimates 395k net adds in the quarter, down from 450k previously. Thinks advertising spending during the quarter will be significantly lower also. For the full year, the firm islowering their ending sub base estimate to 8.3 mn, from 8.5 mn previously, as they think the shortage likely will continue into 3Q06.
Believes that the negative sentiment around the stock likely will continue in the near-to-mid term as the company resolves several issues, including FCC and FTC inquiries, product shortage, stakeholder lawsuits, and most importantly, lack of demand. Sees floor value of shares around $4-$5. Maintains Underperform.
Notablecalls: Bear has been dead right on XMSR and I believe the shares have more downside.
Calls of Note Part 2
- JP Morgan is cautious on Tiffany & Co (NYSE:TIF) noting that while they are seeing improving trends at TIF Japan, investors have been focused on a potential slowdown in the US and gross margin pressure from product mix and raw material prices. Firm believes investors have also begun to question the historical premium TIF received relative to its earnings growth rate. The operating margin recovery they forecast over the next two years (driven primarily by a recovery in Japan) is being overshadowed by the pressure on the multiple and EPS volatility around sales mix shifts. Expects the multiple to be constrained going forward.
Notablecalls: Not actionable but good to know category.
- Bear Stearns comments on Synaptics (NASDAQ:SYNA) after the co presented at the 17th Annual Bear Stearns Technology Conference. Management did not provide any financial update nor did they comment on on the status of its Apple relationship. However, firm's channel checks continue to indicate that SYNA has potentially won back some Apple iPod business, which could add significant upside to current ests/price target --i.e., potential Apple business could be worth $1 (at 10% win) to $8 (70%) using a lower 10x P/E, and using higher P/E on AAPL could lead to further upside. Maintains Outperform and $24 tgt.
Notablecalls: Not actionable but good to know category.
- CIBC notes their hannel checks suggest that Magellan Health (NASDAQ:MGLN) is in the final stages of signing an at-risk radiology contract with an existing ASO client in New York that has at least 800,000 commercial risk lives. Negotiations are complicated, and a delay is possible, but MGLN appears to be making a lot of progress. Once Magellan has finalized an at-risk contract, it will issue a press release.
Firm is raising their price target by $4, to $47 per share, based on the likelihood that Magellan announces an at-risk contract in the near-term, coupled with our higher cash flow assumptions following the company's first quarter results. Estimates the contract would add about $175 million in premiums (assuming $18 PMPM in revenue), and $8.7 million in EBITDA (using a 5% EBITDA margin), or about $0.12 per share.
Notablecalls: I suspect some of the news is already priced in here. Yet the chart is strong and may provide some more upside. One to watch.
- Citigroup is positive on Nike (NYSE:NKE) saying that although the stock has been sluggish over the last several months, they still believe this is a great investment over the long term. Based on current industry fundamentals and how Nike is positioned today, the firm thinks this stock should be trading at a much higher valuation and the downside risk is limited. Thinks Nike's current valuation of 14.5x year forward P/E, which is its lowest level in three years, gives investors the perfect opportunity to invest in the Nike name.
Currently, they estimate the company has $1.6 billion sitting on its balance sheet ($1.2 billion net cash). Nike already spends on average around $550 million in share repurchases a year (or about 2% of its shares outstanding) however, historically; this has been just enough to offset any options exercised during the year. Thinks it is highly likely over the next several months (possibly as soon as Nike announces its Q107 results in September 2006) that Nike management could announce another share repurchase program. There is a good possibility it could be much more generous program than in the past and Nike management has appeared to be hinting towards distributing more cash directly to shareholders by increasing its dividend significantly over the last few years (24% in 2005 and 25% in 2004).
Believes an aggressive share repurchase program announcement could be a catalyst the stock needs. Reits Buy.
Notablecalls: Not actionable but good to know category.
Notablecalls: Not actionable but good to know category.
- Bear Stearns comments on Synaptics (NASDAQ:SYNA) after the co presented at the 17th Annual Bear Stearns Technology Conference. Management did not provide any financial update nor did they comment on on the status of its Apple relationship. However, firm's channel checks continue to indicate that SYNA has potentially won back some Apple iPod business, which could add significant upside to current ests/price target --i.e., potential Apple business could be worth $1 (at 10% win) to $8 (70%) using a lower 10x P/E, and using higher P/E on AAPL could lead to further upside. Maintains Outperform and $24 tgt.
Notablecalls: Not actionable but good to know category.
- CIBC notes their hannel checks suggest that Magellan Health (NASDAQ:MGLN) is in the final stages of signing an at-risk radiology contract with an existing ASO client in New York that has at least 800,000 commercial risk lives. Negotiations are complicated, and a delay is possible, but MGLN appears to be making a lot of progress. Once Magellan has finalized an at-risk contract, it will issue a press release.
Firm is raising their price target by $4, to $47 per share, based on the likelihood that Magellan announces an at-risk contract in the near-term, coupled with our higher cash flow assumptions following the company's first quarter results. Estimates the contract would add about $175 million in premiums (assuming $18 PMPM in revenue), and $8.7 million in EBITDA (using a 5% EBITDA margin), or about $0.12 per share.
Notablecalls: I suspect some of the news is already priced in here. Yet the chart is strong and may provide some more upside. One to watch.
- Citigroup is positive on Nike (NYSE:NKE) saying that although the stock has been sluggish over the last several months, they still believe this is a great investment over the long term. Based on current industry fundamentals and how Nike is positioned today, the firm thinks this stock should be trading at a much higher valuation and the downside risk is limited. Thinks Nike's current valuation of 14.5x year forward P/E, which is its lowest level in three years, gives investors the perfect opportunity to invest in the Nike name.
Currently, they estimate the company has $1.6 billion sitting on its balance sheet ($1.2 billion net cash). Nike already spends on average around $550 million in share repurchases a year (or about 2% of its shares outstanding) however, historically; this has been just enough to offset any options exercised during the year. Thinks it is highly likely over the next several months (possibly as soon as Nike announces its Q107 results in September 2006) that Nike management could announce another share repurchase program. There is a good possibility it could be much more generous program than in the past and Nike management has appeared to be hinting towards distributing more cash directly to shareholders by increasing its dividend significantly over the last few years (24% in 2005 and 25% in 2004).
Believes an aggressive share repurchase program announcement could be a catalyst the stock needs. Reits Buy.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 1
- Raymond James is positive on Ultra Petroleum (AMEX:UPL) noting that with the recent correction in the energy sector the shares are down 32% from their 52-week high. In addition to consistently expanding proved reserves (for example, reserve replacement of 769% in 2005), Ultra continues to have one of the highest and most visible production growth rates in the industry. Firm is projecting 28% in 2006 and 23% in 2007 - all of it organic. Also, the company's reserve booking methodology is one of the most conservative in the industry, and its finding and development (F&D) costs continue to be among the lowest in the industry, if not the lowest.
Ultra continues to be one of the great E&P growth stories; it has what every E&P company dreams of: a massive asset base with developmental upside and a vast inventory of low-risk, high rate of return prospects. They believe that the best is yet to come and remain very bullish on the company's prospects. Based on proved plus probable (P2) reserves of 6.295 Tcfe, the stock is trading at only $1.22/Mcfe, far below the large-cap median of $2.19/Mcfe. Reiterates Strong Buy rating.
Notablecalls: A very powerful call from an excellent firm. If only the chart were better. This one looks to have couple of more pts of downside in it before it bounces.
- Piper comments on Amylin Pharmaceuticals (NASDAQ:AMLN) saying that based on their diligence at the ongoing American Diabetes Association (ADA) meeting, we have learned that, shortly after the ADA meeting concludes, the Byetta sales force will tell physicians to stop initiating Byetta in new patients as a precaution to prevent any potential cartridge supply constraint issues.
Piper believes that the current demand "problem" is a significant positive for long-term estimates, and would use any concerns near term over the company's attempts to stop new patient starts as a buying opportunity for AMLN, which remains one of their top picks. Maintains Outperform and $55 tgt.
Notablecalls: Not actionable but good to know category.
- Couple of firms are commenting on Apple Computer (NASDAQ:AAPL):
Piper notes that in the last several days they have spoken with 15 Apple specialist resellers regarding MacBook Pro, overall Mac, and iPod trends. Firm's checks with 15 Apple specialist stores reinforce their initial thesis on the June quarter, which assumes that lower-than- expected iPods will be offset by strong Mac sales that result from full availability of the MacBook Pro and the launch of the MacBook. In the March quarter they had expected iPod results would be under plan and overall Apple numbers would be impacted. In the June quarter, the firm expects iPod numbers could be below Street consensus, but believe Mac will make up the difference and there may still be room for slight upside to Street.
Ultra continues to be one of the great E&P growth stories; it has what every E&P company dreams of: a massive asset base with developmental upside and a vast inventory of low-risk, high rate of return prospects. They believe that the best is yet to come and remain very bullish on the company's prospects. Based on proved plus probable (P2) reserves of 6.295 Tcfe, the stock is trading at only $1.22/Mcfe, far below the large-cap median of $2.19/Mcfe. Reiterates Strong Buy rating.
Notablecalls: A very powerful call from an excellent firm. If only the chart were better. This one looks to have couple of more pts of downside in it before it bounces.
- Piper comments on Amylin Pharmaceuticals (NASDAQ:AMLN) saying that based on their diligence at the ongoing American Diabetes Association (ADA) meeting, we have learned that, shortly after the ADA meeting concludes, the Byetta sales force will tell physicians to stop initiating Byetta in new patients as a precaution to prevent any potential cartridge supply constraint issues.
Piper believes that the current demand "problem" is a significant positive for long-term estimates, and would use any concerns near term over the company's attempts to stop new patient starts as a buying opportunity for AMLN, which remains one of their top picks. Maintains Outperform and $55 tgt.
Notablecalls: Not actionable but good to know category.
- Couple of firms are commenting on Apple Computer (NASDAQ:AAPL):
Piper notes that in the last several days they have spoken with 15 Apple specialist resellers regarding MacBook Pro, overall Mac, and iPod trends. Firm's checks with 15 Apple specialist stores reinforce their initial thesis on the June quarter, which assumes that lower-than- expected iPods will be offset by strong Mac sales that result from full availability of the MacBook Pro and the launch of the MacBook. In the March quarter they had expected iPod results would be under plan and overall Apple numbers would be impacted. In the June quarter, the firm expects iPod numbers could be below Street consensus, but believe Mac will make up the difference and there may still be room for slight upside to Street.
Firm believes September has the potential to be a breakout quarter for Apple due to the convergence of the following factors: back-to- school selling season, full availability of MacBook and MacBook Pro, Boot Camp impact on overall Mac demand, PC-to-Mac switcher ad campaign, and the halo effect. Maintains Outperform and $99 tgt.
UBS notes that Apple's MacBook and MacBook Pro seem to be experiencing solid demand & they believe the strong demand for MacBooks should lend support to firm's 5% y/y unit growth estimate for Macs in the June quarter, perhaps even making this view conservative. Checks indicate Apple continues to dominate the MP3 market but demand continues to experience seasonality backing firm's estimate for units being down slightly q/q for the June qtr. UBS continues to expect new products to be announced next quarter, which should help drive growth into year end.
Notablecalls: News of strong Mac sales may provide some relief to AAPL bulls as doubts about the "Halo" effect have been pressuring the shares. Chart looks ugly and points to some more downside before we see a meaningful bounce.
- Banc of America comments on Under Armour (NASDAQ:UARM) saying co's cleats have been seeing very strong initial response. UARM cleats launched June 3rd (expected to be 15-20% of 2Q06 revs), and with just 2 days in the weekly data had the top 3 selling football cleats for the week and a market share of 24% (vs. #1 Nike at 60%).
In addition, due to the continued success of the UARM brand (particularly in women's, which should be even better positioned for spring 2007), DKS has been testing an expanded UARM assortment at the front of the store (vs. typical Nike led formats).
Notablecalls: The UARM cleat story has been getting louder over that past days. Not actionable but good to know category.
UBS notes that Apple's MacBook and MacBook Pro seem to be experiencing solid demand & they believe the strong demand for MacBooks should lend support to firm's 5% y/y unit growth estimate for Macs in the June quarter, perhaps even making this view conservative. Checks indicate Apple continues to dominate the MP3 market but demand continues to experience seasonality backing firm's estimate for units being down slightly q/q for the June qtr. UBS continues to expect new products to be announced next quarter, which should help drive growth into year end.
Notablecalls: News of strong Mac sales may provide some relief to AAPL bulls as doubts about the "Halo" effect have been pressuring the shares. Chart looks ugly and points to some more downside before we see a meaningful bounce.
- Banc of America comments on Under Armour (NASDAQ:UARM) saying co's cleats have been seeing very strong initial response. UARM cleats launched June 3rd (expected to be 15-20% of 2Q06 revs), and with just 2 days in the weekly data had the top 3 selling football cleats for the week and a market share of 24% (vs. #1 Nike at 60%).
In addition, due to the continued success of the UARM brand (particularly in women's, which should be even better positioned for spring 2007), DKS has been testing an expanded UARM assortment at the front of the store (vs. typical Nike led formats).
Notablecalls: The UARM cleat story has been getting louder over that past days. Not actionable but good to know category.
Notablecalls paperstand
According to the Wall Street Journals “Heard on the Street” column, Kraft’s (KFT) stock issue may press shares lower.The co is preparing for the 2nd stage of its separation from Altria. The 2nd step likely will entail issuing Kraft shares to current Altria stockholders. The size of the 2nd offering, estd at nearly 1.5bn shares, will dwarf the first, and there is concern that millions of those shares could be dumped back on the mkt by Altria shareholders, pushing Kraft's price lower.
According to the Barron’s Online, shares of Getty Images (GYI) are looking very attractive to one insider at the co. Director James Bailey doubled his holdings in the co last Fri in his 2nd purchase in as many months. Michael Painchaud, managing director of research at Market Profile Theorems, says Getty "has been underperforming relative to earnings expectations, but [the buying] is probably a classic situation where analysts are indeed behind the curve. [Bailey] probably has it correct in the long run at acquiring shares at these prices."
The NY Times discusses DVD mkt, saying that while DVD sales sink, renting shows no slowdown. DVD sales represent more than half of the rev studios generate from most of their movies. But those sales are expected to grow just 2% this year, a far cry from the double-digit growth the industry enjoyed just 2 years ago. With most movies and many TV shows now on DVD, studios are running out of new material to throw at consumers. Some studios have been repackaging older hits into anniversary box sets and other promotions, but consumers may be tiring of that tactic. Comcast (CMCSA) lets its subscribers view 7,500 free movies and programs. While this has made it easier for Americans to avoid driving to the mall to buy DVD's, they are still renting them. Netflix (NFLX) has about 5M customers. CEO Reed Hastings expects to have 20M customers by 2012. He says his business is helped by the exclusive licensing deals that restrict the selection of movies available via Internet downloading and VOD. "DVD's will dominate for another decade," Mr. Hastings said.
According to the Barron’s Online, shares of Getty Images (GYI) are looking very attractive to one insider at the co. Director James Bailey doubled his holdings in the co last Fri in his 2nd purchase in as many months. Michael Painchaud, managing director of research at Market Profile Theorems, says Getty "has been underperforming relative to earnings expectations, but [the buying] is probably a classic situation where analysts are indeed behind the curve. [Bailey] probably has it correct in the long run at acquiring shares at these prices."
The NY Times discusses DVD mkt, saying that while DVD sales sink, renting shows no slowdown. DVD sales represent more than half of the rev studios generate from most of their movies. But those sales are expected to grow just 2% this year, a far cry from the double-digit growth the industry enjoyed just 2 years ago. With most movies and many TV shows now on DVD, studios are running out of new material to throw at consumers. Some studios have been repackaging older hits into anniversary box sets and other promotions, but consumers may be tiring of that tactic. Comcast (CMCSA) lets its subscribers view 7,500 free movies and programs. While this has made it easier for Americans to avoid driving to the mall to buy DVD's, they are still renting them. Netflix (NFLX) has about 5M customers. CEO Reed Hastings expects to have 20M customers by 2012. He says his business is helped by the exclusive licensing deals that restrict the selection of movies available via Internet downloading and VOD. "DVD's will dominate for another decade," Mr. Hastings said.
Monday, June 12, 2006
Calls of Note Part 4
- Goldman is upping their ests on HANS as retail data shows that Monster's brand momentum remains robust, driven by superior same-store sales and distribution growth. Second, it appears that all-channel gross sales were up 105-110% for Q2-to- date through mid-May, so even firm's upwardly revised forecast assumes a slowdown to 80% growth for the rest of the quarter. Thinks a recent pull-back has created a nice entry-point relative to new $235 fair value estimate (up from $230).
Notablecalls: While Longbow beat Goldman on Friday, they do have a lot more following. Also, HANS just announounced four-for-one stock split! Looks like it will be going higher.
- RBC comments on INTC saying their checks continue to show the PC-market in doldrums with things getting progressively worse. Intel's June-Q looks increasingly bleak with company tracking low-end of guidance with potential of missing that bar as well. The price war ensures company is taking back some unit-share but not revenue-share back from AMD, which is also suffering from the bleak end demand environment. Firm expects their estimates to continue to get slashed for quite some time.
Expects the "It's Down a Lot, Let's Buy it" rhetoric to get louder, and the possibilities of short-term bounces increase. Recommends investors stay clear of jumping into the long-Intel/PC trade right now, and use rallies as a gift-to-sell.
Notablecalls: Agree with RBC. Believe we will see a bounce in Semis soon. But only a bounce.
Notablecalls: While Longbow beat Goldman on Friday, they do have a lot more following. Also, HANS just announounced four-for-one stock split! Looks like it will be going higher.
- RBC comments on INTC saying their checks continue to show the PC-market in doldrums with things getting progressively worse. Intel's June-Q looks increasingly bleak with company tracking low-end of guidance with potential of missing that bar as well. The price war ensures company is taking back some unit-share but not revenue-share back from AMD, which is also suffering from the bleak end demand environment. Firm expects their estimates to continue to get slashed for quite some time.
Expects the "It's Down a Lot, Let's Buy it" rhetoric to get louder, and the possibilities of short-term bounces increase. Recommends investors stay clear of jumping into the long-Intel/PC trade right now, and use rallies as a gift-to-sell.
Notablecalls: Agree with RBC. Believe we will see a bounce in Semis soon. But only a bounce.
Calls of Note Part 3
- FBR notes they believe JCOM is in the midst of contemplating a price increase
for its flagship consumer fax service. In firm's opinion, a price increase (currently $12.95 per month) would be a smart strategic and financial move, as they believe JCOM could add another $1 to $2 per month/per consumer and have very limited churn. If this event does happen, it would be a nice growth catalyst for both the top and bottom line in 2007. Maintains Outperform and $35 tgt.
Notablecalls: Expect to see some interest in JCOM. Note that JCOM was profiled in IBD's New America section over the weekend. Short interest stands at 24%.
- FBR thinks business conditions for ATYT have been weakened further since their April downgrade and expect a weaker than normal August quarter due to excess inventory, more aggressive pricing, and weak market conditions. Theyl ower estimates below consensus for the May and August quarters and maintain Market Perform; lower price target to $13 from $18 on lower estimates and multiple compression.
Notablecalls: Expect to see some weakness in ATYT.
- CIBC thinks that an overly glum view of RDWR's challenges has pushed shares towards trough valuations. While the firm will need to see palpable evidence of execution in the U.S. before revisiting their rating, with 2Q06 checks indicating a solid quarter, they are introducing a $15 tgt. Believes the current valuation takes as a near certainty that RDWR's third try at restructuring the U.S. sales organization will again end in disappointment. This excessively dark view creates an attractive risk/reward scenario and sets a low bar for upside. 15 price target is based on 17.5x FY07E operating EPS of $0.37 plus $8.50 in cash/share.
Notablecalls: Not actionable but good to know category.
- RBC is raising revenue estimate on RBAK for the current quarter based on continued edge router momentum, and they are raising price target from $20 to $24. Firm does not believe Redback has lost any significant customers in recent weeks. On the contrary, Redback's SmartEdge router may be gaining share at key accounts such as France Telecom and AT&T. Elsewhere, Verizon may be extending more dissatisfaction with its current edge router vendor opening a window of opportunity for Redback.
Notablecalls: Not actionable but good to know category.
for its flagship consumer fax service. In firm's opinion, a price increase (currently $12.95 per month) would be a smart strategic and financial move, as they believe JCOM could add another $1 to $2 per month/per consumer and have very limited churn. If this event does happen, it would be a nice growth catalyst for both the top and bottom line in 2007. Maintains Outperform and $35 tgt.
Notablecalls: Expect to see some interest in JCOM. Note that JCOM was profiled in IBD's New America section over the weekend. Short interest stands at 24%.
- FBR thinks business conditions for ATYT have been weakened further since their April downgrade and expect a weaker than normal August quarter due to excess inventory, more aggressive pricing, and weak market conditions. Theyl ower estimates below consensus for the May and August quarters and maintain Market Perform; lower price target to $13 from $18 on lower estimates and multiple compression.
Notablecalls: Expect to see some weakness in ATYT.
- CIBC thinks that an overly glum view of RDWR's challenges has pushed shares towards trough valuations. While the firm will need to see palpable evidence of execution in the U.S. before revisiting their rating, with 2Q06 checks indicating a solid quarter, they are introducing a $15 tgt. Believes the current valuation takes as a near certainty that RDWR's third try at restructuring the U.S. sales organization will again end in disappointment. This excessively dark view creates an attractive risk/reward scenario and sets a low bar for upside. 15 price target is based on 17.5x FY07E operating EPS of $0.37 plus $8.50 in cash/share.
Notablecalls: Not actionable but good to know category.
- RBC is raising revenue estimate on RBAK for the current quarter based on continued edge router momentum, and they are raising price target from $20 to $24. Firm does not believe Redback has lost any significant customers in recent weeks. On the contrary, Redback's SmartEdge router may be gaining share at key accounts such as France Telecom and AT&T. Elsewhere, Verizon may be extending more dissatisfaction with its current edge router vendor opening a window of opportunity for Redback.
Notablecalls: Not actionable but good to know category.
- RBC is also defending POZN saying FDA's response positively resolves doubts that had existed about the efficacy achieved in the Phase III studies. Firm believes the market has overreacted to the unanswered safety question. If the FDA's safety concerns were terminal for the product, they believe the Agency would have issued a "Not-Approvable" letter. Therefore, they think the potential exists to resolve the safety issue without the need for additional safety studies.
Even if additional studies are required and final approval is delayed for more than two years, firm's discounted cash flow valuation of Trexima continues to indicate a present value of about $12/share and a peak value in 2009 of $16.50/share. Maintains Outperform.
Notablecalls: Gotta love RBC for their courage to step in and make such a call when everyone else is downgrading the stock to hell. My gut tells me the call will play out. Just wait until all the panic sellers are gone. Looke like an actionable call.
Calls of Note Part 2
- Banc of America is out on DIS saying they believe the $62.8 million debut of Cars this weekend was at or below the low end of the consensus range. While hardly a failure, they think it has a couple of negative implications for DIS shares. It raises questions about the rationale for the Pixar deal and, as a result, raises a central question about the Disney bull case. Moreover, with the next Pixar film slated to be released in June 2007, management won't be able to disprove these concerns for a year. With Cars released and its performance tracking to fall below expectations, investors may turn their attention back to the key earnings drivers, limiting the upside in the stock. Maintains Neutral.
Notablecalls: Expect DIS shares to take a hit today. Note that Citigroup is out downgrading the shares (Hold/Buy). Yet, considering the sell off last week I'd look for a bounce as shorts start covering. No sooner than 28 dollar level.
- Banc of America out on CMG raising their 2006 and 2007 estimates to $0.94 (52% growth) and $1.10 (18% gains) from 'old' estimates of $0.63 and $0.77, or up more than 40% in each case. Firm still believes their 2007 EPS will have an upward bias, but they don't believe it will be another 40%. Maintains Neutral due to valuation.
Notablcalls: Not actionable but good to know category.
- FBR notes that with MSFT at a historically low valuation (14.4x CY07 EPS estimate, 12.7x net of cash), they are updating their sum-of-the-parts analysis, which supports their belief that the company is undervalued. Firm's conservative assumptions yield a fair value of $31, a 40% premium to the current valuation. The shares have been under pressure, in part, due to the company's announcement of intent to invest more than initially modeled by the Street without articulating a detailed strategy, and due to the uncertainty regarding the Vista release. Firm concedes that clarity needs to be brought to these issues to drive the shares higher, but they expect this to occur over the balance of this year. Maintain Outperform rating and $32 price target.
Notablcalls: Not actionable but good to know category.
Notablecalls: Expect DIS shares to take a hit today. Note that Citigroup is out downgrading the shares (Hold/Buy). Yet, considering the sell off last week I'd look for a bounce as shorts start covering. No sooner than 28 dollar level.
- Banc of America out on CMG raising their 2006 and 2007 estimates to $0.94 (52% growth) and $1.10 (18% gains) from 'old' estimates of $0.63 and $0.77, or up more than 40% in each case. Firm still believes their 2007 EPS will have an upward bias, but they don't believe it will be another 40%. Maintains Neutral due to valuation.
Notablcalls: Not actionable but good to know category.
- FBR notes that with MSFT at a historically low valuation (14.4x CY07 EPS estimate, 12.7x net of cash), they are updating their sum-of-the-parts analysis, which supports their belief that the company is undervalued. Firm's conservative assumptions yield a fair value of $31, a 40% premium to the current valuation. The shares have been under pressure, in part, due to the company's announcement of intent to invest more than initially modeled by the Street without articulating a detailed strategy, and due to the uncertainty regarding the Vista release. Firm concedes that clarity needs to be brought to these issues to drive the shares higher, but they expect this to occur over the balance of this year. Maintain Outperform rating and $32 price target.
Notablcalls: Not actionable but good to know category.
Calls of Note Part 1
- RSH is taking a beating from the analysts this morning as 3 firms are out lowering their estimates and targets:
Goldman is reducing their estimates on Radio Shack to reflect expectation of ongoing challenges in the wireless business in light of the ongoing transition to Cingular from Verizon as a primary provider, sales shortfalls as RSH transitions from analog to LCD TVs, and margin pressure as RSH clears unproductive inventory. RSH's recovery is likely to be slow and fitful, its longer-term strategic challenges are daunting, and the stock still looks slightly overvalued despite its recent decline. According to the firm, even if the company achieves the high end of its free cash flow guidance of $50-$100 million, a 5% free cash flow yield implies a $14.70 stock price, slightly below current levels. Firm new F06 EPS forecast is $0.70, down from $0.83 previously, while the new F07 forecast is $0.85, vs. $0.95 previously.
Banc of America takes their tgt on RSH to $16 from $18 as their FY2006 EPS goes to $0.88 from $1.25. FIrm believes Q2 will be another tough quarter as the wireless business remains weak and the pace of new contract signups is slow to recoup lost residuals from the VZ/Cingular transition. Maintains Neutral.
JP Morgan calls the issues at RSH the worst kept secrect on Wall Street but notes it's probably too eraly to buy the shares. They met with management last week and came awayfeeling OK.
According to the firm, RSH is either the next Linens 'n Things (taken private at 8.9x LTM EBITDA on 2/14), Circuit City (turnaround under new management) or Sharper Image (which bottomed at 0.10x sales). The latter is extreme. RSH over the past decade has troughed at 0.43x-0.44x sales. With the stock currently at 0.52x LTM sales, the firm remains intrigued, yet sidelined. Even a best-efforts sum of the parts (EV/Sales) indicates that one can be patient. Maintains Neutral.
Notablecalls: The shares have taken a beating and the estimate cuts will likely push the price even lower. Expect to see some more firms lower their estimates in the coming days.
- JP Morgan is upping their 2Q EPS estimates for five of the six major railroads (BNI, UNP, CNI, CSX, NSC) due to stronger than forecast volume trends and greater visibility to operating improvement at several rails. Firm expects strong 2Q reports and their estimates are above consensus. Since the SandP 500 peak on May 5, the six major railroads have fallen 14.0% on average versus a 5.5% decline in the SandP. The rails have also fallen harder than most of the other major transport segments (parcel, truckload, LTL, logistics/asset light).
Prior to the strong rail performance of the past two years, the railroads traded in an average one year forward P/E range of 11x-15x. Following the recent sharp pullback, the rail group is now trading at a one year forward average P/E valuation of 13.7x and a valuation of 12.7x on our 2007 EPS estimates. They believe that current valuation reflects little good news for the railroads. Sees CSX and UNP as the most interesting names.
Notablecalls: Looking at the charts of major railroads I wonder if JP Morgan's valuation call has the power to reverse the downside action. My gut tells me the call will get sold into. Look for 50 day moving average to provide support to the group.
- Bear Stearns says that reflecting recent weakness in notebook demand at major ODMs, they are lowering SYNA estimates and price target from $27 to $24. However, they are maintaining Outperform rating given the potential growth opportunities from new markets (MP3 players, cellphones, etc.) and compelling upside potential if SYNA regains AAPL business. Accordingly, they are lowering FY06 post-options EPS estimate from $0.50 to $0.48, our FY07 EPS from $0.64 to $0.50 and FY08 EPS from $0.92 to $0.76. Target goes to $24 from $27.
Notablecalls: We may see some weakness in SYNA following the call.
- FBR is trimming estimates on NVDA due to inventory accumulation (especially in Europe), the emergence of aggressive pricing, and the prospects of slow business conditions in July, when NVDA will be working to close its quarter. While they believe that NVDA still retains a competitive advantage vs. ATYT, they think this advantage is not enough to escape the presently slow business conditions. As a result, the firm believe s second-half estimates are at risk. Reiterates Underperform and cuts price target to $18 from $23 on lower (below consensus) estimates.
Notablecalls: Not actionable but good to know category.
- Bear Stearns comments on GM after DPH announced a three-way deal with GM and the UAW to offer buyouts to all of the company's UAW employees. Firm notes they continue to expect a broader three-way deal among Delphi, the UAW and GM without an extended strike at GM - view that they believe is nearly uniformly shared by consensus expectations at this point. Firm says they have viewed GM shares primarily as a sentiment trade for much of this year. Six months ago, GM's biggest critics were predicting a Chapter 11 filing during 2006; today, many of those critics are cheering the company's turnaround. The biggest surprise in 2006 for the company arguably has been that, around the edges, the take-rate on UAW buyouts have been better than expected. With sentiment seemingly have turned at this point, and the stock up 33% YTD, their near- to intermediate-term optimism is more muted for the shares.
Notablecalls: GM has been a gap fade play lately. Expect this morning to be no different (in case there is a gap to fade, of course).
Goldman is reducing their estimates on Radio Shack to reflect expectation of ongoing challenges in the wireless business in light of the ongoing transition to Cingular from Verizon as a primary provider, sales shortfalls as RSH transitions from analog to LCD TVs, and margin pressure as RSH clears unproductive inventory. RSH's recovery is likely to be slow and fitful, its longer-term strategic challenges are daunting, and the stock still looks slightly overvalued despite its recent decline. According to the firm, even if the company achieves the high end of its free cash flow guidance of $50-$100 million, a 5% free cash flow yield implies a $14.70 stock price, slightly below current levels. Firm new F06 EPS forecast is $0.70, down from $0.83 previously, while the new F07 forecast is $0.85, vs. $0.95 previously.
Banc of America takes their tgt on RSH to $16 from $18 as their FY2006 EPS goes to $0.88 from $1.25. FIrm believes Q2 will be another tough quarter as the wireless business remains weak and the pace of new contract signups is slow to recoup lost residuals from the VZ/Cingular transition. Maintains Neutral.
JP Morgan calls the issues at RSH the worst kept secrect on Wall Street but notes it's probably too eraly to buy the shares. They met with management last week and came awayfeeling OK.
According to the firm, RSH is either the next Linens 'n Things (taken private at 8.9x LTM EBITDA on 2/14), Circuit City (turnaround under new management) or Sharper Image (which bottomed at 0.10x sales). The latter is extreme. RSH over the past decade has troughed at 0.43x-0.44x sales. With the stock currently at 0.52x LTM sales, the firm remains intrigued, yet sidelined. Even a best-efforts sum of the parts (EV/Sales) indicates that one can be patient. Maintains Neutral.
Notablecalls: The shares have taken a beating and the estimate cuts will likely push the price even lower. Expect to see some more firms lower their estimates in the coming days.
- JP Morgan is upping their 2Q EPS estimates for five of the six major railroads (BNI, UNP, CNI, CSX, NSC) due to stronger than forecast volume trends and greater visibility to operating improvement at several rails. Firm expects strong 2Q reports and their estimates are above consensus. Since the SandP 500 peak on May 5, the six major railroads have fallen 14.0% on average versus a 5.5% decline in the SandP. The rails have also fallen harder than most of the other major transport segments (parcel, truckload, LTL, logistics/asset light).
Prior to the strong rail performance of the past two years, the railroads traded in an average one year forward P/E range of 11x-15x. Following the recent sharp pullback, the rail group is now trading at a one year forward average P/E valuation of 13.7x and a valuation of 12.7x on our 2007 EPS estimates. They believe that current valuation reflects little good news for the railroads. Sees CSX and UNP as the most interesting names.
Notablecalls: Looking at the charts of major railroads I wonder if JP Morgan's valuation call has the power to reverse the downside action. My gut tells me the call will get sold into. Look for 50 day moving average to provide support to the group.
- Bear Stearns says that reflecting recent weakness in notebook demand at major ODMs, they are lowering SYNA estimates and price target from $27 to $24. However, they are maintaining Outperform rating given the potential growth opportunities from new markets (MP3 players, cellphones, etc.) and compelling upside potential if SYNA regains AAPL business. Accordingly, they are lowering FY06 post-options EPS estimate from $0.50 to $0.48, our FY07 EPS from $0.64 to $0.50 and FY08 EPS from $0.92 to $0.76. Target goes to $24 from $27.
Notablecalls: We may see some weakness in SYNA following the call.
- FBR is trimming estimates on NVDA due to inventory accumulation (especially in Europe), the emergence of aggressive pricing, and the prospects of slow business conditions in July, when NVDA will be working to close its quarter. While they believe that NVDA still retains a competitive advantage vs. ATYT, they think this advantage is not enough to escape the presently slow business conditions. As a result, the firm believe s second-half estimates are at risk. Reiterates Underperform and cuts price target to $18 from $23 on lower (below consensus) estimates.
Notablecalls: Not actionable but good to know category.
- Bear Stearns comments on GM after DPH announced a three-way deal with GM and the UAW to offer buyouts to all of the company's UAW employees. Firm notes they continue to expect a broader three-way deal among Delphi, the UAW and GM without an extended strike at GM - view that they believe is nearly uniformly shared by consensus expectations at this point. Firm says they have viewed GM shares primarily as a sentiment trade for much of this year. Six months ago, GM's biggest critics were predicting a Chapter 11 filing during 2006; today, many of those critics are cheering the company's turnaround. The biggest surprise in 2006 for the company arguably has been that, around the edges, the take-rate on UAW buyouts have been better than expected. With sentiment seemingly have turned at this point, and the stock up 33% YTD, their near- to intermediate-term optimism is more muted for the shares.
Notablecalls: GM has been a gap fade play lately. Expect this morning to be no different (in case there is a gap to fade, of course).
Notablecalls paperstand 2
Patrick Bousquet-Chavanne, group president of the Estée Lauder Companies (EL), is a front-runner to succeed Liz Claiborne (LIZ) CEO Paul Charron after he retires at the end of the year, The NY Post has learned.
The NY Times reports that the French insurance company, AXA, is in exclusive talks with Credit Suisse (CSR) to buy its Winterthur insurance division in a deal worth more than $8.12 bn.
The NY Times reports that the French insurance company, AXA, is in exclusive talks with Credit Suisse (CSR) to buy its Winterthur insurance division in a deal worth more than $8.12 bn.
Notablecalls - rumor
Hedge Fund manager calls Apple “short of the year 2006”
Talked to a successful hedge fund manager (Avg return over last 5 years 20%+) who calls Apple (AAPL) the short of year 2006. Recommends betting on the stock with put options, rather than shorting. Recommends avoiding Intel (INTC), may fall as low as 12-14$.
Talked to a successful hedge fund manager (Avg return over last 5 years 20%+) who calls Apple (AAPL) the short of year 2006. Recommends betting on the stock with put options, rather than shorting. Recommends avoiding Intel (INTC), may fall as low as 12-14$.
Notablecalls paperstand
Barron’s says that minor miscues in Legg Mason (LM) shares have created a buying opportunity. Legg can still become a major power in asset mgmt; one analyst sees its stock price more than 50% higher in a year.
WebEx Communications (WEBX) shares' 40% rise this year has propelled them into the low 30s. But their run looks far from over. One bull thinks they could move into the 60s in 3 years.
Bigger has been better in the stock market lately, and many investors are betting that the long-awaited shift toward large stocks and away from small and midsize issues finally may be under way. Prices of large-cap stocks have stalled in the past half-decade despite smart earnings gains. The shares could rise 20% or more if their P/Es return to their long-term avgs.
Pioneer Drilling (PDC) trades as if the boom were already a bust. Scott Black, of Delphi Mgmt, thinks Pioneer is one of the cheapest stocks around. He's bullish on US natural gas: Not only is it environmentally friendly, he observes, but has the great virtue of not being in Iran or Nigeria. Replacement value of Pioneer's rigs alone, he figures, is over $15 a share, and he pegs per-share net for F’07, ending March, at $1.85-1.95. His 12mo tgt: $22.
Friday, June 09, 2006
Calls of Note Part 4
- Longbow Research's Alton Stump is positive on HANS saying firm's June Energy Drink Survey results indicate category volumes were up 70%+ at Wal-Mart, well ahead of 40-50% growth previously. The primary driver behind the incremental boost in volumes came from additional shelf space allocation for the overall energy drink category.
In a similar pattern to HANS' stock performance over the last 18-24 months, the share price recently pulled back in the 20-25% range following a sharp positive run. Firm believes this most recent move represents a key buying opportunity in light of the company's impressive earnings potential. Maintains Buy.
Notablecalls: HANS may have some potential in it over the next weeks. Found support yesterday @ 50 day moving average. Tight stop.
In a similar pattern to HANS' stock performance over the last 18-24 months, the share price recently pulled back in the 20-25% range following a sharp positive run. Firm believes this most recent move represents a key buying opportunity in light of the company's impressive earnings potential. Maintains Buy.
Notablecalls: HANS may have some potential in it over the next weeks. Found support yesterday @ 50 day moving average. Tight stop.
Calls of Note Part 3
- WR Hambrecht notes recent channel checks have indicated that the NAND flash memory market is recovering from weakness in end market demand and rapid price declines that it experienced during most of H1:06. Firm's data points signal the following: 1) the month-over-month book-to-bill in the Q2 has been rapidly increasing and the month of June is now tracking within normal seasonality; 2) recently, two large OEMs began to increase their orders for NAND flash memory chips from Samsung Semiconductor (believe Apple and Sony); 3) expects pricing stabilization to continue for NAND flash memory in the month of June, although they anticipate SanDisk to likely drop its flash memory card pricing in early July; and 4) most of firms' channel checks for NAND flash memory demand are very positive for H2:06, especially for mobile handsets with card slots, gaming and MP3 players. In their research coverage universe, they believe that these data points are likely positive for SNDK, SIMO and to a lesser extent, FLSH.
Notablecalls: This looks like an actionable call.
Notablecalls: This looks like an actionable call.
Calls of Note Part 2
- Merill Lynch thinks there's material risk to INTC's Q2 outlook in light of recent developments, and they are reducing their estimates for Q2 and the remainder of the year. Our thesis in terms of the company's competitive positioning has not changed, but clearly the demand environment is weaker than the firm had expected. The valuation is attractive enough, even on lower earnings estimates, to merit the Buy rating.
Notablecalls: Not actionable but good to know category.
- Merrill Lynch is slightly reducing their AMD earnings estimates for Q2, all of 2006 and 2007. Firm thinks that AMD is struggling to cope with the weak demand environment in desktop computing. Server market share gains should help, but aren't enough, and AMD still is making only limited headway in mobile. Maintains Sell
Notablecalls: Not actionable but good to know category.
Notablecalls: Not actionable but good to know category.
- Merrill Lynch is slightly reducing their AMD earnings estimates for Q2, all of 2006 and 2007. Firm thinks that AMD is struggling to cope with the weak demand environment in desktop computing. Server market share gains should help, but aren't enough, and AMD still is making only limited headway in mobile. Maintains Sell
Notablecalls: Not actionable but good to know category.
- FBR notes that XRTX's largest customer for disk drive capital equipment is Seagate, and Seagate just updated its capex plans at its analyst day Thursday. The net of the prepared remarks and discussions with management was very good news for Xyratex. Firm now considers it likely that Xyratex will provide August-quarter guidance well above current Street estimates when it reports its quarter on June 21. Beyond the August quarter, they believe the outlook for Seagate investment in Xyratex gear may be meaningfully better than what is currently reflected in Street estimates well into 2007 and, by that time, the firm also expects Hitachi's disk drive test business with Xyratex to begin ramping significantly. Reiterates Outperform rating on what continues to be firm's Top Pick in enterprise hardware.
Notablecalls: The calls looks to be actionable. Expect the shares to move up in the coming days.
- Citigroup notes May video game industry sales tracked by NPD posted a 2% gain, with a 24% gain in hardware dollar sales offset by a software dollar sales decline of 10%.
According to the firm the biggest surprise was a 97% increase in May software dollar sales for ATVI on the strength of two movie-related releases, resulting in only a 4% decline in quarter-to-date sales (vs. firm's F1Q07 est of -47%). Given this performance, shares could see a short-term rise.
Notablecalls: Not actionable but good to know category.
Notablecalls paperstand
For Tribune, A Breakup Offers No Guarantees - WSJ Heard on the Street
Since Tribune (TRB) unveiled plans for a $2bn stock buyback last week, the stock price has jumped 13%. But investors believe a more radical restructuring could lift the stock another 42%, mainly because separating the parts would make it easier for buyers to snap up TV stations and possibly its newspapers. Analysts at Ariel Capital, one of Tribune's biggest shareholders, figure that Tribune shares would be worth $44-46 a share in a breakup. "Recent M&A transactions have shown that buyers still place a high value on quality media properties such as those owned by Tribune," said Charles Bobrinskoy, vice chmn of Ariel, which owns 10.3m shares. The hope of such a share-price jump is likely what's driving Tribune's board to weigh a TV spinoff. But recent media-company restructurings have shown there is no guarantee a breakup will produce a higher stock price. Witness Viacom (VIA), which at the start of this year divided its broadcast-TV and radio assets from its cable channels and movie studio, in hopes of generating higher returns for investors. 6mo after the breakup, shares of CBS (CBS) are little changed, while shares of Viacom, which was billed as a "high-growth" company in the runup to the separation, have dipped 15%. We like the idea of having businesses track more as pure plays, but there are current examples out there, including Viacom, where investors continue to price shares below the private mkt value," says Bill Nygren, portfolio manager at Oakmark Funds.
Notablecalls: When you are a fund manager holding 10.3 million shares, you never say stock may fall or even stay in a close range. It always goes up, and fast. It is unlikely that The WSJ article moves the stock much, but article has its point.
Barron’s Online pushes two biotechs
Barron’s Online pushes today Amgen (AMGN) and Gilead (GILD), sayig that despite their reputation for volatility, leading biotech stocks these days aren't quite as risky or as expensive as many might fear. "We've been overweight in the space for the last 30 days," says David Heupel, portfolio manager for the Thrivent Large-Cap Growth Fund. "We have seen irrational selling. The fundamentals for several co’s remain as good as we have seen them. And you can buy some high-quality stocks at decent valuations." Profits from Big Biotech could rise as much as 20% annually for the next 3 years, says Eric Strange, manager of the Fifth Third Quality Growth Fund. And while the stocks still trade at premiums to the S&P500, their forward P/E have contracted significantly, and many trade at 5-year lows. "There is stability in these co’s," says Strange. "They have revs and earnings. They still have some exciting drugs in the pipeline, so they aren't boring. And with the pullback, valuations are cheap."
Notablecalls: Barron’s is not the best picker of biotech stocks.
Since Tribune (TRB) unveiled plans for a $2bn stock buyback last week, the stock price has jumped 13%. But investors believe a more radical restructuring could lift the stock another 42%, mainly because separating the parts would make it easier for buyers to snap up TV stations and possibly its newspapers. Analysts at Ariel Capital, one of Tribune's biggest shareholders, figure that Tribune shares would be worth $44-46 a share in a breakup. "Recent M&A transactions have shown that buyers still place a high value on quality media properties such as those owned by Tribune," said Charles Bobrinskoy, vice chmn of Ariel, which owns 10.3m shares. The hope of such a share-price jump is likely what's driving Tribune's board to weigh a TV spinoff. But recent media-company restructurings have shown there is no guarantee a breakup will produce a higher stock price. Witness Viacom (VIA), which at the start of this year divided its broadcast-TV and radio assets from its cable channels and movie studio, in hopes of generating higher returns for investors. 6mo after the breakup, shares of CBS (CBS) are little changed, while shares of Viacom, which was billed as a "high-growth" company in the runup to the separation, have dipped 15%. We like the idea of having businesses track more as pure plays, but there are current examples out there, including Viacom, where investors continue to price shares below the private mkt value," says Bill Nygren, portfolio manager at Oakmark Funds.
Notablecalls: When you are a fund manager holding 10.3 million shares, you never say stock may fall or even stay in a close range. It always goes up, and fast. It is unlikely that The WSJ article moves the stock much, but article has its point.
Barron’s Online pushes two biotechs
Barron’s Online pushes today Amgen (AMGN) and Gilead (GILD), sayig that despite their reputation for volatility, leading biotech stocks these days aren't quite as risky or as expensive as many might fear. "We've been overweight in the space for the last 30 days," says David Heupel, portfolio manager for the Thrivent Large-Cap Growth Fund. "We have seen irrational selling. The fundamentals for several co’s remain as good as we have seen them. And you can buy some high-quality stocks at decent valuations." Profits from Big Biotech could rise as much as 20% annually for the next 3 years, says Eric Strange, manager of the Fifth Third Quality Growth Fund. And while the stocks still trade at premiums to the S&P500, their forward P/E have contracted significantly, and many trade at 5-year lows. "There is stability in these co’s," says Strange. "They have revs and earnings. They still have some exciting drugs in the pipeline, so they aren't boring. And with the pullback, valuations are cheap."
Notablecalls: Barron’s is not the best picker of biotech stocks.
Calls of Note Part 1
- Piper Jaffray has positive comments on UARM after co's footwear line hit stores on June 3. Firm's channel checks (at several Dick's and Sports Authority locations) over the weekend point to strong initial customer response to the product. In addition, a successful launch in the footwear space could result in an accelerated roll-out of related product over the next few years.
Women's and youth segments represent tremendous growth opportunities. Firm continues to believe these segments are under-penetrated in the marketplace as the women's product is currently in 3,500 N. American retail doors with the opportunity to be in approx. 7,000 (current door count for men's). The women's segment grew from 17% of the company's overall business in FQ105 to 24% in FQ106. Believes UARM has a similar opportunity with the youth segment, which achieved year-over-year growth of 120%.
Piper ups their FY06 and FY07 EPS estimates above consensus with tgt going to $36 from $33. Reits Outperform.
Notablecalls: Think is widely known that UARM's footwear line will be a success. But UARM is a mover.
- JP Morgan is defending EBAY noting the shares are down 27.8% since the beginning of the year compared to the SandP 500 which is up ~1%. Additionally, the stock is trading at an EV/EBITDA multiple of 12.4x F'07, vs. its peers which are trading at an average of 14.5x. Firm believes eBay's share price should be higher than its sum of the parts valuation because of the synergies different businesses bring to the combined company. Their analysis shows the share are trading at a 35% discount (at the midpoint) to its sum of the parts valuation. Reits Overweight.
Notablecalls: Not actionable but good to know category. EBAY's chart looks bad and it takes more than a valuation call to move it up.
- Prudential is upgrading theirweighting from Unfavorable to Favorable as firm's analysis indicates that in the Mar-06Q, inventory days were at the lowest March quarter levels ever at PC OEMs, Communications Infrastructure OEMs, Handset OEMs and Taiwan notebook makers.
According to the firm, manufacturing utilization rates for the sector are at 90%, well below the peak levels of 95%-97% seen during the previous two cycle peaks (Mar-00 and Mar-04 qtrs), and above the trough levels of 82%-87%. At these levels, it is difficult for them to imagine the supply chain double ordering and building inventories in a broadbased and material manner.
Semi indices have sold off about 20% since early in the year, and the median stock in the universe is trading at a 12% P/E discount to '07 EPS - they think the risk/reward equation is attractive.
Top picks: AMD, TXN, MCHP, BRCM and MRVL. Remains Underweight INTC.
Notablecalls: While I'm normally not looking to highlight any upgrades/downgrades on this page (easy to find elsewhere), I do think market participants should pay attention to this Prudential call. The market may have made an important low yesterdayand is due for a bounce. The utilization story has been getting louder in Semis and we may see a squeeze.
- As I highlighted the Prudential Semi call, I feel it needs to be balanced with an opposing one from RBC Capital (firm I admire for their research). RBC is out with comments on Semis noting they downgraded the group in Jan-2006 as they saw PC growth moderating, Semi Supply and Inventories Indicators turning negative. In firm's view, the difference from their 2004 downgrade is that actual levels of Supply and Inventories are much lower (healthier) in 2006 than in 2004. However, 2006 differs from 2004 as inventory and supply-levels might be relatively healthier but end-demand might be moderating much faster this time.
Firm's checks continue to show PC demand weakening globally with little chance of a seasonal 2H06. Also, the lack of a major killer-app that could substantially drive semiconductor revenues above the typical 7% yoy growth is not helping things. PC-demand typically leads overall semi-demand, and the weakness in PCs is an ominous sign of things to come for other semiconductor groups.
When do you Buy? According to RBC, one should buy semi-stocks when supply and inventory indicators start to improve and PC-demand picks up. Between now and year-end, there might be short-term rallies, but the meaningful bottom will most likely occur in late 06 when the semi-equipment companies start to see significant weakness (an indicator of supply spigot being turned off). In the meantime, they recommend investors continue to use rallies to sell.
Notablecalls: While I respect Prudential's Semi upgrade, I feel RBC has a strong point about selling rallies. I feel the Semi Holdrs (SMH) can retrace as much as 50% of the recent sell-off.
- Bear Stearns is once again lowering their estimates for INTC. Firm recalls that they lowered their estimates two weeks ago, on 5/25, based on proprietary checks which pointed to incremental weakness in notebook builds. The further lowering of estimates is based on further weakness in 2Q PC builds, as well as a weaker pricing outlook for 2H.
Firm is maintaining Outperform rating on the stock however, as they remain confident that Intel's solid product line-up in 2H06 should lead to market share stabilization in late '06/early '07, and valuation is clearly attractive.
Notablecalls: No surprises here. Everyone already knows the PC mkt is a stinker.
Women's and youth segments represent tremendous growth opportunities. Firm continues to believe these segments are under-penetrated in the marketplace as the women's product is currently in 3,500 N. American retail doors with the opportunity to be in approx. 7,000 (current door count for men's). The women's segment grew from 17% of the company's overall business in FQ105 to 24% in FQ106. Believes UARM has a similar opportunity with the youth segment, which achieved year-over-year growth of 120%.
Piper ups their FY06 and FY07 EPS estimates above consensus with tgt going to $36 from $33. Reits Outperform.
Notablecalls: Think is widely known that UARM's footwear line will be a success. But UARM is a mover.
- JP Morgan is defending EBAY noting the shares are down 27.8% since the beginning of the year compared to the SandP 500 which is up ~1%. Additionally, the stock is trading at an EV/EBITDA multiple of 12.4x F'07, vs. its peers which are trading at an average of 14.5x. Firm believes eBay's share price should be higher than its sum of the parts valuation because of the synergies different businesses bring to the combined company. Their analysis shows the share are trading at a 35% discount (at the midpoint) to its sum of the parts valuation. Reits Overweight.
Notablecalls: Not actionable but good to know category. EBAY's chart looks bad and it takes more than a valuation call to move it up.
- Prudential is upgrading their
According to the firm, manufacturing utilization rates for the sector are at 90%, well below the peak levels of 95%-97% seen during the previous two cycle peaks (Mar-00 and Mar-04 qtrs), and above the trough levels of 82%-87%. At these levels, it is difficult for them to imagine the supply chain double ordering and building inventories in a broadbased and material manner.
Semi indices have sold off about 20% since early in the year, and the median stock in the universe is trading at a 12% P/E discount to '07 EPS - they think the risk/reward equation is attractive.
Top picks: AMD, TXN, MCHP, BRCM and MRVL. Remains Underweight INTC.
Notablecalls: While I'm normally not looking to highlight any upgrades/downgrades on this page (easy to find elsewhere), I do think market participants should pay attention to this Prudential call. The market may have made an important low yesterdayand is due for a bounce. The utilization story has been getting louder in Semis and we may see a squeeze.
- As I highlighted the Prudential Semi call, I feel it needs to be balanced with an opposing one from RBC Capital (firm I admire for their research). RBC is out with comments on Semis noting they downgraded the group in Jan-2006 as they saw PC growth moderating, Semi Supply and Inventories Indicators turning negative. In firm's view, the difference from their 2004 downgrade is that actual levels of Supply and Inventories are much lower (healthier) in 2006 than in 2004. However, 2006 differs from 2004 as inventory and supply-levels might be relatively healthier but end-demand might be moderating much faster this time.
Firm's checks continue to show PC demand weakening globally with little chance of a seasonal 2H06. Also, the lack of a major killer-app that could substantially drive semiconductor revenues above the typical 7% yoy growth is not helping things. PC-demand typically leads overall semi-demand, and the weakness in PCs is an ominous sign of things to come for other semiconductor groups.
When do you Buy? According to RBC, one should buy semi-stocks when supply and inventory indicators start to improve and PC-demand picks up. Between now and year-end, there might be short-term rallies, but the meaningful bottom will most likely occur in late 06 when the semi-equipment companies start to see significant weakness (an indicator of supply spigot being turned off). In the meantime, they recommend investors continue to use rallies to sell.
Notablecalls: While I respect Prudential's Semi upgrade, I feel RBC has a strong point about selling rallies. I feel the Semi Holdrs (SMH) can retrace as much as 50% of the recent sell-off.
- Bear Stearns is once again lowering their estimates for INTC. Firm recalls that they lowered their estimates two weeks ago, on 5/25, based on proprietary checks which pointed to incremental weakness in notebook builds. The further lowering of estimates is based on further weakness in 2Q PC builds, as well as a weaker pricing outlook for 2H.
Firm is maintaining Outperform rating on the stock however, as they remain confident that Intel's solid product line-up in 2H06 should lead to market share stabilization in late '06/early '07, and valuation is clearly attractive.
Notablecalls: No surprises here. Everyone already knows the PC mkt is a stinker.
Thursday, June 08, 2006
Interesting Call of The Day - Natus Medical (BABY)
Soleil-Belmont Harbor Capital's Daniel Owczarski is out defending Natus Medical (BABY) today saying that as the stock price of BABY continues to weaken, they believe that there is a widening disconnect between the valuation of the company and that of its peers. What once was a growth story is now becoming more of a value story even though the company's growth prospects seem to be not only intact, but stronger than ever.
They continue to be impressed by the company's ability to meet or beat expectations and are optimistic about growth prospects as it diversifies it businesses with significant opportunities in the pediatrics and international markets. Firm remains confident in this management team and views the CEO Jim Hawkins as extremely capableand credible as he continues to build on his track record of building successful, profitable medical technology franchises. Owczarski strongly reiterates Buy rating.
Comparative valuation analysis that suggests that the stock should be trading at a minimum in the $15 to $18 range and a conservative argument can be made to support a stock price of $20 to $22.
Notablecalls: This BABY sure has taken a brutal beating and while Soleil may not have the following the produce an immediate bounce, the situation looks interesting. Note that a well regarded value manager David Nierenberg holds a huge of the shares and has been a buyer around the $11-$12 levels.
They continue to be impressed by the company's ability to meet or beat expectations and are optimistic about growth prospects as it diversifies it businesses with significant opportunities in the pediatrics and international markets. Firm remains confident in this management team and views the CEO Jim Hawkins as extremely capableand credible as he continues to build on his track record of building successful, profitable medical technology franchises. Owczarski strongly reiterates Buy rating.
Comparative valuation analysis that suggests that the stock should be trading at a minimum in the $15 to $18 range and a conservative argument can be made to support a stock price of $20 to $22.
Notablecalls: This BABY sure has taken a brutal beating and while Soleil may not have the following the produce an immediate bounce, the situation looks interesting. Note that a well regarded value manager David Nierenberg holds a huge of the shares and has been a buyer around the $11-$12 levels.
Calls of Note Part 2
- Citigroup is reducing their estimates for AMD and Intel, reflecting concerns about the 2Q06 microprocessor pricing/unit environment. Data points indicating a below seasonal 2Q06 PC environment are plentiful, creating a difficult unit backdrop for microprocessor companies; this is largely factored into estimates. In addition to this, however, field work at the Computex 2006 trade show confirms firm's fears that a more aggressive price war in microprocessors is forthcoming, driving reduction in estimates.
Meetings with motherboard and PC companies at Computex Taiwan (the world's second largest PC show), uniformly suggest that Intel's forthcoming price cuts (scheduled for late July across Intel's entire desktop and notebook product lines) will drive share gain for the company (one tier-one boardmaker suggested their 70/30 Intel/AMD split could shift to 80/20).
AMD's tgt goes to $33 from $42 with INTC's tgt remaning at $21.
Notablecalls: AMD's chart looks like it may go lower. Citi's call however is already yesterday's news.
- UBS lower their AMD target price to $33 from $39 based on a lower target PE multiple of 18x that reflects firm's concerns regarding AMD's 1) Cash flow challenges as a result of its aggressive capacity expansion plans, 2) Competitive challenges from INTC based on its road map through 2008, and 3) Uncertainty over AMD's strategic direction. Maintains Neutral.
Notablecalls: Scroll up. Replace "Citi" with "UBS".
Meetings with motherboard and PC companies at Computex Taiwan (the world's second largest PC show), uniformly suggest that Intel's forthcoming price cuts (scheduled for late July across Intel's entire desktop and notebook product lines) will drive share gain for the company (one tier-one boardmaker suggested their 70/30 Intel/AMD split could shift to 80/20).
AMD's tgt goes to $33 from $42 with INTC's tgt remaning at $21.
Notablecalls: AMD's chart looks like it may go lower. Citi's call however is already yesterday's news.
- UBS lower their AMD target price to $33 from $39 based on a lower target PE multiple of 18x that reflects firm's concerns regarding AMD's 1) Cash flow challenges as a result of its aggressive capacity expansion plans, 2) Competitive challenges from INTC based on its road map through 2008, and 3) Uncertainty over AMD's strategic direction. Maintains Neutral.
Notablecalls: Scroll up. Replace "Citi" with "UBS".
- Piper Jaffray saying they expect NTES to beat firm's current estimate of 6% sequential growth in gaming revenues, potentially producing 8%-10% sequential growth, or an upside of $1-$3m in revenues, and $0.01-$0.02 in EPS. Given the strength they have seen in Fantasy Westward Journey, the company's top game, they also expect strong Q3 guidance.
NetEase is growing earning at a rate of at least 25%, yet the stock is trading at 13x '07 EPS, considerably lower than its growth rate or the Chinese group, which trades at 22x (ex. Baidu). Piper believes their growth assumptions for 2007 are conservative, especially if the two new games, Da Tang and the soon-to-be-released 3-D game Tian Xia, are successful. As such, earning growth could be substantially higher than firm's current estimate as the company has margin leverage potential. Reiterates Outperform rating and $30 price target for NTES.
Notablecalls: Not actionable but good to know category. NTES almost always beats the ests. So no surprise there. But the shares do look cheap.
Calls of Note Part 1
- CIBC reits Sector Outperformer rating and $9 tgt on TUNE, following Analog's Device's (ADI) proposed acquisition of privately-held Integrant, a Korean supplier of mobile video tuners. This only solidifies firm's belief that silicon tuning, TUNE's forte, has quickly become the most coveted video technology. ADI paid $127 mln or around 6x revs (quite a premium) for a 2nd-tier player (behind TUNE).
Notablecalls: Would not be surprised to see some interest in TUNE following the news.
- JP Morgan comments on EMC following analyst meeting in New York yesterday. AlthoughEMC reiterated its quarterly and full-year targets, management noted that customers appear to be underspending their budgets at this point in the year and highlighted that this is a particularly backend loaded quarter. Firm remains concerned that the potential for increasingly difficult competitive dynamics, software integration issues, and limited margin leverage may pressure the shares in coming months. Maintains Neutral.
Notablecalls: Not actionable but good to know category.
- Citigroup thinks ADBE could reset FY06 guidance lower when it reports FQ2 results on 6/15. It appears many investors expect this move as stock is down 25% since the 5/2 mid-qtr update, and such a reset could provide relief ahead of product cycles. Firm's proprietary survey of 50 resellers suggest a sluggish demand environment during this time of multiple transitions (mgmt, products, acquisition, hardware). Reits Buy but lowers tgt to $37 from $44.
Notablecalls: ADBE has gotten hit hard lately suggesting the problems are widely known. Also, Citi has been one of the last bulls standing. We may see some early selling but shorts have already made their money on that one.
- Citigroup comments on AMAT saying their field work suggests the co making progress in ~$600MM brightfield inspection mkt (~20% of KLAC's revs) with its UVision tool. PDC remains small for AMAT (~6% revs).
Notablecalls: Not actionable but good to know category.
- Citigroup notes NDAQ's shares are down 35% since mid-April, while the U.S. exchange stocks are down 20%. While NDAQ's shares have underperformed the sector, the firm remains on the sidelines for now given their cautious outlook for the core cash equities business and lack of positive catalysts.
They think the warrant expiration/related sales are clearly weighing on the stock today, along with other broader issues. This pressure could moderate towards the end of June, in our opinion. Holders of the warrants need to exercise by June 27th, yet can hold the shares and sell anytime after that date if they choose to. Firm suspects those that want to sell may do so in conjunction with the warrant expiration throughJune 27th. Total warrants are about 14 mm, of which about a third have reportedly been sold already. Maintains Hold rating but reduces tgt to $32 from $43.
Notablecalls: Would not be surprised to see more selling pressure on NDAQ. Chart looks weak. Shorting oppy.
Notablecalls on Novellus (NVLS): While several firms are upping their estimates on NVLS following positive results and guidance announced last night the shares are generally considered fairly priced. Most tend to look at "normalized earnings" and not the close to peak numbers Novellus posted last night. While the stock looks inexpensive on 2006 P/E, it is still expensive at 30x estimate of normalized EPS.
Shares were up 5% in after hours trading and are likely to see some buying this morning. Note that the 50 day moving average lays @ 24 dollar level. Would not be surprised to see shorts step in around these levels.
Notablecalls: Would not be surprised to see some interest in TUNE following the news.
- JP Morgan comments on EMC following analyst meeting in New York yesterday. AlthoughEMC reiterated its quarterly and full-year targets, management noted that customers appear to be underspending their budgets at this point in the year and highlighted that this is a particularly backend loaded quarter. Firm remains concerned that the potential for increasingly difficult competitive dynamics, software integration issues, and limited margin leverage may pressure the shares in coming months. Maintains Neutral.
Notablecalls: Not actionable but good to know category.
- Citigroup thinks ADBE could reset FY06 guidance lower when it reports FQ2 results on 6/15. It appears many investors expect this move as stock is down 25% since the 5/2 mid-qtr update, and such a reset could provide relief ahead of product cycles. Firm's proprietary survey of 50 resellers suggest a sluggish demand environment during this time of multiple transitions (mgmt, products, acquisition, hardware). Reits Buy but lowers tgt to $37 from $44.
Notablecalls: ADBE has gotten hit hard lately suggesting the problems are widely known. Also, Citi has been one of the last bulls standing. We may see some early selling but shorts have already made their money on that one.
- Citigroup comments on AMAT saying their field work suggests the co making progress in ~$600MM brightfield inspection mkt (~20% of KLAC's revs) with its UVision tool. PDC remains small for AMAT (~6% revs).
Notablecalls: Not actionable but good to know category.
- Citigroup notes NDAQ's shares are down 35% since mid-April, while the U.S. exchange stocks are down 20%. While NDAQ's shares have underperformed the sector, the firm remains on the sidelines for now given their cautious outlook for the core cash equities business and lack of positive catalysts.
They think the warrant expiration/related sales are clearly weighing on the stock today, along with other broader issues. This pressure could moderate towards the end of June, in our opinion. Holders of the warrants need to exercise by June 27th, yet can hold the shares and sell anytime after that date if they choose to. Firm suspects those that want to sell may do so in conjunction with the warrant expiration throughJune 27th. Total warrants are about 14 mm, of which about a third have reportedly been sold already. Maintains Hold rating but reduces tgt to $32 from $43.
Notablecalls: Would not be surprised to see more selling pressure on NDAQ. Chart looks weak. Shorting oppy.
Notablecalls on Novellus (NVLS): While several firms are upping their estimates on NVLS following positive results and guidance announced last night the shares are generally considered fairly priced. Most tend to look at "normalized earnings" and not the close to peak numbers Novellus posted last night. While the stock looks inexpensive on 2006 P/E, it is still expensive at 30x estimate of normalized EPS.
Shares were up 5% in after hours trading and are likely to see some buying this morning. Note that the 50 day moving average lays @ 24 dollar level. Would not be surprised to see shorts step in around these levels.
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